UPDATE: Ecuador's Assembly Eliminates Specialized Oil Funds4-2-08 9:05 PM EDT

(Updates with total value of the three funds)

QUITO -(Dow Jones)- Ecuador's Constituent Assembly approved on Wednesday the "Law for Recovering the Use of Oil Public Funds," which eliminates specialized oil funds and includes them in the fiscal budget, Cesar Rodriguez, head of the assembly's legislative commission, told Dow Jones Newswires.
In January, President Rafael Correa sent the law to the assembly, which is writing a new constitution but is also acting as a legislative body.

The funds eliminated are the FAC, a savings and contingency fund for government social programs; the CEREPS, a special account for social development and promoting production; and FEISEH, a trust fund that holds revenues from oil fields formerly operated by Occidental Petroleum Corporation (OXY) which were taken over by the government.

The three funds contain about $1.5 billion.

The decision was approved by 89 of the 105 assemblymen present in the session.

Rodriguez said the law has also eliminated rules to control government expenditures. According to the current Law of Fiscal Responsibility, the government has a 3.5% annual limit on growth in primary spending.

Analysts say that the law will be negative for markets. Although the laws haven't always been respected, they did provide a legal framework to protect the funds, the analysts add.

-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653; mercedes.alvaro@ dowjones.com