Cablegate: Codel Dodd: Scenesetter for Nicaragua


DE RUEHMU #0093/01 0472148
O R 162148Z FEB 10

C O N F I D E N T I A L MANAGUA 000093


E.O. 12958: DECL: 2020/02/16
SUBJECT: CODEL Dodd: Scenesetter for Nicaragua

CLASSIFIED BY: Robert J. Callahan, Ambassador, Department of State,
Exec; REASON: 1.4(B), (D)

1. (C) Senator Dodd, Senator Corker, your visit to Nicaragua comes
as we face exceptional challenges in the political environment here
with a government that is suspicious and critical of the United
States Government (USG), even as the Nicaraguan public remains
fundamentally pro-U.S. and increasingly disillusioned with its own
leaders. Troubling phenomena include: the judicial decisions
permitting Ortega to run for consecutive re-election; economic
uncertainty; loss of donor assistance; consolidation of party
control over national and local government; and an active
party-patronage system that rewards loyalty and punishes dissent
and opposition.

2. (C) Your visit comes exactly one year after that of a House
delegation led by HIRC Western Hemisphere Sub-Committee chair, Rep.
Eliot Engel. As with Chairman Engel, we expect that your
government interlocutors (in President Ortega's absence we are
seeking a meeting with Vice President Jamie Morales) will give you
a friendly reception. This should, however, not obscure the
underlying pressures and tensions that the ruling Sandinista party
increasingly brings to bear on Nicaragua's civil society, media,
democracy and the institution of the military. Even the Embassy is
not free from harassment. Your visit demonstrates the value we
place on cooperation and the seriousness of our continuing
commitment to assist the Nicaraguan people. These are messages
worth repeating in your meetings.


3. (SBU) The FSLN once again controls all four branches of
government -- Executive, Legislative, Judicial and Electoral.
Beginning with his re-election to the Presidency in 2007 -- with
only 38% of the vote and via a power-sharing agreement, known as
the "pacto"(alliance) with Arnoldo Aleman, former President and
now-honorary president of the Constitutional Liberal Party (PLC),
Daniel Ortega has now moved to consolidate political power in
himself and his family. Control of all national-level government
organs, combined with the FSLN's local Citizen Power Councils
(CPCs), has permitted Ortega and the Sandinista party to actively
restrict the ability of civil society, NGOs, the media and the
opposition to exercise their civic rights. Ortega's stated goal is
consecutive re-election and to remain in power beyond the end of
his term in 2011. In a February 2009 speech, Ortega declared the
FSLN in a "permanent campaign" against the political opposition.
In October 2009, a chamber of the Supreme Court dubiously cleared a
major obstacle to President Ortega's intention to run for
consecutive re-election. The court declared "unconstitutional," on
human rights grounds, the article of the Constitution that
prohibits re-election, and applied the decision only to the FSLN.
Meanwhile, Nicaragua's economy is distressed. Off-budget
assistance from Venezuela has not entirely remedied the major
budget shortfalls caused by reductions in donor funds after the
government refused to address credible allegations of serious fraud
during municipal elections in November 2008. Social services,
including healthcare and education, also suffer from three rounds
of budget cuts in 2009, which have allowed, however, the GON to
maintain relations with the IMF, although it is becoming
increasingly difficult for them to meet commitments.


4. (C) Since entering office in 2007, Ortega has consolidated
power across all levels of government. Perhaps the only remaining
independent government institution is the professional military.
The FSLN already controls the four branches of the national
government through the "pacto" with the PLC. Ortega announced the
creation of Citizens Power Councils (CPCs) in 2007 as a form of
grassroots "direct democracy" independent of political affiliation;
however, by the end of 2008, CPCs were overwhelmingly
FSLN-controlled local organizations. One recent national poll
showed that less than 5 percent of Nicaraguans participate in CPCs.
The FSLN is actively limiting the ability of civil society and the
media to exercise their civic rights. The FSLN has repeatedly
called out party rank-and-file to violently confront opposition
marches that are peaceful, properly permitted and critical of the
government's anti-democratic actions.

5. (C) Ortega and the FSLN cannot abide dissent or criticism.
Ortega has repeatedly denounced his critics -- including opposition
media and politicians, civil society, ex-FSLN leaders -- as
"traitors" and "agents" of the U.S. "imperialist conspiracy." Even
FSLN stalwarts of the 1979 revolution who speak out, such as former
Culture Minister Ernesto Cardenal, have been harassed with spurious
legal cases and tax audits that seek to intimidate and silence.
Opposition media has been particularly under pressure. In June and
November 2009 the GON arbitrarily blocked the signal and
confiscated the equipment of two different opposition radio
stations. The government has expanded FSLN-owned radio, by
enhancing broadcast capacity and purchasing financially-strapped
independent rural stations. In January 2010, the FSLN tried to
conceal the fact that it had strong-armed the owner of a rival
opposition television broadcaster to sell his station to the Ortega
family using Venezuelan funds. The sale places two of Nicaragua's
five over-the-air broadcasters in government hands.


6. (C) On June 10, 2009 the Millennium Challenge Corporation (MCC)
board announced the cancellation of approximately $62 million of
USG assistance as a consequence of election fraud perpetrated by
the GON during the November 2008 municipal contests. Government
and FSLN party leaders, including Ortega himself, claim that the
USG has interfered with Nicaragua's sovereignty and its internal
affairs by asking them to account for the electoral fraud. The
cancellation came after six months of diplomatic efforts to urge
the GON to address the fraud. Of the five-year, $175 million MCC
Compact, over $110 million had already been spent or obligated.
The loss of the remaining $62 million in aid was a blow
economically and politically to the Ortega government, particularly
since the impact would be felt acutely in the FSLN's historical
base of Leon and Chinandega. Public reaction to the MCC decision
generally placed the blame on the Ortega administration. Also as a
result of the November election fraud, the European Union (EU) and
several European nations suspended donor assistance in the form of
direct budget support, which accounted for a significant portion of
Nicaragua's operating budget. This has placed other financing
deals, with the World Bank, the IMF and other International
Financial Institutions (IFIs), in jeopardy. The government managed
to struggle through 2009, but projections for 2010 are increasingly


7. (SBU) Agriculture remains the dominant economic activity in
Nicaragua, but retail and financial services, along with light
manufacturing, have expanded since 2005. Lacking a large domestic
market, Nicaragua depends heavily on exports for economic growth.
In 2009, exports totaled approximately $2.3 billion, equivalent to
33% of GDP. Traditional exports such as coffee, meat, and sugar
still lead the list, but the fastest growth has taken place in
light manufacturing (apparel assembly and wiring harnesses for
automobiles), food processing, seafood, and new agricultural
commodities such as peanuts, sesame, melons, and onions. Tourism
has become the nation's third-largest foreign exchange earner, with
some 200,000 American citizens or residents traveling to Nicaragua
annually. Many Nicaraguans depend upon remittances from family
members working abroad in the United States and Costa Rica. In
2009, remittances totaled approximately $700 million, equivalent to
about 11% of GDP.

8. (SBU) Nicaragua enjoyed robust rates of market-led economic
growth from 1994-2006, but since the Ortega Administration
reassumed power in 2007, increased political risk has contributing
to slower growth and falling employment. President Ortega has
declared his intent to implement socialism in Nicaragua, but he
says that model would maintain a role for the private sector. High
international petroleum prices, along with mandatory wage
increases, contributed to high rates of inflation in 2007 and 2008,
but in 2009 the inflation rate decreased dramatically. In 2009, as
a result of the global economic crisis and domestic political
factors, the economy contracted by 1%. The Nicaraguan Central Bank
expects the economy will grow by 2% in 2010. According to official
government sources, the unemployment rate in Nicaragua is estimated
at 4.9%, but this figure does not include an estimated 65% of
workers employed in the informal sector. Weak rule of law, endemic
corruption, and the lack of judicial independence deter investment
and undermine commercial interests.

9. (SBU) The U.S.-Central America Free Trade Agreement (CAFTA)
came into force between the United States and Nicaragua in 2006.
The agreement has solidified the United States as Nicaragua's
largest trading partner; estimated exports of Nicaraguan goods to
the United States totaled $1.612 billion in 2009, while imports
from the United States into Nicaragua totaled approximately $680
million. Approximately 25 wholly or partly-owned subsidiaries of
U.S. companies operate in Nicaragua. The largest of these are in
energy, light manufacturing, retail, financial services, and
aquaculture. President Ortega's harsh rhetoric against the United
States, capitalism, and free trade has had a negative effect on
foreign investor attitudes and perceptions of country risk. Since
President Ortega took office, Nicaragua has fallen in the World
Economic Forum's Competitive Index Ranking from 95th place in 2006
to 120th in 2008.

10. (SBU) After Haiti, Nicaragua is the second-poorest nation in
the hemisphere. The Ortega administration negotiated a three-year
Poverty Reduction and Growth Facility (PRGF) with the International
Monetary Fund (IMF) in 2007 in order to maintain budget support
from international donor countries. However, the majority of this
budget support has been suspended indefinitely because of negative
donor response to the massive fraud perpetrated by the FSLN in the
2008 municipal elections. As a result, the Government of Nicaragua
faces large budget deficits for the foreseeable future, depriving
the country of capital for much needed infrastructure improvements.
The United States provided over $70 million in development and
humanitarian assistance to Nicaragua in 2009

11. (SBU) According to official press releases, Venezuelan
development assistance to Nicaragua since Ortega took office in
2007 has totaled more than $1 billion, including loans, grants, and
foreign direct investment. The FSLN appears to have used part of
this assistance to invest in party building, pay for party projects
and political propaganda, and to fund the campaigns of
pro-government candidates in the November 2008 municipal elections.
Ortega has used ALBA funds to implement his vision of a mixed
economy by investing in electricity generation, a hotel, cattle
ranch, and television station; some financing is provided only to
businesses that agree to export to Venezuela. Although accounting
lacks transparency, the government claims funds were also used for
social programs to build housing and roads, reduce hunger, and
improve access to credit. FSLN-dominated CPCs are tasked with
identifying participants in these programs.


12. (C) In public speeches, Ortega frequently attacks the United
States as an expansionist, imperial militaristic power. On January
15 in the immediate aftermath of the Haiti earthquake, Ortega
accused the United States of "manipulating a drama to put U.S.
troops in Haiti." Expressing concern that U.S. troops had occupied
the airport and U.S. ships had surrounded the country, he claimed
that this was a pretext to establish a U.S. base. He said that,
"by occupying Haiti, the United States is occupying Latin America
and Caribbean territory." Ortega criticized U.S. troop presence
even though Nicaragua itself had also deployed 34 military
search-and-rescue personnel to assist in the relief effort. The
Government of Nicaragua has twice renewed this deployment and may
do so again later in February. These deployed troops were trained
under the U.S. Global Peacekeeping Operations Initiative (GPOI)
partnership that we have with the Central America Combined Forces
(known by its Spanish acronym CFAC). CFAC-member nations have been
asked to respond to the UN Peacekeeping Office call to augment the
post-earthquake MINUSTAH presence in Haiti. Nicaragua told the
CFAC Secretariat that it could not participate if Honduras was
included. (Ortega has refused to recognize any post-Zelaya
government in Tegucigalpa.) Last week, I broached this same topic
with the military high command and was told that while the military
wanted to participate, politically it could not do so if the CFAC
response included Honduras. With some careful coordination,
Nicaragua might be persuaded to deploy in support of MINUSTAH.


13. (C) Many of the current circumstances Nicaragua faces mirror
the last time the FSLN was in power in the 1980's: economic
turmoil; overt efforts to consolidate one-party control over both
the national and local government; active repression of civil
society, independent media and the opposition; and an active FSLN
propaganda machine to claim greater public support for the party
and its agenda. Unlike the 1980's, however, Nicaragua has made
significant economic progress since the return of democracy in 1990
and, while its political institutions are weak and easily
manipulated, civil society, the Catholic Church, the media, and
more serious elements of the opposition have in fact pushed back
and restricted the GON's ability to pursue its authoritarian

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