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DE RUEHMU #0820/01 0882253
ZNY CCCCC ZZH
R 292253Z MAR 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 9654
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1041
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 06 MANAGUA 000820 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA, WHA/CEN, WHA/AND, WHA/EPSC, EEB, AND EEB/TPP 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: DECL: 03/09/2012 
TAGS: ECON PREL PGOV EINV ETRD NU
SUBJECT: EEB A/S SULLIVAN MEETS WITH OPPOSITION LEADER AND 
BUSINESS COMMUNITY 
 
 
Classified By: Ambassador Paul Trivelli for reasons 1.4 b&d 
 
¶1. (C) Summary: During his February 27 visit, A/S Sullivan 
received messages of concern from Nicaragua's main opposition 
leader and members of Nicaragua's American Chamber of 
Commerce.  Both expressed concern over Ortega's recent moves 
to divide and conquer the business community.  They also 
called for increased publicity on the results of CAFTA and 
other assistance programs to counteract the ever present news 
about Venezuelan assistance.  A/S Sullivan responded that the 
business community should stand together and not be picked 
off one-by-one if the new government begins to selectively 
enforce or undermine contract and property rights.  A/S 
Sullivan emphasized that the U.S. is committed to partnership 
through the U.S. Total Economic Engagement strategy and that 
it is critical for Nicaragua to continue to push-ahead 
microeconomic reforms necessary to take further advantage of 
CAFTA, MCC, and other USG programs.  The A/S encouraged the 
business community not to trade macroeconomic stability for 
democracy, and stated that he hoped that the private sector 
and USG programs would help constrain any dramatic 
undemocratic moves by Ortega.  (Note: A/S Sullivan's speech 
and Q&A's from the AMCHAM events start in para 9.  End note.) 
 End Summary. 
 
¶2. (SBU) During separate meetings on February 27, A/S 
Sullivan received messages of concern and nervousness from 
Nicaragua's opposition leader Eduardo Montealegre and the 
Executive Board of the American Chamber of Commerce in 
Nicaragua (AMCHAM).  Both raised concerns over Ortega's 
commitment to maintain an open and transparent business 
climate and the dominating FSLN message to the Nicaraguan 
public. 
 
The Private Sector Focused on Touting CAFTA, Benefits of 
Trade and Investment 
--------------------------------------------- ----------- 

¶3. (C) The AMCHAM Executive Board's primary concern was 
President Ortega's efforts to divide and conquer the business 
community.  Board members stated that the media's focus on 
Venezuela's assistance to Nicaragua * including concessional 
oil deals and housing projects * was countering in the 
public mind the positive messages of CAFTA, recent 
macroeconomic policies, and foreign investment.  The Board 
wanted help in publicizing the dramatic increase of exports 
under CAFTA and highlight debt relief and other USG programs 
as a counterweight to President Ortega's focus on the 
promises of the Bolivarian Alternative for the Americas 
(ALBA).  A/S Sullivan noted that a central purpose of his 
trip was to highlight the significant benefits and real 
results of economic engagement with the U.S.  AMCHAM 
committees are creating public positions on rule of law and 
economic abuses on the part of the GON.  A/S Sullivan 
applauded this move saying that it is not just businesses at 
stake, but the future of Nicaraguan democracy.  A/S Sullivan 
emphasized that as part of our Total Economic Engagement 
partnership, there were several reform areas the GON needed 
to target, including regulations to start a business, taxes, 
and land titles.  These reforms are critical to spreading 
benefits of programs such as CAFTA and MCC.  Following the 
meeting with the AMCHAM Executive Board, A/S Sullivan 
delivered a televised speech and Q & A session to the AMCHAM 
(see para 9). 
 
The opposition is concerned 
--------------------------- 

¶4. (C) During his meeting with Montealegre, A/S Sullivan 
described his meeting with Ortega and the concerns relayed by 
the business community.  Montealegre replied that the future 
of democracy in Nicaragua rests with the National Assembly, 
as it is the only institution not dominated by the FSLN.  Its 
ability to keep President Ortega in check, however, depends 
upon Liberal unity and blocking President Ortega's end-runs 
around the institution.  Montealegre was not optimistic.  As 
an example, he cited President Ortega's 2007 budget, just 
approved by the National Assembly.  Montealegre, a former 
Finance Minister, said the budget is fiscally responsible, 
meets IMF terms, and is similar to the one proposed by 
outgoing President Bolanos in October 2006.  The new budget 
increases in health and education spending, using newly 
committed moneys from donors and IDB debt forgiveness, while 
maintaining a small fiscal budget deficit.  Montealegre 
fears, however, that the GON intends to funnel Venezuelan and 
Iranian foreign assistance outside official channels.  Not 
only would such a move violate Nicaragua's budgetary laws, it 
also would allow Ortega to ignore legal spending 
restrictions. 
 
¶5. (C) Montealegre echoed business community concerns 
regarding President Ortega's actions and the FSLN publicity 
machine.  He stated that Ortega is repeating his 
divide-and-conquer business policies of the 1980s, when he 
favored a few "patriotic entrepreneurs" and left the rest to 
fend for themselves.  Montealegre also lamented all the 
publicity for the FSLN and ALBA when real results are flowing 
from CAFTA and other donor programs.  He asserted that 
Nicaragua has a "chicken and turtle" problem:  a chicken 
makes a lot of noise but only lays one egg.  A turtle lays 
hundreds of eggs in silence.  According to Montealegre, the 
donors and the opposition are turtles who need to learn to 
squawk like chickens. 
 
¶6. (C) A/S Sullivan shared AMCHAM's concerns about the USG 
message not getting out.  For example, following CAFTA 
implementation, exports have risen 24%, but the press appears 
focused only on "Mr. Chavez's barge of oil."  A/S Sullivan 
noted that Nicaragua has access to a 13 trillion dollar 
economy and there is much opportunity for investment and 
growth.  He asked Montealegre whether he thought MCC criteria 
--including ruling justly, investing in people and business 
climate -- would help discipline Ortega?  Montealegre 
indicated that he believed the indicators would be very 
helpful in restraining Ortega, and that the Sandinistas were 
looking to expand engagement in other economic areas, 
including through a new IMF program.  At the same time, 
Montealegre cautioned that unless someone stops Ortega, he 
will continue to mimic Venezuela and use democratic 
institutions to achieve what he wants. 
 
¶7. (C) Montealegre also shared some insights on the Ortega 
cabinet.  He stated that no minister makes a decision without 
consulting President Ortega or one of his top three or four 
strategists such as National Policy Advisor Paul Oquist, 
Economic Policy Advisor Bayardo Arce, and First Lady Rosario 
Murillo.  The strongest moderating influence in this group, 
in his opinion, is Murillo. 
 
Taking a United Stand 
--------------------- 

¶8. (C) A/S Sullivan emphasized that the private sector is 
attentive to Ortega's moves and that this group could 
potentially provide leverage if Ortega starts to get out of 
control.  He emphasized that U.S. vision's empirical data did 
not draw as much attention as the sound bites of competing 
visions, but he hoped at the end of the day, the people of 
Nicaragua would see that U.S. programs were providing 
Nicaragua the greatest benefits. 
 
Speech and Q&A's From AMCHAM February 27 Televised Event 
--------------------------------------------- ----------- 

¶9. (U) A/S Sullivan Speech to the American Chamber of 
Commerce event 
 
BEGIN TEXT 
 
- Thank you Margarita Sevilla for the introduction.  I am 
delighted and honored to be here in this beautiful country. 
It is my first time here and I have greatly enjoyed it. 
 
- I just read the core values of the AMCHAM mission statement 
and I agree fully with those values and with what this 
organization is trying to accomplish in Nicaragua. 
 
- Perhaps the most important thing that I can say and convey 
to you is the following ) the United States Government, 
President of the United States, Secretary Rice, and others 
are committed to working with the people of Nicaragua, its 
government and President Ortega.  We are committed to work 
together to consolidate democracy, rule of law, property 
rights, and create economic opportunities for sustained 
economic growth and poverty reduction for Nicaragua. 
 
- It is important to note that these goals of economic 
growth, poverty reduction and anchoring democracy are all 
interrelated, as President Bush has stated, "open trade and 
investment bring healthy, growing economies, and can serve 
the cause of democratic reform.  With CAFTA, our purpose is 
to strengthen the economic ties we already have with the 
countries of Central America and to reinforce progress toward 
economic, political, and social reform." 
 
- Ladies and gentlemen, I believe that we stand at a moment 
of great opportunity.  At the signing of CAFTA in 2004, 
United States Trade Representative Robert Zoellick, former 
Deputy Secretary, noted a tragic cycle that occurred 
throughout the 20th century.  "Conflict in Central America 
would draw in the United States.  The intervention was 
frustrating for all sides.  Problems were patched over, but 
not truly solved.  Civil rights were lost, dictators 
tightened controls, rebels were radicalized, blood was shed, 
neighboring countries turned against one another, and the 
poor, hard-working citizens in Central America lost chance 
after chance to better their lives in freedom." 
 
- But that was the past ) the future is much brighter for 
many reason, but perhaps the most important reason is because 
of the courage of the people of this region, the courage of 
the people of Nicaragua to embrace democracy and reject 
violence, and to negotiate and ratify a free trade agreement 
with its neighbors, including the U.S., with a much larger 
economy ) this takes courage and I and my government applaud 
you for this.  (applause) 
 
- CAFTA is the cornerstone of this brighter future and period 
of opportunity.  It gives Nicaragua permanent duty free 
access to the largest economy in history ) approximately $13 
trillion.  Whenever I travel Ministers always tell me that 
they want an FTA, but with CAFTA you have one and we need to 
look at ways to take advantage of the agreement. 
 
- CAFTA will do much to create the new economic opportunity 
that will bolster the democratic commonwealth in the 
hemisphere.  It will eliminate tariffs, open markets, promote 
transparency, and establish state-of-the-art rules for 21st 
Century commerce. 
 
- CAFTA is a vital element of our economic relationship with 
Nicaragua and with our other partners.  Through it, we are 
working with your political and business leaders to support 
continued economic reforms which will help promote prosperity 
and buttress freedom and democracy. 
 
- CAFTA has brought concrete economic gains to Nicaragua. 
For example, during the first seven months of 2006 compared 
to 2005, watermelon sales to the U.S. almost quadrupled and 
cigar exports nearly doubled.  U.S. supermarkets now import 
your agricultural goods, especially ethnic and organic foods, 
thereby benefiting small companies and farmers' cooperatives 
in your country.  Overall, exports are up 24% -- first 7 
months-- huge tangible results. 
 
- In the wake of CAFTA, U.S. companies are pouring investment 
into Nicaragua.  To cite just one example, ITG Cone Denim is 
building a $100 million factory.  Other U.S. companies have 
also started investing in your country since CAFTA entered 
into force in 2006 and others are looking to invest in 
projects that will create thousands of new jobs.  These trade 
and investment linkages are vital opportunities to relieve 
poverty through job creation. 
 
- But it is important to note that CAFTA is only one part of 
the story.  What I am here to talk about is our strategy of 
Total Economic Engagement ) a coordinated effort to 
integrate all our trade, assistance, development programs 
into one coordinated approach. 
 
- So we have CAFTA, but we also have the MCC compact.  The 
$175 million MCC Compact will benefit the country by further 
connecting Nicaragua to the global trading system, promoting 
rural business development, helping grant the poor title to 
land, and by linking infrastructure development to farmers 
and small businesses to help get their goods to market. 
 
- So we have CAFTA and the MCC Compact, but we also have 
substantial USAID programs.  USAID is committed to trade 
capacity building and related programs totaling over $250 
million over a 5 year period.  I just visited "Nicaraguan 
Handicrafts for Export Alliance."  With the help and funding 
of USAID, this public-private partnership is providing 
assistance to artistans and farmers to connect to the global 
economy. 
 
- In addition to CAFTA, MCC, and USAID programs, we have also 
provided significant additional debt relief to Nicaragua 
through the G8 and IDB.  We will continue these important 
efforts.  We are also working together on remittances ) a 
powerful economic growth lever bringing tens of billions of 
dollars into the region. 
 
- And on top of all these important economic instruments, we 
also have significant engagement with the Overseas Private 
Investment Corporation (OPIC).  OPIC has invested $200 
million for low-income housing, small businesses, and 
agriculture in the entire CAFTA region.  We are also looking 
at biofuels. 
 
- Integrating all of these programs is an important part of 
our Total Economic Engagement strategy. 
 
- But this strategy is more than just about coordinating U.S. 
programs ) it is about partnership and engagement with 
Nicaragua and the Nicaraguan people and its government 
officials. 
 
- So I am spending the day, talking to government ministers, 
American and Nicaraguan businessmen and women, business 
school students at INCAE ) a very impressive group ) about 
reforms here in Nicaragua that are needed to fit within and 
reinforce Total Economic Engagement to address the very 
significant challenges that remain in this country such as 
poverty and inequality. 
 
- So what are some of these reforms that the Nicaraguan 
Government should undertake as part of the Total Economic 
Engagement partnership? 
 
- First, Nicaragua must continue to implement the economic 
reforms under CAFTA and MCC.  Though CAFTA provides 
incentives and protections for greater investment and trade, 
legal and regulatory reforms are needed in order for exports 
to continue growing. 
 
- Second, according to certain studies of economic freedom, 
Nicaragua especially needs to improve the process for 
registering property and starting businesses and paying 
taxes.  Why?  Because these kinds of hindrances make it 
difficult for entrepreneurs and investors to do business in 
your country.  And without business people, it's difficult to 
create jobs and prosperity. 
 
- Third, I believe a bit of friendly rivalry encourages 
positive competition and benefits us all.  With regard to 
infrastructure ) at $1020 per container, it costs twice as 
much to export from Nicaragua as it does from El Salvador 
($515 per container).  Better roads and ports to get products 
to market, and better processing facilities such as 
refrigeration units, will enable Nicaragua to develop a more 
dynamic role in the global economy beyond the maquila 
(textile and apparel) sector.  We need to work on these 
reforms . . . together. 
 
- That is the ultimate goal of our strategy of Total Economic 
Engagement here ) to provide the resource flows that result 
in positive economic outcomes for nations that use these 
resources wisely for economic development and private 
sector-led economic growth.  Far too few poor farmers and 
entrepreneurs are equipped to capture the gains of an 
increasingly global economy and an array of structural and 
supply side barriers limit small business access to markets, 
capital and expertise. 
 
- Advancing those microeconomic reforms that bring jobs, 
growth and economic opportunity will also be essential to 
building a civil society and a democratic model of 
development in Nicaragua.  By promoting the development of 
commercial skills that empower small farmers and 
entrepreneurs to enter into national, regional and global 
supply chains, we will ensure that the gains from CAFTA, the 
MCC Compact, private sector investment and other programs ) 
all critical elements of our Total Economic Engagement ) are 
broadly shared throughout society. 
 
- Thank you very much.  I look forward to your questions. 
 
END TEXT 
 
¶10. (U) A/S Sullivan's Q&A's at AMCHAM event 
 
BEGIN TEXT 
Q1.  If you were a Nicaraguan, would you jeopardize a treaty 
with the U.S. for relations with countries such as Iran and 
Venezuela? 
 
A1.  As I mentioned in my speech, I have laid out the U.S. 
vision of what the U.S. believes should be driving economic 
principles: focus on free markets, transparency, commitment 
to democracy, and private sector-led growth leading to 
poverty reduction.   Our strategy recognizes the close 
relationship between continuous economic growth and 
democracy.  That is our vision for the region.  I think is a 
positive vision, I think it is a vision that most Nicaraguans 
would share with most Americans, and the countries you named 
I don't believe share this vision.  So it is obviously up to 
the government officials of this country to make that choice, 
but what I wanted to do is lay out the focus we have in terms 
of working with the people here, and I think, personally, 
that is a very powerful vision. 
 
Q2.  How does the US government protect the interests of U.S. 
investors when the Nicaraguan armies, judges, alcaldias, 
etc., invade with weapons and take your properties away? 
 
A2.   I can not comment with any detail on the specific 
question because I do not know if it is based on fact. . . 
The more important element of that question, however, is that 
it is important to understand is that protecting foreign and 
Nicaraguan investment is integral to continued economic 
growth and poverty reduction.  CAFTA has very strong 
investment protections, and this is something that since we 
are all CAFTA members, we are all countries that agreed to 
it.  Investment protections benefit members of CAFTA and the 
U.S. and strong protection for FDI is a critical element for 
economic growth in this country and in the U.S.  I think both 
governments share protecting investment as a critical 
component for continuing deepening our economic relations. 
 
Q3.  Are there plans to support the energy sector, given that 
there is growth in investment in this sector? 
 
A3.  I think most important plans will be from the private 
sector, but important for Nicaragua to create the conditions 
for the private sector to invest through by fostering a 
better business climate.  Energy security issues are very 
important to the U.S. and also to this region.  One area in 
particular that has been of focus and significant attention 
is the area of biofuels, and potential for biofuels to help 
replace imports of oil, which I think in a way will help the 
U.S. and countries of this region with regards to dependency 
on imports of oil.  In the State of the Union speech, 
President Bush focused on potential for biofuels to replace 
imported oil.  I think the Central American region in 
particular should view this potential in biofuels.  In the 
U.S., this is something we need to explore, it has so much 
potential, it can help to create employment, but also, as I 
mentioned, help to diversify our sources of supplying energy. 
 
 
Q4.  Are there political elements that can diminish the 
economic compromises agreed to through CAFTA or is it 
unconditional? 
 
A4.  I think with regards to CAFTA, it is clearly an 
agreement that has been ratified by the U.S. Congress, and 
that is in effect between our two countries.  It is actually 
a very important point because what distinguishes CAFTA from 
the different programs of the U.S. with other parts of the 
region, whether it is the CBI initiative or the GSP 
initiative, is that this initiative will allow significant 
duty free products to come in.  CAFTA is permanent, so that 
can lead to long term investment plans by different companies 
in Nicaragua, and foreign companies that plan to invest here, 
and I think you have already seen that.  The question also 
raises other concerns regarding the MCC, which is a very 
important component.  The money has already been funded - 
$175 million -.  But there are indicators that focus on 
business climate issues and as the program is reevaluated, if 
these indicators mark a decline in terms of these kind of 
issues, then the program has a conditional element.  We don't 
anticipate that at all, but that is one element that is 
important to know. 
 
END TEXT 
 
¶11. (U) A/S Sullivan cleared on this cable. 
TRIVELLI