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Cablegate: Brazil and Nicaragua: I Say Ethanol, You Say Hydro

VZCZCXRO4676
RR RUEHLMC
DE RUEHMU #2003/01 2421604
ZNR UUUUU ZZH
R 301604Z AUG 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 1121
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1155
RUEHBR/AMEMBASSY BRASILIA 0092
RUEHSO/AMCONSUL SAO PAULO 0012
RUEHRI/AMCONSUL RIO DE JANEIRO 0025
RHEHNSC/NSC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 MANAGUA 002003

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, AND EEB
TREASURY FOR SARA GRAY
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

E.O. 12958: N/A
TAGS: PREL EAID ECON PGOV NU IR
SUBJECT: BRAZIL AND NICARAGUA: I SAY ETHANOL, YOU SAY HYDRO

REF: A) MANAGUA 1978, B) MANAGUA 1944, C) MANAGUA 1783

1. (SBU) Summary: President Luiz Ignacio "Lula" da Silva's August
7-8 visit to Nicaragua was the first by a Brazilian head of state in
over 100 years. While Lula's focus for the visit was ethanol and
business opportunities that take advantage of CAFTA, Ortega tried to
interest the Brazilians in projects in agriculture, electricity
generation, and tourism. Although Lula tried valiantly to convince
Ortega of the benefits of ethanol, Ortega showed little interest.
Instead, Ortega tried to shift the focus of Lula's visit toward the
same portfolio of hydroelectric, geothermal, and infrastructure
projects he has been peddling to the Iranians and others (Ref A).
Bilateral talks also included Brazilian technical assistance to
Nicaragua's Hambre Cero program, a possible debt for development
swap, and support for Nicaragua's Peace and Reconciliation
Commission. Lula's visit made clear that while rhetorically Ortega,
Lula, and Chavez appear to be at least in the same populist
ballpark, in reality, the opportunities that the Brazilians seek in
Nicaragua would require that Ortega step back from Chavez and ALBA,
a move Ortega seems unwilling to make. End Summary.

Second Visit in a Week
----------------------
2. (U) Nicaraguan authorities characterized Brazilian President Luiz
Ignacio "Lula" da Silva's August 7-8 visit to Nicaragua as a
"historic event," a precursor to an increase in bilateral
cooperation and investment. The visit marked the first visit by a
Brazilian head of state in more than 100 years, although Lula
visited Managua as a union leader in 1980 to celebrate the first
anniversary of the Sandinista revolution. During this visit, a few
days after a technical delegation from Iran toured Nicaragua (Ref
A), Lula stated that he had maintained a close relationship with
Ortega throughout the 1990s and that he was delighted that the FSLN
leader had returned to power. Brazilian officials declared they
wanted to establish a relationship of "permanent cooperation" and
"integration" with Nicaragua, particularly in the areas of
agriculture, reforestation, fisheries, health, and education. The
two leaders signed twelve cooperation agreements covering
agriculture, forestry, education, foreign relations, tourism,
health, trade, investment and energy.

3. (U) Lula traveled to Nicaragua from Honduras, the second stop on
his Latin American tour that included Mexico, Jamaica, and Panama.
He was accompanied by his Minister of Foreign Relations Celso
Amorim; Minister of Development, Industry, and Foreign Commerce
Miguel Jorge; Special Secretary of Aquaculture and Fisheries Altemir
Gregolin; and a delegation of 50 businessmen, who participated in a
trade and investment forum in Managua geared toward creating
investments in infrastructure, energy (mostly biofuels), and
agro-industry.

Biofuels - Is Ethanol an Option?
--------------------------------
4. (U) One of the first areas for cooperation discussed was
biofuels, primarily ethanol, as a potential way to solve Nicaragua's
energy crisis. Brazilian Marcos Saways Yank, President of the Sugar
Agro-Industry Union of Sao Paulo, tried to convince GON officials
and private sector representatives of the merits of ethanol
production. In an editorial published during the visit, Lula stated
that he considers Nicaragua to be "a strong candidate to lead a
pioneer initiative in Central America" in ethanol development.

5. (U) President Ortega, however, has been vocal about the danger of
Nicaragua becoming dependent on ethanol production. He has stated
several times that reliance on ethanol will put Nicaragua on "the
dangerous path to monoculture." Outside of criticizing the United
States' corn-based biofuel program, Ortega showed little interest in
the subject throughout Lula's visit. When pressed, Ortega stated
that ethanol from African palm was acceptable, but avoided making
any direct comments on sugar-based ethanol. He added that he would
leave the issue of biofuels to the private sector. Later,
Nicaraguan Minister of Energy and Mines Emilio Rappaccioli said that
while the production of ethanol was justified for other countries,
Nicaragua would prefer to use its farmland for the cultivation of
food products such as basic grains.

Electricity Instead of Biofuels
-------------------------------

MANAGUA 00002003 002 OF 003


6. (U) In an effort to shift the focus of Lula's visit from ethanol
and biofuels, the GON presented several hydroelectric and geothermal
projects to the Brazilians, the same ones they hawked to the Iranian
delegation a week earlier (Ref A). Nicaraguan ENEL Director Ernesto
Martinez Tiffer added two additional projects, which could generate
up to 120 megawatts of electricity for an investment of USD 250
million. In the end, Lula agreed to look into financing
hydroelectric and geothermal projects, but only after he lauded the
potential for biofuels, based on soy, sunflowers, and Africa palm,
as viable alternatives for Nicaragua.

Infrastructure and Agro-Industry
--------------------------------
7. (U) As they had done with the Iranian delegation, the Nicaraguans
flooded the Brazilians with infrastructure project proposals. The
President's advisors presented proposals to improve the ports and
airports on Nicaragua's Atlantic coast to increase tourism. The
Nicaraguan Port Authority requested USD 9 million to dredge 42 kms
of the San Juan River. Agriculture and Forestry Minister Ariel
Bucardo wanted to work with the Brazilians on importing equipment
for Nicaragua's coffee and beef sectors. Lula promised to ask
Brazilian bus manufacturers to sell their buses to Nicaraguans at
discounted prices.

The Private Sector had specific objectives
------------------------------------------
8. (U) While Ortega used the visit as an opportunity to criticize
CAFTA and praise ALBA as "free trade versus fair trade," it was
clear that the Brazilian business representatives who accompanied
Lula view Nicaragua as a platform from which they could export to
the United States, taking advantage of CAFTA. At the
Nicaragua-Brazil trade fair, the main areas of interest were
infrastructure, energy, textiles and ethanol. Nicaragua's largest
sugar producer (and only ethanol producer) agreed to explore
dehydrating Brazilian ethanol here for export to the U.S. under
CAFTA terms.

Food Assistance
---------------
9. (U) The GOB team paid particular attention to Nicaragua's "Hambre
Cero" program--a food security initiative loosely based on Brazil's
"Fome Zero" (Ref C). Brazilian officials offered technical and
scientific cooperation to Nicaragua to improve the program's
effectiveness. Currently, Hambre Cero is focused exclusively on
distributing farm animals and seed to pre-selected families
throughout Nicaragua. In contrast, Fome Zero involves a variety of
different initiatives, ranging from direct and conditional cash
transfers to the poorest families ("Bolsa Familia"), distributing
vitamins and iron supplements, and micro-credit. Brazilian
officials expressed support for the GON's plan to hand control of
the Hambre Cero program to the controversial FSLN-controlled Citizen
Power Councils (Ref B), as Brazil's program is run through a similar
system of councils controlled by Lula's Workers' Party.

Debt for Social Development Swap
--------------------------------
10. (U) The most unexpected request to the GOB was Ortega's proposal
to swap Nicaragua's debt with Brazil (USD 5.9 million) with projects
in the social and development sectors. Given that this was the
first mention of such an idea, no specifics on the exact nature of
the swap or the social programs were unveiled. In his editorial
during this visit, Lula argued that Brazil's forgiveness of
Nicaragua's bilateral debt should be seen as "an expression of
solidarity and also as a credit of confidence." (Note: Under the
terms of the HIPC program, Nicaragua does not service any of its
pre-HIPC foreign debt. End Note.)

Helping Peace and Reconciliation
--------------------------------
11. (U) President Lula also met with retired cardinal Miguel Obando
y Bravo, who now heads up the GON's Commission of Verification,
Peace, Reconciliation and Justice. Lula promised technical
assistance to the Commission which seeks to resolve the demands of
150,000 ex-combatants. Lula promised he would send a delegation
headed by the Brazilian Minister of Agriculture and a team of
Brazilian labor leaders to Nicaragua to discuss possible areas of
cooperation. Lula also committed to make contacts with other world
leaders to gather resources for the Commission.

MANAGUA 00002003 003 OF 003

Common Positions on Foreign Affairs
-----------------------------------
12. (U) The final joint communique spelled out several common
positions on foreign affairs:

-- Both countries "manifested their will and firm commitment to
fight transnational organized crime."

-- Both "reaffirmed that terrorism, in all its forms and
manifestations, has no justification."

-- Both presidents "Expressed their feelings of solidarity with the
Government and fraternal people of Cuba."

-- Both presidents emphasized the dialogue and negotiations,
according to the principles of the UN Charter, are the basis for
finding peace in the Middle East, Iraq and Afghanistan.

Comment
-------
13. (SBU) Lula's visit demonstrated that while rhetorically Ortega,
Lula, and Chavez may be in the same populist ballpark, in reality,
the Brazilians are positioned away from Chavez and ALBA. In many
ways, Lula presented Ortega with an alternative leftist approach to
populist, Chavista policies. For Brazil, sugar-based ethanol, not
oil, is the wave of the future. Brazilian investors are attracted
to Nicaragua because of CAFTA, as opposed to wanting to compete with
CAFTA. The concrete, business focused nature of Lula's visit stands
in clear contrast to the promises made by Chavez and Ahmadinejad.
Ortega came across as not particularly interested in what Lula had
to offer, as it often challenged the basis of his alliance with
Chavez and all things ALBA.

TRIVELLI

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