US embassy cable - 05QUITO1663

C O N F I D E N T I A L QUITO 001663 
 
SIPDIS 
 
E.O. 12958: DECL: 07/14/2015 
TAGS: PGOV, PREL, EFIN, EC, Regional, Economy 
SUBJECT: GOE CONSIDERING CHAVEZ LOAN 
 
Classified By: Charge d'Affaires A.I. Kevin Herbert for reason 1.4 (b&d 
) 
 
1. (C) Summary:  The Palacio government may be considering a 
$500 million loan from Venezuela, after visits to Caracas by 
FM Parra and MinFin Correa.  The GOE is apparently 
considering turning to Chavez to fill a looming budgetary gap 
caused by investor lack of confidence in Correa, the 
possibility that IFIs will not disburse as planned, and 
likely Congressional devastation of the social security fund 
(septel).  Initial reaction to the dramatic shift has been 
muted here, but expected to build.  With the GOE still 
divided on the issue, we recommend USG public reserve until 
the facts are clearer.  End Summary. 
 
2.  (C) FM Parra dined on July 9 in Caracas with President 
Chavez, MinFin Correa visited with his counterpart there on 
July 12, and on July 13 financial press reported that 
Venezuela will buy $500 million in Ecuadorian bonds (although 
Correa is denying it).  FM Parra's visit to Caracas was 
unannounced here, only confirmed by the MFA several days 
later after press inquiries. 
 
3.  (U) According to an MFA statement, the dinner was at 
Chavez' invitation, and also included Venezuelan FM 
Rodriguez.  At the dinner, Chavez "expressed his hope to 
increase integration and cooperation between the two 
countries on issues of common interest, including education, 
health, science and technology, and in energy and petroleum." 
 Chavez reportedly also invited Ecuador to participate in the 
creation of an Americas Fund for Cooperation and Development, 
to which the GOV had pledged $100 million.  Before leaving, 
Parra invited his counterpart to attend an upcoming meeting 
of South American foreign ministers in Guayaquil.  Press here 
are speculating that President Palacio may meet with Chavez 
on the margins of the Andean presidential summit in Lima on 
July 18. 
 
4.  (U) Parra's visit was followed by a July 12 visit to 
Caracas by MinFin Rafael Correa, who reportedly met with GOV 
Energy Minister Ramirez, and likely with Minister of Finance 
Merentes.  According to some reports, Venezuela promised to 
purchase $500 million in GOE bonds.  Correa, however, after 
answering initial inquiries about the deal with the cryptic 
"money is money, politics is something else," at midday on 
July 14 denied that any agreement regarding bond purchases 
was reached, suggesting, rather, that the discussion centered 
on cooperation in the oil sector, including the possibility 
that Venezuela would invest in the development of refinery 
capacity in Ecuador. 
 
GOE Sending Mixed Signals 
------------------------- 
 
5.  (C) MFA U/S for Bilateral Affairs Susana Alvear, 
discussing GOE-GOV relations with ADCM on July 12, did not 
raise the meeting.  In response to USG concerns about 
democratic weakening in Venezuela and about destabilizing 
Venezuelan influence in the region, Alvear stated that the 
GOE is not concerned about the level of "Bolivarian" 
influence in Ecuador, and wishes to maintain the best 
possible relations with all nations, especially its neighbors 
in the region. 
6.  (C) Presidential secretary Luis Herreria told ADCM on 
July 14 that the Parra visit and the loan offer were hatched 
by Parra and Correa without President Palacio's approval.  No 
decision has been taken on whether to accept Venezuelan 
assistance.  He added that Chavez had asked Palacio to fire 
Herreria for his recent public statement calling Chavez' 
designs in Ecuador "diabolical."  Herreria, Palacio's closest 
confidant, said he was not going anywhere. 
 
Comment 
------- 
 
7.  (C) Divisions clearly exist within the Cabinet on whether 
to accept Chavez' offer.  We will continue to press for 
greater clarity from the GOE on this issue and the strings 
attached to any economic deals with the GOV.  With MinFin 
Correa doubtful about IFI support, investors refusing to roll 
over short-term local debt, and Congress taking irresponsible 
actions on the social security system, Chavez' offer may be 
tempting to the GOE.  We need to emphasize the political 
costs to help balance the equation, but caution against a 
public USG reaction until the facts are clearer. 
HERBERT