VZCZCXYZ0003
PP RUEHWEB

DE RUEHMU #1678/01 2122222
ZNR UUUUU ZZH
P 312222Z JUL 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 7131
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 1386

UNCLAS MANAGUA 001678 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/CEN AND H FOR MIKE SMITH 
 
E.O. 12958: N/A 
TAGS: PGOV ECON OVIP KDEM NU
SUBJECT: SCENE SETTER FOR CODEL BURTON/DAVIS 
 
REF: STATE 113750 
 
¶1. (U) Summary: Post welcomes the members of Codel 
Burton/Davis to Nicaragua and has developed an agenda that 
addresses the Codel's interest in discussing the upcoming 
elections with major political parties, registering 
bi-partisan support for free, fair and transparent election 
process, and witnessing the initiation of a USAID health 
project and Millennium Challenge Corporation project.  This 
scene setter offers economic, USG assistance, political, and 
election 2006 overviews as well as brief descriptions of 
planned Codel activities.  The cable is organized as follows: 
 
- Economic Background 
- USAID Programs in Nicaragua 
- MCC Program in Nicaragua 
- Political Background 
- The 2006 Elections 
- U.S./CEPPS and Civil Society Elections Support 
- Codel Burton/Davis Activities and Meetings 
 
Specific scene setters that outline each meeting and activity 
in greater detail, including participants and press 
availability, are provided separately.  End Summary. 
 
Economic Background 
- - - - - - - - - - 
 
¶2. (U) The United States is Nicaragua's largest trading 
partner -- the source of roughly 20 percent of Nicaragua's 
imports and the destination for approximately 30 percent of 
its exports.  There are about 25 wholly or partly owned 
subsidiaries of U.S. companies currently operating in 
Nicaragua.  The largest of those investments are in the 
energy, financial services, manufacturing, tourism, 
fisheries, and shrimp farming sectors.  Economic growth 
continued in 2005, although at a slower pace, with GDP rising 
4.0 percent, down from 5.1 percent in 2004.  Inflation in 
2005 was 9.6 percent up from 9.3 percent in 2004, mostly due 
to higher oil prices.  On April 1, 2006 CAFTA-DR entered into 
force in Nicaragua.  From January to May this year, exports 
from the U.S. to Nicaragua have increased 30 percent over the 
same time period last year.  Imports by the U.S. of 
Nicaraguan products increased 29.6 percent over the same time 
frame.  Potential gains from increased export earnings 
resulting from these increases, however, are likely to be 
offset by high spending on oil imports. 
 
¶3. (U) The implementation of CAFTA-DR will provide new market 
opportunities for Nicaraguan products in the U.S., especially 
in the areas of meat, dairy, seafood, produce and processed 
foods.  Nicaragua offers considerable business opportunities 
in the tourism sector that are augmented by attractive tax 
incentives.  For Nicaragua to achieve long-term success at 
attracting investment, creating jobs, and reducing poverty, 
however, it must maintain macroeconomic stability, resolve 
Sandinista-era property confiscation cases and lingering 
problems with land security and title protection, establish 
an independent judiciary committed to the rule of law, and 
open its economy to foreign trade. 
 
USAID Programs in Nicaragua 
- - - - - - - - - - - - - - 
 
¶4. (U) From 1990 to 2006, USAID assistance to Nicaragua 
totaled $1.66 billion.  The current assistance program has 
the following overall goals: foster responsible, transparent 
governance; provide assistance for economic growth; promote 
investment in people through better governance of social 
institutions and improved access to quality health services 
and education.  The 2006 USAID budget is divided thus: 
 
Ruling Justly:                $9.4 million 
Economic Freedom:             $14.5 million 
Health/Education:             $14.4 million 
P.L. 480 Food Security:             $9.7 million 
 
¶5. (U) Strengthening Democracy: USAID supports the 
modernization of Nicaragua's judicial system and legal 
reforms that increase access to justice, rule of law, and 
protection of human rights.  USAID assists civil society 
organizations that promote legal reform, advocate for 
government transparency, and increase public awareness of 
citizens' rights.  USAID also provides election support to 
help Nicaragua comply with internationally recognized 
standards for free and fair elections (see paragraph X). 
 
¶6. (U) Increased Trade, More Jobs, Higher Incomes: USAID 
assistance promotes increased trade and investment, 
development of a competitive, market-oriented economy, and 
improved environmental management to help Nicaragua take 
advantage of the opportunities of the CAFTA-DR agreement and 
other free trade agreements. 
 
¶7. (U) Healthier, Better Educated People: USAID concentrates 
its social sector assistance on efforts to: improve 
government capacities to plan and manage health and education 
investments; increase access to quality education at the 
primary level; and improve health status at the household and 
community level. 
 
¶8. (U) Food Security: Reaching 43,700 poor rural households, 
activities focus on increasing the production and marketing 
of high-value, non-traditional crops to increase family 
incomes.  Complementary feeding, maternal health and child 
survival activities improve health and nutrition in high-risk 
communities. 
 
MCC Program in Nicaragua 
- - - - - - - - - - - - - 
 
¶9. (U) Through its MCC Compact, the Governmen,ZzQQ#{~ 
growth potential due to its fertile land and connection to 
markets in Honduras, El Salvador, and the United States. 
After extensive consultations, the GON identified insecure 
property rights, under-developed infrastructure, and low 
value-added rural business activity as the greatest barriers 
to growth that could be addressed with MCA assistance. 
 
¶10. (U) The Compact will contribute to improving the lives of 
the residents of the Leon and Chinandega area by raising the 
average household income in the region and will serve as a 
model to replicate in other regions of the country.  The 
Compact has three primary objectives: increase investment by 
strengthening property rights in Leon; reduce transportation 
costs between Leon and Chinandega and domestic, regional and 
global markets; and help transition producers to higher value 
products and activities. 
 
Political Background 
- - - - - - - - - - - 
 
¶11. (U) Since the inception of democratic rule in Nicaragua 
in 1990, political power has been contested between two 
majority forces: the Liberals on the right, and the 
Sandinistas on the left.  The civil war and economic 
mismanagement in the 1980s, and the Sandinista giveaway of 
government property to party leaders in 1990 (the "pinata"), 
turned a significant majority of the population against the 
Sandinista Front (FSLN), preventing the FSLN from winning 
national elections.  Recognizing demographic realities, the 
Sandinistas have consistently promoted divisions on the right 
and worked to maximize their voting strength by building a 
large and disciplined party structure. 
 
¶12. (U) Nicaragua's opposition forces came together under the 
United National Opposition (UNO) to win the 1990 elections, 
but soon splintered apart.  The Liberal Constitutional Party 
(PLC) emerged as the dominant Liberal forces, in large part 
due to the energetic and charismatic leadership of party 
president Arnoldo Aleman.  The rest of UNO broke away into an 
alphabet soup of minor Liberal parties, the traditional 
Conservative Party (PC), which was reduced to a small 
minority except in a few areas, the Nicaraguan Resistance 
(PRN) formed by ex-Contra fighters, and parties formed to 
represent the evangelical population, such as the Nicaraguan 
Christian Path Party (CCN), and the Christian Alternative 
(AC). 
 
¶13. (U) Discontent also grew within the FSLN after the 1990 
"pinata" of FSLN leader Daniel Ortega and Ortega's continued 
electoral defeats during that decade.  Some leftist elements 
broke away from the FSLN during this period, most notably the 
Sandinista Renovation Movement (MRS) under the leadership of 
revolutionary activist Dora Maria Tellez.  The FSLN was 
better able to maintain its integrity, however, using 
threats, coercion and discipline.  Despite repeated defeats, 
Ortega pledged to "rule from below" using residual Sandinista 
influence in governmental institutions such as the police, 
armed forces, and the court system. 
 
¶14. (SBU) The PLC and Arnoldo Aleman emerged victorious in 
the 1996 national elections, but were unable to gain a 
supermajority (56 votes) in the National Assembly, which 
would have allowed the party to name Supreme Electoral 
Council (CSE) and Supreme Court (CSJ) magistrates without 
Sandinista votes.  This situation led to a political pact 
between the PLC and FSLN to divide control of the 
institutions of government between the two parties, which has 
continued to the present time.  Hence, virtually all 
employees of governmental institutions that are controlled by 
appointments by the National Assembly are affiliated with the 
PLC or FSLN and serve the interests of those parties. 
 
¶15. (U) Before the 2001 election, the PLC was able to bring 
most of the smaller democratic parties into an alliance. 
Aleman personally selected Enrique Bolanos as the alliance's 
presidential candidate as well as many of the National 
Assembly and Central American Parliament deputy candidates. 
This process is known as the "dedazo" (finger).  Bolanos won 
the election and instituted an anti-corruption campaign. 
 
¶16. (SBU) In 2003, Aleman, who stole tens of millions of 
dollars from state coffers, was convicted of fraud and money 
laundering, stripped of his parliamentary immunity (which he 
enjoyed as an ex-President) and sentenced to 20 years in 
prison.  This process caused a great upheaval in the Liberal 
ranks.  When the dust settled, a small number of Liberal and 
Conservative deputies broke from the PLC alliance to form a 
new political caucus to support Bolanos, but the vast 
majority remained loyal to Aleman (owing their power to 
Aleman's dedazo) and condemned the President as a traitor. 
The Conservatives and Liberals unhappy with Aleman's 
continued influence in the PLC formed the Alliance for the 
Republic (APRE), a party loyal to and supported by the 
Bolanos administration. 
 
¶17. (U) Aleman and Ortega manipulated the pact and Sandinista 
control of the judiciary to allow greater degrees of freedom 
for Aleman (he began his sentence in a prison cell, was moved 
to a hospital, then to house arrest, and now is allowed to 
move freely about Managua under "medical parole") in exchange 
for concessions to the FSLN in the CSE and CSJ.  (Comment: 
The pact has provided obvious benefits to Aleman and Ortega 
but alienated Liberals and Sandinistas disgusted with their 
leaders' concessions to the enemy and anti-democratic and 
corrupt manipulation of the powers of state.  End Comment.) 
The pact has consistently attacked and undermined the Bolanos 
administration, at times threatening the stability of the 
country. 
 
¶18. (U) Having won comfortable majorities since 1990, the 
Liberals lost badly in the 2004 municipal elections.  The 
Sandinistas won 88 of 152 municipalities, the PLC 58, APRE 
five, and the PRN one.  The Sandinistas claimed victory with 
a plurality of the vote in most of their 88 municipalities, 
with the PLC, APRE and other minor parties dividing the 
anti-Sandinista vote.  The abstention rate was also slightly 
higher than normal, which many people blamed on the voters' 
unhappiness with the pact. 
 
The 2006 Elections 
- - - - - - - - - - 
 
¶19. (U) Three candidates emerged in 2005 to challenge the 
Aleman-Ortega pact.  Excluded from the majority parties by 
the two caudillos, Sandinista dissident Herty Lewites broke 
from the FSLN to head the MRS ticket, and Liberal dissident 
Eduardo Montealegre formed the Nicaraguan Liberal Alliance 
(ALN) out of PLC dissidents, the PC, PRN, and other small 
democratic parties.  PLC outcast and prominent Bolanos 
Administration official Jose Antonio Alvarado ran as the APRE 
candidate.  Daniel Ortega was once again the pre-ordained 
candidate of the FSLN, and Bolanos' vice president Jose Rizo 
was chosen as the PLC candidate in April 2006. 
 
¶20. (SBU) The CSE deadline to register party candidates at 
the end of May 2006 drove both a consolidation and division 
amongst the political parties.  The Christian Alternative 
(AC) party left Lewites' alliance, changed its name to 
Alternative for Change (same initials) and chose the erratic 
Eden Pastora as its presidential candidate.  Jose Antonio 
Alvarado became Jose Rizo's running mate in the PLC, but APRE 
joined the ALN.  Arnoldo Aleman again imposed several 
unpopular PLC deputy candidates by dedazo, causing Jose Rizo 
to threaten to resign his candidacy (he backed down). 
 
¶21. (U) The political upheaval did not end in May -- MRS 
candidate Lewites died from heart complications in early 
July.  Lewites' running mate Edmundo Jarquin assumed the 
candidacy and MRS leadership convinced popular Sandinista 
revolutionary songwriter Carlos Mejia Godoy to accept the 
vice presidential nomination.  The impact of Lewites' death 
on MRS political support is still unknown, but some predict 
that many of Lewites independent anti-pact supporters will 
now back Montealegre.  In addition, there is a constant shift 
of Liberal politicians back and forth between the PLC and 
ALN, depending on their calculation of personal benefit, 
although most of the defectors have left the PLC for the ALN. 
 
¶22. (U) The latest IRI-sponsored poll released in June showed 
the following results for the candidates and their parties: 
 
Candidate         Party 
---------         ----- 
 
Ortega: 29.2%           FSLN: 30.6% 
Montealegre: 22.4%            ALN: 17.7% 
Rizo: 20.0%       PLC: 24.2% 
Lewites: 14.9%          MRS: 11.3% 
Pastora: 0.7%           AC: 0.7% 
None: 12.0% 
 
Due to a pact-inspired change in the Electoral Law during the 
Aleman administration, the front-running candidate can win 
the election in the first round with 40 percent of the vote 
or 35 percent with a five percent lead over the next most 
popular contender. 
 
U.S./CEPPS and Civil Society Election Support 
- - - - - - - - - - - - - - - - - - - - - - - 
 
¶23. (SBU) CEPPS partners IFES, IRI, and NDI and their local 
affiliates are now fully engaged in helping Nicaraguans 
prepare for their November 5 national elections.  Election 
program activities are exerting a significant positive impact 
on the electoral environment, encouraging greater 
transparency and accountability from the CSE and increasing 
voter participation and awareness.  As the political parties 
begin campaigning in earnest, we expect the civil society and 
technical assistance components of the program will rev up to 
ensure a more substantive debate and greater responsiveness 
to constituent interests.  A summary of CEPPS efforts: 
 
-- Padron Audit: NDI, working with the local chapter of 
Ethics and Transparency (ET), finalized a civil society audit 
of the voter roll (padron) and presented their findings to 
political parties, civil society and the international 
community June 7-9.  According to the audit, roughly 25% of 
the voting population is incorrectly listed on the padron, 
which will impede their ability to vote.  Further, 10% of the 
voting population (individuals currently possessing a 
national/voter ID card, called "cedula") is not included on 
the padron.  According to ET, both of these problems can be 
remedied through the CSE verification process.  NDI 
redirected program monies from other projects to fund 
national observation of the verification process and a public 
awareness campaign.  CSE President Roberto Rivas claimed that 
ET had not been "authorized" to perform a civil society audit 
of the padron, but the CSE has not refuted any of the 
findings of the study.  NDI has offered to provide training 
to all the political parties on how to use the findings of 
the audit to ensure their constituents are registered to vote. 
 
--Padron Verification:  With over 21 percent of eligible 
Nicaraguan voters estimated to have verified their status and 
location on the official voters list (padron), the CSE 
proclaimed the June 10-11 and 17-18 verification process a 
success.  This assessment was supported by observers from the 
Carter Center and the Latin American Council of Electoral 
Experts (CEELA).  IFES has worked closely with the CSE on 
padron verification, providing technical assistance and 
training for regional and municipal CSE officials.  IFES 
invested 100% of their public awareness funds on the 
verification process given the potential impact on the 
upcoming elections and the CSE's unwillingness to invest 
adequate funding in the verification campaign.  The OAS 
Election Observation Mission (EOM) fielded 29 observers. 
 
--Voter Education and Awareness:  IFES has doubled the 
capacity of the CSE voter hotline to meet the rising number 
of citizen inquiries regarding the electoral process.  IFES 
has helped the CSE update its website, making it more 
interactive and responsive to voter inquiries.  IRI has 
initiated grassroots voter awareness projects with four 
Nicaraguan civil society organizations.  Youth Vanguard is 
distributing flyers promoting voting and cedulas at 
university campuses.  Movement for Nicaragua (MpN) has radio 
and television adds encouraging citizens to obtain their 
cedulas prior to the August 6 deadline.  MpN and the 
Institute for Development and Democracy (IPADE) are 
canvassing secondary schools encouraging 16-18 year olds to 
participate in the electoral process.  MpN's youth outreach 
 
 
 
 
 
 
 
--Citizen Attention Centers:  With NDI support, MpN has 
extended operations in Managua.  It has also opened seven new 
Citizen Attention Centers (CAC) thq6H*8UQQnalized the 
training schedule for Herty Lewites' MRS and Eduardo 
Montealegre's ALN political party poll watchers, which will 
begin in late June and continue through August.  Based on the 
lists submitted by both parties, IRI will train 12,000 poll 
watchers for MRS and 18,000 for the ALN.  With additional 
funding, poll watcher training will be extended to Eden 
Pastora's Alternativa por el Cambio (AC) and poll watcher 
manuals will be distributed to all five parties.  (Note: PLC 
and FSLN poll watchers receive training through the CSE, an 
institution totally controlled by these two traditional 
parties.  End Note.) 
 
Codel Burton/Davis Activities and Meetings 
- - - - - - - - - - - - - - - - - - - - - - 
 
¶24. (SBU) Meeting with ALN Representatives: The Codel will 
meet with Eduardo Montealegre, presidential candidate of the 
Nicaraguan Liberal Alliance, and other ALN officials to 
discuss the upcoming national elections.  Montealegre has 
promised to destroy the PLC-FSLN pact, fight poverty, promote 
economic growth through micro-finance programs, provide jobs 
for young people, and address the problems of single mothers. 
 Montealegre is generally viewed as competent and uncorrupt. 
His new party is struggling to build a national network to 
promote and defend the ALN vote. 
 
¶25. (SBU) Meeting with MRS Representatives: The Codel will 
next meet with MRS presidential candidate Edmundo Jarquin and 
his advisors.  Jarquin is a technocrat who has spent the last 
several years outside of Nicaragua working at various 
international institutions.  He was the MRS vice presidential 
candidate prior to the unexpected death of Herty Lewites in 
early July.  Jarquin has promised to uphold Lewites' legacy 
and fight the PLC-FSLN pact and claims that he offers 
Nicaraguan voters a "responsible Left" option.  (Comment: The 
Codel may wish to ask Jarquin how an MRS administration would 
handle relations with Venezuela and Cuba and inquire about 
his views on CAFTA.  End Comment.) 
 
¶26. (SBU) Meeting with PLC Mayors: Following the meeting with 
MRS, the Codel will see a group of PLC mayors who have 
publicly demanded that Aleman leave the PLC.  These mayors 
recognize that Aleman is a liability for the party and the 
principal impediment to the unification of anti-Sandinista 
forces in Nicaragua.  (Comment: The Embassy has congratulated 
these mayors on their courageous stand against the PLC-FSLN 
pact in the face of pressure and threats against them from 
the PLC's national leadership.  The Codel may wish to inquire 
what the mayors plan to do if Aleman refuses to leave the 
PLC.  End Comment.) 
 
¶27. (U) MCA Nicaragua Signing Ceremony: One of the key 
objectives of the MCC Compact is to increase profits and 
wages of rural producers and entrepreneurs by assisting them 
with transitioning to higher profit activities.  This 
includes direct assistance as well as market building 
activities such as promoting regional brands, attracting 
investors, and linking the rural sector to market 
opportunities.  To develop a regional brand and attract 
investors/deals, MCA-Nicaragua plans to enter into a 
partnership with ProNicaragua, an investment promotion agency 
that provides support services to qualified investors seeking 
investment opportunities in Nicaragua.  The Codel will have 
an opportunity to witness the signing of this agreement. 
 
¶28. (U) USAID Famisalud Health Project (proposed for 
afternoon if some Codel members elect to stay): The Codel 
will participate in the launch of USAID's $8 million 
Famisalud health project.  The USAID-funded NicaSalud 
Federation was formed in 1999, in the aftermath of Hurricane 
Mitch.  The Federation's 28 members are dedicated to 
improving the quality and accessibility of maternal and child 
health services.  The Famisalud project will target 1,342 
rural communities in 70 municipalities nationwide to improve 
health services for approximately 100,000 women and children. 
 The event will take place in front of the Profamilia Health 
Clinic, located in the municipality of Tipitapa, which USAID 
built in 2001.  The event will feature the Blue Bus, a 
rolling health fair that travels to communities to present 
programs on health and hygiene.  Residents and school 
children from Tipitapa will be invited for the ceremony. 
TRIVELLI