Cablegate: Nicaragua: Ortega and the Private Sector, Still Worlds

DE RUEHMU #0254/01 0641608
R 041608Z MAR 08




E.O. 12958: N/A

REF: 07 MANAGUA 1789; 06 MANAGUA 2450


1. (SBU) Following Daniel Ortega's November 2006 victory at the
polls, the business community's first reaction was the generalized
desire to get past the bitterness of the elections. Erwin Kruger,
then President of the Federation of Nicaraguan Business Associations
(COSEP), thought such reconciliation might be accomplished through
COSEP's economic plan, "Pillars of Development." Once in power,
however, Ortega treated COSEP, which supported rival Eduardo
Montealegere, as a natural political opponent. Within two months,
Ortega's government attacked Kruger, revealing a pattern of
persecution to be repeated with other political opponents. Ortega
later courted COSEP when he thought that treating the group like a
Citizen Power Council might win COSEP support for his controversial
scheme. COSEP rebuffed this advance and has since been working to
position itself as a politically neutral organization, a development
that appears to please Ortega. We expect COSEP to remain cautious
about assuming a high political profile, but to enter the fray when
government actions (or inaction) seriously affect the ability of its
members to conduct business.

Candidate Ortega and the Private Sector

2. (SBU) A week before the November 2006 election, Daniel Ortega
publicly signed a pledge with the Nicaraguan Chamber of Commerce to
uphold free market principles and pursue sound macroeconomic policy,
if elected (Ref B). He was the last of four major candidates to do
so, the others being Eduardo Montealegre of the National Liberal
Alliance (ALN), Jose Rizo of the Liberal Constitutionalist Party,
and Edmundo Jarquin of the Sandinista Renewal Movement. The
decision must have been difficult for the former Marxist
revolutionary. As a prominent member of the Federation of
Nicaraguan Business Associations (COSEP), the Chamber backed COSEP's
official endorsement of Eduardo Montealegre, Ortega's strongest
electoral opponent. The endorsement was a belated attempt to keep
the split between the two main liberal parties from handing Ortega a
victory. Notwithstanding, Ortega won the 2006 election, under new
rules, with just 38% of the vote.

Private Sector Looks to Engage with Ortega

3. (SBU) Ortega's electoral victory left the business community with
little more than the President-elect's signature on a piece of
political paper. Even before Ortega's inauguration, COSEP President
Erwin Kruger tried to get past the bitterness of the election and
into a cooperative dialogue with Ortega. Kruger proposed holding an
investment conference for the new president and working with the
government on an economic plan. Kruger hoped to insert COSEP into
the formulation of economic policy and keep Ortega on track when it
came to adhering to market principles and pursuing private sector
led growth.

4. (SBU) Under Kruger, COSEP developed an economic plan called "Ejes
de Desarrollo," or "Pillars of Development." The plan presents
industry specific initiatives for tourism, light manufacturing
(apparel), beef, coffee, food processing, aquaculture, peanuts, and
sugarcane (including ethanol). The plan stresses the importance of
free trade, staying economically engaged with North America and the
world, and dealing with domestic crosscutting needs such as
improving energy and infrastructure, financing small and
medium-sized businesses, providing vocational education and social
programs, developing the Atlantic coast, and strengthening the rule
of law. Kruger wanted to use the plan to engage President Ortega.

Relationships Sour

5. (SBU) Shortly after Ortega's inauguration in January 2007, Vice
President Jaime Morales and key Economic Advisor Bayardo Arce met
with COSEP. COSEP presented the Pillars of Development and proposed
that the government create working groups composed of ministers and
business leaders to discuss each pillar. COSEP was keen to pitch
the idea to Ortega, but the effort stalled as Kruger became the
object of apparent persecution.

6. (SBU) In February 2007, a month after Ortega's inauguration, the
Minister of Energy announced a review of the geothermal concession
awarded to a firm in which Kruger maintained a minor interest,
raising questions about the legitimacy of the concession and whether
the company involved had fulfilled its commitments to invest. The
Attorney General soon entered the fray to declare the concession
null. The share price of the Toronto traded company fell 50% in a
matter of days. The situation was not resolved until May, when the
company signed a new concession agreement with the Attorney General,
and, as part of a side deal, Kruger was removed from the Board of
Directors. Kruger and most COSEP members believe that government
action in this instance was the consequence of Kruger and COSEP's
political opposition to Ortega during the election. Other political
opponents of Ortega, such as former member of the National Assembly
Alejandro Bolanos Davis (Ref A), have been subject to similar

7. (SBU) In early September 2007, Kruger stepped down as COSEP
president, passing the torch to former Nicaraguan Chamber of
Commerce President Jose Adan Aguerri, who signed Ortega's November
2006 pledge on behalf of the Nicaraguan Chamber of Commerce.

8. (SBU) COSEP members and leadership increasingly view Ortega's
treatment of them as politically manipulative and even ominous.
Aguerri believes that Ortega never seriously considered cooperating
with COSEP. He points out that at first Ortega shunned COSEP in
favor of a direct dialogue with members of the Nicaraguan economic
elite, such as Carlos Pellas and Ernesto Fernandez Hollmann.
Aguerri, on sabbatical from a position in a bank owned by Hollman,
believes this overture was designed to weaken COSEP's voice.
However, Pellas and Hollman refused to cut their own deals, telling
Ortega that they would stand with COSEP.

Capitalism Sandinista Style

9. (SBU) In contrast, businesses owned by Sandinistas seem to
maintain excellent relations with the government. AgriCorp, the
largest importer of U.S. rice to Nicaragua, is partly owned by
President Ortega's Economic Advisor Bayardo Arce. It managed to
easily weather a dust up over genetically engineered U.S. rice that
accidentally entered the food supply system in the United States.
Another Sandinista-owned business is rumored to benefit from the
sale of livestock through the government's "Zero Hunger" food
assistance program. A number of Sandinistas are active in real
estate, capitalizing on land confiscated in the 1980s, when Ortega
was first president. Former Interior Minister Jaime Wheelock holds
shares in a beachfront development called "Hacienda Iguana," a
former Somoza property that Minister Wheelock transferred to a local
cooperative only to purchase at a discount price. In a rash of
scandals, other Sandinistas have pressed claims on tourist
properties in and around the Pacific beachfront area of Tola in the
Department of Rivas, areas politically controlled by Sandinistas.

Ortega Seeks to Reengage

10. (SBU) In June, Ortega found himself in need of political support
for his Citizen Power Councils, which had run into strong opposition
in the National Assembly and been roundly criticized in the press.
Much like the abusive Sandinista Defense Committees of the 1980s,
Citizen Power Councils are widely believed to be the mechanism
through which Ortega will rebuild the Sandinista party, parcel out
political spoils to followers, and control non-Sandinista elements
in local and central government.

11. (SBU) Ortega thought that COSEP might support Citizen Power
Councils, if he treated COSEP more like one, affording it better
access to his ministers and to government. He met with COSEP and
agreed to set up working groups along the lines proposed in COSEP's
Pillars of Development. He declared COSEP the "Citizen Power
Council that is working best." The uneasy courtship lasted until
October 2007, when Ortega delivered a well-received message of unity
to a COSEP forum, appealing to the private sector to "redouble [its]
efforts to lift Nicaragua out of poverty." Nevertheless, COSEP
members have never supported the concept of Citizen Power Councils,
and they have never embraced Ortega's declaration that they
constituted one.

12. (SBU) In January 2008, Ortega invited Aguerri to participate in
a meeting with President Hugo Chavez to explore trade and investment
opportunities with Venezuela. Aguerri declined after he learned
that the meeting was intended for Citizen Power Councils, and that
this was the pretext for inviting COSEP. Since Aguerri's refusal,
Ortega has cancelled at the last minute a number of meetings with
COSEP during February 2008. Relations continue to be uneasy.

No More Politics

13. (SBU) During Undersecretary of Commerce Christopher Padilla's
February 28 visit to Nicaragua, Aguerri spoke about the need to
unite the private sector to defend its interests. COSEP is
currently expanding its ranks from 11 to 16 business associations,
including the Nicaraguan Council for Micro, Small, and Medium-sized
Businesses and some with Sandinista links. He told Undersecretary
Padilla that COSEP's focus is on removing obstacles to doing
business and not on politics. Although Undersecretary Padilla
pushed back, suggesting that the private sector should play a role
in politics as an important element of civil society, Aguerri and
other private sector leaders made clear their belief that remaining
apolitical is the best course. Aguerri said that it was a mistake
that COSEP supported Montealegre in 2006; COSEP should have remained
outside the political fray. (Indeed, political party leaders tell
us that private sector contributions have been exceedingly scarce
since Ortega's victory -- purposefully withheld pending Liberal
unity and for fear of FSLN retribution.) COSEP is deliberating
whether to amend its charter to prohibit the group from endorsing
political candidates in future.

14. (SBU) President Ortega is pleased by this development. Business
and politics do not mix, he declared, telling Undersecretary Padilla
that COSEP "is now engaged in a more serious dialogue with
government." Ortega believes COSEP's stance allows him to look for
common ground on issues of importance to both sides. Meanwhile,
COSEP still is interested in using the Pillars of Development to
forge channels of communication with the government, but is focusing
more attention on doing-business issues as they relate to taxes,
customs, wages, and regulatory approvals, a task that Aguerri likens
to "trench warfare."

Comment: Still Worlds Apart

15. (SBU) Ortega is capable of fostering the public appearance of a
cordial and constructive relationship with the private sector even
as he targets specific individuals and their businesses for
government administered punishment when they cross his political
path. As a result, his relationship with the private sector is
barely cordial and marginally constructive. With few exceptions,
members of the private sector fear Ortega because they know he will
not hesitate to abuse his authority to advance his political agenda.
Nonetheless, Ortega's behavior is a far cry from the 1980s, and for
that the private sector is thankful. We expect COSEP to remain
cautious about assuming a high political profile, but to enter the
fray when government actions (or inaction) seriously affect the
ability of its members to conduct business.


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