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### Viewing cable 10QUITO190, Ecuador Economic News February 8 - 12, 2010

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
10QUITO190 | 2010-02-18 19:38 | 2011-05-02 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Quito

`

    VZCZCXYZ0000
    RR RUEHWEB

    DE RUEHQT #0190/01 0491940
    ZNR UUUUU ZZH
    R 181938Z FEB 10
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC 1007
    INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUEHBO/AMEMBASSY BOGOTA
    RUEHCV/AMEMBASSY CARACAS
    RUEHGL/AMCONSUL GUAYAQUIL
    RUEHLP/AMEMBASSY LA PAZ
    RUEHPE/AMEMBASSY LIMA
    RUEHQT/AMEMBASSY QUITO

` `

    UNCLAS QUITO 000190

    SENSITIVE
    SIPDIS

    E.O. 12958: N/A
    TAGS: ECON EFIN ETRD EPET EC
    SUBJECT: Ecuador Economic News February 8 - 12, 2010

    REF: QUITO 154; 90 QUITO 816; 09 QUITO 1068

    ¶1.   (U)   The following is a periodic economic update for Ecuador
    that reports notable developments that are not reported by
    individual cables.  This document is sensitive but unclassified.
    It should not be disseminated outside of USG channels and should
    not be posted on the Internet.

    -------------

    Highlights

    -------------

    -- Third Quarter 2009 GDP Growth of 0.26%; $332 Million Trade
    Deficit for 2009

    -- GoE Plan to Use Reserves to Stimulate Construction Sector
    Falters

    -- Consumer Credit Card Debt Increases during Economic Downturn

    -- Fuel Smuggling Across Ecuador's Borders

    --------------------------------------------- ----------------------
    -------------------------

    GDP Growth of 0.26% in the Third Quarter of 2009; Trade Deficit for
    2009

    --------------------------------------------- ----------------------
    -------------------------

    ¶2.   (SBU)   Ecuador's Central Bank (CB) reported this week that
    the Ecuadorian economy grew on a quarter-to-quarter basis by 0.26%
    in the third quarter of 2009, but shrank 1.40% on a year-to-year
    basis.  Although minor, this growth rate breaks a recessive
    economic trend after the Ecuadorian economy contracted by 0.25% in
    the final quarter of 2008 and by 1.21% and 0.21% in the first and
    second quarters of 2009, respectively.  The CB did not change its
    methodology in calculating these figures.  According to CB
    officials, it will start applying a new methodology with full year
    2009 figures, due out by the end of March (ref A).

    ¶3.   (SBU)   While few private analysts appear to be publicly
    questioning the accuracy of the CB's QIII GDP report, the third
    quarter recovery does seem inconsistent with the rise in the
    unemployment rate from 8.3% in the second quarter to 9.1% in the
    third quarter of 2009.  A number of local analysts point out that
    given the growth rates registered in the first three quarters of
    2009, the Ecuadorian economy would have to grow considerably in the
    last quarter to achieve the CB's estimate of a GDP growth of 1% in
    ¶2009.  Most local analysts expect Ecuador's economy contracted for
    full-year 2009, as also expected by the IMF (-1%) and CEPAL
    (-0.4%).

    ¶4.   (SBU)   Ten of fourteen economic sectors recorded growth
    between the second and third quarters of 2009: construction
    (2.11%); financial intermediation (1.11%); private households
    (1.02%); commerce (0.75%); fisheries (0.53%); services (0.39%);
    water and electricity (0.37%); transport (0.20%); public
    administration (0.14%); and other GDP elements (0.75%).  Four
    sectors reported quarterly contractions: agriculture (-0.94%); oil
    refining (-0.71%); manufacturing (-0.32%); and mining (-0.29%).
    The third quarter contraction in the oil sector reflects a fall in
    oil production since international oil prices recovered during that
    period.  On a year-over-year basis, eight economic sectors
    contracted, including: commerce (-4.62%); manufacturing (-2.76%);
    agriculture (-2.51%); and mining (-1.35%).  The following sectors
    grew on a year-over-year basis: water and electricity (5.49%);

    construction (4.51%); public administration (3.27%); and transport
    (1.95%).  The CB also reported that internal demand in the third
    quarter grew by 1.04% on a quarter-to-quarter basis, after
    registering three consecutive quarters of contraction, with
    investment increasing by 1%, household consumption by 0.48%, and
    government expenditures by 0.14%.

    ¶5.   (SBU)   On the external side of the economy, the CB also
    reported this week that Ecuador registered a trade deficit of $332
    million for the full year 2009.  2009 exports declined 26% and
    imports fell 20%.  The decline in imports was mainly due to the
    fall in internal demand that accompanied the QIV 2008 to QII 2009
    recession and the balance of payments import restrictions the GoE
    imposed in January 2009.  Exports decreased in value mostly as a
    result of reduced international oil prices (from an average of $83
    in 2008 to an average of $56 in 2009) and a contraction of 6.1% in
    the volume of oil exports.

    --------------------------------------------- ----------------------
    ---------------

    GoE Plan to Use Reserves to Stimulate Construction Sector Falters

    --------------------------------------------- ----------------------
    ---------------

    ¶6.   (SBU)   On October 20, 2009, President Correa announced the
    government's intention to repatriate up to $2.5 billion in
    international reserves to provide financing to productive sectors
    in Ecuador, with the broad goals of stimulating Ecuador's economy
    and reducing unemployment levels (refs B, C).  The GoE announced at
    the time that it would begin by allocating roughly $600 million of
    the repatriated reserves to support the construction sector.
    Delays in the repatriation of the international reserves and
    discrepancies about the risk of the investments in public banks led
    President Correa to criticize Central Bank (CB) management,
    prompting the mass resignation of CB staff in December 2009.
    [Note: the repatriation of reserves is so far more rhetoric than
    reality, as all it entailed initially was altering the accounting
    of funds on the CB's balance sheet: shifting funds from the CB's
    account with the Bank for International Settlements (BIS) to the
    public banks' accounts with the CB.  These resources remain
    deposited in overseas accounts, mainly with the BIS, until the
    public banks draw down on their CB accounts.]

    ¶7.   (SBU)   On December 12, 2009, interim CB President Diego Borja
    announced the immediate repatriation of international reserves
    totaling $864 million, with $400 million directed to Banco de la
    Vivienda, and Banco del Pacifico for financing home mortgages and
    about $200 million to the Ministry of Urban Development to finance
    a $5,000 subsidy for purchases of homes valued at less than
    $60,000.  Separately, the Ecuadorian Social Security Institute
    (IESS) agreed to provide an additional $200 million in financing of
    home mortgages.

    ¶8.   (SBU)   As President Correa has commented a number of times in
    recent public speeches, only a fraction of the promised resources
    have reached the intended destination.  Analysts believe the
    stimulus' impact has been weakened by bureaucracy and economic
    uncertainty, while GoE officials claim there are not many housing
    programs ready to receive financing.  Meanwhile, the public banks
    have invested some of these resources in private financial banks,
    which have increased their deposits as a result of the stimulus
    plan.  Also slowing new construction is the Ministry of Urban
    Development's approval process that can take months to complete.
    Lenders also claim that, although they are ready to create loans,
    many builders do not provide the necessary documentation, or have
    unrealistic income expectations.  Banco del Pacifico was allocated
    $200 million to increase lending to home buyers and builders, but
    so far has only granted credits for $25 million.  The Ecuadorian
    Social Security Institute (IESS) has only approved 1 of 32 loan
    requests.  Even without these delays, potential homebuyers remain
    reluctant to take on the substantial debt a home purchase would
    represent.
    E

    --------------------------------------------- ----------------------
    --------------

    Consumer Credit Card Debt Increases during Economic Downturn

    --------------------------------------------- ----------------------
    --------------

    ¶9.   (SBU)   The growth in credit card debt in Ecuador slowed in
    2009 to 8.6%, down from an average annual growth rate of 20% from
    2000 to 2008.  In 2009, credit card debt increased to $2.57
    billion.  Of the nearly 14 million people in Ecuador, 2.9 million
    have a credit card, placing the average credit debt among credit
    card holders at about $900 compared to $8500 in the US.  Although
    credit purchases for consumer goods such as appliances, computers,
    clothing, toys, and jewelry decreased last year, credit purchases
    for basic products and services at grocery stores and fast food
    restaurants increased.  The recent economic downturn also pushed
    delinquency rates on credit cards from 3.8% in 2008 to 5.1% by the
    end of 2009 (compare to 4.5% in the United States at end of 2009).

    --------------------------------------------- --------

    Fuel Smuggling Across Ecuador's Borders

    --------------------------------------------- --------

    ¶10.   (SBU)   Subsidized fuel in Ecuador has attracted the
    attention of opportunists along both its northern border with
    Colombia and southern border with Peru, due to the wide disparity
    in pump prices between Ecuador and its neighbors.  While gasoline
    and diesel in Ecuador sell on average for about $2.50 and $2.00 a
    gallon, respectively, Colombians are paying in the range of
    $3.40/gallon for gasoline and $2.90/gallon for diesel.  Peruvians
    living in Lima pay even higher prices, with gasoline roughly in the
    $3.60 to $5.00 range (depending on octane level).  The gap has
    fomented a sizable black market for Ecuadorian fuel between the
    Ecuadorian border city of Tulcan, and the Colombian city of
    Ipiales, and the southern border with Peru is reportedly wide-open
    (at least on the Ecuadorian side), with few obstacles to smuggling
    of fuels or any other products.  Media reports about activities on
    the Colombian border allege that smugglers are using modified
    vehicles to transport gasoline, diesel, and propane.  Also
    according to press reports, the provincial government of Carchi,
    where Tulc????n is located, has initiated a program to reduce the
    size
    of the black market, now estimated to employ some 3,000 people.
    HODGES

`