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### Viewing cable 06QUITO2998, External Debt Report Will Be Released in December

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06QUITO2998 | 2006-12-12 13:21 | 2011-05-02 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Quito

`

    VZCZCXYZ0007
    OO RUEHWEB

    DE RUEHQT #2998 3461321
    ZNR UUUUU ZZH
    O 121321Z DEC 06
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 5865
    INFO RUEHBO/AMEMBASSY BOGOTA 6242
    RUEHCV/AMEMBASSY CARACAS 2211
    RUEHLP/AMEMBASSY LA PAZ DEC LIMA 1209
    RUEHGL/AMCONSUL GUAYAQUIL 1553

` `

    UNCLAS QUITO 002998

    SIPDIS

    SENSITIVE
    SIPDIS

    DEPT FOR WHA/AND AND EB/TPP/ABT
    TREASURY FOR STEPHEN GOOCH

    E.O. 12958: N/A
    TAGS: EFIN ECON EC
    SUBJECT:  External Debt Report Will Be Released in December

    ¶1.  (SBU) Summary.  The GOE's External Debt Commission will release
    its report in mid-December, and the Correa administration could look
    to the report to identify whether any of Ecuador's debt is
    "illegitimate."  The President of the Commission, Alfredo Castillo,
    asserted that much of Ecuador's debt is "immoral" and has been
    foisted on Ecuador by the IMF and World Bank for corrupt projects.
    However, he said that the Commission's report would focus on
    recommendations to ensure that Ecuador make better use of future
    financing.  End Summary.

    ¶2.  (U) Ricardo Patino, whom President-elect Correa has identified
    as his Economic Minister, has rattled financial markets by
    suggesting that a Correa administration might restructure its
    external debt and would not pay "illegitimate" debt.  Patino said
    that a Correa government would rely in part on a forthcoming report
    of a commission established a few months ago by President Palacio to
    review Ecuador's foreign debt and make recommendations.

    ¶3.  (SBU) On December 7, EconCouns met with Alfredo Castillo,
    President of the Special Commission to Investigate External Debt
    established by President Palacio.  Castillo led off with a long
    discussion on how most of Ecuador's debt was "immoral."  Castillo
    began by discussing how Ecuador had begun to take on debt in the
    1970s, when Ecuador was still ruled by a military regime.  He
    asserted that most of Ecuador's external debt was foisted on Ecuador
    by the duplicitous IMF and World Bank for corrupt, poorly
    implemented projects.  He said that some of Ecuador's external debt
    was forced on the GOE by local banks that speculated against the
    currency (a reference to Ecuador 1999 banking crisis).  Castillo
    said relatively little about the GOE's borrowing from private sector
    lenders, and towards the end of the conversation allowed that the
    World Bank may have improved the quality of its lending in recent
    years.

    ¶4.  (SBU) When asked if the report would identify "illegal" debt,
    Castillo replied that the Commission would not seek criminal charges
    and that the report will focus on changes the GOE should make to
    ensure better use of future loans.

    ¶5.  (U) Castillo said that a 100-page report summarizing the
    Commission's work will be released in a week or two (presumably
    between December 14-22).  He said that the Commission's entire
    report totals 1,000 pages.

    ¶6.  (SBU) EconCouns informed the local IMF and World representatives
    of Castillo's comments about loans from their institutions, and the
    possibility that the impending report would reflect those views.
    Both lamented the timing of the report, fearing it would politicize
    the issue of multilateral lending to Ecuador at a time the
    multilateral lenders are preparing to engage the incoming Correa
    administration.  The IMF rep noted that while the Ecuadorian public
    sector should have a surplus in 2007, the central government
    continues to face a cash shortfall.  He thought that the
    multilateral lenders (World Bank, IDB, CAF) might be able to
    persuade the Correa administration that they would be well-placed to
    help finance any central government budget gaps, rather than have
    the GOE use it liquidity problems as an excuse to default on its
    debt obligations.

    ¶7.  (SBU) Comment.  Castillo, a long-term leftist political
    activist, was appointed to this commission as a face-saving reward
    when Palacio felt compelled to remove him as Minister of Government.
    The commission was packed with similarly left-leaning intellectuals,
    making an outcome along these lines a foregone conclusion from the
    start. While Castillo's comments may in part reflect his personal
    views, we expect that in good measure they anticipate the main
    themes of the forthcoming report.  The bad news is that his comments
    suggest that the report will lay out a negative assessment of
    international debt, reinforcing the critical predisposition of
    Correa's more radical advisors.  The mixed news is that while the
    report will apportion much of the blame on international lenders, it
    will probably also suggest that corrupt Ecuadorian practices bear
    part of the blame for inefficient use of the funds.  The possible
    good news is that a report covering a 40-year time span may not
    contain much actionable information on currently active debt, and if
    so may not provide much grist for any current push to identify
    "illegitimate" debt.

    Jewell

`