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Cablegate: Business Leaders On Alba's Economic Clout in Nicaragua

VZCZCXRO0196
OO RUEHLMC
DE RUEHMU #0111/01 0532202
ZNY CCCCC ZZH
O R 222202Z FEB 10
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0715
INFO WHA CENTRAL AMERICAN COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 MANAGUA 000111

SIPDIS
STATE PASS OPIC AND IAF
STATE PASS USAID/LAC

E.O. 12958: DECL: 2020/02/22
TAGS: ECON EFIN EAID PGOV PREL NU
SUBJECT: BUSINESS LEADERS ON ALBA'S ECONOMIC CLOUT IN NICARAGUA

CLASSIFIED BY: RobertJCallahan, Ambassador; REASON: 1.4(B), (D)

Summary

1. (C) Participants in the Ambassador's February 5 economic
roundtable shared observations and anecdotes concerning the
influence of Chavez's Bolivarian Alliance for the Americas (ALBA)
funds in the Nicaraguan economy. Attendees stressed that the
ongoing economic downturn in Venezuela could eventually result in
significant revenue problems for President Ortega's Sandinista
National Liberation Front (FSLN) party if Chavez decides to cut
funding for his political allies. WalMart Nicaragua reported a
surprising spike in January sales at its local supermarket chains,
while a prominent local banker predicted anemic economic growth in
2010. On the drought affecting Nicaraguan agricultural production,
attendees admitted it was significant, but described it as mainly a
problem in the three northern departments of Nueva Segovia, Madriz,
and Esteli.

Candy and Snack-Making Stimulus Plan

2. (C) The impact of ALBA funds in Nicaragua dominated the
Ambassador's February 5 economic roundtable. All attendees
concurred that the estimated annual infusion of approximately $600
million from Venezuela into a small economy such as Nicaragua's
(GDP of just $6 billion) creates significant market distortions.
Alejandro Martinez Cuenca, former Minister of Economy in the 1980s
during the first FSLN government, now a successful entrepreneur,
told the Ambassador that in December, during the lead-up to
Christmas, First Lady Rosario Murillo ordered $500,000 worth of
sweets in the city of Masaya (population 150,000). In Managua,
according to Cuenca, the First Lady made a similar order in
December by spending $300,000 on cookies.

3. (C) Both of these moves, according to Martinez Cuenca,
constituted astute ALBA-led stimulus drives, employing thousands of
people in a highly visible effort. He laughingly told the
Ambassador that the First Lady's order in Masaya transformed the
entire town into a candy-making factory. Martinez Cuenca also said
that unlike during typical Christmas seasons, he was amazed to see
markets busy and open until 2:00 a.m. on Christmas Eve, and he
opined that this was another example of ALBA funds weaving their
way into the larger economy. Drawing on these examples, he
commented that after three years of ALBA cash infusions (which
began in 2007 with President Ortega's inauguration), the FSLN was
becoming savvy at exploiting these funds for populist appeal.
Martinez Cuenca predicted similar moves on the part of the FSLN as
2011 presidential elections approach.

Are ALBA Funds Sustainable?

4. (C) Eduardo Montiel, a professor of economics at INCAE, a
prominent local business school, told the Ambassador that
Venezuela's domestic economic troubles suggest that transfers of
$600 million annually to Nicaragua are not sustainable. Joaquin De
Magalhaes, Venezuelan General Manager for Exxon Mobil in Nicaragua,
countered that compared to Venezuela's foreign exchange reserves of
over $30 billion, Chavez's investment in Nicaragua is actually
quite small, and one that pays enormous political dividends.
Martinez Cuenca estimated that Ortega and the FSLN could last about
one year in the event of an ALBA funds cutoff; after that, Ortega
would encounter serious problems if he attempted to continue his
lavish patronage programs and aggressive acquisition of assets in
Nicaragua. He also commented on the folly of Venezuela's new dual
exchange rate regime, saying that the FSLN's attempt to adopt a
similar mechanism in the 1980s was a dismal failure. In the end,
such a mechanism leads to the creation of a complex, arbitrary
bureaucracy incapable of managing monetary policy.

MANAGUA 00000111 002 OF 003


Some Signs of Life in the Economy...

5. (C) Eduardo Garcia, head of WalMart Nicaragua, told the
Ambassador that sales at both of its grocery chains in Nicaragua
were way up in January. In particular, Garcia said that sales at
WalMart's discount grocery store chains in Nicaragua, Pali, were up
by 15% in January. Garcia was unable to pinpoint a specific reason
for the spike in sales, but others in the roundtable speculated
that the First Lady's December "stimulus" may have contributed.
Duilio Baltodano of Cisa Agro, a major Nicaraguan food processor,
said that the agricultural outlook for 2010 looks favorable.

...But Drought Affects Northern Nicaragua

6. (C) Giving credence to numerous media reports of drought-like
conditions in Nicaragua, Alredo Velez, Corporate Vice President for
Cargill, said that his company had recently placed a large order
for sorghum, but that the supplier was only able to produce 55% of
the desired quantity. Velez told the Ambassador this represented
tangible proof that the drought is affecting agricultural yields.
Roberto Bendana of CafC) Don Paco, a major coffee producer,
confirmed the severity of the drought, but commented that the
primary impact is being felt by subsistence farmers in the northern
Nicaraguan departments of Esteli, Madriz, and Nueva Segovia.
Eduardo Garcia of WalMart Nicaragua said that the drought has
affected its supply chain in northern Nicaragua. He added that he
had contacted the Nicaraguan Ministry of Agriculture to discuss the
drought and how WalMart might work with them to address it, but
that the GON denied the problem. Duilio Baltodano of Cisa Agro
said in the face of the drought, farmers in the north are selling
cattle because there is no pasture for grazing; in turn, this has
led to lower prices for livestock.

...And Prominent Banker Bearish on 2010

7. (C) Ramiro Ortiz Jr. of BANPRO, Nicaragua's largest bank, said
that 2010 will resemble 2009, e.g. growth will be modest. Interest
rates are increasing as a result of bad consumer loans. Ortiz
added that one dilemma facing Nicaraguan banks is excess liquidity
due to the scarcity of promising investments or clients. He also
said that BANPRO, along with BANCENTRO, regularly buy GON bonds,
which pay a return of 6-8% depending on the maturity. Ortiz
defended these purchases as sound investments when compared to
extremely unfavorable yields in the United States. When pressed
about the reliability of the GON to honor its debt obligations,
Ortiz told the Ambassador that the GON has not defaulted on its
debt since 1991, and that President Ortega wants to avoid a
financial crisis at all costs. Ortiz did acknowledge, however,
that the GON's foreign buyers of bonds have all but disappeared.

Comment

8. (C) We believe that Martinez Cuenca's analysis with regard to
the FSLN's readiness to exploit ALBA funds for populist gain is
spot on. As the 2011 presidential election campaign heats up, we
fully expect that President Ortega -- and especially First Lady
Rosario Murillo -- will not hesitate to spend ALBA funds lavishly
in order to cast his image as economic rainmaker. In the unlikely
event that Chavez decides to discontinue ALBA funding for
Nicaragua, it is conceivable that Ortega could turn to more drastic
economic moves (i.e. nationalizations) in order to cement his FSLN

MANAGUA 00000111 003 OF 003


political apparatus.

9. (U) Participants:

--Joaquim de Magalhaes, General Manager, Exxon Mobil.

--Erwin Kruger, President, Dracma magazine (a monthly economic
journal), and former Chief of Staff of the Presidency during the
Chamorro Government in the early 1990s.

--Roberto Bendana, Executive Director, CafC) Don Paco and former
head of the Competitiveness Commission under the Bolanos
Administration.

--Alejandro Martinez Cuenca, President of the International
Foundation for Global Economic Challenge (FIDEG). Martinez Cuenca
is also an economist, a businessman, and FSLN member. He was
Ortega's Minister of Economy in the 1980s.

--Eduardo Montiel, Professor of Economics, INCAE (Central American
Business School).

--Ramiro Ortiz Jr., Director, BANPRO.

--Alfredo Velez, Corporate Vice President, Cargill Nicaragua.

--Eduardo Garcia, WalMart Nicaragua.

--Duilio Baltodano, President, Cisa Agro, an agricultural commodity
trader and distributor.
CALLAHAN

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