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Cablegate: Ambassadors Privately Warn Ortega Intermediaries

VZCZCXRO0495
PP RUEHLMC
DE RUEHMU #0826/01 0891720
ZNY CCCCC ZZH
P 301720Z MAR 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 9668
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1047
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 MANAGUA 000826

SIPDIS

SIPDIS

DEPT FOR WHA/CEN

E.O. 12958: DECL: 03/27/2017
TAGS: PREL PGOV PINR ECON EINV NU GM SP
SUBJECT: AMBASSADORS PRIVATELY WARN ORTEGA INTERMEDIARIES
OF CONSEQUENCES OF "DOUBLE TALK"

Classified By: Ambassador Paul Trivelli for reasons 1.4 (b and d)

1. (C) Summary: The Ambassadors of Spain, Germany, and the
United States recently warned Ortega administration officials
during a private meeting that President Ortega's
contradictory statements and actions regarding foreign
affairs, press freedom, and investment could damage the
economy and bilateral relations. Ortega's Foreign Minister
and Economics Advisor responded by blaming the press for
distorting the government's message and the outgoing Bolanos
administration for allowing "speculators" (international
investors) to take advantage of the country. However, they
did pledge to resolve outstanding issues in a way that would
be "fair" to both parties. End Summary.

2. (C) Ambassador hosted a breakfast on March 27 with senior
host government officials and the local Ambassadors of Spain
and Germany to discuss political and economic issues.
Foreign Minister Samuel Santos, Economics Minister
Horacio Brenes, and Presidential Advisor Bayardo Arce spoke
on behalf of the Ortega administration. Arce handled the
nuts and bolts of the economic issues raised, while Brenes,
presence was punctuated by his silence. Santos and Arce
glossed over some issues, such as relations with Iran and
Aleman's new privileges to move about the country, but the
meeting was generally cordial, and Santos played his usual
role as reconciler.

3. (C) Ambassador Trivelli opened the breakfast by remarking
that the administration's moves to centralize government,
criticize the press, scapegoat international investors, and
engage pariah regimes such as Iran raise questions about the
new government's commitment to maintain an open democracy and
friendly relations with all. Ambassador Trivelli and
Ambassador Koebel of Germany added that the perception of
judicial irregularities regarding the cases of Eric Volz, an
American convicted of murder, and Arnoldo Aleman, the
convicted PLC leader recently granted freedom to move about
the country with no apparent legal justification, call into
question Nicaragua's commitment to rule of law. The
increasing unease generated by the administration's lack of
clarity on important issues could lead to decreased
investment, a slowdown in new construction, and lower tourism
revenues.

4. (C) Santos and Arce blamed the "sensationalist press" for
distorting the administration's policies, and Santos asserted
that all new government's experience a "period of
adjustment." Arce argued that a decrease in economic
activity is "normal" after a change in government, but that
they really do not see much of decline. Arce stated the
administration will continue to pursue "transparency in
investment." (Comment: Ironically, Arce is a reputed money
launderer. End Comment.)

5. (C) Regarding the Volz case, Santos stated that the
government had done everything possible to respond to
concerns about Volz' security and wondered aloud if the
international media would prefer the government to "forget
Nicaraguan law." Arce later tried to absolve the executive
of responsibility by admitting that "our judicial system
unfortunately has faults that we can't hide." He suggested
to the European ambassadors that the
European Union cut off judicial assistance to force the
Supreme Court to implement the Judicial Career Law.

6. (C) Koebel and Spanish Ambassador Jaime Lacadena remarked
on two cases in the energy sector involving geothermal energy
company Polaris (German, Canadian, and U.S. invested) and
electricity distributor Union Fenosa (Spanish). Lacadena
stated that he is obliged to represent the interests of
Spanish multinationals, and that the situation that Union
Fenosa found itself in is "very complicated." Later, he
pointed out that the Nicaraguan government appears to apply
different rules to public and private utilities. Arce
replied that the government does not intend to push out Union
Fenosa. If Union Fenosa goes or if it stays, "it will be
Union Fenosa,s decision," he claimed. As for Polaris, Arce
mentioned others are interested in the geothermal project,
including the Italians and Russians. He added that Polaris
had had plenty of time to accomplish milestones set forth
under its concession contract, and that the royalty payment
to government in exchange for its transfer was way too little
for an investment whose book value was $29 million.

7. (C) With respect to land disputes on Nicaragua's Pacific
Coast, Arce acknowledged that many foreign investors are
experiencing difficulties with disputed properties,
especially in Tola (a municipality in the southern department
of Rivas), but he faulted "opportunistic" investors for
buying land without thoroughly investigating the validity of
the title.

8. (C) Santos claimed that the Sandinistas had inherited many
difficult and long-standing problems in the power sector from
the Bolanos government that would take time to sort out.
Santos made the point more than once that the government
intends to pursue its socialist objectives of serving the
poor, providing for health, education, electricity and water,
but in a "modern and sane way." Arce blamed Bolanos for
allowing international "robber barons" and "speculators" to
take advantage of Nicaragua with unfair terms, without
contributing to the country's infrastructure. He pledged
that the new government will treat investors "fairly," but
with the ultimate goal of benefiting Nicaragua.

9. (C) Comment: While Arce and Santos seemed defensive in
this meeting and did not appear to accept the fact that there
has been a marked change in investor attitude toward
Nicaragua, they are part of a relatively moderate faction of
Sandinista investors with a personal stake in economic
stability and good relations with the U.S. and Europe. The
breakfast served to them know that we and other embassies are
monitoring investor relations closely, a message they can use
to push back against party radicals urging Ortega to
strengthen alliances with Venezuela and Iran.

TRIVELLI

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