Cablegate: Nicaragua: Central Bank Reports Official Venezuelan

VZCZCXYZ0001
RR RUEHWEB

DE RUEHMU #1145/01 3521815
ZNY CCCCC ZZH
R 181814Z DEC 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 0291
INFO WHA CENTRAL AMERICAN COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L MANAGUA 001145

SIPDIS
STATE FOR WHA/CEN AND EEB/IFD/OIA
STATE ALSO FOR WHA/EPSC
TREASURY FOR INL AND OWH

E.O. 12958: DECL: 2019/12/18
TAGS: ECON EAID PREL PGOV NU
SUBJECT: NICARAGUA: CENTRAL BANK REPORTS OFFICIAL VENEZUELAN
ASSISTANCE DURING FIRST HALF OF 2009

REF: 08 MANAGUA 1190; MANAGUA 571; 08 MANAGUA 1157

CLASSIFIED BY: Robert J. Callahan, Ambassador, U.S. Department of
State, Executive Office; REASON: 1.4(B), (D)

SUMMARY

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1. (C) The Central Bank of Nicaragua (BCN) released a 2009 mid-year
foreign assistance report on

December 3 which included a special section on Venezuelan
assistance via the Bolivarian Alliance for the Americas (ALBA).
The BCN reported that the Government of Nicaragua (GON) received
$283 million in assistance from Venezuela during the first six
months of 2009, an increase of $71 million versus the same period
in 2008. Most of the new assistance comes from the ALBA
"Solidarity Program," established to substitute the Millennium
Challenge Corporation's (MCC) termination of $62 million in
assistance for Nicaragua in June. The International Monetary Fund
has routinely expressed concern regarding the GON's lack of
transparency in the use of ALBA funds. The presence of large
amounts of Venezuelan cash circulating in the Nicaraguan monetary
system is an additional concern, as it could stimulate inflationary
pressure. BCN officials privately complain that the GON's
non-compliance with budgetary regulations regarding Venezuelan
assistance, and its reluctance to address the fraudulent November
2008 municipal elections, might further alienate bilateral and
multilateral donors to provide much-needed assistance for the GON's
social programs.

CENTRAL BANK REPORTS 2009 VENEZUELAN FOREIGN ASSISTANCE

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2. (U) On December 3, the Central Bank of Nicaragua (BCN) released
its 2009 mid-year foreign

assistance report to Nicaragua, which included a special two-page
section on Venezuelan assistance via the Bolivarian Alliance for
the Americas (ALBA). The two-page section, entitled "Venezuelan
Cooperation," is broken down into four broad categories: petroleum
cooperation, bilateral cooperation, ALBA Solidarity, and foreign
direct investment. According to the BCN report, Venezuela provided
$283 million to the GON during the first six months of 2009, an
increase of $71 million over the same period in 2008. The report
can be accessed at http://www.bcn.gob.ni

3. (U) The following is the actual table used in the BCN report
detailing assistance to Nicaragua

during the first six months of 2009 versus the same period in 2008,
in millions of U.S. dollars:

PETROLEUM COOPERATION 2008 2009

Donations from ALBA funds: $66.0 $66.7

Loans (from PDVSA/Albacaruna): $66.0 $64.5

SUBTOTAL: $132.0 $131.2

BILATERAL COOPERATION 2008 2009

Donations to the Public Sector: $1.7 0.0

Donations to the Private Sector: $15.0 0.0

Loans to the Private Sector: 0.0 0.0

SUBTOTAL: $16.7 0.0

ALBA SOLIDARITY 2008 2009

Donations to the Government: 0.0 $50.0

SUBTOTAL: 0.0 $50.0

FOREIGN DIRECT INVESTMENT 2008 2009

Refinery: $11.8 $1.9

Electricity Generation: $51.0 $100.3

SUBTOTAL: $62.8 $102.2

TOTAL: $211.5 $283.4

ALBA SOLIDARITY PROGRAM

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4. (U) On June 13, Venezuelan President Hugo Chavez announced the
creation of the ALBA Solidarity

Program to help the GON continue road construction and property
titling projects terminated by the Millennium Challenge Corporation
(MCC) in June. MCC's funds were terminated as a result of the
fraudulent Nicaraguan elections in November 2008 (Ref A). ALBA
Solidarity donated $50 million for these projects: $35 million for
road construction in the department of Leon, and $15 million for
property titling in the departments of Leon and Rivas. [Note: The
World Bank plans to provide an additional $10 million in loans to
support the property titling program in several departments. End
Note.] ALBA Solidarity blatantly copied the direct administration
model developed by MCC for Nicaragua to implement the projects.

IMF REACTION

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5. (SBU) The International Monetary Fund (IMF), under its Poverty
Reduction and Growth Facility,

has repeatedly pressed the GON to account, or at least provide an
approximation of, the inflow of Venezuelan funds (Refs B and C).
On December 10, Luis Cubeddu, Deputy Division Chief of the IMF's
Western Hemisphere Department, told Econoff that the BCN foreign
assistance report was a direct result of the IMF's pressure on the
GON to account for these funds in a more transparent manner. A
primary concern for the IMF is the potential for inflationary
pressure in Nicaragua as a result of a large amount of Venezuelan
cash flowing into its monetary system.

ALIENATING OTHER DONORS

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6. (C) Mario Gonzalez, Chief Executive Officer of Invercasa, a
stock brokerage company, and

member of the BCN board of directors, told Econoff he worries that
the GON's lack of transparency might further alienate bilateral and
multilateral donors, with the exception of Venezuela. He stated
that the FY 2010 budget contains a deficit of $280 million, which
the GON assumes will be filled by donors (septel). Jose de Jesus
Rojas, General Manager of the BCN, acknowledged that donors are
losing patience with the GON's lack of transparency on budgetary
and political issues. He noted that donors are becoming more
reluctant to provide assistance for FY 2010 until the GON answers
questions on the use of Venezuelan assistance and the fraudulent
November 2008 municipal elections.

COMMENT

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7. (C) The GON is under pressure from international donors to be
more transparent about

Venezuelan assistance as rumors abound that a significant portion
of Venezuelan funds enter Nicaragua through unofficial channels.
In addition, donors seek to ensure free and fair elections in 2010
and 2011. Despite these concerns, however, the GON refuses to
account for these funds through the budgetary process and risks
losing much-needed donor assistance in FY 2010. We believe that
President Ortega and his Sandinista National Liberation Front
(FSLN) Party will continue to stonewall critics of ALBA assistance
to Nicaragua because these funds finance FSLN political patronage
and business enterprises designed to ensure Ortega's reelection in
2011.
CALLAHAN

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