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Cablegate: Nicaragua Labor: Minimum Wage Battle Continues

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RUEHGV/USMISSION GENEVA PRIORITY 0372
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C O N F I D E N T I A L SECTION 01 OF 03 MANAGUA 001187

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DEPT FOR WHA/CEN KRAAIMOORE
DEPT FOR INR/IAA EMERSON
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E.O. 12958: DECL: 09/02/2018
TAGS: ELAB PGOV PHUM ETRD EINV NU
SUBJECT: NICARAGUA LABOR: MINIMUM WAGE BATTLE CONTINUES

REF: MANAGUA 578

Classified By: Ambassador Robert J. Callahan for reasons 1.4(b,d)

1. (C) SUMMARY: After several rounds of the most recent
semiannual tripartite minimum wage negotiations, there is
still no consensus on the next increase, and no one seems
interested in ending the negotiations any time soon.
Business leaders are willing to accept an 11.7% increase on
top of a 15% increase granted in January and their ability to
remain competitive in the face of rising labor costs; labor
union representatives now demand a 35% increase to recover
lost purchasing power from high food and fuel costs; and the
government proposes a 13% increase to maintain jobs. With the
GON offer finally tabled, labor union leaders aligned with
the Sandinista National Liberation Front (FSLN) are beginning
to cave; however, there is still no agreement and the process
will most likely continue until after the November Municipal
elections to avoid any distracting labor-government
confrontations. END SUMMARY.

Background: Nicaraguan Minimum Wage Law
- - - - - - - - - - - - - - - - - - - -

2. (SBU) The Nicaragua Minimum Wage Law (Law 625) was pushed
through the National Assembly in June 2007 by the FSLN
deputies without permitting substantial modifications by the
opposition. The law establishes the minimum wage according
to occupations, including, construction, free trade zones,
financial services, domestic/service, and others. It
stipulates that the minimum wages for these occupations will
be reviewed every six months by the National Commission of
Minimum Wage, a tripartite body that includes business, labor
and government representatives. The Commission's mandate is
to discuss appropriate adjustments to the minimum wage that
reflect inflation and economic growth as reported by
Nicaragua's Central Bank. Once there is agreement among the
business, labor, and government representatives, then the new
minimum wage can take immediate effect or can be retroactive
to the start of negotiations. If no agreement is reached
through the tripartite negotiations after two months of
meetings, then the GON has 30 days to unilaterally declare
the new minimum wage. To date, there have been three
convocations of the National Commission of Minimum Wage, and
the next statutory convocation is scheduled for November
2008.

Round One: Business Budges a Bit
- - - - - - - - - - - - - - - -

3. (SBU) The Federation of Nicaraguan Business Associations
(COSEP) and the FSLN-affiliated Small Business Association
(CONAPI) initially proposed an 11.29% increase to the minimum
wage during the first round of the current semiannual
tripartite negotiation that began the first week of August.
Business representatives raised their offer to 11.73% after
heated meetings with labor leaders, but have held firm at
that level for the past month. COSEP and business leaders
would not be willing to raise minimum wages above 12% and
defend their position by claiming that it is "tied to (the
formula in) the Nicaraguan minimum wage law" and an increase
above 12% "is inconsistent with technical criteria."


Round Two: Divided Unions
- - - - - - - - - - - - -

4. (SBU) Although there was consensus between FSLN and
non-FSLN labor unions after the first round of the annual
tripartite negotiation, as second round opened, the
FSLN-affiliated labor unions were divided over the percentage
increase they should demand from the private sector. The
FSLN-allied National Front of Workers (FNT), led by Luis
Barbosa, and by National Assembly member and President of the
Health and Social Security Committee Gustavo Porras, demanded
a 53% increase to help workers fight rising inflation and the
loss of purchasing power. Meanwhile, the FSLN-allied Central
Trade Union of Sandinista Workers (CST), led by Roberto
Gonzalez, demanded a 25% increase in the minimum wage with a
20% government subsidy for staples. The lack of consensus
among the union representatives prolonged the second round of
negotiations and delayed the presentation of government's
offer. Porras, in particular, has been manipulating the
tripartite process for his own political purposes.
Throughout negotiations, he would suddenly leave the
negotiation room to hold impromptu press conferences, in
which he has bashed Nicaragua,s business community and
claimed to be the main labor spokesperson.

Round Three: Government Gives Little Ground
- - - - - - - - - - - - - - - - - - - - - -

5. (SBU) On August 25, 2008, the GON, aware of its own
budgetary constraints as a major employer, but also a
self-proclaimed defender of Nicaragua's workers, offered a
compromise that would raise the current minimum wage by 13%.
GON representatives argued that its 13% offer, in addition to
the January 2008 15% increase, would represent an overall 28%
increase in the minimum wage for the year. Ivan Acosta, the
Secretary General of the Ministry of Finance and Public
Credit, defended the GON proposal by arguing that a larger
increase would raise unemployment and threaten economic
stability.

Round Four: Unions Cave, GON Seeks Business Agreement
- - - - - - - - - - - - - - - - - - - - - - - - - - -

6. (SBU) Since the GON tabled its compromise, Labor Minister
Jeaneth Chavez has been absent from subsequent meetings and
sent a lower ranking deputy to represent the government in
these negotiations. Union leaders decried the absence of the
main GON negotiator as evidence that there was no firm
agreement. Porras, who is both a labor leader and Nicaraguan
government official, rejected the GON's offer, claiming that
it was not "serious and responsible" and that the GON's next
offer would be more reasonable. However, Porras went on to
unilaterally propose a 35% increase, significantly lower than
labor's 53% starting point. Meanwhile non-FSLN-affiliated
union leader, Emilio Marquez Acuna, took a harder line by
remarking that the GON offer "signals contempt and
indifference" toward the labor force of Nicaragua.

7. (C) Embassy business contacts involved in the tripartite
negotiations said that after the GON announced its compromise
offer, Labor Ministry officials secretly contacted them
outside of the tripartite process to try to reach an
agreement. The terms of GON-proposed agreement between
business and government would primarily benefit the GON, by
allowing it to paint the Nicaraguan business community as
hostile to labor. Our business contacts tell us that they
would not support the one-sided GON proposal, nor would they
walk out of the negotiations in protest again, as they have
previously in the last two negotiations. However, they
continue to believe that the semiannual negotiation process
is "an unnecessary, never-ending, political
three-ring-circus" that gives labor unions a "bully pulpit
against business" and ultimately, scares-off foreign
investment in Nicaragua because of the unpredictable labor
costs.

Final Decision: After the Election?
- - - - - - - - - - - - - - - - - -

8. (C) Union representatives, led primarily by Porras and
Barbosa, were adamant in their demands for a 53% increase in
the minimum wage until the FSLN-controlled GON made its
offer. Now Porras, and other FSLN-affiliated labor leaders,
seem to be walking back. Business leaders are still not
willing to raise wages more than 12% at the expense of losing
their cost advantages and increasing inflation. Despite
Ortega's rhetoric, the GON is unable to move much closer to
the union position because of its own limited budget for
government employees. Our contacts tell us that the
tripartite negotiations will continue until September 24th,
when the GON begins its statutory 30-day period to
unilaterally declare the next increase to minimum wages.

COMMENT
- - - -

9. (C) Soaring food and fuel prices are fueling the heated
debate at the Nicaraguan National Commission on Minimum Wage.
These same economic issues are also at play with potential
voters in the 2008 Municipal Election. We believe that in
this pre-election environment, the FSLN-controlled government
will further put off declaring a new, unilateral minimum wage
increase until after the November municipal elections. This
allows the GON to avoid any embarrassing labor confrontations
or be perceived as treating workers unfairly. Union leaders,
so far, have not threatened to strike. However, there is a
significant division between FSLN-aligned unions that want to
be more sympathetic to the GON position and non-FSLN-aligned
unions that are willing to take a harder line, similar to the
division that occurred during this summer's transportation
strike (see REFTEL). We note that under a non-FSLN
administration in an election year, a similar discrepancy
between labor demands and the GON would have resulted in
well-organized labor demonstrations and strikes.
CALLAHAN

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