US embassy cable - 05QUITO1340

C O N F I D E N T I A L SECTION 01 OF 04 QUITO 001340 
 
SIPDIS 
 
E.O. 12958: DECL: 06/08/2015 
TAGS: PREL, PGOV, EC 
SUBJECT: GUTIERREZ RETURN JUST ONE OF PALACIO'S PROBLEMS 
 
 
Classified By: Ambassador Kristie A. Kenney, Reasons 1.4 (b), (d) 
 
1.  (C) SUMMARY:  Forty-five days young, the Alfredo Palacio 
government has hit its first snags.  Two cabinet ministers 
resigned this week (Septel) amidst charges they owed money to 
the state.  One other is backpedaling over accusations he 
conspired to depose former President Lucio Gutierrez. 
Military officers, convenient whipping-boys of late, are 
growing frustrated over "inept" civilian government.  Despite 
the oil boom, GoE finances are questionable, and Palacio's 
anti-establishment finance minister has spooked international 
financial institutions (IFIs) capable of bridging gaps. 
Quito's "forajidos" -- middle-class protesters who helped 
force Gutierrez to flee -- have grown disillusioned over the 
slow pace of political reform.  And Amazon provinces are 
threatening general strikes over alleged GoE inattention. 
 
2.  (C) Mix in rumors of Gutierrez's reappearance and voila, 
political instability returns to Ecuador.  Capitalizing on 
Palacio's current troubles, the ex-president has announced 
he's coming home, aiming to resume his battle against the 
nation's political and economic oligarchy.  Gutierrez might 
face lynching in Quito, but his allies are many in Tena, his 
Amazon birthplace.  A final destabilizer is Palacio's seeming 
lack of fortitude, confirmed by his wife.  Our best 
prediction?  The president looks secure through summer, but 
the looming budget shortfall might make for an awful autumn. 
END SUMMARY. 
 
----------------------------- 
Problems of his own making... 
----------------------------- 
 
3.  (SBU) "Debtor-gate" broke three weeks ago when Quito 
daily El Comercio reported that Minister of Energy Fausto 
Cordovez had been delinquent in repaying over $100,000 in 
state debt (the octogenarian minister opportunistically paid 
his bill shortly after the reporter solicited comment).  The 
scandal has had legs, however, with updated debtor lists 
appearing daily and editorialists questioning the 
administration's lack of due diligence over nominations. 
Presidential Communications Director Carlos Cortez fell 
first, submitting his resignation June 7; Cordovez followed a 
day later, and media June 9 reported the departure of Roberto 
Pinzon, president of parastatal oil company PetroEcuador. 
Ultranationalist gringo-basher Mauricio Gandara too appears 
on the list, as does FM Antonio Parra. 
 
4.  (SBU) Smelling blood, opposition figures, among them 
ex-presidential brother Gilmar Gutierrez, have demanded 
Palacio purge all deadbeats from the government.  More 
troublesome to the government, NGOs and citizen watchdog 
groups have seconded the demand.  The administration 
responded by forming a commission, led by Administration 
General Secretary Luis Herreria and Legal Subsecretary 
Roberto Gonzalez, to investigate.  The "accused" have 
screamed that a witchhunt is afoot. 
 
5.  (C) Gandara, long a thorn in our foot, has begun to bring 
problems to his boss as well.  In June 6 public comments, the 
diminutive but boisterous minister revealed that Palacio, 
even before he assumed the presidency April 20, had requested 
Gandara's collaboration in the eventual administration. 
Media noted he had filed his "statement of assets," a 
requirement for those assuming high government office, before 
Gutierrez abandoned Carondelet Palace.  Opposition cried foul 
in response, calling the current government minister a 
conspirator and citing as further proof Gandara's admission 
he'd earlier lobbied Gutierrez's high command to withdraw 
their support to the then-president.  Believing the best 
defense a good offense, Gandara is screaming "conspiracy" 
himself, claiming Gutierrez allies are attempting to depose 
Palacio by disparaging his economic team's policies and 
practices, torpedoing international investors' confidence in 
Ecuador.  Police commander General Jose Vinueza confided to 
the Ambassador that Palacio is livid over Gandara's 
revelations. 
 
---------------------------- 
Added to external factors... 
---------------------------- 
 
6.  (SBU) "Strained" describes relations between the new 
president and the military, dating back to Palacio's 
assumption of power April 20.  After taking the oath of 
office in Quito think-tank CIESPAL, a crowd of violent 
protesters laid siege to the facility.  For four hours 
Palacio hunkered down while public forces, capable of 
rescuing him, allegedly loitered about.  Early scuttlebutt 
(later disproved) claimed it was police, not army, who 
eventually freed the president.  Palacio purged the armed 
forces high command days later, and a common headline since 
has been "Where Was the Military."  Media also alleged an 
April 22 plot by commanders of nearby units to depose the 
president; Defense Minister Solon Espinoza investigated and 
later cleared the officers, however. 
 
7.  (C) Nonetheless, morale within the armed forces remains 
questionable.  Congress and media, demanding the military not 
involve itself in civilian affairs, are debating changes to 
Ecuador's constitution and organic armed forces law. 
Concurrently, talking heads like retired Colonel Luis Herrera 
argue the army only takes such stances upon orders from 
civilian bosses.  In private conversations with DAO and 
Milgroup personnel, Ecuadorian officers lament the current 
state of affairs, asserting the country would benefit from 
benevolent military rule.  Summer sees promotion boards 
assembling; up for stars are numerous colonels hailing from 
Gutierrez's year group and seen as sympathetic to the former 
president.  Were the promotion rate to fall significantly 
below norms, the potential for protest is real. 
 
 
8.  (C) Three years of record oil prices have swelled 
government coffers, despite declining PetroEcuador 
production.  Regrettably, steadily rising salary outlays have 
meant the budget numbers aren't black.  Media report daily 
the GoE's needs for hundreds of millions in bridge financing 
to cover expected fiscal gaps.  Yet Palacio's economic team 
is offering the IFIs vinegar, not honey.  Economy Minister 
Rafael Correa's populist schlock -- "pay the social debt, not 
the foreign debt" -- has won him numerous admirers; as 
perhaps this administration's most popular minister, he 
enjoys the president's ear.  Such vitriol makes him unpopular 
in World Bank, IDB, and IMF circles, however.  Former 
Gutierrez Finance Minister Mauricio Yepez informed the 
Ambassador that, without external assistance, Ecuador would 
run out of cash in October. 
 
---------------------------- 
The "street's" discontent... 
---------------------------- 
 
9.  (C) Palacio came to power boasting he was Ecuador's last, 
best hope.  Quito's forajidos demanded and deserved better 
governance; he would make their dreams reality.  Topping the 
protesters' wishlist was a more direct democracy less 
beholden to party strongmen, featuring a cleansed Congress 
and depoliticized courts.  Tactics envisioned included 
referenda, popular assemblies, and a constitutional rework. 
Forty-five days later, however, little has changed.  Congress 
removed 15 deputies, but most viewed the move as political 
retribution, not good-faith reform.  Palacio tapped Vice 
President Alejandro Serrano to facilitate a national 
political dialogue, but the VP told the Ambassador June 3 the 
details remained fuzzy.  The widely hailed "Consulta Popular" 
(referendum) on political and constitutional reform will not 
occur until December, since the administration needs time to 
synthesize dialogue results and formulate consulta questions. 
 And Ecuador has yet to re-establish the Supreme Court, the 
result of expected political bickering. 
 
10.  (C) Quito remain calm for now.  Yet renewed protests 
appear possible, especially if continued corruption scandals 
amongst ministers, Congressional do-nothingness, and a 
re-politicized court lead forajidos to believe Palacio is a 
business-as-usual chief executive. 
 
11.  (U) One hundred miles east, streets aren't so calm. 
Protesting against the newly named governor of Napo province, 
Gutierrez sympathizers June 6 burned vehicles and trashed 
government offices in capital Tena.  In fellow Amazon 
provinces Orellana and Sucumbios, the heart of Ecuador's oil 
industry, leaders have called for a June 21 general strike to 
protest Palacio's inattention to their needs (the president 
earlier had declared a state of emergency in these provinces 
in response to citizens' threats to take over key petroleum 
infrastructure; Congress voted June 8 to revoke the special 
measure).  Pro-government parties in Congress publicly 
announced their worries that Gutierrez allies would seek 
political benefit from the public's discontent. 
 
-------------------------------- 
An ex-leader's rumored return... 
-------------------------------- 
12.  (SBU) Ecuador's exiled ex-presidents have assumed one of 
two postures.  Jamil Mahuad (2000) and Gustavo Noboa (2003) 
adopted low profiles in Boston and the Dominican Republic, 
refraining from political activity, while Abdala Bucaram 
(1997) continued to run his PRE party from Panama.  Lucio 
Gutierrez has fallen into the latter camp.  Media and 
opposition greeted with consternation the ex-president's June 
5 decision to abandon asylee status in Brazil.  News of his 
travel to the United States spiked interest further, 
especially after press erroneously reported he would address 
the OAS and offer "his side of the story" to USG officials. 
The story peaked (or perhaps not) with the June 8 
distribution of a video in which Gutierrez outlined reasons 
the oligarchy had deposed him. 
13.  (U) "I was collecting debts from those who had 
bankrupted the country.  I was breaking the elite's hold over 
the Ecuadorian judiciary.  And I was becoming a threat to the 
oligarchy, for my efforts to help Ecuador's poor."  Further, 
he claimed the forajidos who attempted to prevent his 
departure had aimed to kill him.  Gutierrez confidant and 
former Administration Secretary Fausto Cobo announced that 
the ex-president's priority was returning to Ecuador soonest, 
although he offered no dates. 
 
14.  (SBU) Pro-government/anti-Gutierrez forces aren't lying 
down, and the ex-president likely will face a lynch mob 
should he choose to return to Quito soon.  In Congress, for 
example, the Investigative Commission is gathering 
information on alleged Gutierrez campaign violations in hopes 
of jump-starting an eventual prosecution.  Pachakutik 
deputies seek charges against the former president for 
complicity in the death of a Chilean forajido.  And Popular 
Democracy Congressman Ramiro Rivera is introducing a bill 
aimed at preventing Gutierrez from seeking re-election. 
 
----------------------------------------- 
And the President's aversion to battle... 
----------------------------------------- 
 
15.  (C) Save a short stint as health minister during the 
Sixto Duran-Ballen administration (1993-97), heart surgeon 
and now President Palacio had no political experience before 
signing on with Gutierrez in 2002.  While he obviously 
relishes the presidency's limelight and accouterments, we're 
not so certain he enjoys the accompanying back room 
dealmaking and political bloodshed.  First Lady Maria Beatriz 
de Palacio confirmed our suspicions over breakfast with the 
Ambassador June 7.  "What was Alfredo doing, taking this job? 
 These people are crazy!" The First Lady was referring to the 
scores of job seekers walking Carondelet halls of late, but 
it might as well have been a description of the Ecuadorian 
political scene.  There would be no re-election campaign, if 
she had her way -- eighteen months in Quito were plenty.  The 
First Lady revealed that Dr. Palacio recently had passed two 
of three parts of the Florida medical licensing process, 
raising his employment 
possibilities considerably. 
 
--------------------------------------------- 
Leaves this president weak and growing weaker 
--------------------------------------------- 
 
16.  (C) COMMENT:  "Muddling through" long has described 
presidential administrations in Ecuador.  Palacio likely will 
follow his predecessors' paths, dealing here, bribing there, 
all in hopes of short-term survival.  Of the destabilizers 
mentioned above, nearly all look surmountable.  A Cabinet 
shuffle should stem protests on the debtors and conspirators 
issues, for example.  A salary bump should squelch military 
discontent.  Amazonians would build statues to Palacio in 
exchange for highways and bridges.  A well-organized national 
dialogue and invitations to prominent youth leaders to join 
the government ought calm the forajidos.  And even a 
Gutierrez return looks benign, since only native Tena would 
seem to welcome him. 
 
17.  (C)  We wrote "nearly" all, however.  The looming 
financial crisis appears the silver bullet that could bring 
Palacio down, as earlier ones did Mahuad and Bucaram.  Yet 
the president's damage control team overlooks this, focusing 
instead on crises du jour like Gutierrez.  In upcoming 
meetings with saner administration officials (read, not 
Gandara and Correa), we will push for constructive IFI 
engagement and sustainable administration economic and fiscal 
policies.  Should we have no luck, come November or December 
the forajidos might again take to the streets.  END COMMENT. 
Kenney