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Cablegate: Nicaragua: European Budget Donors in Holding

VZCZCXRO5336
RR RUEHLMC
DE RUEHMU #1489/01 3472307
ZNY CCCCC ZZH
R 122307Z DEC 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3519
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRL/AMEMBASSY BERLIN 0153
RUEHSW/AMEMBASSY BERN 0050
RUEHCV/AMEMBASSY CARACAS 1336
RUEHHE/AMEMBASSY HELSINKI 0062
RUEHLO/AMEMBASSY LONDON 0115
RUEHNY/AMEMBASSY OSLO 0095
RUEHFR/AMEMBASSY PARIS 0054
RUEHSM/AMEMBASSY STOCKHOLM 0147
RUEHTC/AMEMBASSY THE HAGUE 0176
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUEHBS/USEU BRUSSELS

C O N F I D E N T I A L SECTION 01 OF 03 MANAGUA 001489

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC AND EEB
DEPT FOR USOAS
STATE PASS TO USAID FOR CARDENAS
TREASURY FOR SARA SENICH
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN

E.O. 12958: DECL: 12/11/2018
TAGS: EAID ECON EFIN NU PGOV
SUBJECT: NICARAGUA: EUROPEAN BUDGET DONORS IN HOLDING
PATTERN

REF: MANAGUA 1426

Classified By: Ambassador Robert J. Callahan for reaons 1.4 b & d.

1. (C) Summary: European donors to Nicaragua's national
budget (at both the EU and Member State level) are seriously
examining their assistance to Nicaragua in large part as a
result of the fraud perpetrated by the Sandinista National
Liberation Front (FSLN) during the November 9 municipal
elections. The European Commission Delegation in Nicaragua
has told us they are waiting for policy guidance from
Brussels on a way forward but a suspension of disbursements
is likely. Donor support accounts for almost 15% of the
Nicaraguan national budget. The French Ambassador,
representing the EU Presidency, recently reminded the GON in
a recent press interview that EU assistance comprises about
50% of international budget support for Nicaragua. So far in
2008, Nicaragua's international Budget Support Group (BSG)
has disbursed only $15 million of a previously programmed
$115 million because of frustration with the FSLN's lack of
transparency, its bullying of NGOs, and the harassment of
political opposition earlier this year. Germany, the United
Kingdom and Sweden had already announced plans to withdraw
budget assistance earlier from Nicaragua as a result of a
realignment of foreign aid priorities towards Africa and the
Mideast. Europe-funded sectoral assistance projects, which
are more targeted, continue to be funded. End Summary.

Europeans Reach Impasse
-----------------------

2. (C) Formed in 2005, the BSG comprises the European
Commission, the Netherlands, Norway, Switzerland, Sweden,
Finland, Germany, the UK, the World Bank and the
Inter-American Development Bank (IADB). Unlike specific
sectoral projects, budget support provides the GON with
discretionary funds which can be utilized for a variety of
national needs. Our European interlocutors have recently
made plain, both privately in and public, that the primary
reason for dwindling budget support is the GON's antagonistic
policies towards civil society, NGOs and an overall lack of
fiscal transparency, to include funds from Venezuela which
are "off budget." The FSLN's fraudulent November 9 municipal
election results, an election which was neither free nor fair
and lacked international observers, has called into question
the very survival of the BSG as a cohesive entity here.

3. (C) On December 5 Carlo Pettinato, the European Commission
Delegation's Chief of Institutional and Budget Support, told
econoff that so far in 2008, the Commission has not provided
a single euro for the Nicaraguan national budget because of
dissatisfaction with the GON's performance on democracy and
transparency issues. The FSLN's actions on November 9 only
served to raise Nicaragua,s negative profile in Europe. In
Brussels, the issue of disbursements to the Ortega regime has
now reached senior, political levels within the EU, drawing
the attention of Commissioner for External Relations Benita
Ferrero-Waldner. Pettinato said that 2009 looks equally
bleak, and unless the FSLN takes dramatic steps to achieve a
"politically legitimate" solution, budget support funds from
the Commission will remain frozen. He added that given the
multi-layered nature of the EU's decisionmaking process in
Brussels, not to mention the upcoming holiday season, it was
easy to predict a long delay in budget support disbursements.


4. (U) Representing the EU Presidency, French Ambassador

MANAGUA 00001489 002 OF 003


Thierry Fraysse adopted a sharp, highly critical tone in an
interview with center-left daily El Nuevo Diario on December
3. Fraysse noted that EU donations comprise roughly 50% of
international budget support for the GON (about $60 million
out of $115 million annually, adding both Commission and
Member State contributions). He also opined that "many
countries would like to have" the level of cooperation which
Nicaragua enjoys with the EU. He lamented the lack of a
constructive dialogue between the BSG and the Ortega regime,
and added that the EU's previously pledged 2008 budget
support package of $39 million was very unlikely to arrive by
the end of the calendar year, if at all.

Changing European Priorities
----------------------------

5. (C) Hans Wessels, Head of Cooperation for the Embassy of
the Netherlands, told econoff on December 3 that he had
recommended to The Hague that the Netherlands freeze 2009
budget support for the GON pending a satisfactory,
politically legitimate resolution of the November 9 crisis
surrounding municipal elections. Already in 2008, the
Netherlands had cut its donor support by 50%, disbursing only
$8 million instead of the previously planned $16 million as a
result of earlier anti-democratic moves by the FSLN. Wessels
stated, however, that the Netherlands would leave the window
open for continued budget support to get back on track,
though he discounted this possibility in the near future.
While Switzerland, Norway, the Netherlands and the European
Commission have made "pledges" for 2009 budget support, these
are for planning purposes only and very tentative.

6. (C) Nicaragua's budget woes have coincided with a shift in
European assistance priorities towards Africa and the
Mideast. Sweden announced its departure in August 2007.
Germany decided not to provide direct budget support in 2008.
In December 2007, the United Kingdom's Department for
International Development (DFID) announced its decision to
discontinue direct budget support, closing its DFID offices
in 2010, shifting assistance to Nicaraguan NGOs.

The IFIs
--------

7. (C) So far, international lending institutions active in
Nicaragua continue to maintain an independent, apolitical
posture. The World Bank's (WB) Resident Representative in
Nicaragua has stated on numerous occasions that the WB's
mandate is to implement development programs, not to comment
on democracy and governance issues related to the particular
government in power. However, the IADB's representative in
Nicaragua recently met privately with the Ambassador to
express deep frustration with the GON. She also told the
Ambassador that she was due to provide the IADB's Board of
Directors in Washington with a status report in December on
the political climate in Nicaragua (Reftel). The WB and the
IADB both approved budget support contributions in 2008, but
both loans require legislative approval by the Nicaraguan
National Assembly, which to date has failed to act.
Meanwhile, the International Monetary Fund's (IMF)
representative in Nicaragua told the Ambassador on December
10 that the Fund is not prepared to disburse its next tranche
of approximately $25 million to the Central Bank until the
GON demonstrates its ability to secure financing for the 2009
budget (Septel).

Comment

MANAGUA 00001489 003 OF 003


-------

8. (C) The BSG's survival as an influential and united entity
in Nicaragua is uncertain. Among the European donors, only
Norway and Switzerland (non-EU members) have made firm
commitments to continue budget support unabated, but their
contributions amount to just $9 million per year. If the
European Commission, the BSG's largest donor at almost $40
million per year, signals an unwillingness to disburse funds,
it could have serious repercussions in 2009 because overall
BSG assistance accounts for approximately 15% of the national
budget. The GON could be faced with a budget deficit of
approximately $100 million, by Nicaraguan standards a large
sum. No doubt, President Ortega is banking on his ALBA
patron Hugo Chavez to come through for him in the toughest of
times.

Budget Support to the GON
-------------------------

9. (U) The table below shows 2008 pledged and actually
disbursed direct budget support to Nicaragua by country
and/or organization, in millions of USD:

Donor Pledged Disbursed
--------------------------------------------- -----
European Commission 39.5 0.0
Netherlands 17.2 7.7
United Kingdom 5.0 0.0
Finland 2.7 0.0
Switzerland 4.0 4.0
Norway 5.2 3.3
World Bank 20.0 0.0
IADB 20.0 0.0
--------------------------------------------- ------
Total 115.00 15.0
CALLAHAN

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