US embassy cable - 05QUITO2814

C O N F I D E N T I A L SECTION 01 OF 02 QUITO 002814 
 
SIPDIS 
 
E.O. 12958: DECL: TEN YEARS 
TAGS: PGOV, PINR, PREL, ECON, EC 
SUBJECT: FIRST LADY: CABINET SHAKEUP COMING SOON 
 
 
Classified By: PolChief Erik Hall for reason 1.4 (b&d) 
 
1.  (C) Summary:  First Lady Maria Paret de Palacio called on 
the Ambassador on December 9 to share President Palacio's 
intended Cabinet changes in advance of a public announcement 
which she implied was imminent.  The First Lady said Palacio 
wished to assure the USG that Alfredo Castillo, his choice 
for Government Minister, would not have negative implications 
for Ecuador's good relations with the U.S.  End Summary. 
 
2.  (U) Speculation has been rampant over Palacio's 
contemplated cabinet shakeup since December 7, when all 
cabinet members were required to submit letters of 
resignation for the president's consideration.  Presidential 
Secretary General of Administration (chief of staff 
 
SIPDIS 
equivalent) Luis Herreria stepped down on December 2, to be 
replaced by rival presidential advisor Jose Modesto Apolo, 
presaging the internal conflict and jockeying underway. 
Press had speculated that Defense Minister Oswaldo Jarrin was 
likely to go, given the president's abrupt changes to the 
military high command while Jarrin traveled abroad. The First 
Lady met with the Ambassador on December 9, carrying a 
message from the President that she said he preferred be 
relayed in person since he thinks his phones are tapped. 
 
3.  (C) President Palacio intended to make the following 
changes to his Cabinet, she said: 
 
-- Government:  Galo Chiriboga will return to his post as 
Labor Minister, and be replaced in the Government (Interior) 
ministry by presidential advisor Alfredo Castillo. 
 
-- Economy/Finance:  Magdalena Barreiro will be replaced by 
Eduardo Cabezas, the current president of the Central Bank. 
Barreiro is the subject of soon to be public allegations of 
corruption, according to the First Lady.  She will be 
replaced by Eduardo Cabezas, a former diplomat and economic 
official recent appointed president of the Central Bank. 
 
-- Education:  Consuelo Yanes Cossio ("she is so weird," the 
First Lady commented) will be replaced by writer and educator 
Raul Vallejo. 
 
Defense Minister Jarrin and Energy Minister Ivan Rodriguez 
would not be changed, despite press speculation to the 
contrary, she said, nor would "the other ladies" (Tourism and 
Environment ministers) in the cabinet.  (Note:  Jarrin 
confirmed he was staying in a phone conversation with the 
Ambassador that same morning.)  After last-minute pleading by 
his wife to the First Lady, a long-time friend, Social 
Welfare Minister Alberto Rigail will be permitted to serve a 
few more months, but has been put on notice that he must be 
more productive.  No mention was made by the First Lady of 
Foreign Minister Carrion, whose position has not been the 
subject of any speculation. 
 
4.  (C) According to the First Lady, President Palacio had 
asked her to speak with the Ambassador because he was 
concerned that his intended Government Minister, whose 
position is first among equals in the cabinet, might cause 
USG concern about a possible Palacio government shift toward 
the left of the political spectrum.  That is certainly not 
the case, the First Lady assured the Ambassador.  Castillo is 
certainly a leftist, but is less hard-line than in the past, 
she said.  She said that Palacio told Castillo that he must 
stay out of issues that affect the U.S., including the FTA, 
Occidental Petroleum, and existing agreements with the U.S. 
including the Manta basing accord.  Those issues would be 
handled directly by the president. 
 
5.  (C) The Ambassador thanked the First Lady for informing 
her of these prospective changes, and urged that regardless 
of the changes, the Government resist any temptation to 
depart from fiscal responsibility in an election year and 
seize the opportunity offered by an FTA with the U.S. in 
2006.  The First Lady was optimistic about prospects for the 
signing of an FTA with the U.S., saying "we'll get there." 
 
Reform Hopes Dead or Reborn? 
---------------------------- 
 
6.  (C) Dr. Alfredo Castillo Bujase, Palacio's apparent 
choice for his highest-ranking minister, was the founder of 
the now-defunct Marxist National Liberation Party, was an 
advisor to disgraced populist president Abdala Bucaram and 
was the running-mate of populist banana magnate Alvaro Noboa. 
 A well-connected politician from the ID party had recently 
told us that Castillo and another prominent leftist, 
presidential advisor Pedro Saad, had been the key advisors to 
the president on his failed initiative to compel a referendum 
on a national constituent assembly.  That initiative was 
roundly rejected by the Supreme Electoral Tribunal on 
December 5, after Congress intervened to readjust the 
tribunal's composition.  However, after being rebuffed for a 
second time by the Tribunal, the President again publicly 
appealed for citizens to express their support for reform in 
a nationally televised address on December 7. 
7.  (C) According to the First Lady, Castillo's appointment 
would come after Palacio had played his last card on the 
referendum.  "Alfredo (Palacio) did all he could to advance 
the cause of the assembly," she said.  "Now it is up to the 
people to press Congress from the streets."  Asked if she 
thought the people would act, after Palacio took to the 
airwaves to encourage them to do so, Paret confessed she did 
not. 
 
Job Taking its Toll on Sleepless President 
------------------------------------------ 
 
8.  (C) Paret lamented that members of the political 
opposition were actively seeking grounds to impeach the 
president, most recently looking into presidential spending 
during his weekly visits to his hometown, Guayaquil.  She 
complained that Palacio's health was suffering from his work, 
citing his high blood pressure and persistent insomnia in the 
capital (but not on the coast).  He is being treated by his 
daughter, a doctor practicing in the United States.  She said 
that he was now re-directing his energy to his project for a 
new national health plan, spending hours every afternoon 
sequestered with advisors. 
 
Comment 
------- 
 
9.  (C) The appointment by Cabezas to the Finance Ministry 
would not appear to signal any significant change in policy, 
and his establishment background hopefully portends smooth 
relations with the international financial community.  The 
decision to retain Jarrin at Defense is very good news as is 
the decision to keep Rodriguez at Energy.  But Castillo's 
appointment, regardless of Palacio's efforts to shield our 
bilateral relations, is troubling.  The Minister of 
Government is typically the Executive Branch liaison with the 
Congress, and we would worry about his role in an eventual 
effort to pass the FTA through congress.  Despite the First 
Lady's assurances, Castillo will likely become involved in 
issues that affect us.  As one of the advisors who apparently 
helped to create the current political confrontation between 
Palacio and Congress, Castillo is more likely to make those 
relations worse in his new, more prominent role.  His leftist 
leanings, however moderated, will almost certainly alienate 
the powerful Social Christian party.  Castillo's appointment 
could indicate a political accord with PRIAN leader Noboa. 
 
10.  (C) We will carefully watch Castillo's behavior and 
express concern to the President if his assurances regarding 
our interests are violated.  The Ambassador lauded his 
decision to retain Jarrin and Rodriguez.  We had heard no 
rumors of corruption regarding Minister of Economy Barreiro. 
If the allegations are true, she should be removed.  However, 
her dismissal after Ecuador's successful private market 
financing of $650M in bonds this week and her leadership 
returning Ecuador to a more responsible fiscal policy could 
create more uncertainty about Palacio's commitment to sound 
fiscal management. 
JEWELL