VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #0967/01 1231609
ZNR UUUUU ZZH
R 031609Z MAY 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 6163
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS MANAGUA 000967 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR USAID/LAC, DAA MIKE MAGAN, DEPT FOR PEACE CORPS, 
DEPT FOR WHA/CEN - DAS KIRSTEN MADISON 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ECON ETRD KDEM NU PGOV SOCI
SUBJECT: VISIT TO NICARAGUAN DEPARTMENTS OF LEON AND 
CHINANDEGA BY DAS MADISON AND DAA MAGAN 
 
REF: A. MANAGUA 715 
 
     ¶B. 05 MANAGUA 2747 
 
¶1. (SBU) Summary: During their April 25 visit to the 
departments of Leon and Chinandega, DAS Kirsten Madison and 
USAID DAA Mike Magan repeated the USG's commitment to 
strengthening democracy, the rule of law and economic growth 
in Nicaragua, and explored the views of local business and 
political leaders on these topics.  Although their opinions 
varied, these leaders were all concerned that political 
instability and high energy and transportation costs could 
hamper an otherwise promising economic picture in this 
impoverished but economically strategic region.  Although 
both departments are hotbeds of Sandinista (FSLN) support, 
Madison and Magan learned that local Sandinista leaders are 
working cooperatively with the mission and Government of 
Nicaragua (GON) in order to achieve maximum economic success 
for the region from the USD 175 million granted for 
Millennium Challenge Account (MCA) projects over the next 
five years.  They also visited a USAID/Global Development 
Alliance-supported school and an effective USAID market-based 
agricultural project, and were briefed on Peace Corps 
activities in northwestern Nicaragua.  End Summary. 
 
Business Leaders Mostly Bullish on Economy 
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¶2. (U) Background: Until the late 1970's, Leon and Chinandega 
flourished.  They were centers of agricultural production, 
especially cotton, as well as light manufacturing.  The 
region also benefited from a bustling international port at 
Corinto, train service, and highway access to Costa Rica, 
Honduras and El Salvador.  Today, these departments are 
amongst the poorest in Nicaragua.  Neglected infrastructure, 
low levels of education, land title disputes and unused 
agricultural land all contribute to economic instability. 
However, the region remains economically strategic.  With 
productive soil, a high water table, beautiful beaches and 
countryside and the capacity to be a transportation hub, the 
GON, USG and international donors have targeted Leon and 
Chinandega for assistance in hopes that the area can once 
again be an economic engine for all of Nicaragua.  End 
Background. 
 
¶3. (SBU) DAS Madison and DAA Magan held two meetings with 
business leaders in Leon and Chinandega.  Two bankers and the 
operations manager of ARNECOM (a Japanese/Mexican autoparts 
manufacturer that exports to the U.S. and worldwide) 
participated in the first meeting, and a shrimp farm owner 
and non-traditional agricultural product exporters in the 
second.  These interlocutors are optimistic about prospects 
for economic growth in the region.  The bankers cited 
examples of their clients seeking new loans to expand 
agricultural production, especially for peanuts and 
sugarcane.  They also noted that several Nicaraguan and 
international investors are looking to expand tourism 
activities in the area with projects ranging from small 
hotels to major resort complexes.  While there was some 
grumbling about interest rates, AMCIT Larry Drazba, owner of 
the shrimp operation, noted that investment is growing, as 
banks are now much more willing to lend than they had been in 
the past. 
 
¶4. (U) All of the business people said that there is already 
a new mentality in the region thanks to the Central American 
Free Trade Agreement (CAFTA), which the bankers say has led 
farmers and manufacturers to increase production and improve 
processing quality.  Jose Saldivar, the ARNECOM manager, said 
that his firm plans to expand.  He noted that the city of 
Leon is home to Nicaragua's premier university, providing the 
capacity for development of an engineering and technology 
sector in the local economy.  The exporters of farm-raised 
shrimp, exotic flowers, okra, squash and other 
non-traditional exports, reported that they are expanding 
operations and hiring more people.  They see both CAFTA and 
the MCA projects as a boon for the region and country. 
 
The Caveats 
- - - - - - 
 
¶5. (SBU) Despite their generally positive outlook about the economic picture, the business leaders highlighted some areas of concern. They lamented that high energy prices are making both production and delivery enormously expensive. The bankers explained the interest in increased sugarcane production stems from a growing hope in the region that Nicaragua can follow the Brazilian example and produce sugarcane-based ethanol to meet its energy needs. The shortage of containers and resultant high rental costs was mentioned as another drag on economic growth in the region. The Port of Corinto makes exporting to the US and Asia relatively simple, but exports to Europe are hindered by Nicaragua's lack of capacity to efficiently ship goods from the Atlantic, without first transporting them via Honduras. The bankers echoed a complaint that peanut producers from the region recently shared with the Ambassador. They said that subsidies for the U.S. peanut industry are resulting in overproduction and driving down world prices. (Note: The peanut farmers are also contemplating WTO action. End Note.)
 
Business Leaders Reluctant to Put Their Money Where Their Mouths Are on Political Reform
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¶6. (SBU) The bankers noted that several potential major 
investors are taking a "wait and see" approach, pending 
Nicaragua's November elections.  The business leaders in the 
meetings expressed special concern about the possibility of a 
FSLN victory.  Some also noted that given the high levels of 
corruption and resultant marketplace inefficiencies under the 
presidency of convicted felon Arnoldo Aleman, a win by the 
Aleman-dominated Liberal Constitutionalist Party (PLC) would 
also give them pause.  Almost everyone agreed that reformist 
candidate Eduardo Montealegre would be better for economic 
stability and growth. 
 
¶7. (SBU) When DAS Madison asked if, because of their 
concerns, it was not incumbent upon the private sector to 
throw their support behind one of teh other candidates who 
would be better for the investment and business climate, some 
admitted that their outright fear of the FSLN and concerns 
about the ability of Montealegre to win kept them from giving 
him their full backing.  Saldivar, who is Mexican, said that 
he preferred to stay out of politics and that his firm 
believes it can do well in Nicaragua under any government. 
The firm has a contingency plan in the case of political 
turmoil.  One participant, who had been vocal in his 
criticism of the PLC said, "I'm too busy taking care of 
business to get involved in politics." 
 
¶8. (SBU) Rodolfo Castillo, manager of a major agricultural 
exporting operation (owned by Eduardo Gomez, president of the 
National Assembly), expressed his view that the USG would be 
well served to better publicize its economic assistance to 
Nicaragua, rather than emphasizing the political situation as 
much as has been the case over the last several months. 
Despite calling the PLC a mafia controlled by gratitude and 
fear, Castillo said that stability is the most important goal 
and that the "Aleman problem" should be postponed until after 
the Sandinistas are defeated since the PLC is the dominant 
political force in Nicaragua.  He also called on the US to 
give direct political aid to "democratic forces." 
 
¶9. (SBU) DAA Magan pointed out that the USG does not endorse 
candidates and that our goal is to provide the "political 
space" for a democratic candidate to be elected in a fair 
election.  As they did in other meetings, DAS Madison and DAA 
Morgan emphasized that the United States sees the PLC under 
Aleman as equally unacceptable to the United States as Daniel 
Ortega and the FSLN.  (Comment: The ambivalence of upper 
class Nicaraguans who clearly label Aleman as a debilitating 
political force but are reluctant to work for his ouster is a 
common theme in Nicaraguan politics.  End Comment.) 
 
¶10. (SBU) A minority of participants in the meetings agreed 
that Nicaragua needs business leaders to support political 
reform and forward looking leaders in order to have a truly 
vibrant economy and to take advantage of opportunities like 
CAFTA and MCC.  Vicente Salmeron, an exporter of sesame seeds 
and beneficiary of USAID-funded technical expertise, spoke to 
their views by arguing that Nicaragua possesses all of the 
necessary tools for economic success but that if a "bad 
actor" is elected, the consequences for all of Central 
America would be dire.  He said he would support either 
Eduardo Montealegre or Sandinista dissident Herty Lewites (or 
even a ticket with both).  He explained that the traditional 
parties are still powerful forces because they have organized 
structures.  In his view, the PLC and FSLN can only be 
defeated with a "long-term, grass roots, bottom up" effort 
that should begin this year, even if the reformist forces do 
not win this time. 
 
¶11. (SBU) Drazba opined that Nicaragua is different than countries like Bolivia, because most Nicaraguans want to see change continue. He also pointed out that there are many Sandinistas with significant personal resources invested who have an interest in continued economic stability. (Note: Despite stated opposition from party leaders, the Sandinistas allowed the final implementing legislation for CAFTA to be ratified unanimously. End Note.)
 
Local Development Councils Ready to Work - Not So Ready to Talk Politics
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¶12. (SBU) Key representatives of the Departmental Development 
Councils of Leon and Chinandega who participate in MCA 
planning were eager to share their enthusiasm for the 
integrated development assistance package and talk about the 
harmonious way in which this politically diverse group of 
civic leaders has maintained unity.  Reflecting their 
approach to maintaining that togetherness, most were 
reluctant to share more than cursory political views.  Even 
so, their experience does offer a hopeful example of 
Nicaraguans working for the greater good from across the 
partisan divide.  Each development council includes 
representatives of municipalities (13 in Chinandega, 10 in 
Leon), and other organizations including NGO's, business 
chambers and police. 
 
¶13. (SBU) The Development Council members continue to support 
the three main elements of Nicaragua's MCA Compact - USD 92.8 
for transportation, 26.5 million for property regularization 
and 33.7 million for rural business development. Several 
participants also emphasized their commitment to dispensing 
the program funds transparently and apolitically.  Despite 
the overwhelmingly strong influence of the FSLN on the local 
governments of Leon and Chinandega (as well as many of the 
NGO's), participants took pride in recounting how well they 
have worked with the Bolanos Administration and PLC leaders 
in the National Assembly to advance the program. 
 
¶14. (SBU) The Development Council members were unwilling, 
however, to admit that the national elections have much 
import as related to MCA.  Comments like "I don't see a 
political problem," "We don't have to worry," and "The MCA is 
a local - not national issue" summed up the general 
consensus.  When one participant mentioned that the United 
States is not on good terms with the FSLN and that this might 
be a cause for our concern, DAS Madison explained that our 
country is actually equally concerned about the PLC with 
Aleman.  She said that as long as Aleman is at the heart of 
the PLC, that party will have a profound and demonstrated 
capacity for corruption. 
 
¶15. (SBU) Comment: According to the MCC Country Director, 
many Development Council members have privately stated that 
they understand the importance of the national elections for 
Nicaragua's MCC Compact.  They were simply being guarded in 
their comments in such a well attended forum.  End Comment. 
 
Visits to USAID and Peace Corps Projects 
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¶16. (U) DAS Madison and DAA Magan toured Escuela Jacinta y 
Francisco in Leon, a public school operated by the Catholic 
Church that also serves as an alternative home for at-risk, 
orphaned and abandoned children.  The school is part of a 
USAID-financed $11.5 million EXCELENCIA Project (2005-2009). 
The objective of the program is to expand nationwide an 
enhanced educational model that promotes active teaching, 
learning and community participation, which is strengthened 
by the application of a reformed, competency-based 
curriculum.  Through a network of mentor and mentored 
schools, approximately 400,000 students will be exposed to 
the active teaching and learning method over the life of the 
project.  Madison and Magan visited a first grade classroom 
and made a donation of mathematical kits to the school. 
 
¶17. (U) DAS Madison and DAA Magan visited a family-run farm 
and packaging center in Chinandega as it prepared shipments 
of okra and squash for export to the United States.  This 
medium-scale operation is part of the USAID Partnership for 
Food Industry Development (PFID) program, which is 
implemented by Michigan State University (MSU).  The farm was 
the first business to ship a container from Nicaragua to the 
United States after CAFTA entry into force on April 1.  On 
the day of the visit, two owners of nearby farms were on hand 
to learn more about the operation in hopes of duplicating its 
success. 
 
¶18. (U) PFID links small and medium-scale farmers to buyers who supply regional and international supermarkets. It uses a market approach to identify crops that cannot be produced in the U.S., or cannot be produced there during the winter season. Among other services, PFID then provides technical assistance for production and post-harvest activities to help producers meet the high quality and quantity standards of supermarkets. Under this program, Nicaragua has already become the largest exporter of okra to the U.S. in the world. This trade perspective is reflected in CAFTA.
 
¶19. (U) DAS Madison and DAA Magan met in the home of a Peace 
Corps volunteer in La Paz Centro with several of her 
enthusiastic colleagues.  The volunteers described 
educational, business development, environmental and other 
projects that they are working on.  Following a discussion of 
their experiences, Madison and Magan visited a successful 
Peace Corps project in the town, where local artisans were 
helped to develop a business model and create an attractive 
venue to sell their crafts directly to the public, rather 
than to low-balling middlemen. 
 
¶20. (U) DAS Kirsten Madison cleared on this cable. 
 
 
TRIVELLI