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Cablegate: Fiscal Transparency in Nicaragua

VZCZCXRO7374
OO RUEHLMC
DE RUEHMU #0021/01 0132255
ZNR UUUUU ZZH
O R 132254Z JAN 10
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0537
INFO WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHCV/AMEMBASSY CARACAS
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 000021

SENSITIVE
SIPDIS
DEPARTMENT FOR EEB/IFD/OMA - BRIANNA SAUNDERS

E.O. 12958: N/A
TAGS: EAID EFIN ECON PREL NU
SUBJECT: FISCAL TRANSPARENCY IN NICARAGUA

REF: A) SECSTATE 001923; B) 09 MANAGUA 1145; C) 09 MANAGUA 834

1. (SBU) Summary: Per Reftel A, while the Nicaraguan national
budget is publicly available on the GON's Ministry of Finance
website, it does not include or accurately reflect funds
originating from Venezuela under the auspices of the Bolivarian
Alliance for the Americas (ALBA) program, which remains a
controversial issue within the Nicaraguan National Assembly and in
the local media. In August 2009, The Ministry of Finance's
Director of Fiscal Affairs told econoffs that ALBA proceeds fall
outside of the Ministry of Finance's control (Ref C). Under
pressure from the International Monetary Fund (IMF), the Central
Bank of Nicaragua (BCN) released a 2009 mid-year foreign assistance
report on December 3 (Ref B) which included a generic section on
Venezuelan assistance. End Summary.

Budget Publicly Available

------------------------------

2. (U) Per Ref A request, Nicaragua is slated to receive funding
in FY 2010 under the Department of State, Foreign Operations, and
Related Programs Appropriations Act (SFOAA). Nicaragua's national
budget, in both its proposed and National Assembly approved
versions, is publicly available on the GON's Ministry of Finance
website (www.hacienda.gob.ni). The budget is also published in the
Nicaraguan equivalent of the U.S. Federal Register (La Gaceta).
The Ministry of Finance website details overall revenues and
expenditures, and breaks out the budget by ministry and agency. In
turn, each ministerial budget details salaries, current
expenditures, donor projects, and capital expenditures.
Nicaragua's budget development and administration is governed by
Law 550, the Public Administration and Budgetary Regime Law, which
requires that the national and municipal budgets meet World Bank
and IMF standards.

"Off-Budget" ALBA Funding Continues

--------------------------------------------- --

3. (SBU) Venezuela, via ALBA, has provided significant sums of off-budget assistance to the GON since President Daniel Ortega assumed office in 2007. There is little transparency about how Venezuelan funds are utilized in Nicaragua, and much of the assistance is provided via "petroleum cooperation," provided through ALBA Nicaragua, S.A. (ALBANISA), a joint venture between Petronic, a Nicaraguan state-owned oil company owning a 45% share, and PDVSA, a Venezuelan state-owned oil company owning a 55% share. According to an agreement signed by Ortega and Venezuelan President Hugo Chavez, ALBANISA buys oil from Venezuela's PDVSA and pays 50% of the bill within 90 days. From the balance, ALBANISA loans 25% to a local development fund and 25% to an ALBA Fund, both of which undertake development projects in Nicaragua. ALBANISA is supposed to repay these funds at an interest rate of 2% over 23 years, following a 2-year grace period. ALABANISA manages some funds directly, while others are administered by a FSLN-linked financial cooperative, ALBA-CARUNA. In implementing social programs and infrastructure construction, they may even be mixed with funds provided through the national budget.

4. (SBU) President Ortega has taken advantage of ALBA funds to
promote social and poverty-relief programs for partisan gain firmly
under the control of his Sandinista National Liberation Front
(FSLN) party. A prime example is the so-called "Zero Hunger"
campaign, aimed at rural poverty, the benefits of which have
repeatedly flowed principally to Sandinista loyalists. The FSLN
has used ALBA funds to purchase hotels, lucrative cattle ranches,
pharmaceutical laboratories, and other moneymaking enterprises.
None of these transactions have been subject to scrutiny from the
National Assembly.

5. (SBU) In August 2009, Post delivered a demarche to the GON's
Ministry of Finance on the importance of budget transparency (Ref
C). Ovidio Reyes, Director of Fiscal and Economic Affairs, told
econoffs that Venezuelan funds donated or lent to Nicaragua fall
outside of the Ministry of Finance's control. He added that some
donors choose to provide funds "off-budget" in order to avoid the
GON's mandatory 6% levy for national universities and 4% for the
court system. Reyes stated that it is up to each donor to provide
information on how funds are spent.

Central Bank Report on ALBA Assistance

--------------------------------------------- ----

6. (SBU) As a result of pressure from the IMF, which maintains a
Poverty Reduction and Growth Facility (PRGF) program with the GON,
the Central Bank of Nicaragua (BCN) released a foreign assistance
report in December, which included a brief (and generic) section on
ALBA funding for the first six months of 2009 (Ref B). According
to the report, the GON received $283 million in assistance in the
first six months of 2009, an increase of $71 million compared to
the same period in 2008. An accurate assessment concerning the
impact of Venezuelan assistance in Nicaragua is difficult, because
the GON has failed to explain how it has disbursed such assistance.
CALLAHAN

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