VZCZCXRO4676
RR RUEHLMC
DE RUEHMU #2003/01 2421604
ZNR UUUUU ZZH
R 301604Z AUG 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 1121
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1155
RUEHBR/AMEMBASSY BRASILIA 0092
RUEHSO/AMCONSUL SAO PAULO 0012
RUEHRI/AMCONSUL RIO DE JANEIRO 0025
RHEHNSC/NSC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 MANAGUA 002003 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, AND EEB 
TREASURY FOR SARA GRAY 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: PREL EAID ECON PGOV NU IR
SUBJECT: BRAZIL AND NICARAGUA: I SAY ETHANOL, YOU SAY HYDRO 
 
REF: A) MANAGUA 1978, B) MANAGUA 1944, C) MANAGUA 1783 
 
¶1. (SBU) Summary: President Luiz Ignacio "Lula" da Silva's August 
7-8 visit to Nicaragua was the first by a Brazilian head of state in 
over 100 years.  While Lula's focus for the visit was ethanol and 
business opportunities that take advantage of CAFTA, Ortega tried to 
interest the Brazilians in projects in agriculture, electricity 
generation, and tourism.  Although Lula tried valiantly to convince 
Ortega of the benefits of ethanol, Ortega showed little interest. 
Instead, Ortega tried to shift the focus of Lula's visit toward the 
same portfolio of hydroelectric, geothermal, and infrastructure 
projects he has been peddling to the Iranians and others (Ref A). 
Bilateral talks also included Brazilian technical assistance to 
Nicaragua's Hambre Cero program, a possible debt for development 
swap, and support for Nicaragua's Peace and Reconciliation 
Commission.  Lula's visit made clear that while rhetorically Ortega, 
Lula, and Chavez appear to be at least in the same populist 
ballpark, in reality, the opportunities that the Brazilians seek in 
Nicaragua would require that Ortega step back from Chavez and ALBA, 
a move Ortega seems unwilling to make.  End Summary. 
 
Second Visit in a Week 
---------------------- 
¶2. (U) Nicaraguan authorities characterized Brazilian President Luiz 
Ignacio "Lula" da Silva's August 7-8 visit to Nicaragua as a 
"historic event," a precursor to an increase in bilateral 
cooperation and investment.  The visit marked the first visit by a 
Brazilian head of state in more than 100 years, although Lula 
visited Managua as a union leader in 1980 to celebrate the first 
anniversary of the Sandinista revolution.  During this visit, a few 
days after a technical delegation from Iran toured Nicaragua (Ref 
A), Lula stated that he had maintained a close relationship with 
Ortega throughout the 1990s and that he was delighted that the FSLN 
leader had returned to power.  Brazilian officials declared they 
wanted to establish a relationship of "permanent cooperation" and 
"integration" with Nicaragua, particularly in the areas of 
agriculture, reforestation, fisheries, health, and education.  The 
two leaders signed twelve cooperation agreements covering 
agriculture, forestry, education, foreign relations, tourism, 
health, trade, investment and energy. 
 
¶3. (U) Lula traveled to Nicaragua from Honduras, the second stop on 
his Latin American tour that included Mexico, Jamaica, and Panama. 
He was accompanied by his Minister of Foreign Relations Celso 
Amorim; Minister of Development, Industry, and Foreign Commerce 
Miguel Jorge; Special Secretary of Aquaculture and Fisheries Altemir 
Gregolin; and a delegation of 50 businessmen, who participated in a 
trade and investment forum in Managua geared toward creating 
investments in infrastructure, energy (mostly biofuels), and 
agro-industry. 
 
Biofuels - Is Ethanol an Option? 
-------------------------------- 
¶4. (U) One of the first areas for cooperation discussed was 
biofuels, primarily ethanol, as a potential way to solve Nicaragua's 
energy crisis.  Brazilian Marcos Saways Yank, President of the Sugar 
Agro-Industry Union of Sao Paulo, tried to convince GON officials 
and private sector representatives of the merits of ethanol 
production.  In an editorial published during the visit, Lula stated 
that he considers Nicaragua to be "a strong candidate to lead a 
pioneer initiative in Central America" in ethanol development. 
 
¶5. (U) President Ortega, however, has been vocal about the danger of 
Nicaragua becoming dependent on ethanol production.  He has stated 
several times that reliance on ethanol will put Nicaragua on "the 
dangerous path to monoculture."  Outside of criticizing the United 
States' corn-based biofuel program, Ortega showed little interest in 
the subject throughout Lula's visit.  When pressed, Ortega stated 
that ethanol from African palm was acceptable, but avoided making 
any direct comments on sugar-based ethanol.  He added that he would 
leave the issue of biofuels to the private sector.  Later, 
Nicaraguan Minister of Energy and Mines Emilio Rappaccioli said that 
while the production of ethanol was justified for other countries, 
Nicaragua would prefer to use its farmland for the cultivation of 
food products such as basic grains. 
 
Electricity Instead of Biofuels 
------------------------------- 
 
MANAGUA 00002003  002 OF 003 
 
 
¶6. (U) In an effort to shift the focus of Lula's visit from ethanol 
and biofuels, the GON presented several hydroelectric and geothermal 
projects to the Brazilians, the same ones they hawked to the Iranian 
delegation a week earlier (Ref A).  Nicaraguan ENEL Director Ernesto 
Martinez Tiffer added two additional projects, which could generate 
up to 120 megawatts of electricity for an investment of USD 250 
million.  In the end, Lula agreed to look into financing 
hydroelectric and geothermal projects, but only after he lauded the 
potential for biofuels, based on soy, sunflowers, and Africa palm, 
as viable alternatives for Nicaragua. 
 
Infrastructure and Agro-Industry 
-------------------------------- 
¶7. (U) As they had done with the Iranian delegation, the Nicaraguans 
flooded the Brazilians with infrastructure project proposals.  The 
President's advisors presented proposals to improve the ports and 
airports on Nicaragua's Atlantic coast to increase tourism.  The 
Nicaraguan Port Authority requested USD 9 million to dredge 42 kms 
of the San Juan River.  Agriculture and Forestry Minister Ariel 
Bucardo wanted to work with the Brazilians on importing equipment 
for Nicaragua's coffee and beef sectors.  Lula promised to ask 
Brazilian bus manufacturers to sell their buses to Nicaraguans at 
discounted prices. 
 
The Private Sector had specific objectives 
------------------------------------------ 
¶8. (U) While Ortega used the visit as an opportunity to criticize 
CAFTA and praise ALBA as "free trade versus fair trade," it was 
clear that the Brazilian business representatives who accompanied 
Lula view Nicaragua as a platform from which they could export to 
the United States, taking advantage of CAFTA.  At the 
Nicaragua-Brazil trade fair, the main areas of interest were 
infrastructure, energy, textiles and ethanol.  Nicaragua's largest 
sugar producer (and only ethanol producer) agreed to explore 
dehydrating Brazilian ethanol here for export to the U.S. under 
CAFTA terms. 
 
Food Assistance 
--------------- 
¶9. (U) The GOB team paid particular attention to Nicaragua's "Hambre 
Cero" program--a food security initiative loosely based on Brazil's 
"Fome Zero" (Ref C).  Brazilian officials offered technical and 
scientific cooperation to Nicaragua to improve the program's 
effectiveness.  Currently, Hambre Cero is focused exclusively on 
distributing farm animals and seed to pre-selected families 
throughout Nicaragua.  In contrast, Fome Zero involves a variety of 
different initiatives, ranging from direct and conditional cash 
transfers to the poorest families ("Bolsa Familia"), distributing 
vitamins and iron supplements, and micro-credit.  Brazilian 
officials expressed support for the GON's plan to hand control of 
the Hambre Cero program to the controversial FSLN-controlled Citizen 
Power Councils (Ref B), as Brazil's program is run through a similar 
system of councils controlled by Lula's Workers' Party. 
 
Debt for Social Development Swap 
-------------------------------- 
¶10. (U) The most unexpected request to the GOB was Ortega's proposal 
to swap Nicaragua's debt with Brazil (USD 5.9 million) with projects 
in the social and development sectors.  Given that this was the 
first mention of such an idea, no specifics on the exact nature of 
the swap or the social programs were unveiled.  In his editorial 
during this visit, Lula argued that Brazil's forgiveness of 
Nicaragua's bilateral debt should be seen as "an expression of 
solidarity and also as a credit of confidence." (Note: Under the 
terms of the HIPC program, Nicaragua does not service any of its 
pre-HIPC foreign debt. End Note.) 
 
Helping Peace and Reconciliation 
-------------------------------- 
¶11. (U) President Lula also met with retired cardinal Miguel Obando 
y Bravo, who now heads up the GON's Commission of Verification, 
Peace, Reconciliation and Justice.  Lula promised technical 
assistance to the Commission which seeks to resolve the demands of 
150,000 ex-combatants.  Lula promised he would send a delegation 
headed by the Brazilian Minister of Agriculture and a team of 
Brazilian labor leaders to Nicaragua to discuss possible areas of 
cooperation.  Lula also committed to make contacts with other world 
leaders to gather resources for the Commission. 
 
MANAGUA 00002003  003 OF 003 
 
 
 
Common Positions on Foreign Affairs 
----------------------------------- 
¶12. (U) The final joint communique spelled out several common 
positions on foreign affairs: 
 
-- Both countries "manifested their will and firm commitment to 
fight transnational organized crime." 
 
-- Both "reaffirmed that terrorism, in all its forms and 
manifestations, has no justification." 
 
-- Both presidents "Expressed their feelings of solidarity with the 
Government and fraternal people of Cuba." 
 
-- Both presidents emphasized the dialogue and negotiations, 
according to the principles of the UN Charter, are the basis for 
finding peace in the Middle East, Iraq and Afghanistan. 
 
Comment 
------- 
¶13. (SBU) Lula's visit demonstrated that while rhetorically Ortega, 
Lula, and Chavez may be in the same populist ballpark, in reality, 
the Brazilians are positioned away from Chavez and ALBA.  In many 
ways, Lula presented Ortega with an alternative leftist approach to 
populist, Chavista policies.  For Brazil, sugar-based ethanol, not 
oil, is the wave of the future.  Brazilian investors are attracted 
to Nicaragua because of CAFTA, as opposed to wanting to compete with 
CAFTA.  The concrete, business focused nature of Lula's visit stands 
in clear contrast to the promises made by Chavez and Ahmadinejad. 
Ortega came across as not particularly interested in what Lula had 
to offer, as it often challenged the basis of his alliance with 
Chavez and all things ALBA. 
 
TRIVELLI