VZCZCXRO6277
RR RUEHLMC
DE RUEHMU #2368/01 2951901
ZNY CCCCC ZZH
R 221901Z OCT 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 1545
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUMIAAA/CDR USSOUTHCOM MIAMI FL
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 03 MANAGUA 002368 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA, WHA/CEN, WHA/EPSC, AND EEB 
TREASURY FOR SARA GRAY 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
SOUTHCOM FOR POLAD 
 
E.O. 12958: DECL: 10/22/2017 
TAGS: ECON EFIN EPET EINV PREL PGOV ETRD NU
SUBJECT: BUSINESS SECTOR PRIVATELY EXPRESSES DISPLEASURE 
WITH ORTEGA 
 
REF: A. MANAGUA 2116 
 
     ¶B. MANAGUA 1789 
     ¶C. MANAGUA 1753 
     ¶D. MANAGUA 2351 
 
Classified By: Amb. Paul Trivelli for reasons 1.4 b&d 
 
¶1. (C) Summary:  On September 19, the Ambassador hosted his 
third Economic Roundtable with representatives of the private 
sector.  While economic indicators are generally positive, 
some participants questioned whether economic growth can be 
sustained given power shortages and a deteriorating 
investment climate.  Roundtable participants voiced concern 
about the GON's continued disrespect for due process, 
manifested most recently by its seizure and subsequent return 
of Exxon fuel storage tanks in Corinto to accommodate 
Venezuelan oil.  A common complaint was the lack of 
competence in the FSLN government.  Participants felt 
Ortega's speeches are intended to satisfy Hugo Chavez and to 
regain his standing as a Latin American "revolutionary." For 
a full list of roundtable participants, see Paragraph 16. 
End Summary 
 
Economic Overview 
----------------- 

¶2. (C) During the September 19 meeting of the Ambassador's 
Economic Roundtable, participants from diverse sectors 
reported that strong consumer spending and commercial banking 
continue to drive growth.  Businesses selling consumer goods, 
including cars and motorcycles, reported double digit growth 
in sales in the last few months.  Exports for the last seven 
months are up 20% over the same period last year.  Roundtable 
participants believe that the average Nicaraguan simply 
ignores President Ortega's political rhetoric, instead 
focusing on everyday life and buying the things he/she needs. 
 Many roundtable participants saw no signs of consumer 
retrenchment and felt consumer demand and capacity to 
purchase remained strong. 
 
¶3. (C) Despite these upbeat reports, other roundtable 
participants questioned whether economic growth could be 
sustained, given the continued power shortages (Ref C) and 
the deterioration of the investment climate following GON 
attacks on private sector investors (Refs A and B).  They 
pointed out that the Central Bank has scaled up inflation 
projections for 2007 from 7% to 10%, largely because of the 
international price of oil.  Many reported that foreign 
investors have lost confidence in Nicaragua.  Bank 
representatives believe the U.S. mortgage crisis will reduce 
remittances from Nicaraguans in the U.S., thereby shrinking 
consumer spending. 
 
Power Shortages 
--------------- 

¶4. (C) Roundtable participants stated that electricity 
shortages (rolling blackouts) have had a serious impact on 
production and sales (Ref C).  Some vendors of perishable 
goods have adjusted delivery times to avoid scheduled power 
outages.  One distributor delivers smaller quantities of 
chicken more often, on a schedule set to match hours when 
stores have electricity to run refrigerators.  This strategy 
does not work with dairy and ice cream, however, where sales 
have fallen sharply.  One dairy products company is 
attempting to make up for the drop in sales by introducing a 
line of fruit juices.  According to one banker, 
agro-processors are cutting back as their overhead costs 
(mostly electricity and fuel) rise.  He fears production may 
not be able to meet consumer demand, resulting in shortages 
that will force inflation above the 10% now projected. 
 
Banking 
------- 

¶5. (C) Bankers pointed to robust growth in lending capacity 
and deposits.  They argued that borrower confidence is 
returning to pre-2006 election levels.  (Note: While deposits 
are up in cordobas, in dollar terms they remain flat. End 
note.)  In a recent meeting with the Central Bank, the 
National Association of Private Banks of Nicaragua (ASOBANP) 
welcomed the BCN's plans to reduce the legal reserve 
requirement by 3%, from 19.25% to 16.25%, its pre-June 2006 
level. (Note: The BCN publicly announced the change on 
October 11. End Note.)  At least one banker noted, however, a 
slight rise in missed consumer loan repayments. 
 
¶6. (C) Bankers highlighted two concerns which could affect 
their industry: Nicaragua's weak public registry for private 
property, and the lack of a financial intelligence unit 
(FIU).  The current private property registry is so 
politicized and open to corruption that its documents are not 
reliable, limiting the growth of mortgage lending.  The GON's 
recent use of legal and administrative measures to seize the 
property of U.S. investors (Refs A and B) calls into question 
Ortega's pledge to respect private property; making it 
difficult for the bankers to foresee a near-term solution to 
this problem. 
 
¶7. (C) The bankers will meet with the Caribbean Financial 
Action Task Force to discuss Nicaragua's need to establish a 
FIU and the GON's ability to meet international anti-money 
laundering requirements.  They are concerned that banking 
operations could suffer if transactions to and from Nicaragua 
receive greater international scrutiny.  (Note: On September 
24, post held an event to raise public awareness on this 
issue (Ref D). End note.) 
 
Oil Sector 
---------- 

¶8. (C) Roundtable participants expressed serious concern 
about the GON's disrespect for due process as was manifest in 
the seizure and subsequent return of Exxon's fuel storage 
tanks at Corinto I (Ref A).  (Note: Exxon will soon sign a 
hospitality agreement with national oil company Petronic for 
use of fuel storage tanks at Corinto I. End Note.)  The 
government's desire to exert as much influence and/or control 
over the energy sector as possible is evident.  The Exxon 
representative believes that the absence of a formal GON plan 
to take control of Exxon's refinery near Managua does not 
mean that the "idea has not crossed some peoples' minds." 
Participants expressed concern that as oil prices reach 
record highs, the GON will force gasoline retailers to 
negotiate with the government to "find a (non-market) 
solution to high prices." 
 
¶9. (C) Nicaragua's relationship with Venezuela continues to 
create difficulties for local fuel distributors.  Venezuelan 
shipments of petroleum products arrive faster than Petronic 
can handle them.  The state-owned company lacks storage 
facilities, technical staff, and logistical planning 
capabilities.  Petronic is also unable to comply with 
international safety standards, as it showed with a recent 
trial shipment to Exxon.  Even worse, according to the Exxon 
representative, Petronic views Exxon's logistical 
requirements and safety protocols as evidence of a lack of 
cooperation.  Roundtable participants agreed that some 
members of the GON see Petronic and Venezuelan oil as a 
"giant ATM," from which they can withdraw cash whenever they 
want. 
 
Views on GON Performance 
------------------------ 

¶10. (C) Roundtable participants noted repeatedly problems 
arising from the lack of competence within the Sandinista 
government.  Ortega's move to cut the salaries of GON 
officials resulted in a loss of technocrats and 
intellectuals, leaving "yes-men who do not know how to make 
decisions, only to follow orders."  They agreed with the 
assessment that most of Ortega's inner circle had been 
"inactive for the last 16 years, so they have not changed 
their perspective on policy."  Participants also criticized 
Ortega's wholesale disregard for the previous 
administration's policy initiatives.  For example, the GON 
discontinued a very successful seed distribution program 
which had increased bean and corn yields, creating a surplus 
for export.  In contrast, this season there is a shortage of 
beans. 
 
¶11. (C) Most roundtable participants believe that Ortega's 
rhetoric is designed to please Hugo Chavez and to help Ortega 
regain his "rightful" place as a Latin American 
"revolutionary."  One politically connected participant said 
that members of the FSLN, including some in government, find 
Ortega's rhetoric extremely antagonistic.  "Ortega is not 
liked by those around him," he claimed, "but Ortega does not 
care." 
 
¶12. (C) Roundtable participants stated that the limited 
central government response to Hurricane Felix may have 
weakened Ortega's position.  Most Nicaraguans saw that the 
Nicaraguan Army led GON relief efforts instead of the central 
government.  Roundtable participants took the opportunity to 
express their appreciation for USG hurricane relief efforts. 
 
¶13. (C) The Ambassador told the participants that the U.S. 
continues to be fully engaged in Nicaragua, but we have 
serious concerns about this government and the future of 
democracy here.  He also noted the USG's concern with the 
poor quality of policy making and the centralization of 
decision-making. 
 
Comment 
------- 

¶14. (C) During the discussion, roundtable participants 
exposed the private sector's ambivalence regarding the need 
to defend democratic institutions and the free markets.  One 
participant pointed out that 60% of the Nicaraguan population 
is functionally illiterate, lacking the capacity to assess 
Ortega's rhetoric or understand government actions.  He 
stated that it was "up to entrepreneurs to have the guts to 
publicly condemn the government's attitude."  He exhorted 
other participants to "stop being afraid."  Another 
participant thought that prominent businessman Carlos Pellas 
had sent enough of a private sector message to Ortega in his 
recent speech to COSEP - the business federation, when he 
said, "Businessmen do not need subsidies or hand-outs, they 
need a rule of law that guarantees justice and serves to 
protect, not to threaten." 
 
¶15. (C) Nicaragua's business leaders are torn between wanting 
to work as a group to defend democracy and free enterprise 
and working privately to cut individual deals with FSLN power 
brokers.  While they understand that they must unite to 
defend themselves from Ortega's attacks, no one wants to 
expose themselves to an attack by angering Ortega. End 
Comment. 
 
¶16. (C) Nicaraguan Private Sector Participants: 
 
Luciano ASTORGA, General Manager, Bank of Central America 
(BAC), Nicaragua (49.9% owned by GE Financial) 
 
Alberto CHAMORRO, Director ) Bank of Central America (BAC), 
Nicaragua (49.9% owned by GE Financial) 
 
Carlos Reynaldo LACAYO, CEO - Grupo Calsa (Personal care 
product distribution) 
 
Joaquim de MAGALHAES, General Manager, Esso Nicaragua 
 
Alejandro MARTINEZ Cuenca, President ) International 
Foundation for Global Economic Challenge (Economist, FSLN 
member, cigar manufacturer, Economy Minister in 1980s) 
 
Ramiro ORTIZ, Jr., Director ) Banpro (Nicaragua's largest 
bank) 
 
Mario SALVO, Technical Director of El Eskimo (dairy, ice 
cream); Former Minister of Agriculture 
TRIVELLI