VZCZCXYZ0001
RR RUEHWEB

DE RUEHMU #0318/01 0332002
ZNR UUUUU ZZH
R 022002Z FEB 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 8945
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 0934
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS MANAGUA 000318 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR JASPER HOEK 
STATE FOR WHA/CEN, WHA/EPSC, EB/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV NU
SUBJECT: NICARAGUA: AMBASSADOR CALLS ON NEW CENTRAL BANK 
PRESIDENT 
 
¶1. (SBU) Summary.  In a courtesy call on January 29, new 
Central Bank President Antenor Rosales Bolanos told the 
Ambassador that the government intended to pursue prudent 
macroeconomic policy as a way of sending the right signals to 
investors.  The government's objective is to find ways to 
channel more investment toward creating jobs and improving 
the lives of the poor.  Rosales confirmed the government's 
intention to enter into preliminary talks with the 
International Monetary Fund (IMF) in February, and then 
negotiate a new Poverty Reduction and Growth Facility 
beginning in March.  Rosales highlighted recent debt 
reduction efforts, including $786 million in debt relief from 
the InterAmerican Development Bank, additional bilateral debt 
relief from Venezuela and Taiwan, and Nicaragua's commercial 
debt buy-back effort with the World Bank and bilateral 
donors.  Rosales said that he does not see recent economic 
agreements with Venezuela and Iran as a reflection of a 
political vision for Nicaragua, but rather an acknowledgment 
that Nicaragua depends upon the largesse of these two 
benefactors for oil.  Rosales said that he would prepare 
ideas in writing as to how additional U.S. technical 
assistance at the bank could play a role. End Summary. 
 
Introduction 
------------ 
 
¶2. (U) The Ambassador paid a courtesy call on new Central 
Bank President Antenor Rosales Bolanos on January 29.  Econ 
Counselor attended; Rosales did not request staff presence. 
The meeting lasted more than an hour and was cordial and 
business like.  At the close of the meeting, Rosales called 
in a photographer to take photographs of the Ambassador with 
him. 
 
Macroeconomic Policy 
-------------------- 
 
¶3. (U) Rosales confirmed to the Ambassador his publicly 
stated desire to maintain macroeconomic stability through 
exercising prudent monetary policy and controlling inflation. 
 He said that the only way for Nicaragua to alleviate poverty 
is to create jobs though investment.  He explained that 
maintaining stable macroeconomic policy is the only way to 
send the right signal to investors and the international 
business community. 
 
¶4. (U) Rosales also confirmed the government's intention to 
enter into preliminary talks with the IMF in February, and 
then to negotiate a new Poverty Reduction and Growth Facility 
beginning in March.  In the interim, the new administration 
must come to terms with this year's budget (still not passed) 
and begin work on next year's budget.  The IMF will want to 
see that the government intended to keep expenditures in line 
with revenues and grants. 
 
Debt Reduction 
-------------- 
 
¶5. (U) The Ambassador congratulated Rosales on the recent 
announcement that the InterAmerican Development Bank (IDB) is 
moving to forgive $786 million in debt, about one-half of 
what Nicaragua owes the bank.  Once approved by IDB 
governors, the country's external debt will fall to below $4 
billion (down from more than $11 billion fifteen years ago to 
$3.7 billion).  Rosales added that the effort to arrange 
financing for the buy-back of bilateral commercial debt is 
proceeding.  He said that Nicaragua needs $64 million, of 
which the World Bank is willing to fund about half and 
bilateral donors the rest.  In addition to Canada, Rosales 
mentioned Norway, Finland, and the Netherlands as possible 
donors.  (Note: We understand that Norway has confirmed and 
deposited funds, Canada and Finland have confirmed but not 
yet deposited funds, and Sweden, Australia, and the United 
Kingdom are considering their participation.  The Government 
of the Netherlands declined, but its local Embassy is 
exploring the possibility of using Embassy funding.) 
 
¶6. (SBU) Rosales said that the effort to obtain further 
forgiveness on official debt continued.  Venezuela had 
forgiven all of its bilateral debt, amounting to $48 million, 
as announced by Venezuelan President Hugo Chavez when he 
signed Alternativa Bolivariana for the Americas (ALBA) 
agreements with Nicaragua on January 11.  Taiwan is also 
looking at forgiving its bilateral debt, but needs 
parliamentary approval.  Rosales confirmed that Nicaragua is 
no longer making payments on its bilateral debt to Iran and 
 
Libya, but did not confirm whether these countries would 
write off Nicaraguan debt.  (Note: During his visit to 
Managua on January 13-14, Iranian President Mahmoud 
Ahmadinejad promised to seek Parliamentary approval to 
forgive Nicaragua's debt to Iran, totaling $152 million.) 
 
Bank Bailout Bonds (The CENI Saga) 
---------------------------------- 
 
¶7. (SBU) The Ambassador asked about the CENIs (bank bail out 
bonds dating from 2001) and whether questions surrounding the 
propriety of the Central Bank having issued them would 
prevent the Central Bank from making bond payments.  Rosales 
replied that it did not.  He stressed that the Central bank 
"has to pay them" off.  Even if the budget does not provide 
funds, Rosales added, the Central Bank &must honor the 
CENIs8 and will draw down reserves to make payments, if it 
has to.  He does not believe that the government will pursue 
a criminal investigation on the CENIs scandal (manufactured 
by the PLC during the election campaign to tarnish the image 
of former banker, Minister of Finance, and ALN presidential 
candidate Eduardo Montealegre). 
 
Venezuela and Iran 
------------------ 
 
¶8. (SBU) The Ambassador asked how a closer relationship with 
Venezuela and Iran, announced within days of President 
Ortega's inauguration, would help Nicaragua's business 
climate.  Rosales responded that he does not see Ortega's 
move as a reflection of a political vision for Nicaragua, but 
rather an acknowledgment that Nicaragua depends upon the 
largesse of these two benefactors for oil. 
 
¶9. (SBU) The Ambassador asked whether support from ALBA 
countries would be in the form of budget support or loans. 
Rosales answered that much of the support would likely be in 
the form of concessional loans or a private sector initiative 
modeled after the Millennium Challenge Corporation.  The 
government wants to keep donor funds "off-budget" as much as 
possible, to limit the impact on the national accounts. 
(Note: Nicaraguan law earmarks percentages of the national 
budget for certain purposes, such as 6% for tertiary 
education, 6% for municipalities, and 4% for the judiciary. 
Adding foreign assistance programs to the budget increases 
the absolute value of these earmarks.)  Rosales believes that 
any oil refinery built with the Venezuelans, as announced by 
President Chavez at the ALBA signing, will have to be 
financed primarily from private sources. 
 
Neo Liberalism 
-------------- 
 
¶10. (SBU) The Ambassador noted that in President Ortega's 
discourse with the diplomatic community on January 26, Ortega 
indicated that he had problems with what he termed "neo 
liberalism."  Ortega also mentioned his desire to end 
"dependency" on the International Monetary Fund (IMF), and 
that the government would review the privatization of the 
telephone and power sectors.  Ortega lamented the fact that 
the government will have to pay out $100 million in 2007 on 
bonds issued to cover indemnities on properties confiscated 
in the 1980s.  "What is the nexus between this rhetoric and 
economic policy?" wondered the Ambassador.  Rosales replied 
that he sees Ortega's comments as a reflection of the past, 
not as active policy.  When it came to the IMF, Rosales said 
that Ortega did have a point, i.e., that IMF programs have 
not resolved the central issue of poverty.  In addition, 
Ortega wants to stake out room for social development, not 
just economic restructuring, in an IMF program. 
 
¶11. (U) Noting that he had served in Nicaragua in the early 
1990s, the Ambassador commented that, contrary to what the 
new government has been claiming, great progress had been 
made in the last fifteen years.  All the programs in 
education and health, donor assistance, and economic 
restructuring obviously have had a positive impact.  Rosales 
admitted that there had been progress during the past fifteen 
years, but pointed out that there is an important sector 
(i.e., the poor) which does not feel it.  He continued, "But, 
this is because there has not been enough investment."  The 
government's objective now is to channel investment to create 
jobs and improve the lives of the poor. 
 
U.S. Technical Assistance 
------------------------- 
 
 
¶12. (U) The Ambassador mentioned that the U.S. Treasury and 
USAID funded an advisor to assist the Central Bank and 
Ministry of Finance in strengthening Nicaraguan debt markets. 
 Now that the Capital Markets Law has been enacted, 
implementing regulations have to be put into effect.  Rosales 
agreed, adding that implementation of this law is one of his 
top priorities.  The Ambassador asked Rosales if he has a 
need for further technical assistance from the United States. 
 Rosales replied that he will give it some thought and 
prepare ideas in writing for their next meeting.  Thinking 
out loud, Rosales suggested that there may be a need to do 
something in the area of domestic debt. 
 
Biography: Antenor Rosales Bolanos 
---------------------------------- 
 
¶13. (SBU) From 1979 to 1994, Antenor Rosales Bolanos served 
in the Sandinista Army, rising to the rank of colonel in 
command of the First Military Region.  In the mid to late 
1990s, he was a partner along with other notable Sandinistas 
in what was known as Interbank (the Intercontinental Bank). 
The collapse of Interbank in 2000, for reasons related to 
mismanagement and nonperforming loans, helped trigger a 
financial market crisis that necessitated a government bail 
out of significant proportions.  Rosales appears not to have 
been implicated in misconduct. 
 
¶14. (SBU) More recently, Rosales served as the FSLN's 
representative on the Board of the Superintendent of Banks 
and Other Financial Institutions.  He has also served on the 
Board of Directors of the Nicaraguan Renewable Energy and 
Environmental Company.  The company reportedly holds among 
its assets the majority of capital and intellectual property 
rights of the Consortium Hydro Copalar MidAmerican Ltd., a 
European-based engineering and design company under contract 
to the Mexican Federal Commission of Electricity.  Copalar 
has been a proponent of building another large hydroelectric 
dam in Nicaragua. 
 
¶15. (SBU) Rosales is a lawyer by training and a notary 
public.  He reportedly holds a masters degree in law.  He is 
listed as a faculty member teaching financial markets law at 
the University of CentroAmericana in Managua.  Associates say 
he is intelligent and a quick study.  He is close to 
Presidential Advisor for Economic and Financial Affairs 
Bayardo Arce.  In terms of personality, Rosales is one of the 
more confident appointees in the new administration.  He 
appears to be in his early 50s. 
 
¶16. (U) Post is still awaiting Rosales' official biography. 
TRIVELLI