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Cablegate: Nicaraguan Donors Grow Disenchanted with Ortega

VZCZCXRO5367
RR RUEHLMC
DE RUEHMU #0885/01 1932334
ZNY CCCCC ZZH
R 112334Z JUL 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2878
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRL/AMEMBASSY BERLIN 0141
RUEHHE/AMEMBASSY HELSINKI 0058
RUEHLO/AMEMBASSY LONDON 0101
RUEHSM/AMEMBASSY STOCKHOLM 0143
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC
RUMIAAA/CDR USSOUTHCOM MIAMI FL

C O N F I D E N T I A L SECTION 01 OF 04 MANAGUA 000885

SIPDIS

STATE FOR WHA, WHA/CEN, EEB/OMA AND INR/AA
STATE PLEASE PASS TO USAID/LAC
TREASURY FOR SARA SENICH

E.O. 12958: DECL: 07/16/2018
TAGS: EAID EPREL PGOV ECON NU
SUBJECT: NICARAGUAN DONORS GROW DISENCHANTED WITH ORTEGA

REF: A. MANAGUA 761
B. MANAGUA 2479
C. MANAGUA 2255
D. MANAGUA 2203

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

1. (C) Summary: Over the last six months, bilateral foreign
donors in Nicaragua have grown increasingly disillusioned
with the Ortega administration. This disappointment has
coincided with an unrelated shift in European assistance
agencies' priorities away from Central America towards Africa
and other poorer regions. So far, Sweden, the United
Kingdom, and Germany have withdrawn assistance in some form
from Nicaragua. The Supreme Electoral Council's decision to
disqualify two opposition parties (Ref A) resulted in an
attitudinal shift within the broader donor community. As a
result, all donors to Nicaragua, including multilaterals,
issued a strong joint public statement, expressing concern
with the closing of Nicaragua's democratic space. The GON's
reaction was swift and virulent, with President Ortega and
both Vice Foreign Ministers publicly insulting the donors.
Assistance agencies have stuck by their message and begun to
systematically re-examine their programs and priorities.
With donor assistance accounting for almost 25% of the
Nicaraguan budget, the GON seems to have reconsidered its
position and have scaled back the rhetoric. We do not
believe, however, Ortega is quite ready to forgive the
donors' outbursts. End Summary.

Donors Are Re-Examining Their Programs...
-----------------------------------------

2. (SBU) Over the last six months, bilateral foreign donors
in Nicaragua have grown increasingly disillusioned with the
Ortega administration. The lack of dialogue with the GON and
its strong focus on assistance from "non-traditional" donors,
such as Venezuela and Iran, have left many feeling side-lined
from Nicaragua's development process (Refs B, C). The recent
presentation of a draft National Development Plan which is in
large part a political diatribe against the U.S., the EU,
free markets and western assistance, contained none of the
plans, projects, and targets the donors need to align their
programs with Nicaraguan priorities.

3. (C) This disappointment has coincided with an unrelated
shift in European assistance agencies' priorities away from
Central America towards Africa and other poorer regions.
Sweden was the first donor to announce its departure (Ref D)
in 2007. It initially cut its direct budget support and
subsequently announced the closing of its Embassy by 2009.
The next was Germany, which decided not to provide direct
budget support in 2008, but has kept the rest of its
assistance in place. At the end of 2007, the United Kingdom
(DFID) announced that it will be pulling out of direct budget
support, closing its DFID offices in 2010, and shifting it
assistance for the next four years to NGOs. (Note: The
Budget Support Group is composed of the Inter-American
Development Bank, the World Bank, the European Union, the
U.K., Norway, the Netherlands, Germany, Switzerland, and
Finland. BSG observers are the IMF, UNDP, Sweden, Canada,
and the United States. End Note.) Privately, donors explain
the decision to withdraw was made all the less painless by
the Ortega administration's focus on consolidating power and
wealth, complete disregard for prior assistance models and
existing programs, and determination to re-write the last 17
years of Nicaraguan history, falsely asserting that no
progress was made on poverty reduction during that period.

...They React Publicly...
-------------------------

4. (C) An attitudinal shift within the broader donor
community, including the multilateral donors, occurred when
the Supreme Electoral Council (CSE) decided to disqualify two
opposition parties, a move widely judged as purely political
with no legal justification (Ref A). The Budget Support
Group (BSG) and other European and multilateral donors met
with representatives of one of the parties (MRS - Sandinista
Renewal Movement) and the President of the National Assembly
Judicial Commission Jose Pallais, in the days leading up to
the CSE announcement, and with opposition leader Eduardo
Montealegre in the days following. While most donors were
reluctant to take drastic steps such as cutting assistance in
response to the GON's actions, they exhibited a clear sense
of frustration and anger, and a new awareness of how deeply
the FSLN and its pact with Arnoldo Aleman has imbued every
aspect of Nicaraguan life. The result was a strong public
statement, signed by all bilateral and multilateral donors,
including Japan, Taiwan, UNDP, and the World Bank, groups
traditionally unwilling to criticize the government. The
statement expressed the donors' concern with the closing of
Nicaragua's democratic space and emphasized good governance
and democracy as fundamental principles of all assistance
agreements.

...And the Government Responds
------------------------------

5. (U) The response from high level members of the GON was
immediate and vitriolic asserting that donors had no right to
interfere or comment on domestic politics. President Ortega,
playing on EU Ambassador Francesca Mosca's name (mosca means
fly in Spanish), called donors "flies which land on trash;"
that only provide Nicaragua with miniscule amounts of
assistance. Vice-Foreign Minister Manuel Coronel Kautz, in a
public meeting with donors on the CSE's case, used a vulgar
colloquial expression comparing the donors to a "woman who is
never satisfied." Vice-Foreign Minister for Foreign
Assistance Valdrak Jaentschke was the most emphatic, claiming
that donors have "done nothing positive in the country in the
last 17 years" and that "if the donors say that there is no
cooperation because we do not do something, we do not have a
choice but to say, if you want to take it- take it, that is
the final statement of dignity." He added that donors have
the bad habit of "getting overly involved in internal issues"
and "they are trying to do democracy and development in a way
that has not worked." He also claimed donors were
coordinating anti-Ortega lobbying activities by NGOs.
Jaentschke closed saying that Europe "has a huge social debt
with Latin America since the colonial times." (Note: Despite
this strong rhetoric, President Ortega and his government
were quite welcoming and calm during the visit of HHS
Secretary Leavitt on June 25. End Note.)

Donors Next Steps
-----------------

6. (SBU) Donors, through the Canadian Director of Cooperation
Kerry Max ) as chairman of the Donor's Group - and EU
Ambassador Mosca, publicly stood by their statement and
concerns. There were several follow-up meetings with the GON
emphasizing the clear tie between an open democracy and
assistance programs. Max highlighted that donors will be
looking closely at the GON's actions regarding the upcoming
license renewal for opposition television station Channel 2.

7. (C) Privately, bilateral donors are starting to make
decisions about future funding. The Netherlands will not
provide budget support in 2009, Finland will not either, DFID
will not disburse its 2008 budget support funds, and the
European Union has delayed finalizing some programs and is
considering withdrawing budget support. Donors are also
studying whether to re-channel budget support funds though
other mechanisms or to withdraw it altogether. (Note: 2007
Budget Support was USD 80 million; USD 110 million was
pledged for 2008. End Note.) Donors are reluctant to
re-direct funds into programs with ministries given current
problems with under-execution of projects. Re-directing
funds to civil society is not an option for many donors due
to funding regulations requiring GON approval. The likely
result will be that Nicaragua loses the funds.

8. (C) Multilateral donors are more sanguine at the moment.
During a meeting with the Ambassador, World Bank (WB) ResRep
Joseph Owen stated that it is not in the WB's mandate to
comment on democracy and governance; focusing instead on
development programs that would take place irrespective of
the government in power. He admitted that the IFIs and UN
agencies tend to give the GON more benefit of the doubt than
it deserves. Their objective is to keep a foot in the door,
so they can help the GON "see the error of its ways." During
a review of the BSG's fundamental principles, the
multilateral donors were the most resistant to including in
the final report any serious criticism of the GON's good
governance and rule of law performance or any mention of the
increasing role of the Citizen Power Councils (CPC),
government-sponsored community level pressure groups. This
does not mean, however, that they are not concerned by recent
events. The WB is encountering problems with CPCs and is
worried about an FSLN supported non-debt-payment movement
developing in the northern parts of the country affecting a
range of micro-credit lending institutions. It has frozen
USD 20 million pending the results of the much delayed 2007
end of year IMF review. The IDB has recently brought in
several speakers to discuss the importance of free markets
and effective governance and regulation. Most importantly,
the IFIs and UN agencies all signed on to the donor statement
regarding the CSE decision.

Comment
-------

9. (C) Interestingly, the European ambassadors are now
admitting that our more dire, long held, more jaundiced view
of Ortega's ambitions may be right after all. They were
reluctant to criticize several early GON moves that affected
the opposition. It took a blatant attack on two political
parties and the hunger strike of a prominent former guerrilla
(Ref A) to jolt them. The MRS's close ties to European
social democratic parties doubtless made European governments
especially sensitive to its plight. With donor assistance to
Nicaragua accounting for almost 25% of its budget, it is
perhaps a risky move by the GON to turn it guns on the EU and
other donors. While Venezuelan assistance of USD 520 million
does outstrip other donor assistance, that assistance is not
reliable. The GON seems to have now realized that fact and
the rhetoric has scaled back, but we do not believe Ortega is
quite ready to forgive the donors' outbursts.

Bilateral Assistance Levels in Nicaragua
----------------------------------------

10. U) Below is a table of total bilateral donor assistance
levels:
(Source EU Blue Book and Embassies- USD millions)

Country 2007 2008
--------------------------------------------- ----------
Spain 28.4 61.4
Denmark 39.4 43.0
European Commission 74.0 47.2
Germany 20.3 42.2
Netherlands 39.5 36.3
United States 37.5 35.7
Sweden 43.1 29.7
Finland 22.2 20.8
Luxembourg 13.2 16.9
Canada 17.0 14.0
Austria 8.9 8.0
United Kingdom (DFID) 5.2 7.7
Italy 6.5 3.6
France 3.3

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