US embassy cable - 05QUITO2049

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 002049 
 
SIPDIS 
 
E.O. 12958: DECL: 09/01/2015 
TAGS: PGOV, PREL, EC, President 
SUBJECT: SCANDAL TARNISHES PALACIO GOVERNMENT 
 
Classified By: PolChief Erik Hall, for reason 1.4 (b&d). 
 
1.  (C)  Summary:  President Palacio has moved quickly to 
stem the damage caused by a widening forgery and 
position-selling scandal by firing implicated advisors inside 
the office of the presidency.  Coming on the heels of 
damaging strikes, the scandal has weakened the Palacio 
government's image and emboldened Congress.  That could have 
negative consequences for Palacio's embattled Government 
Minister, and Palacio's political reform proposals, which 
must pass through Congress.  Palacio is clearly not willing 
to concede to his detractors--VP Serrano told the Ambassador 
on August 31 that the reforms are on track to pass through 
the Congress shortly, and be put to a referendum by the end 
of November.  End Summary. 
 
Plenty of Smoke 
--------------- 
 
2.  (U) The influence-peddling allegations center on the 
activities of presidential advisors and their support staff, 
who allegedly forged the president's signature on documents 
involving government positions, which were sold to 
individuals for personal gain.  The story broke over a week 
ago, when a disgruntled Esmeraldan, Jose Velasquez, told the 
press that jobs were being sold by presidential advisors. 
Velasquez was upset because the job he sought to purchase for 
Miguel Robalino, as director of a state health enterprise, 
Modersa, had not been delivered.  Gustavo Pacheco, the 
husband of PRE congressional deputy Silvana Ibarra, is also 
under investigation. 
 
3.  (U) On August 26, eight lower-tier presidential advisors 
(Homero Cervantes, Julio Cisneros, Damian Velasco, Juan 
Antonio Lopez, Yuri Baque, Andres Falquez, Raul Ledesma and 
Enrique Ponce--none Embassy contacts) were rapidly suspended 
pending an official investigation.  Two other presidential 
advisors Gustavo Mino and Eduardo Armijos, subsequently 
resigned.  Miguel Robalino, a Gutierrez appointee to 
Petroecuador, was taken into custody by authorities on 
September 1 after giving testimony in the case.  The 
president's military aide de camp, Fausto Bravo, also 
implicated in the scheme, immediately fled across the border 
to Peru.  He later returned to face discipline for abandoning 
his duties (nine days in the stockade) and investigation of 
his role in the scandal. 
 
4.  (C) Presidential sibling Gustavo Palacio told DCM on 
September 1 that those implicated in the scandal were junior 
staffers, not bona fide presidential advisors.  He was 
emotional when admitting that their corruption was real and 
would damage his brother's reputation.  He acknowledged that 
this was not the first example of corruption in his brother's 
administration (he cited the resignation of the former 
Solidarity Fund chief, Marcelo Arcos). 
 
Congress Sniffs Opportunity 
--------------------------- 
 
5.  (C) With Palacio's touted personal credibility under 
fire, coming on the heels of disastrous strikes in two 
oil-producing provinces, members of the always-discredited 
Congress sense an opportunity to make gains at the 
president's expense.  Their first target is unpopular 
government minister Mauricio Gandara, blamed for mishandling 
the strikes in Manabi, Sucumbios and Orellana.  Fringe-left 
MPD deputies have launched an impeachment attempt, which has 
been joined by the Democratic Left (ID) party.  The Social 
Christian party recently announced its support, but on 
different grounds to be determined.  (Note:  impeachment is 
today a symbolic, non-binding process--only the president has 
authority to dismiss his Cabinet.)  Presidential sibling 
Palacio admitted that Gandara was likely to be asked to leave. 
 
Battle Brewing over Political Reforms 
-------------------------------------- 
 
6.  (C)  Vice President Alejandro Serrano told the Ambassador 
and DCM in a courtesy call on August 31 that the number one 
reform suggestion among the 48,000 received though his 
citizen outreach program is to reduce the size of Congress, 
reflecting the low repute in which that institution is held 
by the public.  At the president's urging, the referendum 
process would be speeded up;  he planned to send an initial 
version of referendum questions to the president the first 
week of September. 
 
7.  (C) The referendum would go to Congress for an up or down 
vote, Serrano first claimed.  He subsequently acknowledged 
that Congress could also individually reject objectionable 
questions within the proposed referendum.  ID congressional 
bench leader Jorge Sanchez told PolChief on August 30 that 
with Palacio wounded by scandal and inept handling of the 
strikes, Congress would act independently to pass consensus 
reforms, and not be a passive participant in the president's 
reform proposals. 
 
Supreme Court Selection Process Vulnerable 
------------------------------------------ 
 
8.  (C) In addition to a question about the size of Congress, 
Serrano believed it essential to include one ratifying the 
extra-constitutional process to conform a new Supreme Court. 
That process was moving forward, albeit haltingly, but 
required additional protection from possible challenge by a 
future government or Congress.  (Comment:  We have heard the 
same argument from UN Rapporteur Leandro Despuy, whose 
recommendations have been heeded by the GOE and the selection 
committee thus far.) 
 
9.  (C) OAS international judicial experts visiting Ecuador 
told the DCM on August 26 that their week in Ecuador had 
"seemed like a year."  Costa Rican human rights expert Sonia 
Picado and Chilean Senator Jose Antonio Viera Gallo said 
their assistance had helped overcome opposition by the 
National Judicial Council, which had blocked funding for the 
committee out of self-interest (once a new court is selected, 
the Council will be replaced).  After intervention by the 
Solicitor General and Finance Minister, $500,000 was provided 
for the committee, which hopes to select the new court by the 
end of October. 
 
Comment 
------- 
 
10.  (C) With details of the scandal still emerging it is too 
early to tell whether the net will eventually snare the 
president himself.  Key advisors have been released and 
others, including presidential secretary Luis Herreria, 
damaged by association.  How badly the scandal hits the 
presidency is largely in the hands of the attorney general, a 
sometime ally of PSC leader Leon Febres Cordero.  At this 
point, we have no indication that LFC intends to bring down 
the Palacio government.  Gandara, a longtime rival of Febres 
Cordero, is the more likely casualty.   Political reforms are 
also likely to be conditioned on compromise with PSC and the 
ID, Palacio's current lifelines. 
JEWELL