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### Viewing cable 07QUITO2539, DAS McMullen's Meetings with U.S. and Ecuadorian Business

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07QUITO2539 | 2007-11-21 19:07 | 2011-05-02 00:12 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Quito

`

    VZCZCXYZ0006
    PP RUEHWEB

    DE RUEHQT #2539/01 3251957
    ZNR UUUUU ZZH
    P 211957Z NOV 07
    FM AMEMBASSY QUITO
    TO RUEHC/SECSTATE WASHDC PRIORITY 8089
    INFO RUEHBO/AMEMBASSY BOGOTA 7116
    RUEHCV/AMEMBASSY CARACAS 2771
    RUEHLP/AMEMBASSY LA PAZ NOV LIMA 2150
    RUEHGL/AMCONSUL GUAYAQUIL 3057

` `

    UNCLAS QUITO 002539

    SIPDIS

    SENSITIVE
    SIPDIS

    E.O. 12958: N/A
    TAGS: ECON EINV ETRD ELAB EPET PGOV EC
    SUBJECT:  DAS McMullen's Meetings with U.S. and Ecuadorian Business
    Representatives

    Ref.  Quito 2491

    ¶1.  (SBU) Summary.  WHA DAS Chris McMullen met, separately, with
    representatives of the U.S. and Guayaquil
    business communities.  With the notable exception of City Oriente,
    which is facing the prospect of having its
    petroleum contract cancelled, the U.S. business representatives were
    guardedly optimistic.  They are concerned about
    business uncertainty and possible measures that could be implemented by
    the upcoming Constituent Assembly.  However,
     they reported that their businesses are doing reasonably well, and
    that they can work
    with some members of the government.
      In contrast, the Guayaquil business representatives were more
    pessimistic, concerned that the Constituent Assembly
     will
     be anti-business and predicting economic deterioration in 2009.  End
    summary.

    U.S. Business Community Guardedly Upbeat...

    ¶2.  (SBU) In Quito, DAS McMullen met with members of the U.S. business
    community on November 13.  Robert Moss, AmCham President and owner of a
    corporate software company, opened the discussion by noting the
    uncertainty generated by
    President Correa's economic policies and possible changes in the
    upcoming Constituent Assembly.
    When the discussion returned to him a second time, Moss took a more
    upbeat approach, emphasizing that many on Correa's economic team are
    relatively capable and pragmatic.  He noted his hope that after the
    Correa administration implements a number of economic changes, the
    economic environment will become more stable and predictable.

    ¶3.  (SBU) Moss joined in with another member of the group in agreeing
    that economic decision-making is significantly
    \better in Ecuador than in Venezuela, saying that GOE officials are
    much more practical and reasonable than
    Venezuelan economic officials, whom Moss called mere opportunists,
    looking out for their own interests.

    ¶4.  (SBU) Jeff Sheedy, who owns textile, construction, and steel
    companies, said that his companies are doing well.
    He is now able to sell to the GOE, which he had not previously been
    able to do because of widespread corruption.
    He said demand for steel is strong because of increased
    government-financed construction projects.  He allowed that new private
    sector construction projects are slowing because of uncertainty and
    difficulty obtaining financing,
     but added that there are still a number of ongoing construction
    projects.

    ¶5.  (SBU) Sheedy said his principal concern is that the Constituent
    Assembly will likely tighten labor rules,
    including the ability to hire temporary workers.  He acknowledged that
    some employers have abused temporary worker provisions, but complained
    that the government, rather than prosecuting the violators, would
    likely scrap temporary
    worker provisions altogether.  He said that he would join a group of
    business representatives meeting the following day
    with a Constituent Assembly delegate from Correa's PAIS movement to
    urge at least some flexibility in hiring temporary workers for seasonal
    surges.

    ¶6.  (SBU) In response to a question, Sheedy said that large Ecuadorian
    business chambers have lost their credibility
    and do not have access to the Correa administration.  However, he said,
    the GOE sees industry-specific associations as natural interlocutors
    and those associations find a ready audience with the GOE.

    ¶7.  (SBU) Dean Rule, local manager for Hill's Floral, a U.S. flower
    company with operations in Ecuador, focused on the benefits of the
    Andean Trade Preferences Act, arguing that ATPA should be extended
    because it is doing what it was
    intended to do:  creating jobs to diminish the attraction of
    narcotrafficking.  He said that he had recently
    returned from a
    region in Colombia where employees in the flower industry make more
    than those working in coca production.

    ¶8.  (SBU) Jeff Cadena, General Manager for General Motors Ecuador,
    said
    that GM has the largest share of the Ecuadorian automotive market.
    Indeed, GM has a larger market share in Ecuador than any other
    country,
    and therefore Ecuador is an important market for GM even though the
    economy is relatively small.  He said that GM's sales have grown over
    the

    past year, although in recent months sales have slowed because
    consumers have had difficulty obtaining financing as the
    banking sector tightened its loan criteria because of growing
    financial
    sector uncertainty.

    ...Except for City Oriente's Possible Contract Cancellation

    ¶9.  (SBU) Kyle Ford, manager of City Oriente, a small petroleum
    operator, reviewed in a matter-of-fact way the likelihood that the
    government could initiate caducity, or contract cancellation, because
    of City Oriente's decision not to pay 50 percent of extraordinary
    revenues as required under a 2006 law (more details in reftel).
    Ford said that he is generally an optimist, but that he thought it
    would be difficult for
    City Oriente to avoid caducity, and therefore he is now focusing on
    City Oriente's arbitration case against the GOE.
    (Note:  On November 19, the tribunal ruled in favor of City Oriente's
    petition and issued a decision
     on provisional measures prohibiting the GOE from implementing
    caducity
    or other actions that could affect the status
    quo.)

    Guayaquil-based Economic Analyst Predicts 2009 Downturn

    ¶10.  (SBU) McMullen met with members of the Guayaquil business
    community on November 15.  According to Walter Spurrier, editor of
    Weekly Analysis and Guayaquil-based economic analyst, Correa's
    "Marxist" economic policies will likely lead to economic deterioration
    in 2009.  While high oil prices and a weak dollar will keep Ecuador's
    economy afloat for the next year, Spurrier believes that declining oil
    production and economic instability following an eventual shift away
    from the dollar could mean trouble in the long term.  "Given the
    political instability, foreign oil companies will not
    put good money after bad," he said.  "Production will continue to
    drop."  Spurrier added that "de-dollarization of the economy has to be
    high on Correa's list given his nationalistic leanings."

    Constituent Assembly Unlikely to be Business Friendly
    ¶11. (SBU) Representatives of Guayaquil's politically influential
    Chambers of Commerce and Industry expressed
     concern about the perceived "anti-business" leanings of the
    Constituent Assembly.  According to Chamber of Industry
    President Miguel Pena, the Constituent Assembly is much less receptive
    to the business community's
    input than Congress was.  "Correa will try to push legislation through
    the Assembly to bypass Congress,
    which was much more pro-business because so many representatives had
    their own companies," he explained.
    Pena opined that the Assembly will likely raise taxes to pay for
    Correa's
    expensive social programs.  He, like Spurrier, worried that the Correa
    administration was scaring off foreign investors.  "His penchant for
    making seemingly capricious decisions is driving away foreign
    investment in
    industrial sectors that need imported equipment," Pena said.

    ¶12.  (SBU) Comment.  The economic and business environment in Ecuador
    remains uncertain, which alone can hamper business investment, as the
    Correa administration mixes tough rhetoric with a combination of
    pragmatic and unhelpful business decisions.  So the mixed messages
    from
    the U.S. and Ecuadorian business communities are understandable.
    The Guayaquil business community for the most part has viewed the
    Correa administration from a highly
    negative perspective and has largely been excluded by the government.
    Conversely, the U.S. business community has tried to work with the
    Correa administration when possible, hence itQs more nuanced message
    to
    DAS McMullen.

    ¶13.  (U) DAS McMullen cleared this message.

`