VZCZCXYZ0012
RR RUEHWEB

DE RUEHMU #0327/01 0361919
ZNR UUUUU ZZH
R 051919Z FEB 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 8958
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE

UNCLAS MANAGUA 000327 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS TO USTDA KATE MALONEY 
 
E.O. 12958: N/A 
TAGS: ELTN EWWT EAIR ECON EIND EINV NU
SUBJECT: NICARAGUA: WEAK INFRASTRUCTURE HAMPERS TRADE 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY. 
 
¶1. (SBU) Summary.  A 2006 World Bank study characterized 
Nicaragua's infrastructure as the least developed in Central 
America.  Nicaragua,s poor national road network compounds 
the challenge of bringing products to market and presents 
"the greatest obstacles to export led economic growth."  At 
times, poor road conditions halt trade altogether and 
jeopardize tens of millions of dollars of commerce.  Sea 
ports, in dire need of investment, have reached maximum 
capacity but by law cannot raise funds or enter into 
public-private partnerships such as concessions or joint 
ventures.  International air cargo is also reaching capacity, 
limited by the ability of the airport to handle more 
shipments.  The Ministry of Transportation and Infrastructure 
(MTI) has consistently shown itself incapable of managing the 
sector in a way that supports development.  Newly-inaugurated 
President Daniel Ortega has focused on the need to stimulate 
large infrastructure projects to create jobs and alleviate 
poverty.  Ortega's seeming unwillingness to tackle ministry 
corruption and inefficiency in this sector early on is not 
completely unexpected, but belies Sandinista criticism of the 
Bolanos government in this regard.  It is not clear whether 
Ortega is interested in strengthening the ministry or simply 
finding a way around it. End Summary. 
 
Introduction 
------------ 
 
¶2. (U) A 2006 World Bank study depicted Nicaragua as having 
the least developed transportation infrastructure in Central 
America.  Sea ports are inadequate for the volume of trade 
that Nicaragua is beginning to generate.  The fragile road 
system, frequently pounded by torrential rains and mudslides, 
is largely unpaved.  The railroad system closed down fourteen 
years ago ) reportedly selling its ties, rails, and rolling 
stock to the Cubans.  International air transport to and from 
Managua has experienced steady growth, but domestic air 
transport shows no signs of graduating from its perennial 
infancy.  In general, the report found that the sad state the 
nation,s transportation infrastructure is hardly conducive 
to taking advantage of CAFTA-DR and integrating with regional 
markets. 
 
Roads: Unpaved and in Disrepair 
------------------------------- 
 
¶3. (U) As in many countries, the vast majority of commercial 
export shipping begins the journey overland, but the lack of 
adequate port facilities in Nicaragua means that almost 40% 
of all goods headed for the United States and other major 
markets must first travel an additional leg by land to 
neighboring countries where port services are better. 
 
¶4. (U) Nicaragua,s poor national road network only compounds 
the challenge of getting product to market.  The country's 
road network is comprised of 9,700 miles, yielding a road 
density per square kilometer that compares to other Central 
American countries.  In Nicaragua, however, only 1,455 miles 
-- or 15% -- are paved - half the Central American average of 
30%.  Moreover, more than 1,164 miles of the roads that are 
paved are in "poor or deteriorated8 condition.  According to 
the Ministry of Transportation and Infrastructure (MTI), only 
291 miles are in "good or excellent8 condition.  It comes as 
no surprise, then, that the World Bank study concluded that a 
well developed and maintained road network is the &greatest 
obstacle to maximizing export led economic growth." 
 
¶5. (U) The problem manifests itself throughout the country, 
but perhaps nowhere more obviously than in the agriculturally 
rich departments of Leon and Chinandega.  Though close to the 
Port of Corinto and outlets in neighboring Honduras and El 
Salvador, the roads in these departments are in terrible 
condition, hampering the shipment of perishable product to 
market.  Of the 65 miles of paved roads in each Department, 
only 20-25 miles are classified as &good or excellent.8 
For this reason, the need to improve roads was a central 
consideration in the decision of the Millennium Challenge 
Corporation to channel $92.8 toward road reconstruction in 
the region. 
 
¶6.  Sometimes the poor condition of the road network halts 
trade altogether.  In November, impassable roads in the 
departments of Matagalpa and Jinotega, key coffee-producing 
regions, threatened to keep 20% of Nicaraguan coffee exports 
from reaching the United States, jeopardizing the value of 
more than $30 million in exports.  Eduardo Rizo, president of 
the Coffee Producers of Jinotega, publicly explained that 
each day,s delay caused coffee beans to degrade, resulting 
in lower prices.  "Our coffee is practically trapped here," 
Rizo declared during a demonstration by the Nicaraguan Union 
of Coffee Producers in Managua.  Eventually, funds for 
emergency road repair were released, but coffee growers 
complained that the repairs were superficial and would not 
last through the next rainy season.  Matagalpa and Jinotega 
are responsible for producing 75% of the nation,s coffee 
crop. 
 
Ports: Limited Capacity 
----------------------- 
 
¶7. (U) The country,s largest port, Puerto Corinto, serves 
only the west coast of Nicaragua, moving 40,000 TEUs 
(twenty-foot equivalent units) in 2006.  Many ships departing 
Corinto will stop at Puerto Acajutal in El Salvador to 
transship rather than continue north along the Pacific Coast. 
 Indeed, aggressive plans to develop Puerto Acajutal have 
caught Nicaraguans flat footed.  If Puerto Corinto does not 
expand its facilities and offer better services, more 
customers may choose to ship overland to the El Salvadorean 
port, bypassing Corinto altogether.  The national ports 
company, Empresa Portuaria Nacional (EPN), has been so far 
unable to respond to this competitive pressure.  EPN already 
carries considerable debt and, by law, is prevented from 
raising funds in the financial markets, entering into joint 
ventures with private entities, developing terminals through 
concessions, or undertaking other forms of public-private 
partnership. 
 
¶8. (U) For access to the east coast of the United States and 
all points east, Nicaragua is dependent upon Puerto Cortez in 
Honduras and Puerto Limon in Costa Rica -- thirty eight per 
cent of all Nicaraguan sea trade passes through these 
outlets.  In recent years, delays at the Port of Cortez and 
organized theft have raised the risk of shipping through 
Honduras or Costa Rica for Nicaraguan exporters.  The only 
alternative is to ship goods overland to the small inland 
Nicaraguan Port of El Rama, located 18 miles inland on the 
Escondido River.  Cargo floats from Rama to the Atlantic 
coast, where it can be transferred to larger vessels that may 
well transship cargo in Puerto Cortez. 
 
Air: Managua Centered 
--------------------- 
 
¶9. (U) International air cargo is a popular choice for 
exportors of highly perishable goods such as okra and fish. 
Exports via air have steadily increased at a rate of 5% a 
year since 2000, to 20.5 million pounds in 2006.  Limited 
ground storage for cargo and limited cargo processing 
facilies at Nicaragua's International Airport have frustrated 
air cargo carriers, however, who complain that the airport 
grants priority to passengers.  Juan Bosco Ortega, UPS 
General Manager in Nicaragua, believes that, without major 
renovations and expansion of the airport, the air cargo 
industry has reached its maximum capacity. 
 
¶10. (U) In contrast, domestic airlines cut most cargo flights 
in 2006 to save on fuel costs, reducing internal air cargo 
trade to just 500,000 pounds, a 50% drop from 2005.  Neither 
of the two domestic airlines, La Costena and Atlantica, plan 
to increase cargo flights any time soon, citing financial 
problems and a limited fleet.  The domestic air market has 
struggled since the late 1990's, forcing the departure of two 
airline companies, Aerosegovia and NICA.  La Costena and 
Atlantica, newcomers to Nicaragua, are already showing signs 
of trouble with frequent delays or cancellations caused by 
mechanical failure in an aging turbo prop fleet. 
 
Ministry Performance: Consistency Is Not Always Good 
--------------------------------------------- ------- 
 
¶11. (SBU) Over the past decade, the Ministry of Transport and 
Infrastructure (MTI) has consistently shown itself incapable 
of managing the sector in a way that supports development, 
but 2006 may have been a new low.  The year ended with a 
flurry of corruption allegations, resignations, and 
investigations over missing money, mismanagement, and 
fraudulent reporting.  Under a cloud of corruption, Ricardo 
Vega Jackson resigned his post as minister on September 19. 
He promptly accused his predecessor, Pedro Solorzano Castillo 
(then an advisor to President Bolanos), as the original 
source of the corruption in the ministry.  In turn, Solorzano 
Castillo blamed former President and convicted felon Arnoldo 
Aleman of forging enduring corrupt relationships with road 
construction companies that routinely pocketed MTI money 
before fulfilling their contracts.  These accusations and 
counter-accusations caused the Accountant General to launch 
an investigation into official misconduct, and the National 
Assembly to impose a ministry-wide spending freeze, leading 
to the immediate withdrawal of tenders on a number of long 
awaited road construction projects.  The result was complete 
paralysis of an already dysfunctional ministry. 
 
¶12. (SBU) Bickering and mismanagement seems to plague the 
ministry.  In October 2006, an internal MTI investigation 
revealed that the ministry had over reported the number of 
roads constructed or rehabilitated between 2002 and 2005. 
MTI had claimed that it had built or rehabilitated 470 miles 
of road, while the actual figure was closer to 332 miles. 
Former Director of Transportation Manuel Salgado (2003-2006) 
later claimed that he was ordered to produce these false 
reports.  In November, MTI,s road maintenance division 
(FOMAV) reported that 75 miles of these newly-constructed 
roads were "so badly constructed and designed" that they 
would have to be rebuilt.  Meanwhile, FOMAV,s ability to 
maintain even well constructed roads has been called into 
question by the World Bank's study.  The study concluded that 
lack of capacity at FOMAV "place(d) the major investments in 
the transportation sector of the past 5 years at risk, 
especially in rural areas." 
 
Enter Ortega 
------------ 
 
¶13. (SBU) During the election campaign and weeks that 
followed, President Daniel Ortega has publicly stressed the 
need to stimulate large infrastructure projects to create 
jobs for Nicaragua and alleviate poverty.  During an October 
pre-election meeting with fregn investors in the tourism 
sector, Ortega promised to support the construction of a 
Pacific Coast Highway to help develop the industry, after a 
ministry-funded study concluded, surprisingly, that there was 
no economic justification for doing so.  In November, Ortega 
praised the proposal to build an $18 billion interoceanic 
canal, arguing that the megaproject would generate numerous 
jobs for the country and foster economic development.  In 
December, Ortega and Venezuelan President Hugo Chavez 
announced plans for the Venezuelan National Oil Company to 
build a multi-million dollar transisthmus oil pipeline in 
Nicaragua.  Immediately after his inauguration, Ortega 
announced agreements with Venezuela and Iran to build roads 
and improve ports. 
 
Comment 
------ 
 
¶14. (SBU) Ortega has not publicly discussed MTI nor its 
problems.  Instead, he created a new position, that of 
Director of Public Projects, to function outside of MTI. 
Reportedly Manuel Coronel Kraus, Ortega's former Director of 
Public Projects during the 1980s, will take the job.  Coronel 
has represented Ortega at a number of infrastructure-related 
meetings, telling investors that Ortega "likes big projects." 
 Coronel is noted for his grandiose ideas during the 1980s; 
some industry insiders have even characterized him as 
"eccentric and kooky."  Ortega's seeming early unwillingness 
to tackle ministry corruption and inefficency in this sector 
is telling, particularly given Sandinista criticism of the 
Bolanos government in this regard.  At this juncture, we are 
not sure whether Ortega is interested in strengthening the 
ministry or simply finding a way around it.  End Comment. 
TRIVELLI