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### Viewing cable 09QUITO121, A Somber U.S. Business Forum Briefs the Ambassador

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09QUITO121 | 2009-02-18 20:41 | 2011-04-29 17:30 | CONFIDENTIAL | Embassy Quito
Appears in these articles: http://www.eluniverso.com/2011/04/27/1/1355/cable-192675.html

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    VZCZCXYZ0008
    RR RUEHWEB

    DE RUEHQT #0121/01 0492041
    ZNY CCCCC ZZH
    R 182041Z FEB 09
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC 0039
    INFO RUEHBO/AMEMBASSY BOGOTA 7969
    RUEHCV/AMEMBASSY CARACAS 3392
    RUEHLP/AMEMBASSY LA PAZ FEB LIMA 3035
    RUEHGL/AMCONSUL GUAYAQUIL 4104
    RUCPDOC/DEPT OF COMMERCE WASHDC
    RUEATRS/DEPT OF TREASURY WASHDC

` `

    C O N F I D E N T I A L QUITO 000121

    SIPDIS

    USTR FOR BENNETT HARMAN

    E.O. 12958: DECL:02/17/2019
    TAGS: ETRD EINV EFIN EPET ECON EC
    SUBJECT:  A Somber U.S. Business Forum Briefs the Ambassador

    Ref.  A) Quito 98, B) Quito 60, C) Quit...

    id: 192675
    date: 2/18/2009 20:41
    refid: 09QUITO121
    origin: Embassy Quito
    classification: CONFIDENTIAL
    destination: 08QUITO1178|09QUITO22|09QUITO60|09QUITO98
    header:
    VZCZCXYZ0008
    RR RUEHWEB

    DE RUEHQT #0121/01 0492041
    ZNY CCCCC ZZH
    R 182041Z FEB 09
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC 0039
    INFO RUEHBO/AMEMBASSY BOGOTA 7969
    RUEHCV/AMEMBASSY CARACAS 3392
    RUEHLP/AMEMBASSY LA PAZ FEB LIMA 3035
    RUEHGL/AMCONSUL GUAYAQUIL 4104
    RUCPDOC/DEPT OF COMMERCE WASHDC
    RUEATRS/DEPT OF TREASURY WASHDC

    ----------------- header ends ----------------

    C O N F I D E N T I A L QUITO 000121

    SIPDIS

    USTR FOR BENNETT HARMAN

    E.O. 12958: DECL:02/17/2019
    TAGS: ETRD EINV EFIN EPET ECON EC
    SUBJECT:  A Somber U.S. Business Forum Briefs the Ambassador

    Ref.  A) Quito 98, B) Quito 60, C) Quito 22, D) 08 Quito 1178

    Classified by Ambassador Heather Hodges.  Reason: 1.4 b and d.

    ¶1.  (C) Summary.  On February 13, U.S. companies briefed the
    Ambassador on the business climate in Ecuador.  The tone was somber,
    as the representative outlined challenges and risks, but also
    opportunities for their companies, which are representative of many
    business sectors in Ecuador.  Most were concerned about weakening
    demand in Ecuador and abroad, the risk of dedollarization, declining
    export competitiveness, problems raised by restrictive Ecuadorian
    trade measures, the need to take defensive positions by saving cash
    and reducing workforces and, for the petroleum and banking sectors,
    continued regulatory uncertainty.  Not all was negative, however, as
    the business representatives noted that the government heard their
    concerns and gave them some relief on the trade restrictions, and
    several noted that the trade restrictions will also provide
    opportunities that some industries will be able to exploit.  End
    summary.

    ¶2.  (U) The Ambassador met with the U.S. Business Forum on February
    ¶13.  The U.S. Business Forum operates in parallel with the AmCham and
    is focused on U.S.-owned or operated businesses, and provides the
    participants an opportunity to exchange information on the current
    business climate.

    Autos
    -----

    ¶3.  (C) The General Motors manager (GM) led off by discussing the
    trade restrictions that Government of Ecuador imposed in January
    (reftel b).  He said that GM participated in the discussions the GOE
    had with the private sector, and obtained some flexibility in GM's
    quota by excluding imported kits that are used to assemble vehicles
    for export, taxis or the government.  However, GM declined to sign
    the agreement that most large importers signed.  The GM
    representative noted that the trade restrictions complicate GM's
    production management in the region, since GM coordinates production
    between its facilities in Ecuador, Colombia and Venezuela, and now
    the Colombian and Venezuelan plants face high tariffs in exporting to
    Ecuador.

    ¶4.  (C) The GM manager said that his factory had to shut down for
    five days because the sudden imposition of new certification
    requirements (reftel d) blocked the importation of a range of parts
    used for auto assembly.  He said that for one product the Ecuadorian
    standard was 20 years old and no laboratory tests to that standard
    anymore.  He said his factory was on the verge of shutting down again
    when the GOE temporarily lifted the certification requirement for six
    months (reftel a).

    ¶5.  (C) Turning to the current business climate, the GM manager said
    that his sales were up 20% in January 2009 compared to January 2008,
    the only GM unit worldwide to experience a sales increase.  He
    assumed the jump was because customers were anticipating a price
    increase and/or because they were converting financial savings into
    real goods out of a concern about pending financial sector
    difficulties.  He said that most sales were for cash, as financing
    for auto purchases has sharply contracted.

    Banking
    -------

    ¶6.  (C) The Citibank representative stated that deposits in the
    banking sector have declined, reflecting an overall decrease in
    liquidity in Ecuador due to balance of payments and fiscal
    constraints, plus withdrawals by clients who are concerned about
    Ecuador's ability to maintain dollarization.  She said that the
    banking sector is protecting its liquidity by reducing lending, and
    seemed to believe that overall the sector was sound.  She was
    concerned that several smaller banks were in a difficult position
    and, if closed, might promote panic about the state of the overall
    banking sector.

    ¶7.  (C) Regarding the balance of payments pressure that Ecuador is
    facing, the Citibank manager said that she is concerned that Ecuador
    may go beyond the current 1% tax on transfers abroad and may impose
    capital controls as some point.

    Energy Sector
    -------------

    ¶8.  (C) The head of a local oil services company owned by a U.S.
    citizen said that there was little investment in the petroleum
    sector.  Foreign oil companies had dramatically cut back on
    investment in recent years with the imposition of windfall oil income
    taxes, and more recently state-owned Petroecuador suffered a dramatic
    cut in its investment budget because of falling oil income.

    ¶9.  (C) The manager of Machala Power/EDC, electricity and natural gas
    companies owned by Noble Energy, said that his company had reached an
    agreement with the GOE whereby the GOE would pay Machala Power $70
    million in arrears, and in turn Machala Power would withdraw its
    international arbitration case (refel c).  However, he has been
    informed that that GOE no longer has sufficient cash and therefore
    will not be making the payment.

    ¶10.  (C) After the meeting, the Machala Power/EDC representative told
    EconCouns that he is concerned about the GOE's approach to the EDC
    gas company.  In a recent meeting with Carlos Pareja, Under Secretary
    for Petroleum, Pareja told him that President Correa has decided that
    EDC's production contract should be converted to a service contract,
    and EDC would be paid a fee of $2 for every thousand cubic feet (Mcf)
    of gas produced.  If not, Machala Power/EDC should "begin to pack its
    bags."  The representative said that currently EDC charges its sister
    company approximately $3.75/Mcf, which is low in order to generate
    profits on the electricity side of the business, and that the fee
    proposed by Pareja was unreasonable.

    Flower Sector
    -------------

    ¶11.  (C) A representative of a U.S. flower company said that
    Ecuadorian flower exports were down because of weakening demand in
    major markets, which is accentuated in new markets in Eastern Europe
    which have experienced sharp currency devaluations as well.  In
    addition, Ecuadorian producers are facing increased competition from
    African producers where labor costs are much lower, which has been
    exacerbated by sharp increases in the minimum wage in Ecuador in 2008
    and 2009.  He said that given the loss of competitiveness of the
    Ecuadorian flower sector, the best outcome for that sector would be
    if Ecuador abandoned the dollar, although he acknowledged that could
    cause problems for other sectors.

    Tourism
    -------

    ¶12.  (C) The manager of the Marriott hotel said that business at his
    hotel was down 16% from the prior year.  He said that his hotel had
    let a limited number of staff go.

    Industrial Imports
    ------------------

    ¶13.  (C) The manager of an Ecuadorian company that imports valves and
    other types of industrial piping from the U.S. said that overall
    business has weakened.  He added that some sectors, such as the food
    processing industry, continue to invest, in part to take advantage of
    new market opportunities created by higher tariffs on consumer goods.
     He said that in the current uncertain business environment,
    companies had to hoard cash, be lean (his company has reduced staff
    by 15%), and look for new opportunities.

    Consumer Goods
    --------------

    ¶14.  (C) The representative for Energizer said that his company
    imports batteries and a range of toiletry goods.  He said that like
    GM, his company realized a jump in sales in December and January as
    Ecuadorian distributors stocked up in anticipation of price
    increases; he expects limited sales in the upcoming months.  The
    exception was batteries, where imports were also blocked for almost
    two months by the new Ecuadorian certification requirements, which
    were then lifted.

    ¶15.  (C) He said that in addition to selling to large Ecuadorian
    chains, his company sells to small shops.  He said that he has seen
    growing arrears with the small stores.  The small stores have had to
    increase the credit they extend to their customers, largely because
    of falling income due to declining remittances.  This in turn leads
    the small stores to fall behind on payments to suppliers such as
    Energizer.

    Textiles
    --------

    ¶16.  (C) The U.S. owner of a local textile company said that the
    textile sector was doing well and benefited from the trade
    restrictions on imported clothing, although he stressed that his
    industry did not ask for the restrictions.  His company will increase
    investment to take advantage of the opportunities.  He added that his
    sector did ask for tighter labeling requirements, which the GOE has
    begun to implement, as a measure to crack down on contraband.

    Information Technology
    ----------------------

    ¶17.  (C) The U.S. owner of an Ecuadorian information technology (IT)
    company said that the business outlook for his sector was uncertain.
    Overall investment was down, but some business were increasing IT
    investment to improve efficiency.  He said that some of the
    investment was in labor-saving technology as companies looked to
    reduce their payrolls.
    Comment
    -------

    ¶18.  (C) This was the most somber meeting the Embassy has had with
    the U.S. Business Forum in recent years, as U.S. companies grapple
    with the challenges of a global economic downturn that appears likely
    to create a difficult business environment in Ecuador in 2009.  This
    is further complicated by Ecuadorian trade barriers as well as
    regulatory uncertainty for key sectors such as petroleum and banking.
     Even so, most companies still see business opportunities in Ecuador
    and will manage their companies to minimize the upcoming risks and to
    take advantage of the opportunities that present themselves.

    Hodges

    =======================CABLE ENDS============================

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