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### Viewing cable 05QUITO1322, DROPPING DOLLAR RAISES PROSPECTS IN TULCAN

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05QUITO1322 | 2005-06-08 20:36 | 2011-05-02 00:00 | UNCLASSIFIED | Embassy Quito

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 04 QUITO 001322

    SIPDIS

    E.O. 12958: N/A
    TAGS: PGOV SNAR PTER ECON ETRD EC CO
    SUBJECT: DROPPING DOLLAR RAISES PROSPECTS IN TULCAN

    ¶1.  SUMMARY:  Tulcan, capital of Ecuador's Carchi province,
    bestrides the Panamerican Highway four hours from Quito and
    four miles from Colombia.  Like frontier towns worldwide,
    Carchi's capital enjoys its share of money changers, truck
    stops, and customs checkpoints, most visitors clocking in for
    hours, not days.  Yet the nearby redoubt of Colombia's
    illegal armed groups makes this border burg different from
    most.  Ecuadorian security forces are omnipresent, for one;
    Embassy monies and expertise have stood up counter-narcotics
    checkpoints along Carchi highways, and Tulcan hosts a large
    and growing Army battalion responsible for border security in
    the highlands.  Local leaders claim the deployments have
    spawned dropping crime rates, but overcoming Tulcan's
    reputation and attracting tourism and investment remains
    difficult.  All agreed the municipal economy had rebounded
    from the battering that 2001's dollarization had brought.
    The dropping dollar, not fundamental improvements in the
    business climate, underpinned Tulcan's gains, however.  A
    public health officials claimed Carchenses' physical
    condition surpassed national norms, yet the provincial bishop
    lamented residents' spiritual health.  Last, attitudes
    towards Colombians had improved, owing perhaps to an expected
    refugee surge that never materialized.  END SUMMARY.

    ---------------------
    Location Good and Bad
    ---------------------

    ¶2.  Shrouded often in mist and drizzle, Tulcan, population
    52,000, is Ecuador's highest provincial capital (9700 feet).
    Unlike frontier peers in neighboring Sucumbios and Esmeraldas
    provinces, the city enjoys excellent road links to Ecuador's
    most populous areas via its privileged location along the
    Panamerican Highway 150 miles north of Quito.  Agricultural
    production thrives in surrounding Carchi province, owing to
    ever-present rains and rich volcanic soils; its potatoes are
    the nation's finest.  Small land plots, high fertilizer
    prices, and significant pesticide use make Carchi crops
    expensive, however, especially compared to similar production
    in neighboring Narino.  Despite the aforementioned road net
    and closeness to Quito, Tulcan has proven unable to attract
    industry, instead living off border commerce and government
    spending.  As such, its economic health depends greatly on
    notoriously volatile exchange rates.

    ¶3.  Five miles north lies Ipiales, Colombia, in appearances a
    slightly-bigger Tulcan brother.  When the Colombian peso
    strengthens, Ipiales-area consumers historically flock south
    in search of bargains, benefiting Carchi merchants.  When it
    weakens, however, the flow reverses.  Ecuador's repeated
    devaluations in the 1990s proved a boon to Tulcan, and retail
    businesses expanded to serve Colombian customers.  The GoE
    decision to ditch the sucre and dollarize the economy
    therefore hit the city hard.  Prices skyrocketed overnight,
    Colombian border-crossers canceled travel, and Tulcan's
    economy contracted.  Embassy officers visiting in September
    2002 saw shuttered shops and few shoppers, a general malaise
    in the air.

    -----------------------------------------
    Economic Indicators Improving, Grudgingly
    -----------------------------------------

    ¶4.  Emboffs traveled to Tulcan May 30-June 2 to gauge the
    province's economic pulse and security situation.  Provincial
    and municipal leaders described a region in recuperation,
    albeit gradual.  Mayor Pedro Velasco, a second-term United
    Left (ID) politician, claimed consumption was rising and
    businesses returning to Tulcan.  Reasons were two:  the
    Colombian peso, trading at 2900 per dollar in 2003, had
    strengthened 20 percent since.  Colombian shoppers from
    Ipiales and even Pasto were bringing business to
    suddenly-cheaper Tulcan, and northern investors were plowing
    money into Ecuador.  The second was psychological; Carchenses
    finally had accepted dollarization, and instead of pining for
    a return to devaluations, had committed to compete.
    Nevertheless, currency-neutral production costs, especially
    in agriculture, remained lower in Narino than Carchi, and
    Velasco worried a rising dollar could erase recent gains.
    Further, too many city residents continued to depend on
    contraband for their livelihoods; cracking down on illegal
    border crossers spelled economic doom for Tulcan's
    marginalized, however.

    ¶5.  Second-term Prefect Rene Yandun (ID), a former Army
    general, sounded even less sanguine over Carchi's chances.
    Internal migration, mostly to Quito and Santo Domingo de los
    Colorados, was robbing the province of its economic
    wherewithal.  Carchi's population, estimated at 200,000 in
    1995, had dropped 25 percent in ten years, hollowing out its
    workforce, especially in agriculture.  Prosperity lay not in
    working the land, however, but in attracting industry and
    tourism.  On the latter, Yandun argued that Carchi's
    volcanoes, vistas, and indigenous culture were the equal of
    any Ecuadorian province's.  Yet rumors of widescale Colombian
    narcoterrorist incursions poisoned the tourism environment;
    such fear caused southbound travelers to bypass Tulcan for
    Imbabura capital Ibarra, while Colombia-bound visitors
    overnighted in Ipiales or Pasto.

    ¶6.  April's administration change brought new governors to
    the provinces; President Palacio's Carchi representative,
    Bolivar Chamorro, was but one month in office upon meeting
    with Poloff.  The one-time educator displayed world-class
    braggadocio in exclaiming that friction between the
    governor's, prefect's, and mayor's offices had ended upon his
    assumption of power.  Such animosity had hampered economic
    development in the province, Chamorro explained.  The
    governor touched on the same problems Yandun and Velasco had,
    adding one of his own:  Carchi's poor education system.
    Primary and secondary school quality was horrific, and the
    province lacked a full-time university.  Attracting one was a
    primary goal.

    ¶7.  Public health issues are not a brake to provincial
    economic development.  Dr. Ruth Velasco, a 13-year Ministry
    of Health official in Tulcan, claimed Carchenses' physical
    condition exceeded national norms.  Outbreaks of malaria and
    dengue, constant worries along Ecuador's coast and in
    lower-elevation parts of the sierra, were no worry in
    9,700-ft Carchi.  Nor was tuberculosis, troublesome in high
    sierra indigenous communities.  Velasco lauded MoH
    initiatives to vaccinate the entire provincial population and
    educate prospective mothers in effective prenatal care, which
    had earned the ministry significant goodwill.

    ¶8.  Carchi's preeminent Catholic priest questioned his
    flock's spiritual health, however.  Bishop Luis Sanchez, a
    Loja native, had called Tulcan home for three years.  Church
    attendance by confirmed Catholics had averaged 12 percent
    during his tenure, a disappointing figure.  "Sects" saw
    fertile ground in Carchi, Sanchez lamented, referring to
    evangelical, Protestant groups such as the Seventh Day
    Adventists and Mormons.  In response, the twenty-odd parishes
    within his diocese were expanding outreach activities,
    although the challenge looked difficult.  Roman Catholic
    pastoral activities too were suffering.  External funding --
    mainly, a grant from the German church he had dedicated to
    women's issues -- had evaporated, and the bishop had been
    unable to identify alternatives.  Sanchez hoped to continue
    assisting Carchi's resident Colombian refugee population, but
    natives' protests over expending limited funds on foreigners
    limited his actions.

    ---------------------------
    Carchi Growing More Secure?
    ---------------------------

    ¶9.  Post's Narcotics Affairs Section (NAS) directs large
    chunks of USG counter-narcotics (CN) assistance to Ecuador's
    northern border.  After reconnoitering the construction site
    of a NAS-funded CN checkpoint along the Carchi-Imbabura
    frontier, Emboffs met with Carchi CN police commander
    Patricio Guerra and later visited his troops and facilities.
    Guerra, a rising police star, revealed plans for a two-week,
    round-the-clock CN operation targeting provincial highways.
    As nationwide drug interdictions had dropped 60 percent from
    year-earlier totals, he was pushing his men (and women) hard
    for results.  Guerra called cooperation with his Colombian
    counterpart top-notch, but claimed Ecuadorian police-military
    coordination was still lacking -- Carchi-based armed forces
    still misunderstood their CN role, he lamented.

    ¶10.  Numerous clandestine frontier crossings compromised
    police efforts to disrupt southbound drug trafficking, Guerra
    asserted.  Traffickers even used trained, riderless mules and
    horses to ferry product, limiting their legal exposure.  That
    said, days before his team had interdicted smugglers carrying
    $15,000 in Colombian pesos (and during Emboffs visit, they
    apprehended a trafficker concealing five kilos of coca base
    beneath a crate of live chickens).  To improve CN forces'
    capabilities, Guerra presented Emboffs a reasonable,
    well-thought-out assistance request; topping the list was a
    heavy truck to allow squad-sized, far-ranging patrols.

    ¶11.  The 39th Army battalion in Tulcan has responsibility for
    patrolling the highlands stretch of the Colombian border.
    NAS and the Embassy's MILGP donated five five-ton trucks and
    12 Humvees to the 39th in 2004, increasing the unit's ability
    to patrol frontier areas facing guerrilla and paramilitary
    threats from Colombia.  Battalion commander Colonel Ramon
    Enriquez informed NAS director that he had 400 troops in the
    field on a training exercise at the moment, and that
    additional communications equipment was his greatest need.
    The NAS Director inspected a USG-funded maintenance hangar
    project on his base, and discussed methods to improve fuel
    supply and inventory control.

    ¶12.  Civic leaders also weighed in on security matters in
    Tulcan and surrounding Carchi province.  All agreed the
    region, while not exactly Bern, was not Baghdad either --
    sensationalist media outlets in Quito and Guayaquil needed to
    get the facts right.  Yet problems remained that threatened
    the nascent economic recovery.  Mayor Velasco, after noting
    police would not crack down on "contrabandistas,"
    acknowledged that drug traffickers often utilized the same
    illegal border crossings.  He refuted rumors claiming the
    FARC utilized Tulcan for resupply and R&R, however, arguing
    the Colombian rebels preferred smaller hamlets east and west.
     Concurring with Colonel Guerra on police-military
    coordination problems, Velasco asserted the armed forces,
    greater funding and shinier toys had spawned police
    jealousies.

    ¶13.  Yandun praised a recent Ecuadorian military decision to
    deploy 450 additional soldiers to the Tulcan battalion.
    NAS-provided CN police support also earned his gratitude.
    Carchi residents continued to feel threatened, however, by
    the closeness of Colombian irregulars and "copycat"
    Ecuadorian criminal gangs plaguing rural regions.  Yandun
    claimed that kidnapping rings' activities had forced large
    landowners to flee, selling their properties at a loss and
    driving down land prices.  Bishop Sanchez agreed the
    kidnappings were continuing, albeit at a lower rate than
    three years before; he had demurred, however, when asked
    recently to broker a ransom and release.

    -----------------------
    Colombians Still Coming
    -----------------------

    ¶14.  Gerardo Dorado runs the GoC's consulate in Tulcan.
    While Plan Patriota had not spurred significant refugee
    movements as many had expected, Colombians continued to head
    south for economic reasons.  Dorado claimed that Carchi
    employers preferred harder-working, cheaper Narino laborers.
    Most were illegal, however, and subject to exploitation.
    Regularization duties therefore consumed much of his days.

    ¶15.  Three years ago, Dorado's predecessor claimed Ecuadorian
    border officials regularly mistreated southbound travelers at
    the Rumichaca International Bridge.  The situation had
    improved somewhat, the Consul revealed, but GoE personnel
    continued to hassle Colombians and not honor Andean freedom
    of movement stipulations.  His countryman also received
    stiffer sentences for drug offenses than Ecuadorians -- some
    250 inhabited the Tulcan prison, each serving minimum
    eight-year terms.

    --------
    COMMENT:
    --------

    ¶16.  Our primary desire in visiting Tulcan lay in gauging the
    security situation, measuring Carchi's economic recovery, and
    ground-truthing the value of USG CN assistance.  But we had
    bigger-picture reasons as well.  Claims that Ecuador has
    adopted a more independent, less servile foreign policy
    litter Quito airwaves and front pages.  In his Cabinet
    appointments, President Palacio named gringo-bashers and
    sovereignty protectors, with Ecuador's "involvement" in Plan
    Colombia proving a convenient target for their rantings.  We
    therefore endeavored to learn whether demands for a return to
    isolationist old-think vis-a-vis Colombia had translated into
    a troop pullback or more tepid force posture.  Thankfully, it
    has not; if anything, front-line Ecuadorian police and
    military appear more energized than ever.  If we had one
    hundred Colonel Guerras, for example, we'd be writing a
    requiem on the demise of Ecuador's drug problem.  Sometime
    USG-detractor Mayor Velasco put it best.  "Sometimes good
    does come from bad," he remarked, referring to greater Quito
    attention to frontier problems, owing to worries of Colombian
    spillover.  Our intention is to ensure the Government of
    Ecuador remains focused on its northern border.  END COMMENT.

    Kenney

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