US embassy cable - 05QUITO1445

C O N F I D E N T I A L SECTION 01 OF 03 QUITO 001445 
 
SIPDIS 
 
E.O. 12958: DECL: 06/20/2015 
TAGS: PGOV, PREL, EC 
SUBJECT: RESPONDING TO ECUADOR'S GOVERNANCE CRISIS 
 
 
Classified By: Ambassador Kristie A. Kenney, Reasons 1.4 (b) 
 
1.  (C) Summary:  Following the April 20 change in 
government, the US Mission underwent a two-month process to 
gather data and analyze the deeper causes of instability 
affecting Ecuador's governance.  Mission sections and 
agencies, led by the Ambassador, met on June 14 to discuss 
our short and long-term response to Ecuador's democracy 
crisis.  Several fundamental issues, such as a corporatist 
rent-seeking system and poor education, were identified as 
areas preventing Ecuador from reaching its full potential. 
Ecuadorian elites see the economy as a zero-sum game, which 
leads to a constant scramble for pieces of the same pie. 
Post recognizes that many Ecuadorians are disillusioned with 
democracy after 25 years marked by rampant corruption. 
Looking at the short-term, Post identified some promising 
opportunities, such as the signing of a free trade agreement 
and possible customs and justice reforms.  Security issues 
will remain a high priority and we will seek to consolidate 
our public diplomacy efforts.  We will also try to step up 
efforts to promote educational and judicial reform. 
 
2.  (C) Post will continue to work to create the best-case 
scenario for Ecuador, while also preparing for the worst-case 
scenario.  A best-case scenario would have Ecuador becoming a 
country to invest in and with a highly educated population. 
A worst-case scenario could include Ecuador defaulting on its 
loans, the Ecuadorian Navy forbidding the boarding of ships 
(allowing drug and human smugglers to act with impunity), and 
the removal of security forces from the northern border, 
jeopardizing Ecuador's security situation and having a dire 
impact on Plan Colombia.  End Summary. 
 
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Fundamental Issues Prevent Equity 
--------------------------------- 
 
3.  (U) Mission staff identified some of the root causes of 
Ecuador's economic and democratic ills.  One is Ecuador's 
corporatist structure which allows the country's elites to 
capture the majority of the country's wealth.  Various groups 
compete to grab wealth from the government which controls all 
the country's resources in a rent-seeking system.  Poor 
education among the general population, and common attitudes, 
such as leftist tendencies which tend to place all the blame 
on the US, allow the country's elites to get away with 
capturing all the country's wealth, stifling efforts to 
create a stable middle class.  Judicial corruption is also 
used to control the country's resources. 
 
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Democracy Has Not Delivered 
--------------------------- 
 
4.  (SBU) After 25 years of democracy, the general population 
is disillusioned.  Democracy is associated with rampant 
corruption.  When looking to find those responsible for 
democracy's failure, many see the US, the IMF, and 
globalization as the enemies, instead of identifying elements 
in Ecuadorian society that prevent true democracy and 
economic justice from flourishing.  Ecuador and its leaders 
are in desperate need of a long-term vision.  A coherent, 
long-range government policy for growth is needed; instead 
each new administration creates its own policies, which 
typically are ill-considered and ineffective.  Poor education 
means there is no critical mass to lead and effect real 
change.  With the majority of its population in poverty, most 
are focused on day-to-day survival, rather than an improved 
future. 
 
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FTA Offers Immediate Opportunity 
-------------------------------- 
 
5.  (SBU) The most promising immediate opportunity for 
Ecuador is the US-Andean free trade agreement (FTA) which 
could help Ecuador create a more transparent, competitive 
economic system.  Opening the Ecuadorian economy, creating 
real competition, is the only sure way to break up the 
elites' stranglehold on power.  However, we recognize this 
government still does not seem fully committed to an FTA.  In 
fact, much of Ecuador's political class is confused and 
deeply skeptical of it.  Although it will be difficult to 
pass an FTA during this administration, the lasting effects 
of an FTA are perhaps Ecuador's best hope to improve the 
lives of all Ecuadorians.  The FTA process also offers 
opportunities for regulatory, customs, and judicial reforms. 
 
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Security Issues Remain High Priority 
------------------------------------ 
 
6.  (C) MILGP and DAO highlighted security concerns related 
to the change in administrations.  Recent politically 
motivated purges of the officer corps could affect the 
stability of military institutions.  This is coupled with a 
high summer turnover which will result in a more 
inexperienced military, which, in a crisis, could be less 
adaptable and less dependable.  Another serious risk is that, 
in the current political climate and with recent negative 
media reports, the Ecuadorian Navy could decide to deny US 
maritime officials permission to board suspect ships.  This 
would allow drug and human smugglers to act with impunity and 
have an immediate negative impact on overall USG 
counter-narcotics efforts in the region. 
 
7.  (SBU) MILGP and DAO will work to improve the self-esteem 
of security forces, battered by the events of April 20.  We 
will also do as much as possible to facilitate 
military/police cooperation.  MILGP and DAO will coordinate 
with PAS to formulate new talking points on regional 
security, making the issue clearly about Ecuador and 
maintaining peace here, instead of focusing on Colombia. 
 
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Other Political and Economic Issues 
----------------------------------- 
 
8.  (U) In the short term, social groups such as NGOs and 
citizen assemblies are proposing political reforms; however, 
there is a lack of consensus among them on what reform 
priorities should be.  We need to help Ecuador analyze these 
proposals in order to make the most informed decisions.  The 
results of these reforms (suggested reforms include 
bicameralism, representation by district in Congress, and 
other Constitutional reforms), however, may not get to the 
heart of Ecuador's fundamental problems.  Another immediate 
concern is a possible loan default scenario.  We will work to 
prevent this scenario as it could lead to a banking crisis 
similar to that of 1999.  A repeat of this crisis, or 
anything approaching it, would have a drastic effect on the 
economy and political stability. 
 
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Consolidating Outreach 
---------------------- 
 
9.  (U) Post will continue to craft a public diplomacy 
strategy for each major Embassy activity, and will better 
tailor our message to the current environment.  We will 
continue to broaden our public diplomacy outreach, possibly 
using Peace Corps volunteers, MILGP's medical readiness 
training exercise (MEDRETE) staff, and the Foreign 
Agricultural Service's project staff to reach more 
Ecuadorians with a non-political message.  We will consider 
distributing literature and exhibiting videos of USG aid 
projects in the consular waiting rooms, taking advantage of 
these captive audiences. 
 
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Education Reform Needed 
----------------------- 
 
10.  (U) Mission members agreed that a well-educated populace 
was needed to achieve true functional democracy and for 
Ecuador to make informed economic decisions.  AID will 
prepare an education project proposal, and we will begin 
promoting real reform in this area.  AID has already flagged 
education as a priority for FY2007 to Washington. 
 
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Justice Needs Attention 
----------------------- 
 
11.  (U) We will also seek ways in which we can support 
meaningful reforms in the justice sector.  The Embassy will 
form a justice working group whose efforts will seek medium 
and long-term structural improvements.  Various vested 
interests among political parties and other groups may work 
to prevent major reforms.  This, combined with instability 
and GOE weakness, makes reforms difficult.  However, reform 
in the justice sector could significantly address some of the 
fundamental problems in the Ecuadorian system (e.g., 
corruption). 
 
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Other Next Steps: 
----------------- 
 
12.  (SBU) 
--We will consider limiting programmatic foci in order to 
have a more concentrated impact in fewer areas. 
--We will organize quarterly democracy meetings, looking at 
what we are doing to solve long term democracy and governance 
problems. 
-- We will seek to increase networking and sharing of 
information among sections, having brown bag lunches on 
topics such as the FTA. 
--MILGP will focus PD efforts on spreading info on its 
medical readiness exercises and humanitarian assistance 
programs.  We will also get the Ecuadorian military involved 
in these events to share in the good publicity. 
--We will look to bring international speakers on 
globalization and competition. 
--We will continue to support the strengthening of NGO 
political watchdog groups. 
--We will prepare to support the next national elections 
(whenever they might occur), including educating media and 
preparing for OAS observers. 
--We will continue Congressional outreach to promote dialogue. 
--We will look at the possibility of a mini "millennium 
challenge account" in Ecuador with two cities competing for 
US funds and setting a positive example for other cities. 
 
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Wrapping Up 
----------- 
 
13.  (C) Our Mission will work to find a greater balance 
between dealing with immediate political concerns while also 
attempting to right some of the fundamental problems 
preventing Ecuador from developing fully economically and 
democratically.  We must continue to work with the current 
administration in order to help move them towards a best-case 
scenario, and prevent any bad decisions that may lead to a 
worst-case scenario.  We will continue monitoring disruptive 
political trends such as the emergence of an Ecuadorian 
Bolivarian movement.  While there is a consensus within the 
Mission on what needs to be done for a healthy economy, there 
is no clear fix for Ecuador's democracy problems.  Any 
solution to the democratic crisis must be customized to 
Ecuador's situation.  We are taking a fresh approach to 
address fundamental problems in Ecuador.  Our work has just 
begun, but will need Washington's support to see it through 
completion. 
Kenney