VZCZCXYZ0006
PP RUEHWEB

DE RUEHMU #2065/01 2622354
ZNR UUUUU ZZH
P 192354Z SEP 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 7620
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

UNCLAS MANAGUA 002065 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR WHA/CEN AND H FOR MIKE SMITH 
 
E.O. 12958: N/A 
TAGS: PGOV ECON OVIP KDEM NU
SUBJECT: UPDATED SCENE SETTER FOR CODEL BURTON 
 
REF: A. A. SECSTATE 147809 
     ¶B. B> MANAGUA 01678 
 
¶1. (U) SUMMARY: Post welcomes the members of Codel Burton 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 
a free, fair and transparent election process, and visiting a 
USAID project for former  gang member rehabilitation.  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 
- Millenium Challange Corporation (MCC) Program in Nicaragua 
- Political Background 
- The 2006 Elections 
- U.S./CEPPS and Civil Society Elections Support 
- Codel Burton Activities and Meetings 
 
Specific scene setters that outline each meeting and activity 
in greater detail, including participants and press 
availability, are provided separately by e-mail to Mark 
Walker.  END SUMMARY. 
 
Economic Background 
------------------- 
 
¶2.  (U) Nicaragua has come a long way since the early 1990s, 
when the economy was in a shambles and uncertainty prevailed. 
 The country qualified for major debt relief under the 
heavily indebted poor country initiative (HIPC) and was able 
to manage its way through a local banking crisis precipitated 
in the early 2000s.  Today, Nicaragua is on the right 
economic track and boasts a fairly healthy business 
environment.  In 2005, GDP grew 4%, down from 5.1% in 2004. 
In 2005, rising oil prices caused inflation to rise slightly 
to 9.6%.  To achieve long-term success, Nicaragua must 
maintain macroeconomic and political stability, educate more 
of its population, foster greater investment (especially in 
the power and transportation sectors), reform the judicial 
system, and resolve Sandinista-era property confiscation 
cases and problems in the registration of land titles. 
 
¶3.  (U) Since April 1 2006, Nicaragua has implemented 
CAFTA-DR with noticeable effect on its bilateral trading 
relationship with the United States.  U.S. exports to 
Nicaragua in the second quarter of 2006 exceeded those in the 
previous quarter by 10%.  NicaraguaQ,s exports to the United 
States in the second quarter exceeded those in 2005 by almost 
29%.  Much of this latter increase is related to new U.S. 
markets for Nicaraguan agricultural and food products. 
Notwithstanding, the United States sustains a substantial 
trade surplus with Nicaragua.  Historically, the United 
States has been the source of roughly 20% of Nicaragua's 
imports and the destination for approximately 30% of its 
exports. 
 
¶4.  (U) CAFTA-DR is also prompting investors to take a closer 
look at Nicaragua.  Access to the U.S. market that CAFTA-DR 
provides is complemented by NicaraguaQ,s proximity to the 
United States, a variety of investment incentives, and low 
labor costs.  Currently, there are about 25 wholly or partly 
owned subsidiaries of U.S. companies operating in Nicaragua. 
The largest of these are in energy, financial services, 
manufacturing, and fisheries.  The country is also attracting 
U.S. investor interest in tourism. 
 
USAID Programs in Nicaragua 
--------------------------- 
 
¶5.  (U) From 1990 to 2006, USAID assistance to Nicaragua 
totaled $1.7 billion.  The current assistance program 
includes  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:        $14.6 million 
Health/Education:        $14.4 million 
P.L. 480 Food Security:   $9.7 million 
 
  -- 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. 
 
  -- 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. 
 
  -- 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. 
 
  -- 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 
------------------------ 
 
¶6.  (U) Through its MCC Compact, the Government hopes to take 
advantage of two major competitive pluses for Nicaragua:  its 
fertile land and its 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. 
 
¶7.  (U) The Compact will contribute to improving the lives of 
the residents of Leon and Chinandega by raising the average 
household income 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 producers transition to higher value products and 
activities. 
 
Political Background 
-------------------- 
 
¶8.  (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. 
 
¶9.  (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 force, 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). 
 
¶10.  (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, and incentives.  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. 
 
¶11.  (U) 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. 
 
¶12.  (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. 
 
¶13.  (U) In 2003, Aleman, who pilfered  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. 
 
¶14.  (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. 
 
¶15.  (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 
------------------ 
 
¶16.  (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. 
 
¶17.  (U) 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). 
 
¶18.  (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.  Despite predictions among some 
pundits that MRS votes would migrate to the FSLN, or perhaps 
the ALN, JarquinQ,s poll numbers remain similar to LewitesQ,. 
 However, the shift of Liberal politicians back and forth 
between the PLC and ALN, depending on their calculation of 
personal benefit, continues. 
 
¶19.  (U) Since the beginning of the official campaign in 
mid-August, relations between the ALN and PLC have continued 
to deteriorate.  The PLC has accused Montealegre of bilking 
the Nicaraguan people out of hundreds of millions of dollars 
by undervaluing the assets of failed banks, forcing the 
Central Bank to make up the difference in Negotiable 
Indemnization Certificates (CENIs, or debt bonds).  Although 
completely fabricated, the mediaQ,s vigorous pursuit of the 
story had been hurting MontealegreQ,s campaign by raising 
doubts among independent voters and diverting his attention 
from the campaign.  However, the recent denunciations of a 
PLC insider have exposed the CENI scandal as nothing more 
than a plot to discredit Montealegre and have implicated 
senior PLC officials including Presidential candidate Jose 
Rizo. 
 
¶20.  (U) The bad blood caused by the PLCQ,s smear campaign 
and RizoQ,s insistence on remaining a Presidential candidate, 
make a union of the liberal parties increasingly unlikely. 
With the Sandinistas also divided into two parties, it 
appears there will be five candidates on November 5. 
 
¶21.  (U) The latest CID-Gallup-sponsored official poll 
released at the end of August showed the following results 
for the parties: 
 
FSLN:     29% 
ALN:      23% 
PLC:      14% 
MRS:      14% 
AC:        1% 
None:     19% 
 
¶22.  (U) As with earlier polls, the CID-Gallup poll showed 
that the FSLN would lose in a second round and the ALN would 
be the likely winner.  Thus the FSLN is focusing all its 
efforts on a first round victory by leveraging a 
pact-inspired change in the Electoral Law that enables a 
front-running candidate to win the election in the first 
round with only 35 percent if there is a five percent lead 
over the next most popular contender. 
 
¶23.  (U) Results of an M and R poll released September 11 
(poll conducted on September 7-8, sample size 802 nationwide, 
3.5% error) showed Montealegre as the candidate most widely 
perceived to be the next President.  Interestingly, Carter 
Center representatives dismissed the poll results, given the 
small sample size and the fact that it did not include truly 
rural voters (M&R reached out only to people with phones.). 
 
Q:  Who do you think will be the next President? 
Montealegre:         35.2% 
Ortega:              22.3% 
Uknown/no answer:    18.6% 
Jarquin:             12.5% 
Rizo:                11.1% 
Pastora               0.1% 
 
Q:  Who do you intend to vote for? 
Montealegre:         36.2% 
Jarquin:             19.2% 
Ortega:              16.7% 
Uknown/no answer:    16.2% 
Rizo:                11.1% 
Pastora               0.1% 
 
¶24. (U) On September 13, CNN and Channel 2 co-sponsored a 
presidential debate featuring Montealegre, Rizo, Jarquin and 
Pastora.  Daniel Ortega did not participate, declaring the 
debate format "artificial."  According to M and R, 113,000 
households in Managua watched the debate and Jarquin was 
perceived as the winner, followed by Montealegre.  Jarquin, 
about whom there were initial doubts because he lacks 
LewitesQ, charisma, continues to perform well and draw voters 
from both the FSLN and ALN. 
 
U.S./CEPPS and Civil Society Election Support 
--------------------------------------------- 
 
¶25.  (U) The Consortium for Elections and Political Processes 
Strengthening (CEPPS) partners IFES, IRI, and NDI and their 
local affiliates are now fully engaged in helping Nicaraguans 
prepare for their November 5 national elections.  Although 
the election program activities are exerting a significant 
positive impact on the electoral environment, significant 
challenges remain.  Ortega remains outspoken against 
international observers, the CSE has fallen behind in the 
voter ID distribution process and IRI has recently come under 
fire for the production of dated political party poll watcher 
training manuals.  Despite these difficulties, the CEPPS 
partners continue to forge ahead.  A summary of CEPPS efforts: 
 
  -- The final electoral regulation governing electoral 
challenges or "impugnaciones" was released on September 7. 
Domestic observation groups Ethics and Transparency (ET) and 
the Institute for Development and Democracy (IPADE) have come 
out strongly criticizing the regulation, highlighting the 
increased potential for manipulation of the process by 
nullifying entire voting stations.  The new electoral 
challenge regulations lower the burden of proof required to 
justify nullification of entire voting centers, leaving the 
door open for cases such as Granada.  With NDI support, IPADE 
held an international conference on the challenges process 
September 12.  Electoral experts from the US, Mexico, and 
Costa Rica analyzed the regulation and implications for the 
upcoming elections.  IPADE is preparing a conference paper 
highlighting concerns over the legal challenge regulation and 
proposing best practices for the upcoming election. 
 
  -- Voter List Audit and Voter ID Study:  NDI, working with 
ET, finalized a civil society audit of the voter roll 
(padron) and a three-month study of the process to acquire a 
voter ID (cedula).  According to the voter roll 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) is not included in the 
padron.  The voter identification study revealed the need for 
effective distribution of voter IDs.  Of the 537 individuals 
who applied for national identification cards at the 
beginning of the study, only 101 (18.8%) received their ID 
cards in the 90 day period prescribed by law.  The study will 
be extended through the election to ensure the CSE is 
implementing the recommendations proposed by ET to expedite 
the delivery of voter IDs in the run-up to the elections. 
NDI has offered to provide training to all the political 
parties on how to use the findings of the voter roll audit 
and the voter ID study to ensure their constituents are 
registered to vote and have the necessary documentation to 
participate in the election. 
 
  -- IFES Support to the CSE:  Based on an assessment of 
technical deficiencies within the CSE and lessons learned 
from the Atlantic Coast election, IFES is conducting 
train-the-trainer sessions for national, regional, and 
municipal CSE officials involved in the electoral process. 
Additionally, they have conducted a survey of all outstanding 
voter IDs.  IFES estimates roughly 200,000 new voter IDs must 
be produced and distributed prior to the election. 
Additionally, approximately 200,000 voter IDs from previous 
years have not been distributed.  This information has been 
included in the CSE hotline and website, as well as in guides 
and CDs distributed throughout the country.  With IFES 
support, the CSE has refurbished an electoral bus that will 
be used to provide election information and distribute voter 
IDs throughout the 17 Departments.  Three motorcycles have 
been purchased to access remote communities. 
 
  -- Voter Education and Awareness:  IRI is providing 
grassroots voter education and awareness projects with four 
Nicaraguan civil society organizations.  Youth Vanguard 
distributed flyers promoting voting and obtaining voter ID 
cards at university campuses from April through July. 
Movement for Nicaragua (MpN) placed both radio and television 
ads encouraging citizens to obtain their voter IDs prior to 
the August 6 deadline.  MpN and IPADE canvassed secondary 
schools encouraging 16-18 year olds to participate in the 
electoral process and obtain a voter ID.  Youth organization 
JUDENIC initiated a "Rock the Vote" campaign on August 14. 
The campaign, which challenges youth to participate in the 
electoral process, includes TV and radio spots and eight 
concerts throughout the country. 
 
  -- Political Party Poll Watchers:  To defend the minority 
party vote, IRI is training 12,000 political party poll 
watchers for the MRS and 18,000 for the ALN.  Political party 
poll watcher manuals, which were developed by IRI several 
months ago, were pulled from circulation following criticism 
by the CSE for the use of outdated electoral information. 
The manuals are currently being updated with the latest 
electoral regulations. 
 
Codel Burton Activities and Meetings 
------------------------------------ 
 
¶26.  (U) Meeting with ALN Representatives: The Codel will 
have breakfast 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 using micro-finance programs 
and DR-CAFTA.  Although he is seen as the most  viable rival 
to the FSLN, his campaign continues to struggle with internal 
unity, reaching rural voters and inadequate campaign finances. 
 
¶27.  (U) Meeting with Vice Minister of Foreign Affairs:  The 
Codel will meet with Javier Williams-Slate, VM of Foreign 
Affairs.  Williams-Slate, a Miskito, is very knowledgeable 
about the current political situation on the Atlantic Coast, 
one of the regions where electoral fraud is of greatest 
concern. 
 
¶28.  (U) Meeting with OAS Representatives:  The Codel will 
lunch with the President of the OAS Election Observer Mission 
(EOM), Gustavo Fernandez, technical director Patricio Gajardo 
and special envoy to facilitate dialogue in Nicaragua, Dante 
Caputo (former Argentinean Foreign Minister).  The OAS EOM is 
engaged with the CSE (and others in the GON) to ensure the 
November elections are transparent and fair.  In August, the 
OAS issued an interim report on NicaraguaQ,s electoral 
process and there is discussion about an October update.  The 
OAS, who will field 200 observers on Election Day, has been 
repeatedly and harshly criticized by Daniel Ortega, who 
claims the OAS is seeking to discredit the election results 
in case of an FSLN victory. 
 
¶29.  (U) USAID Fenix Foundation:  Launched in 1997, Fenix 
runs a small farm on the outskirts of Managua that provides 
employment and training (including AIDs awareness and 
prevention) to former gang members between the ages of 16-21 
seeking to reintegrate into society.  Rep. Burton will 
participate in a short hand-over ceremony of a vehicle. 
Ceremony will include the Fenix Director and a police 
representative with extensive gang-related experience.  This 
will be a press event. 
 
¶30.  (U) Meeting with MRS Representatives: In the afternoon, 
the Codel will meet with MRS senior staff (Jarquin will be 
campaigning in the northern departments Sept 21-24).  Jarquin 
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 JarquinQ,s team how an 
MRS administration would handle relations with Venezuela and 
Cuba and inquire about his views on CAFTA.  End Comment.) 
TRIVELLI