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Cablegate: Nicaraguan Government Expropriates Amcit Property

VZCZCXRO7871
PP RUEHLMC
DE RUEHMU #0877/01 2461303
ZNR UUUUU ZZH
P 031303Z SEP 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 4528
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHMD/AMEMBASSY MADRID 0507
RHEHNSC/NSC WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 000877

SIPDIS
SENSITIVE

STATE PASS USTR AND USAID
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN

E.O. 12958: N/A
TAGS: EINV ETRD ECON CASC NU
SUBJECT: NICARAGUAN GOVERNMENT EXPROPRIATES AMCIT PROPERTY

Summary
-------

1. (SBU) Three U.S. citizens claim to own 41.66% of the property
where an open-air landfill known as "La Chureca" is located along
the shore of Lake Managua. In July 2009, the Office of the Attorney
General published a resolution in the Official Gazette expropriating
the land on which the landfill is located and transferring title to
the City of Managua. The government offered bonds with a face value
of about $2 million, worth half that on the secondary market -- far
below the $5 million in cash compensation agreed upon in 2008. The
Nicaraguan Government has expropriated the land to allow it to go
forward with a project under which the Spanish Government will
redevelop the area -- its flagship assistance effort in Nicaragua.
Making reference to the Nicaraguan Constitution and the U.S. -
Central America - Dominican Republic Free Trade Agreement
(CAFTA-DR), the U.S. citizens who claim ownership assert that the
government's compensation should be paid in cash and should reflect
market value. Post would appreciate guidance on the possible
application of CAFTA-DR in this case.

U.S. Citizens Claim Ownership of Landfill and Farm
--------------------------------------------- -----

2. (U) La Chureca, Managua's open-air landfill, occupies about 100 acres along the shore of Lake Managua. An estimated 120 families who work at the landfill scavenging for recyclables and other valuables live in four communities on an adjacent 52 acres. The Spanish Agency for Cooperative International Development (AECID) and the City of Managua are planning a $45 million project that would construct modern waste-processing facilities at the landfill, provide job training to those who currently earn a living by scavenging and provide basic education to their children, and build housing for them.

3. (U) Nicaraguan Ernesto Martinez bought the property on which La
Chureca is located, known as Santa Isabel Farm, in 1932. The
property measured 551 acres at that time. Ernesto Martinez died in
1963 and left the property in four equal shares to his wife Carlota
and three children, Indiana Martinez de Zeledon, Carlos Martinez,
and Ernesto Martinez Guerrero. In September 1963, Carlota Martinez
sold her stake to her son Carlos.

4. (SBU) U.S. citizen Indiana Martinez de Zeledon has provided the
Property Office with documentation to support her claim that she
owns one-quarter of Santa Isabel Farm. At least two other U.S.
citizens, Maria Isabel Martinez Castrillo and Gustavo Adolfo
Martinez Castrillo, each claim to own 8.33% of the property as heirs
to Carlos Martinez. Property Office staff continue to review
documents, but all told, U.S. citizens claim to own 41.66% of La
Chureca and Santa Isabel Farm.

Government Expropriates U.S. Citizen Property
---------------------------------------------

5. (U) Maria Isabel and Gustavo Adolfo Martinez claim that the
Martinez family entered into a verbal agreement with Managua
officials after the 1972 earthquake to allow the city to dump debris
at the Santa Isabel Farm. Later in the decade, their father Carlos
Martinez signed a written lease with the City of Managua on behalf
of the family.

6. (U) In the 1990s, the Martinez family began negotiations to
transfer the land to the City of Managua. Over the years, the
Martinez family has sold off parcels, and Santa Isabel Farm now
measures only 255 acres, with 100 acres occupied by the landfill and
balance planted with fruit trees and serving as pasture for about
350 head of cattle. In 1997, Managua City Council published a
resolution in the Official Gazette to declare the entire property
"public utility." However, city officials shelved the issue and
took no further action until 2008, when the City Council -- under
the leadership of former FSLN Mayor Dionisio Marenco -- ratified the
1997 resolution and agreed to pay 100 million cordobas
(approximately $5 million) in cash compensation, payable in six
installments over two years. To date, the city has paid no
compensation.

7. (U) In July 2009, the Office of the Attorney General published a
resolution in the Official Gazette asserting government ownership of
La Chureca on the basis of the 1997 "public utility" declaration.
The Attorney General's resolution also transferred title for all 255
acres to the City of Managua. Publication of the resolution also
served as notification to the Martinez heirs that they would receive
property indemnification bonds (BPIs), usually issued as
compensation for property expropriated during the 1980s, with a face
value of 39.6 million cordobas (about $2 million). [Note: The
Martinez heirs could sell these BPIs on the secondary market for
about half of face value. Total compensation would amount to about
$1 million in cash. End note.]

Embassy Advocacy and Legal Questions
------------------------------------

8. (SBU) U.S. citizens Indiana Martinez, Maria Isabel Martinez
Castrillo, and Gustavo Adolfo Martinez Castrillo have sought the
assistance of the U.S. Embassy Property Office in ensuring prompt
and fair compensation for their property. They have asserted that
the Nicaraguan Constitution requires that in the case of
expropriation, compensation be based on fair market value and paid
in cash. The U.S. citizen Martinez heirs also expressed concern
that the actions of the Nicaraguan Government run counter to the
provisions of CAFTA-DR, which also requires that compensation paid
in case of expropriation be based on fair market value and be paid
in cash.

9. (SBU) On August 21, the Ambassador wrote Attorney General Hernan Estrada to inform him that Santa Isabel Farm is partially owned by U.S. citizens and to seek additional information regarding the terms of the expropriation. Estrada responded on August 24 with a four-page summary of the case. He justified the expropriation of the Martinez' property on the basis of the Agrarian and Urban Reform Law (Law 278, 1997). He asserted that the law allowed the state to expropriate land on behalf of squatters when they have occupied property for more than 20 years. Compensation in this case was based on the tax-assessed value of a property and may be paid in bonds.

Comment
-------

10. (SBU) This case illustrates three hallmarks of the government's
approach to dealings with the private sector. First, the Ortega
administration does not view itself as bound in any way to
commitments made by previous administrations or, in this case, by
political opponents, as was Marenco, despite being a member of the
FMLN. Second, the Ortega administration seldom negotiates with the
private sector in a substantive way. Estrada has made a "take it or
leave it" offer to the Martinez heirs, just as he has with many U.S.
citizens seeking compensation for property expropriated in the
1980s. Finally, the government is always careful to shroud its
actions in a veil of legality.

Action Request
--------------

11. (U) Post would appreciate guidance on the possible application
of CAFTA-DR in these circumstances. The Property Office is
available to forward documentation on the case and answer
questions.

CALLAHAN

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