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Cablegate: Nicaragua: Scenesetter for Visit of Hhs Secretary

VZCZCXYZ0000
OO RUEHWEB

DE RUEHMU #0764/01 1681950
ZNY CCCCC ZZH
O 161950Z JUN 08
FM AMEMBASSY MANAGUA
TO RUEAUSA/DEPT OF HHS WASHINGTON DC IMMEDIATE
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHC/SECSTATE WASHDC 2751

C O N F I D E N T I A L MANAGUA 000764

SIPDIS

HHS FOR SECRETARY LEAVITT

E.O. 12958: DECL: 06/18/2018
TAGS: ECON PREL SOCI ETRD EFIN NU
SUBJECT: NICARAGUA: SCENESETTER FOR VISIT OF HHS SECRETARY
LEAVITT

REF: A. MANAGUA 628
B. MANAGUA 579
C. MANAGUA 573
D. MANAGUA 481
E. MANAGUA 338

Classified By: Ambassador Paul Trivelli for reasons 1.4 b&d

Introduction
------------

1. (SBU) We look forward to your visit June 25-26 to meet
with President Ortega, students at UNAN, and political and
economic leaders. Your visit comes as Nicaragua prepares for
municipal elections in November. President Ortega's
political maneuvering in the last 18 months has resulted in a
significant blurring of the line between the party and the
state, diminishing democratic space and slowing the economy.
Efforts by past administrations have begun to yield results
in health and education, but this progress is being
undermined by the recent economic downturn.

Health and Social Trends
-------------------------

2. (U) The current population of Nicaragua is 5.4 million;
life expectancy at birth is 72.9 years. Since 1991,
Nicaragua has steadily improved prenatal care coverage and
made impressive gains in infant mortality, which has dropped
from 52 deaths per 1,000 live births in 1991 to 29 per 1,000
in 2007. The percentage of women in monogamous relationships
currently using a modern family planning method is 69.8% and
the total fertility rate has decreased from 4.6 children per
family in 1992/3 to 2.7 in 2006/7. The country has made
progress in controlling the spread of diseases by achieving
and maintaining high vaccination coverage (85%) and
introducing vaccines, e.g., the MMR vaccine in 1998, the
pentavalent vaccine in 1999, and the rotavirus vaccine in
2006. Since 2004, infectious disease has fallen from fourth
to fifth place among the leading causes of death, with the
number of such deaths down nearly 50% since 1996.

3. (U) Social indicators for Nicaragua have also been
improving. UNESCO statistics show that 90% of primary school
age children were enrolled in 2006, up from 73% in 1991. In
2007, the Minister of Education reported overall school
enrollment of 86.5%. Nicaragua's score on the United Nations
Human Development Index rose by 43% from 1990 to 2007 (from
0.496 to 0.710). Despite these statistical gains, the
benefits of economic development have been uneven; over 50%
of Nicaraguans fall below the UN poverty line. Blackouts,
water shortages, weak transportation infrastructure, and high
energy prices disproportionately affect the poorest,
especially in rural areas.

U.S. - Nicaragua Relations
--------------------------

4. (SBU) The Embassy continues to engage with the Nicaraguan
Government on areas of common interest, despite President
Daniel Ortega's frequent public criticism of the United
States. The military and National Police remain relatively
independent, apolitical forces, and our cooperation with
these institutions to counter terrorist and criminal threats
remains good. We also support those elements of Nicaragua's
civil society, private sector, political class, and
government willing to defend Nicaragua's fragile democracy.
USAID's program supports efforts to strengthen democracy;
promote economic growth, especially through market-driven
assistance for small farmers; and improve education and
health care systems. Millennium Challenge Corporation is in
the third year of a five year, $175 million compact that
promotes rural business development, builds transportation
infrastructure, and improves property registration. USDA
assistance provides financing to small farmers and supports
government programs on sanitary and phytosanitary standards
for food exports. U.S. Treasury provides important technical
assistance on debt management and tax collection, while an
extensive Peace Corps program supports rural development,
health education, and English-language teaching.

Foreign Policy
--------------

5. (SBU) Ortega has pursued close ties with Venezuela and
cooperative relations with Iran. Immediately after his
inauguration, Ortega signed on to Chavez' Bolivarian
Alternative for the Americas (ALBA), and in late 2007 he
concluded an agreement with Venezuela that redirects up to
50% of oil purchases to development programs. Opposition
leaders and democracy watchdog groups complain that
accounting for this off-budget funding is not transparent.
President Ortega quickly sided with Venezuela and Ecuador and
briefly broke relations with Colombia in March over
Colombia's strike against the FARC's compound in northern
Ecuador. Despite reciprocal state visits, Iran, has still
not concluded an investment deal nor responded to Ortega's
request to forgive its sovereign bilateral debt. On the
multilateral front, President Ortega has succeeded in having
former Foreign Minister Miguel d'Escoto, known to detest the
United States, chosen by the Group of Latin American
countries to serve a one-year term as U.N. General Assembly
President beginning September 2008.

Political Climate
-----------------
6. (C) President Ortega has skillfully used his political
pact with former President and convicted felon Arnoldo Aleman
to wrest control over most institutions of government and
blur the distinction between party and state. The
centerpiece of Ortega's "second phase of the revolution" is
the introduction of Qadhafi-style "direct democracy" in
Nicaragua through the establishment of Citizen Power Councils
(CPCs). These groups, nominally representing civil society,
but directed by First Lady Rosario Murillo, are bypassing
elected municipal governments and increasingly assuming a
leading role in the distribution of FSLN patronage, such as
housing and discounted food.

7. (C) November 2008 municipal elections dominate the
political landscape at this time. Ortega's FSLN party will
face a weakened democratic opposition in what many view as a
referendum on his direct democracy model and his poor record
of governance during the first two years of his term (Ref C).
On June 11, the Supreme Electoral Council, controlled by
Aleman and Ortega, barred two prominent democratic parties
from participating in the upcoming elections, further
narrowing democratic space, eliminating potential challenges,
and stretching their political reach.

Macroeconomic and Financial Outlook
-----------------------------------

8. (SBU) Although frequently critical of free trade and
capitalism, Ortega has so far maintained the legal and
regulatory underpinnings of the market-based economic model
of his predecessors. Economic growth for 2007 was 3.8%.
Many independent economists believe 2008 growth will be
closer to 2.5%, given the local drop in investment and
construction and the impact the U.S. the economic slow down
may have on trade and remittances.

9. (SBU) Under an International Monetary Fund program signed
in October 2007, the Nicaraguan Government agreed to
implement free market policies linked to targets on fiscal
discipline, spending on poverty, and energy regulation.
Ortega's frequent populist rhetoric calls into question his
commitment to these targets. Inflation is on track to exceed
20% this year, boosted by rising fuel and food prices,
increase in aggregate demand, and a 30% increase in the
minimum wage for most occupations. The lack of a strong
anti-inflation program is worrisome to many economists, given
the likelihood that off-budget Venezuelan assistance has
created excess liquidity. In addition, the government
replaced a successful agricultural development program that
provided improved seeds and technical assistance to farmers
for a program that provides a families identified by local
CPCs with livestock and unimproved seeds. Complicating the
situation is that budget execution remains far below targets,
leaving needed infrastructure and other capital projects on
the drawing board.

Trade and Investment
--------------------

10. (U) Trade continues to be the primary engine of economic
growth for Nicaragua. In 2008, the volume of exports has
grown 18% over the same period in 2007. On April 1, 2006,
CAFTA-DR entered into force for the United States and
Nicaragua. Exports to the United States, which account for
55% of Nicaragua's total exports, were $1,608.4 million in
2007, up 36.3% from 2005.

11. (C) Despite important protections for investment included
in CAFTA-DR, the investment climate has steadily worsened
since Ortega took office. On more than a dozen occasions,
the government has used its tax, customs, and property
administrations to pressure individuals and companies into
accepting noncommercial terms in concessions or contracts.
Uncertain property rights also contribute to the
deterioration of the investment climate, especially for
tourism investment. Foreign investment inflows totaled $337
million in 2007, including U.S. firm Cone Denim's $100
million mill (Ref A) and Mexican and Spanish investment of

$120 million in telecommunications infrastructure.

Comment
-------

12. (C) This will be the first USG visit since the President
Ortega's recent actions to prevent two opposition parties
from standing in national municipal elections in November and
perhaps even the presidential elections in 2011. Your visit
provides an opportunity to express USG concerns that these
actions call into question the government's commitment to
democratic principles. Our bilateral agenda with Nicaragua
counts on progress in key areas such as: increasing
democratic space, reducing corruption, practicing good
governance, and honoring CAFTA agreements. Your dialogue
with Nicaraguan opposition leaders and private sector
representatives will also demonstrate U.S. resolve in
continuing its economic engagement and partnership with the
Nicaraguan people.
TRIVELLI

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