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RUEHGT/AMEMBASSY GUATEMALA 0137
RUEHMU/AMEMBASSY MANAGUA 0168
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RUEHGZ/AMCONSUL GUANGZHOU 0384
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RUEHSH/AMCONSUL SHENYANG 5955
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RHHMUNA/USPACOM HONOLULU HI

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001485 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 6/04/2032 
TAGS: PREL TW XK
SUBJECT: TAIWAN BATTLES TO HOLD ON IN CENTRAL AMERICA 
FOLLOWING LOSS OF COSTA RICA 
 
REF: A. TAIPEI 01273 
     ¶B. TAIPEI 01483 
     ¶C. TAIPEI 01154 
     ¶D. TAIPEI 01283 
 
Classified By: AIT Deputy Director Robert S. Wang, 
Reasons: 1.4 (b/d) 
 
¶1.  (C)  Summary: Central America remains a major focus of 
Taiwan's diplomatic and foreign assistance programs following 
the loss of Costa Rica.  Over half of Taiwan's foreign 
assistance is channeled to Central America, where six 
countries still recognize Taipei, and to the Caribbean, where 
Taiwan has five diplomatic partners.  Costa Rica's recent 
decision to switch recognition from Taipei to Beijing has 
raised serious concerns here about Taiwan's long-term ability 
to compete against a "rising China."  Taiwan MOFA officials 
see Nicaragua and Panama as potentially most likely to follow 
Costa Rica's lead in switching recognition to Beijing. 
Nevertheless, Taiwan still enjoys some competitive advantages 
in the region stemming from well-received business 
investment, assistance programs, and participation in a 
regional development bank.  President Chen and Vice President 
Lu are scheduled to travel to Central America this summer to 
help strengthen ties with Taiwan's remaining allies there. 
End Summary. 
 
Central America the Key Battle Ground 
------------------------------------- 
 
¶2.  (C)  Accounting for a quarter of Taiwan's 24 diplomatic 
partners, Central America has garnered the lion's share of 
Taiwan foreign assistance and diplomatic attention over the 
past two decades.  Over half of International Cooperation and 
Development Fund (ICDF), Taiwan's USAID equivalent, 
assistance is channeled to Central America and the Caribbean 
(Ref A).  Taipei is also closely integrated into regional 
financial institutions, such as the Central America Bank for 
Economic Integration (CABEI), and is one of the largest 
providers of financial and humanitarian assistance to the 
region.  Taipei's stepped-up engagement with Central America 
dates to the early 1990s, when Taiwan developed a 
multilateral approach to solidify its diplomatic and economic 
ties with allies.  Taipei is now attempting to replicate 
those efforts in Africa and the South Pacific (Refs B & C). 
 
¶3.  (C)  Panama Ambassador Julio Mock recently told AIT that 
the strength of Taipei's engagement with Central American 
countries is based on its participation in regional banks, 
such as CABEI, and in regional fora, including the SICA 
(System of Central American Integration).  Mock said that the 
May meeting in Belize between Taiwan and Central American 
foreign ministers was a good example of regularized 
multilateral exchanges that focus on financing new and 
ongoing development projects in the region.  Mock stated that 
Taipei pours millions of dollars into individual countries 
and regional projects, for example by contributing USD 150 
million to the founding of CABEI in the early 1990s and 
continuing contributions of about USD 20 million a year to 
the bank.  Mock noted that the interest earned by Taiwan's 
loans and financing projects is then used to fund the 
operations of the Central America Trade Association in Taipei 
to encourage Taiwan investment in the region. 
 
Costa Rica: A Linchpin Removed? 
------------------------------- 
 
¶4.  (C)  Costa Rica's decision to switch recognition from 
Taipei to Beijing in early June, however, has raised serious 
doubts about Taipei's ability to compete against a "rising 
China." (Ref D)  Despite Taiwan's success in wooing 
recognition from tiny Saint Lucia in May, the Costa Rica 
 
TAIPEI 00001485  002 OF 003 
 
 
switch reduces the overall number of diplomatic partners to 
24, down from 29 when President Chen took office in 2000. 
Foreign Minister James Huang (Chih-fang) told AIT that Taipei 
is deeply concerned about its shrinking international space, 
particularly after the loss of Costa Rica.  Despite his 
public announcements that the loss would not have a "domino 
effect" on Taiwan's remaining Central American allies, Huang 
said privately he is much less confident that Taiwan can hold 
on all of its remaining Central American partners, given 
China's growing influence and the leftist political tilt in 
Latin America.  Huang noted that his ministry will be under 
great pressure over the next 3-6 months to prevent any 
additional diplomatic losses as it works to shore up 
relations in the region. 
 
¶5.  (C) Tamkang University Professor Kung Kwo-wei told AIT 
that Costa Rica was the "centerpiece" of Taiwan's diplomacy 
in the region.  Its loss represents a "major blow" to Taiwan 
both economically and symbolically because Beijing now has 
another base besides Mexico in the region from which to 
continue efforts to undermine Taipei's position.  Outgoing 
Costa Rica Ambassador to Taipei Mario Chea told AIT before 
the break that despite enjoying over 60 years of close 
relations with Taipei, San Jose simply could "not ignore" 
Beijing.  Chea said that Taiwan had on numerous occasions 
implored Coast Rica to slow its trade with China, but he 
observed, "If Taiwan companies do business with the PRC, why 
can't Costa Ricans?"  Chea complained that Taipei has done 
little to increase Taiwan direct investment in Costa Rica 
from the levels reached 20 years ago, explaining that the 
trend has actually gone in the opposite direction with 
textile factories moving out to neighboring countries with 
lower labor costs. 
 
¶6.  (C)  Despite the loss of Costa Rica, Professor Kung 
Kwo-wei suggested that other Central American allies are 
unlikely to recognize Beijing in the near term out of concern 
to maintain their own foreign relations stable.  Kung 
explained that each country in Central America has its own 
particular interests in maintaining relations with Taiwan. 
If a key partner such as Costa Rica or Panama switches 
recognition to Beijing, however, it does encourage other 
Central American states to begin reassessing their 
relationship with Taipei, Kung added. 
 
The Fight is On for Nicaragua and Panama 
---------------------------------------- 
 
¶7.  (C)  Taiwan MOFA officials see Nicaragua and Panama as 
the most likely countries in the region to follow Costa 
Rica's suit.  Foreign Minister Huang admitted that Nicaragua 
is now Taiwan's most tenuous relationship in the region.  He 
revealed that during his May visit to Managua President 
Ortega said he was facing strong pressure from his party, as 
well as urging by Castro and Chavez, to establish diplomatic 
ties with Beijing.  Huang believed he had managed to convince 
Ortega, for the moment, that keeping ties with Taipei sends a 
positive message to the U.S. and others that the Ortega 
administration values stability.  Huang explained that 
Taiwan, as Nicaragua's largest foreign investor whose 
companies employ about 25,000 people, has more economic clout 
there than in Honduras or Guatemala.  Taiwan has pledged to 
work with Ortega on poverty alleviation programs and to help 
Nicaragua expand its production of electric power. 
 
¶8.  (C)  Heading the drive to keep Taiwan's remaining allies 
on board, President Chen Shui-bian is scheduled to attend a 
heads-of-state summit August.  Vice President Annette Lu will 
be making her own trip to the region next week, visiting 
Paraguay for the 50th anniversary of Paraguay-Taiwan 
relations and stopping in the Dominican Republic, Guatemala 
and perhaps Panama.  Foreign Minister Huang told AIT that he 
 
TAIPEI 00001485  003 OF 003 
 
 
would also be sending a "special envoy" to the region soon to 
help shore up relations.  As part of those efforts, Taipei 
has also appointed a new ambassador to Nicaragua. 
 
¶9.  (C)  Professor Kung said that despite Nicaragua's 
potential vulnerability after the election of President 
Ortega, Taiwan's strong business presence and generous 
financial assistance are too important for Ortega to ignore. 
Panama, on the other hand, has seen growing investment by 
Beijing in the canal and associated service sectors, and 
could be more susceptible, Kung suggested.  Panama, like 
Costa Rica, has the ambition to serve as the "Switzerland" of 
the Americas and as such might find it advantageous for 
strategic reasons to eventually go with Beijing. 
 
¶10.  (C)  Panamanian Ambassador Julio Mock told AIT that 
Panama-Taiwan relations remain solid and are not expected to 
change under the current president's term, which expires in 
¶2009.  While China is a big market, Mock acknowledged, Panama 
finds it easier to work on trade issues with a small country 
like Taiwan, which is more willing to fund regional 
development projects.  Mock noted that an important component 
of Panama's continuing support for Taipei is its belief that 
the U.S. implicitly supports such a position. 
 
An Uphill Struggle for Taiwan? 
------------------------------ 
 
¶11.  (C)  Despite Taipei's loss of Costa Rica, Taiwan still 
enjoys some advantages as it competes with Beijing in the 
region.  As the number of its diplomatic partners has 
dwindled, Professor Kung noted, Taipei is better able to 
focus its attention and assistance on those countries that 
remain in its camp.  Also, according to Kung, Taipei has 
proven more capable than Beijing in following through on 
promises of aid and investment.  Countries like Honduras, 
Nicaragua, and Guatemala, moreover, are poorer than Costa 
Rica and Panama.  Their economies are dependent on exports, 
particularly of textiles, to the U.S. and compete directly 
with products from China.  As a result, the economic 
incentives for working with Beijing are weaker in those 
countries.  Overall, however, Taiwan faces an uphill battle 
as the initiative it announced in 2004 to promote FDI by 
Taiwan businesses in the region has so far resulted in the 
approval of only one company going in under this program. 
Kung complained that MOFA so far has so far been doing only 
the absolute minimum to retain relations. 
 
¶12.  (C)  Taipei is also attempting to deploy new approaches 
aimed at expanding its multilateral work and assistance 
programs in the region.  ICDF Policy Planning Director Chou 
Yen-shin told AIT recently that ICDF is taking a "bottom up" 
approach in hopes of engaging USAID, NGOs, and other U.S. 
providers of foreign assistance in regions where Taiwan has 
diplomatic partners.  Chou, a DPP political appointee sent to 
ICDF in 2004 to raise its profile, claimed that ICDF does not 
aim to "politicize" such exchanges but seeks to boost its 
image as a responsible donor of aid and assistance programs. 
YOUNG