VZCZCXRO0495
PP RUEHLMC
DE RUEHMU #0826/01 0891720
ZNY CCCCC ZZH
P 301720Z MAR 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 9668
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1047
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 MANAGUA 000826 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CEN 
 
E.O. 12958: DECL: 03/27/2017 
TAGS: PREL PGOV PINR ECON EINV NU GM SP
SUBJECT: AMBASSADORS PRIVATELY WARN ORTEGA INTERMEDIARIES 
OF CONSEQUENCES OF "DOUBLE TALK" 
 
Classified By: Ambassador Paul Trivelli for reasons 1.4 (b and d) 
 
¶1. (C) Summary: The Ambassadors of Spain, Germany, and the 
United States recently warned Ortega administration officials 
during a private meeting that President Ortega's 
contradictory statements and actions regarding foreign 
affairs, press freedom, and investment could damage the 
economy and bilateral relations.  Ortega's Foreign Minister 
and Economics Advisor responded by blaming the press for 
distorting the government's message and the outgoing Bolanos 
administration for allowing "speculators" (international 
investors) to take advantage of the country.  However, they 
did pledge to resolve outstanding issues in a way that would 
be "fair" to both parties.  End Summary. 
 
¶2. (C) Ambassador hosted a breakfast on March 27 with senior 
host government officials and the local Ambassadors of Spain 
and Germany to discuss political and economic issues. 
Foreign Minister Samuel Santos, Economics Minister 
Horacio Brenes, and Presidential Advisor Bayardo Arce spoke 
on behalf of the Ortega administration.  Arce handled the 
nuts and bolts of the economic issues raised, while Brenes, 
presence was punctuated by his silence.  Santos and Arce 
glossed over some issues, such as relations with Iran and 
Aleman's new privileges to move about the country, but the 
meeting was generally cordial, and  Santos played his usual 
role as reconciler. 
 
¶3. (C) Ambassador Trivelli opened the breakfast by remarking 
that the administration's moves to centralize government, 
criticize the press, scapegoat international investors, and 
engage pariah regimes such as Iran raise questions about the 
new government's commitment to maintain an open democracy and 
friendly relations with all.  Ambassador Trivelli and 
Ambassador Koebel of Germany added that the perception of 
judicial irregularities regarding the cases of Eric Volz, an 
American convicted of murder, and Arnoldo Aleman, the 
convicted PLC leader recently granted freedom to move about 
the country with no apparent legal justification, call into 
question Nicaragua's commitment to rule of law.  The 
increasing unease generated by the administration's lack of 
clarity on important issues could lead to decreased 
investment, a slowdown in new construction, and lower tourism 
revenues. 
 
¶4. (C) Santos and Arce blamed the "sensationalist press" for 
distorting the administration's policies, and Santos asserted 
that all new government's experience a "period of 
adjustment."  Arce argued that a decrease in economic 
activity is "normal" after a change in government, but that 
they really do not see much of decline.  Arce stated the 
administration will continue to pursue "transparency in 
investment."  (Comment: Ironically, Arce is a reputed money 
launderer.  End Comment.) 
 
¶5. (C) Regarding the Volz case, Santos stated that the 
government had done everything possible to respond to 
concerns about Volz' security and wondered aloud if the 
international media would prefer the government to "forget 
Nicaraguan law."  Arce later tried to absolve the executive 
of responsibility by admitting that "our judicial system 
unfortunately has faults that we can't hide."  He suggested 
to the European ambassadors that the 
European Union cut off judicial assistance to force the 
Supreme Court to implement the Judicial Career Law. 
 
¶6. (C) Koebel and Spanish Ambassador Jaime Lacadena remarked 
on two cases in the energy sector involving geothermal energy 
company Polaris (German, Canadian, and U.S. invested) and 
electricity distributor Union Fenosa (Spanish).  Lacadena 
stated that he is obliged to represent the interests of 
Spanish multinationals, and that the situation that Union 
Fenosa found itself in is "very complicated."  Later, he 
pointed out that the Nicaraguan government appears to apply 
different rules to public and private utilities.  Arce 
replied that the government does not intend to push out Union 
Fenosa.  If Union Fenosa goes or if it stays, "it will be 
Union Fenosa,s decision," he claimed.  As for Polaris, Arce 
mentioned others are interested in the geothermal project, 
including the Italians and Russians.  He added that Polaris 
had had plenty of time to accomplish milestones set forth 
under its concession contract, and that the royalty payment 
to government in exchange for its transfer was way too little 
for an investment whose book value was $29 million. 
 
¶7. (C) With respect to land disputes on Nicaragua's Pacific 
Coast, Arce acknowledged that many foreign investors are 
experiencing difficulties with disputed properties, 
especially in Tola (a municipality in the southern department 
of Rivas), but he faulted "opportunistic" investors for 
buying land without thoroughly investigating the validity of 
the title. 
 
¶8. (C) Santos claimed that the Sandinistas had inherited many 
difficult and long-standing problems in the power sector from 
the Bolanos government that would take time to sort out. 
Santos made the point more than once that the government 
intends to pursue its socialist objectives of serving the 
poor, providing for health, education, electricity and water, 
but in a "modern and sane way."  Arce blamed Bolanos for 
allowing international "robber barons" and "speculators" to 
take advantage of Nicaragua with unfair terms, without 
contributing to the country's infrastructure.  He pledged 
that the new government will treat investors "fairly," but 
with the ultimate goal of benefiting Nicaragua. 
 
¶9. (C) Comment: While Arce and Santos seemed defensive in 
this meeting and did not appear to accept the fact that there 
has been a marked change in investor attitude toward 
Nicaragua, they are part of a relatively moderate faction of 
Sandinista investors with a personal stake in economic 
stability and good relations with the U.S. and Europe.  The 
breakfast served to them know that we and other embassies are 
monitoring investor relations closely, a message they can use 
to push back against party radicals urging Ortega to 
strengthen alliances with Venezuela and Iran. 
 
TRIVELLI