VZCZCXRO1919
RR RUEHLMC
DE RUEHMU #0839/01 0921439
ZNR UUUUU ZZH
R 021439Z APR 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 9677
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1049
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 03 MANAGUA 000839 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA, WHA/CEN, WHA/EPSC, WHA/AND, EEB AND EEB/TPP 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: ECON PREL PRGOV ETRD NU
SUBJECT: EEB A/S SULLIVAN MEETS WITH PRESIDENT ORTEGA 
 
REF: A. MANAGUA 820 
 
     ¶B. MANAGUA 815 
 
¶1. (SBU) Summary:  On February 27, A/S Sullivan met with 
President Ortega and members of his cabinet at FSLN 
headquarters.  The entire ninety minute meeting was covered 
on live television.  A/S Sullivan delivered a positive 
message centered on the U.S. strategy of Total Economic 
Engagement (TEE * applying and integrating all economic 
tools in our bilateral relationship with Nicaragua * and 
delivering real results for Nicaragua.)  He emphasized that 
maintaining a vibrant democracy, open markets, improved 
business climate, respect for private property, and the 
sanctity of contracts are critical to ensuring continued 
investment, increased trade, and poverty reduction.  Ortega 
stated at the outset that he valued the U.S. economic 
relationship and wanted to deepen it.  He supported economic 
reforms, greater investment, and taking further advantage of 
CAFTA and MCC, but also lamented that these programs and 
approaches were not delivering sufficient poverty relief. 
A/S Sullivan stressed the link between anchoring democracy 
and continuing economic reforms to meet Ortega's economic 
growth and poverty reduction goals.  Ortega concluded that 
while social and economic change does require democracy, 
"real democracy" comes only after social and economic change 
and is better instituted through citizens councils.  End 
Summary 
 
¶2. (U) On February 27, A/S Sullivan capped off his day in 
Nicaragua with a ninety-minute meeting with President Ortega. 
 President Ortega was flanked by the First Lady, Vice 
President, and nine ministers, agency directors and 
presidential advisors.  Among those in attendance were 
Minister of Foreign Affairs Samuel Santos, Presidential 
Advisor on Economic Issues Bayardo Arce, National Policy 
Advisor Paul Oquist, the President of the Free Trade Zone 
Commission, and the Ministers of Agriculture and Trade. 
 
Atmospherics: A different meeting in a unique location 
--------------------------------------------- --------- 

¶3. (U) The meeting was held at FSLN headquarters, from which 
President Ortega currently governs.  The "kiosk room," as it 
is called, sports walls decorated in an assortment of 
abstract shapes and symbolic designs in a multitude of bright 
primary and secondary colors.  On the wall behind President 
Ortega was a design combining native American and Asian 
cultural symbols all centered around a Hand of Fatima with an 
evil eye in the center.  All twenty attendees sat around a 
large, square, glass topped, violet wicker table sitting in 
matching violet wicker arm chairs (envision 1970s hippie 
motif combined with 1980's disco decor.)  Behind the table 
were seven rows of chairs upholstered in multi-colored 
fabric, filled with members of the media. 
 
¶4. (SBU) President Ortega was flanked by the First Lady, Vice 
President and nine ministers, agency directors and 
presidential advisors.  Among those in attendance were 
Minister of Foreign Affairs Samuel Santos, Presidential 
Advisor on Economic Issues Bayardo Arce, National Policy 
Advisor Paul Oquist, the President of the Free Trade Zone 
Commission, and the Ministers of Agriculture and Trade.  As 
President Ortega's speech dragged on, the Ministers became 
distracted.  Santos took a nap behind his hand and then got 
up to pace behind the president, eventually standing against 
a wall.  Arce soon got up to join him and they both chatted 
with First Lady Murillo.  The First Lady spent her time 
issuing orders to her assistants and passing notes to 
ministers, paying little attention to what her husband was 
saying.  Members of the press would periodically check that 
their recording equipment was on, but otherwise, socialized 
throughout Ortega's speeches.  The only Nicaraguan thoroughly 
engaged in Ortega's exposition was former American citizen, 
now Nicaraguan, Paul Oquist, who listened through our 
interpretation receiver and took extensive notes.  Whenever 
A/S Sullivan spoke, however, every member of President 
Ortega's team, especially the First Lady, paid close 
attention. 
 
Total Economic Engagement Yielding Real Results 
--------------------------------------------- -- 

¶5. (U) President Ortega opened the meeting by pledging to 
continue to deepen trade and economic relations and to "lay 
the foundation for continuing cooperation between our 
countries."  A/S Sullivan overviewed his full day of meetings 
with GON officials and site visits, including the 
Seminole-owned cattle ranch, INCAE, and the ITG Cone-Denim 
site.  A/S Sullivan emphasized that the staff of the ITG 
Cone-Denim site stated that their $100 million investment 
which will directly and indirectly employ thousands of 
Nicaraguans would not have happened without CAFTA.  He stated 
that the U.S. is committed to a partnership with Nicaragua to 
achieve economic growth and poverty reduction while anchoring 
democracy in the region.  A/S Sullivan then highlighted U.S. 
Total Economic Engagement in Nicaragua, including CAFTA, 
USAID's $200 million in programs over five years, the $175 
million MCC compact, critical debt relief, OPIC's work on 
housing and infrastructure development and potential 
cooperation in the energy field, particularly biofuels.  He 
stated that we are seeing real results from CAFTA and our 
integrated Total Economic Engagement strategy: exports are up 
24 percent in less than a year under CAFTA, bringing total 
Nicaraguan trade to the U.S. to $1.5 billion, and foreign 
investment is increasing.  He pointed out that Total Economic 
Engagement entailed partnership.  To take advantage of 
opportunities provided under CAFTA, the MCC and other 
programs the GON needs to continue to institute reforms, 
including in areas such as business registration, tax 
collection, property rights, and investment disputes.  The 
A/S concluded urging reform in these areas in partnership 
with the U.S. to together move forward the GON's economic 
growth and poverty reduction agenda. 
 
¶6. (U) Ortega mentioned that he was pleased with the Seminole 
tribe's investment which he stated would incorporate social 
programs needed to attack poverty.  Ortega reviewed the 
economic issues facing Nicaragua, including: extensive 
poverty, investment without "redistributing profits," the 
effect of CAFTA on small farmers, the larger role for 
companies beyond creating jobs, CAFTA vs. the Venezuelan 
Bolivarian Alternative for the Americas (ALBA), the proposed 
free trade negotiations with the EU, the low level of MCC 
funding in comparison to other countries, energy companies 
not meeting terms of contracts, Venezuelan help with the 
energy crisis, alternative energy including biofuels, 
progressive tax reform and the overuse of tax exemptions, the 
relationship between property rights and land redistribution, 
privatized companies underperforming, and health and 
education challenges.  Ortega stressed that the GON was 
complying with its international commitments, including by 
building the access road to ITG Cone-Denim.  He noted that in 
order to eliminate extreme poverty, the GON needed to 
encourage projects such as the large textile factory, but 
also to provide incentives for small producers that are 
"disadvantaged under CAFTA."  He lamented U.S. corn subsidies 
and the rise in price of that commodity due to increasing 
demand for biofuels, but stated that there was much potential 
in Nicaragua for alternative energy investment, including in 
sugar-based ethanol. 
 
¶7. (SBU) On each of the economic issues A/S Sullivan raised, 
President Ortega began with a positive statement reflecting 
pragmatic thinking in line with U.S. policy, but would then 
add one or more Sandinista caveats.  The "negative effect" of 
the economic policies, claimed Ortega, on Nicaragua's poverty 
now required the FSLN to take a different approach. 
President Ortega criticized CAFTA for being a series of 
bilateral agreements, which therefore worked against the 
Central American Customs Union, which is negotiating an FTA 
with the EU that will include a "compensation fund." 
Although he admitted that there had been some unexpected 
successes with CAFTA, such as yellow corn, it was still not 
reaching the small producers and was hurting others.  He 
called for a regional fund to "equalize the playing field" 
between Nicaragua and other Central American countries and 
the U.S.  He also spoke about the GON's planned program to 
provide the rural poor with land, cows, pigs and chickens. 
 
¶8. (SBU) In responding to A/S Sullivan's argument that the 
Nicaraguan government should do more to enact micreconomic 
reforms and shorten the time needed to start businesses, 
President Ortega agreed that the GON should do more to limit 
red tape.  However, President Ortega's views on the private 
sector and its relationship with the government revealed an 
expectation that companies investing in Nicaragua should  
share profits with the employees and spend more on social 
investment.  In reference to the Spanish Ambassador's recent 
statements in support of the Spanish energy distributor Union 
Fenosa, President Ortega argued that ambassadors had no role 
in advocating for private companies.  In his view, the 
private companies in the energy sector created the current 
crisis by not meeting the terms of their contracts.  He 
affirmed that all contracts and concessions could be reviewed 
at any time by the GON to ensure the terms were being met; if 
they were not, they would be canceled.  He stated that after 
years of privatization and neo-liberalism there has been 
economic growth, but poverty and illiteracy still remain.  He 
mentioned that he appreciated U.S. assistance, especially in 
the health field, but stressed continuing challenges in this 
area. 
 
Democracy and Growth 
-------------------- 

¶9. (U) A/S Sullivan responded to President Ortega's criticism 
of the social impact of privatization and neo-liberal 
policies by stressing that U.S. companies carry out 
investment in a socially responsible way.  He noted that the 
USAID-supported public private-partnership, "Nicaraguan 
Handicrafts for Export Alliance" which he signed that day was 
a great example of the U.S. promoting partnerships with small 
businesses to get these goods to markets.  He emphasized the 
important role that democratic reform and rule of law have on 
private sector growth and the alleviation of poverty.  He 
repeated the integral role that the sanctity of contracts and 
open and transparent government play in building an economy 
that grows enough to lift people out of poverty.  A/S 
Sullivan also stressed that the MCC Compact had benchmarks - 
including indicators on economic freedom - that the U.S. 
views as imperative to maintain eligibility and help 
encourage greater FDI.  He noted that the U.S. shares the 
challenge of energy security and that President Bush was 
focused on biofuels, featuring the topic in his State of the 
Union Address.  He re-emphasized his search for potential 
areas of cooperation to help Nicaragua in this effort to grow 
economically, highlighting alternative energy and the local 
potential for bio-fuels as examples.  A/S Sullivan concluded 
by stressing that continuing to anchor democracy was integral 
to taking advantage of the moment of opportunity on the 
economic front, and that the ability to continue to improve 
the business climate, increase growth, and attract greater 
FDI could not be divorced from political developments and a 
sustained commitment to democracy. 
 
¶10. (SBU) President Ortega responded that while social and 
economic change does require democracy, "real democracy" 
comes only after social and economic change.  He highlighted 
how direct democracy, through his citizen councils, will be 
the best way to ensure this.  The members of the councils 
(chosen by the FSLN and lead by party loyalists with the rank 
of Ministers) would not only present ideas and engage in 
dialogue with the GON, they would propose laws and assistance 
projects which the GON would push through the National 
Assembly.  The councils would also serve as the "inspector 
generals" by tracking whether the GON championed their ideas 
and opinions.  Ortega concluded by thanking A/S Sullivan for 
his visit. 
 
Comment 
------- 

¶11. (SBU) It was not clear how much President Ortega's 
comments were targeted at A/S Sullivan or the public watching 
him on television.  He used the occasion to deliver messages 
on a range of issues.  Headlines the next day focused on 
President Ortega's criticism of the Spanish Ambassador's 
advocacy for Union Fenosa, rather than on A/S Sullivan's 
visit.  Ortega appeared to be seeking common ground on the 
laundry list of economic issues he raised; that he had his 
entire cabinet present underscored the importance he placed 
on the U.S.-Nicaragua economic relationship.  With media in 
attendance, he also was playing to the public.  Continued 
promotion of our Total Economic Engagement strategy, centered 
on CAFTA and the MCC Compact is producing real economic 
results, and should help restrain any dramatic shifts on the 
economic front.  End Comment. 
 
¶12. (U) A/S Sullivan cleared on this cable. 
TRIVELLI