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Cablegate: Nicaragua: Ortega Incites Microfinance Protests

VZCZCXRO3716
RR RUEHLMC
DE RUEHMU #0932 2042245
ZNR UUUUU ZZH
R 222245Z JUL 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2926
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS MANAGUA 000932

SIPDIS
SENSITIVE

STATE PASS OPIC AND IAF

E.O. 12958: N/A
TAGS: EFIN ECON PGOV NU
SUBJECT: NICARAGUA: ORTEGA INCITES MICROFINANCE PROTESTS

1. (SBU) Summary: President Ortega encouraged supporters at
political rallies held in northern Nicaragua to protest against
microfinance providers and demand renegotiation of outstanding
loans. Local groups have responded to Ortega's call for action and
barricaded the offices of several banks and other institutions.
These microfinance providers remain closed. Some opposition
politicians concede that Ortega's attack on "usurious lenders"
resonates well politically. Defenders of microfinance note that
they are the only source of financing for many small farmers, and
their clients have excellent repayment rates. They point out that
it is Ortega's rhetoric that drives up country risk and increases
the cost of financing for the poor. End summary.

2. (U) During a political rally in the northern city of Jalapa on
July 12, President Ortega encouraged clients of microfinance
providers to "protest against usurious lending practices" and
"demand renegotiation of their loans." He blamed microfinance
providers for taking advantage of the poor and suggested that the
Rural Savings and Loan Cooperative (CARUNA), founded by the FSLN in
1993, would provide loans to the poor of Jalapa at interest rates no
higher than 8%. In a July 19 speech marking the 29th anniversary of
the Sandinista Revolution, Ortega confirmed that CARUNA, rumored to
have been receiving Venezuelan ALBA funding for several months
already, would receive $30 million from the financing scheme.

3. (U) Citing Ortega's call to action, a former FSLN mayor of
Jalapa, who is in debt with microfinance providers, has led a
protest against Banco ProCredit and FUNDESER, the city's only
financial institutions, that has kept them shuttered and unable to
operate since July 14. On July 16, protestors prevented microfinance
providers in nearby Ocotal from operating by barricading their
doors. Later that day in Esteli, Ortega added fuel to the fire by
identifying Banco ProCredit, FINDESA, ASODENIC, and FODEM for their
usurious lending practices. and branding them as "banking
terrorists." Ortega blamed "neoliberalism," imposed by the
"imperialist yankees," for having eliminated "the people's banks"
that he created in the 1980s and replaced them with banks that
encourage consumption only. Since then, protests in other cities in
northern Nicaraguan have led to the closure of additional
microfinance providers. There are renewed reports of violence in
Ocotal on July 22.

4. (U) Alfredo Alaniz, President of the Nicaraguan Association of
Microfinance Institutions (ASOMIF), has criticized President Ortega
for inciting violence against microfinance institutions who are the
only source of credit for many poor farmers. ASOMIF's 19 members
manage a total loan portfolio of $240 million, while several
commercial banks, including Banco ProCredit and FINDESA, manage
microfinance loan portfolios of another $250 million. Alaniz
reported that in many cities throughout Northern Nicaragua,
microfinance institutions and banks remain shuttered, unable to
provide service to clients while under threat of violent protest.

5. (SBU) Critics of microfinance complain that interest rates are
too high, sometimes reaching 35% on an annual basis. Opposition
politicians privately concede that Ortega's attack on microfinance
institutions, while shortsighted from an economic perspective,
resonates well politically. Defenders of microfinance explain that
their administrative costs are higher. They also claim to provide
hands-on financial advice and education to clients and that their
clients have excellent repayment rates. ASOMIF President Alaniz
adds that Ortega's rhetoric since he took office has resulted in
microfinance institutions' cost of funds increasing by nearly 25%.

6. (SBU) Comment: Whether these lenders' interest rates in fact
exceed a legitimate premium for the financing, default rate, and
administrative costs associated with microfinance is a legitimate
subject for debate. But, with the economy slowing and inflation
coming in at 11% for the first half of 2008, attacks on "usurious"
lenders are part of Ortega's strategy to divert attention from his
lackluster performance. End comment.

TRIVELLI

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