VZCZCXRO8380
PP RUEHLMC
DE RUEHMU #2428/01 3092115
ZNR UUUUU ZZH
P 052115Z NOV 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 1629
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 04 MANAGUA 002428 
 
SIPDIS 
 
SIPDIS 
 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O.  12958: N/A 
TAGS: ETRD EINV ECON ELAB PGOV NU
SUBJECT: NICARAGUA: INPUT FOR THE SEVENTH CBERA REPORT 
 
REF: SECSTATE 143212 
 
¶1.  As requested in reftel, the following is post's input for the 
Seventh Report on Caribbean Basin Economic Recovery Act (CBERA). 
 
Statistical Information 
----------------------- 

¶2.  Population (2006, estimate): 5,457,000 (Nicaraguan National 
Statistics and Census Office) 
 
Real GDP per Capita (2006, estimate): $958 (Nicaraguan Central 
Bank) 
 
Department of Commerce 2006 Trade Statistics 
U.S.  Exports: $705.3 million 
U.S.  Imports: $1,526.1 million 
U.S.  Trade Balance: -$820.7 million 
 
Economic Review 
--------------- 

¶3.  From 1991 to 2006, three successive Liberal Party governments 
focused on free market reform as a path to recovery from 12 years of 
economic free-fall under the Sandinista regime and civil war. 
Before Daniel Ortega's return to the presidency in January 2007, the 
government had privatized more than 350 state enterprises, reduced 
accumulated year-on-year inflation from 33,548% in 1988 to 9.45% in 
2006, and cut foreign debt by two-thirds.  In 2006, real GDP growth 
was 3.7 %.  Exports have been a key engine of economic growth, 
topping $1.98 billion in 2006 (including free trade zones).  Foreign 
capital inflows were $282.3 million in 2006.  Nicaragua's economy is 
based primarily on agriculture and agricultural processing.  Other 
sectors such as light manufacturing (apparel), tourism, banking, 
mining, fisheries, and retail are also important. 
 
¶4.  Despite these advances, Nicaragua remains the second-poorest 
nation in the hemisphere.  Unemployment is officially estimated at 
5% of the economically active population, but an estimated 60% of 
workers belong to the informal sector.  Nicaragua suffers from 
persistent trade and budget deficits and a high internal 
debt-service burden.  Foreign assistance comprised 26% of the budget 
in 2006.  Nicaragua also depends heavily on remittances from 
Nicaraguans living abroad, who transferred $655.5 million to 
Nicaragua in 2006. 
 
¶5.  The Sandinista National Liberation Front (FSLN) economic team 
has promised to continue policies that engender a stable 
macroeconomic environment, and in July 2007 the government signed a 
Poverty Reduction and Growth Facility (PRGF) with the International 
Monetary Fund (IMF) that requires the implementation of free-market 
policies and includes targets linked to fiscal discipline, spending 
on poverty, and regulation of the energy sector.  However, President 
Ortega's continues to publicly criticize the "neo-liberal" economic 
model and a perceived lack of support from the private sector in 
reducing poverty.  A lack of clear policy direction, the spotty 
application of the rule of law, and continued battles over property 
rights have created uncertainty for the private sector and has 
complicated investment decisions.  Yields on domestic, 
cordoba-denominated government debt have risen sharply since Ortega 
took office, reflecting the higher risk that debt now carries owing 
to the government's unclear economic orientation. 
 
Commitment to Trade Liberalization 
---------------------------------- 

¶6.  Nicaragua has been an active participant in the World Trade 
Organization (WTO) Doha Development Agenda.  In 2002, the country 
completed a broad package of tariff reductions launched in 1997 and 
adopted a WTO-consistent customs valuation methodology.  The WTO's 
2006 Trade Policy Review for Nicaragua recognizes that the country 
has made substantial progress in modernizing its legal and 
regulatory framework to comply with WTO commitments. 
 
¶7.  Nicaragua, along with Costa Rica, El Salvador, Guatemala, and 
Honduras, is a member of the Central American Common Market (CACM). 
With the exception of agricultural products, these countries have 
harmonized all external tariffs at 15 percent or less.  Members have 
also made significant progress in modernizing customs administration 
to facilitate trade within the region. 
 
¶8.  On August 5, 2004, Costa Rica, the Dominican Republic, El 
Salvador, Guatemala, Honduras, Nicaragua, and the United States 
signed the Dominican Republic-Central America-United States Free 
Trade Agreement (CAFTA-DR).  The CAFTA-DR entered into force for 
Nicaragua and the United States on April 1, 2006.  The agreement 
removes barriers to trade and investment in the region and provides 
impetus to further regional economic integration.  The CAFTA-DR 
requires that the Central American countries and the Dominican 
Republic undertake needed market liberalization as well as greater 
transparency and certainty in customs administration, protection of 
intellectual property rights, services, investment, financial 
services, government procurement, and sanitary and phytosanitary 
(SPS) measures.  Nicaraguan exports to the United States grew 17.4% 
during in the first 12 months following the implementation of the 
CAFTA-DR, including the export of 237 products not previously 
exported to the United States.  Imports from the United States 
increased 22.1%, with machinery, cereals, vehicles, vegetable oils, 
and plastics leading the way. 
 
¶9.  Nicaragua and other CACM members have negotiated separate 
bilateral trade agreements with the Dominican Republic and Mexico. 
Other CACM members have implemented bilateral trade agreements with 
Chile, but Nicaragua's negotiations have stalled over trade in 
sugar.  CACM members are also negotiating trade agreements with 
Canada, the European Union, Panama, and Taiwan. 
 
Protection of Intellectual Property 
----------------------------------- 

¶10.  To implement the CAFTA-DR, Nicaragua has strengthened its legal 
framework for the protection of intellectual property rights.  The 
agreement provides improved standards for the protection and 
enforcement of a broad range of intellectual property rights, which 
are consistent with U.S. intellectual property standards and with 
emerging international standards.  Such improvements include 
state-of-the-art protections for digital products such as software, 
music, text and videos; stronger protection for patents, trademarks 
and test data, including an electronic system for the registration 
and maintenance of trademarks; and further deterrence of piracy and 
counterfeiting. 
 
¶11.  Nicaraguan efforts to enforce intellectual property law remain 
limited.  During the first ten months of 2007, the Nicaraguan 
Government had conducted 20 raids and the police seized 58,547 
pirated DVDs, 21,629 CDs, 13 computers, 3 multi-purpose copiers, and 
other audiovisual equipment worth approximately $123,000.  On July 
13, 2007, the Nicaraguan Government successfully prosecuted a case 
in a local court against a Nicaraguan selling pirated music CDs. 
The offender was sentenced to two years in prison--later reduced to 
parole--and fined 5,000 cordobas ($267).  The Prosecutor General and 
National Police are currently investigating 28 intellectual property 
cases for possible prosecution. 
 
Provision of Internationally Recognized Workers Rights 
--------------------------------------------- --------- 

¶12.  Nicaraguan law grants public and private sector workers, except 
those in the military and police, the right to organize.  Workers 
need not advise the employer or the Ministry of Labor of their 
intention to do so.  In general, workers exercise the right to 
organize unhindered.  However, labor activist allege that some 
business operating in free trade zones violate this right.  Although 
employers are legally required to reinstate workers fired for union 
activity, formal reinstatement requires a judicial order.  In 
practice, employers often do not reinstate workers due to weak 
enforcement of the law.  Employers may dismiss any employee, 
including union organizers, by agreeing to pay double the legally 
mandated severance pay. 
 
¶13.  The law provides for the right to bargain collectively.  By 
law, several unions, each with different membership, may coexist at 
any one enterprise.  Employers may sign separate collective 
bargaining agreements with each union.  Labor leaders complain that 
employers routinely violate collective bargaining agreements and 
Nicaraguan labor laws.  Although the law recognizes the right to 
strike, according to Labor Ministry information, there were no legal 
strikes in 2006.  The law contains burdensome and lengthy 
conciliation procedures before calling a strike.  During a strike, 
employers cannot hire replacement workers.  According to the law, 
the Ministry of Labor may suspend a strike if it continues for 30 
days without resolution.  At that point, parties are required to 
resolve their differences through arbitration. 
 
¶14.  The law prohibits any type of forced or compulsory labor.  The 
statutory minimum wage is set through tripartite negotiations 
involving business, government, and labor and must be approved by 
the National Assembly.  Each sector of the economy has a different 
minimum wage, which must be reviewed every six months.  In general, 
the minimum wage is enforced only in the formal sector.  The maximum 
legal workweek is 48 hours.  While the law mandates premium pay for 
overtime and prohibits excessive compulsory overtime, these 
requirements are not always effectively enforced. 
 
¶15.  The law establishes occupational health and safety standards, 
but the Ministry of Labor lacks adequate staff and resources to 
fully enforce these provisions.  The law provides workers with the 
right to remove themselves from dangerous workplace situations 
without jeopardizing continued employment, but many workers are 
unaware of this right.  The Nicaraguan Center for Human Rights 
(CENIDH) receives frequent complaints related to working conditions. 
 
Commitments to Eliminate the Worst Forms of Child Labor 
--------------------------------------------- ---------- 

¶16.  The worst forms of child labor are prohibited under several 
laws in Nicaragua.  The Constitution bans forced labor, slavery, and 
indentured servitude.  Nicaraguan law provides for the protection of 
children's rights and prohibits any type of economic or social 
exploitation of children.  Labor law sets the minimum age for 
employment at 14 years and limits the workday to six hours. 
Children between the ages of 14 and 16 must have parental approval 
to work.  Annually, the Ministry of Labor identifies types of work 
that are harmful to the health, safety, or morals of children under 
International Labor Organization (ILO) Conventions 182 and 138. 
 
¶17.  Child labor remains a widespread problem, and many 
children--particularly those working in small family-owned 
businesses--do not receive direct compensation for their labor. 
Labor activists report that cigar factories continue to employ many 
children, a violation of Article 84 of the Constitution, which 
prohibits the use of child labor in activities that may affect their 
normal development and education.  Although the law imposes fines 
for violators and permits inspectors to close facilities employing 
child labor, the Ministry of Labor lacks adequate resources to 
effectively enforce the law, except in the small formal sector. 
 
¶18.  From 2001 to 2005, the Nicaraguan Government and the ILO 
implemented a Strategic National Plan for the Prevention and 
Eradication of Child Labor and Protection of Youth Workers.  With 
the support of international donors, the program provided 
educational, medical, and nutritional support to 100,000 children 
living in poverty and more than 14,000 children engaged in the worst 
forms of child labor.  In 2007, the Nicaraguan Government prepared a 
10-year follow-up plan with the ILO. 
 
Counter-Narcotics Cooperation 
----------------------------- 

¶19.  Nicaragua is not a major drug transit or major illicit drug 
producing country under the terms of the 2003 Foreign Relations 
Authorization Act and is not subject to the act's certification 
requirements.  Nevertheless, Nicaragua is an important transit point 
for drugs moving from South America to U.S.  and European markets. 
The government has been an important partner in efforts to stem the 
flow of drugs. 
 
Anti-Corruption Efforts 
----------------------- 

¶20.  Nicaragua is a signatory to the Organization for Economic 
Cooperation and Development (OECD) Convention on Combating Bribery, 
as well as the Inter-American Convention against Corruption (IACC). 
The government is an active participant in the Organization of 
American States' Follow-up Mechanism for the Implementation of the 
IACC.  Under that mechanism, a 2006 Committee of Experts report 
notes significant progress in implementing the convention, but 
recommends further improvements in civil service hiring, 
procurement, whistleblower protection, standards of conduct, 
financial disclosure for senior officials, oversight bodies, and 
civil society participation. 
 
¶21.  The Attorney General and the Controller General have 
responsibilities for investigating and prosecuting corruption cases. 
 The application of justice is uneven, and there is general 
acknowledgement that the judicial system is corrupt and controlled 
by political interests.  Corruption and influence-peddling in the 
judicial branch put foreign investors at a sharp disadvantage in any 
litigation or dispute, and legal security for business in general is 
among the weakest in Latin America.  The concept of conflict of 
interest is poorly understood, to the extent that regulators often 
maintain business interests in sectors that they oversee.  Political 
connections and nepotism often affect regulatory decisions and 
business decision-making. 
 
¶22.  Nicaragua has made progress in prosecuting cases of corruption, 
but public opinion surveys show that Nicaraguans believe corruption 
remains endemic in many government institutions, including the 
judiciary, the National Assembly, the Supreme Electoral Council 
(CSE), the Controller General, the Human Rights Ombudsperson (PDDH), 
and the Attorney General.  Under the Bolanos administration, the 
Attorney General indicted former president Arnoldo Aleman and other 
officials of his administration on money laundering, embezzlement, 
and other charges.  In December 2003, a local court sentenced Aleman 
to a 20-year jail term.  By expanding the terms of Aleman's house 
arrest, the Ortega Administration has allowed Aleman to travel 
freely throughout Nicaragua since March 2007.  The National Assembly 
is considering legislation that would effectively reduce Aleman's 
sentence to five years. 
 
Transparency in Government Procurement 
-------------------------------------- 

¶23.  The CAFTA-DR requires the use of fair and transparent 
procurement procedures, including advance notice of purchases and 
timely and effective bid review procedures, for procurement covered 
by the agreement.  Under the CAFTA-DR, U.S. suppliers may bid on 
procurements made by most Nicaraguan Government entities, including 
key ministries and state-owned enterprises, on the same basis as 
Nicaraguan suppliers.  To make its bidding process more transparent 
and efficient, Nicaragua launched a computer-based procurement 
system in November 2006.  The anti-corruption provisions in the 
CAFTA-DR require each government to ensure under its domestic law 
that bribery in matters affecting trade and investment, including 
government procurement, is treated as a criminal offense, or is 
subject to comparable penalties.  Nicaragua is not a signatory to 
the WTO Agreement on Government Procurement.  Procurement by 
government agencies not covered by CAFTA-DR, as is the case for the 
National Electricity Company, remain subject to nontransparent and 
irregular procurement procedures. 
 
Nationalization/Expropriation 
----------------------------- 

¶24.  Thousands of individuals and companies, including many U.S. 
citizens, have filed claims for compensation for property 
confiscations that took place during the 1980s under the Sandinista 
government.  Since 1995, the Nicaraguan Government has made 
continuing progress in settling claims through compensation or 
return of properties.  As of September 2007, the Nicaraguan 
Government has settled more than 4,500 U.S. citizen claims.  A total 
of 677 Embassy-registered U.S. claims remain outstanding.  In 2006, 
the Bolanos administration resolved 81 Embassy-registered U.S. 
citizen property claims, primarily through compensation.  As of 
November 1, 2007, the Ortega administration has resolved five 
Embassy-registered claims, all belonging to one U.S. citizen.  The 
courts resolved two other claims. 
 
¶25.  In August 2007, the Nicaraguan Government seized, via a 
judicial order, several petroleum storage tanks owned by a U.S. 
company on the pretext that the company had not paid value-added 
taxes associated with the import of crude oil, despite the fact that 
unrefined petroleum is not subject to this tax and no mechanism 
exists to collect it.  The government then used the tanks to store 
petroleum products from Venezuela.  The government has ignored due 
process to declare a number of concessions in the energy sector 
effectively invalid, forcing companies, including some U.S. 
companies, to renegotiate terms. 
 
TRIVELLI