VZCZCXRO4821
RR RUEHLMC
DE RUEHMU #0254/01 0641608
ZNR UUUUU ZZH
R 041608Z MAR 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2175
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 03 MANAGUA 000254 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EINV PGOV NU
SUBJECT: NICARAGUA: ORTEGA AND THE PRIVATE SECTOR, STILL WORLDS 
APART 
 
REF: 07 MANAGUA 1789; 06 MANAGUA 2450 
 
Summary 
------- 

¶1. (SBU) Following Daniel Ortega's November 2006 victory at the 
polls, the business community's first reaction was the generalized 
desire to get past the bitterness of the elections.  Erwin Kruger, 
then President of the Federation of Nicaraguan Business Associations 
(COSEP), thought such reconciliation might be accomplished through 
COSEP's economic plan, "Pillars of Development."  Once in power, 
however, Ortega treated COSEP, which supported rival Eduardo 
Montealegere, as a natural political opponent.  Within two months, 
Ortega's government attacked Kruger, revealing a pattern of 
persecution to be repeated with other political opponents.  Ortega 
later courted COSEP when he thought that treating the group like a 
Citizen Power Council might win COSEP support for his controversial 
scheme.  COSEP rebuffed this advance and has since been working to 
position itself as a politically neutral organization, a development 
that appears to please Ortega.  We expect COSEP to remain cautious 
about assuming a high political profile, but to enter the fray when 
government actions (or inaction) seriously affect the ability of its 
members to conduct business. 
 
Candidate Ortega and the Private Sector 
--------------------------------------- 

¶2. (SBU) A week before the November 2006 election, Daniel Ortega 
publicly signed a pledge with the Nicaraguan Chamber of Commerce to 
uphold free market principles and pursue sound macroeconomic policy, 
if elected (Ref B).  He was the last of four major candidates to do 
so, the others being Eduardo Montealegre of the National Liberal 
Alliance (ALN), Jose Rizo of the Liberal Constitutionalist Party, 
and Edmundo Jarquin of the Sandinista Renewal Movement.  The 
decision must have been difficult for the former Marxist 
revolutionary.  As a prominent member of the Federation of 
Nicaraguan Business Associations (COSEP), the Chamber backed COSEP's 
official endorsement of Eduardo Montealegre, Ortega's strongest 
electoral opponent.  The endorsement was a belated attempt to keep 
the split between the two main liberal parties from handing Ortega a 
victory.  Notwithstanding, Ortega won the 2006 election, under new 
rules, with just 38% of the vote. 
 
Private Sector Looks to Engage with Ortega 
------------------------------------------ 

¶3. (SBU) Ortega's electoral victory left the business community with 
little more than the President-elect's signature on a piece of 
political paper.  Even before Ortega's inauguration, COSEP President 
Erwin Kruger tried to get past the bitterness of the election and 
into a cooperative dialogue with Ortega.  Kruger proposed holding an 
investment conference for the new president and working with the 
government on an economic plan.  Kruger hoped to insert COSEP into 
the formulation of economic policy and keep Ortega on track when it 
came to adhering to market principles and pursuing private sector 
led growth. 
 
¶4. (SBU) Under Kruger, COSEP developed an economic plan called "Ejes 
de Desarrollo," or "Pillars of Development."  The plan presents 
industry specific initiatives for tourism, light manufacturing 
(apparel), beef, coffee, food processing, aquaculture, peanuts, and 
sugarcane (including ethanol).  The plan stresses the importance of 
free trade, staying economically engaged with North America and the 
world, and dealing with domestic crosscutting needs such as 
improving energy and infrastructure, financing small and 
medium-sized businesses, providing vocational education and social 
programs, developing the Atlantic coast, and strengthening the rule 
of law.  Kruger wanted to use the plan to engage President Ortega. 
 
Relationships Sour 
------------------ 

¶5. (SBU) Shortly after Ortega's inauguration in January 2007, Vice 
President Jaime Morales and key Economic Advisor Bayardo Arce met 
with COSEP.  COSEP presented the Pillars of Development and proposed 
that the government create working groups composed of ministers and 
business leaders to discuss each pillar.  COSEP was keen to pitch 
the idea to Ortega, but the effort stalled as Kruger became the 
object of apparent persecution. 
 
¶6. (SBU) In February 2007, a month after Ortega's inauguration, the 
Minister of Energy announced a review of the geothermal concession 
awarded to a firm in which Kruger maintained a minor interest, 
raising questions about the legitimacy of the concession and whether 
the company involved had fulfilled its commitments to invest.  The 
Attorney General soon entered the fray to declare the concession 
null.  The share price of the Toronto traded company fell 50% in a 
matter of days.  The situation was not resolved until May, when the 
company signed a new concession agreement with the Attorney General, 
and, as part of a side deal, Kruger was removed from the Board of 
Directors.  Kruger and most COSEP members believe that government 
action in this instance was the consequence of Kruger and COSEP's 
political opposition to Ortega during the election.  Other political 
opponents of Ortega, such as former member of the National Assembly 
Alejandro Bolanos Davis (Ref A), have been subject to similar 
persecution. 
 
¶7. (SBU) In early September 2007, Kruger stepped down as COSEP 
president, passing the torch to former Nicaraguan Chamber of 
Commerce President Jose Adan Aguerri, who signed Ortega's November 
2006 pledge on behalf of the Nicaraguan Chamber of Commerce. 
 
¶8. (SBU) COSEP members and leadership increasingly view Ortega's 
treatment of them as politically manipulative and even ominous. 
Aguerri believes that Ortega never seriously considered cooperating 
with COSEP.  He points out that at first Ortega shunned COSEP in 
favor of a direct dialogue with members of the Nicaraguan economic 
elite, such as Carlos Pellas and Ernesto Fernandez Hollmann. 
Aguerri, on sabbatical from a position in a bank owned by Hollman, 
believes this overture was designed to weaken COSEP's voice. 
However, Pellas and Hollman refused to cut their own deals, telling 
Ortega that they would stand with COSEP. 
 
Capitalism Sandinista Style 
--------------------------- 

¶9. (SBU) In contrast, businesses owned by Sandinistas seem to 
maintain excellent relations with the government.  AgriCorp, the 
largest importer of U.S. rice to Nicaragua, is partly owned by 
President Ortega's Economic Advisor Bayardo Arce.  It managed to 
easily weather a dust up over genetically engineered U.S. rice that 
accidentally entered the food supply system in the United States. 
Another Sandinista-owned business is rumored to benefit from the 
sale of livestock through the government's "Zero Hunger" food 
assistance program.  A number of Sandinistas are active in real 
estate, capitalizing on land confiscated in the 1980s, when Ortega 
was first president.  Former Interior Minister Jaime Wheelock holds 
shares in a beachfront development called "Hacienda Iguana," a 
former Somoza property that Minister Wheelock transferred to a local 
cooperative only to purchase at a discount price.  In a rash of 
scandals, other Sandinistas have pressed claims on tourist 
properties in and around the Pacific beachfront area of Tola in the 
Department of Rivas, areas politically controlled by Sandinistas. 
 
Ortega Seeks to Reengage 
------------------------ 

¶10. (SBU) In June, Ortega found himself in need of political support 
for his Citizen Power Councils, which had run into strong opposition 
in the National Assembly and been roundly criticized in the press. 
Much like the abusive Sandinista Defense Committees of the 1980s, 
Citizen Power Councils are widely believed to be the mechanism 
through which Ortega will rebuild the Sandinista party, parcel out 
political spoils to followers, and control non-Sandinista elements 
in local and central government. 
 
¶11. (SBU) Ortega thought that COSEP might support Citizen Power 
Councils, if he treated COSEP more like one, affording it better 
access to his ministers and to government.  He met with COSEP and 
agreed to set up working groups along the lines proposed in COSEP's 
Pillars of Development.  He declared COSEP the "Citizen Power 
Council that is working best."  The uneasy courtship lasted until 
October 2007, when Ortega delivered a well-received message of unity 
to a COSEP forum, appealing to the private sector to "redouble [its] 
efforts to lift Nicaragua out of poverty."  Nevertheless, COSEP 
members have never supported the concept of Citizen Power Councils, 
and they have never embraced Ortega's declaration that they 
constituted one. 
 
¶12. (SBU) In January 2008, Ortega invited Aguerri to participate in 
a meeting with President Hugo Chavez to explore trade and investment 
opportunities with Venezuela.  Aguerri declined after he learned 
that the meeting was intended for Citizen Power Councils, and that 
this was the pretext for inviting COSEP.  Since Aguerri's refusal, 
Ortega has cancelled at the last minute a number of meetings with 
COSEP during February 2008.  Relations continue to be uneasy. 
 
No More Politics 
---------------- 

¶13. (SBU) During Undersecretary of Commerce Christopher Padilla's 
February 28 visit to Nicaragua, Aguerri spoke about the need to 
unite the private sector to defend its interests.  COSEP is 
currently expanding its ranks from 11 to 16 business associations, 
including the Nicaraguan Council for Micro, Small, and Medium-sized 
Businesses and some with Sandinista links.  He told Undersecretary 
Padilla that COSEP's focus is on removing obstacles to doing 
business and not on politics.  Although Undersecretary Padilla 
pushed back, suggesting that the private sector should play a role 
in politics as an important element of civil society, Aguerri and 
other private sector leaders made clear their belief that remaining 
apolitical is the best course.  Aguerri said that it was a mistake 
that COSEP supported Montealegre in 2006; COSEP should have remained 
outside the political fray.  (Indeed, political party leaders tell 
us that private sector contributions have been exceedingly scarce 
since Ortega's victory -- purposefully withheld pending Liberal 
unity and for fear of FSLN retribution.)  COSEP is deliberating 
whether to amend its charter to prohibit the group from endorsing 
political candidates in future. 
 
¶14. (SBU) President Ortega is pleased by this development.  Business 
and politics do not mix, he declared, telling Undersecretary Padilla 
that COSEP "is now engaged in a more serious dialogue with 
government."  Ortega believes COSEP's stance allows him to look for 
common ground on issues of importance to both sides.  Meanwhile, 
COSEP still is interested in using the Pillars of Development to 
forge channels of communication with the government, but is focusing 
more attention on doing-business issues as they relate to taxes, 
customs, wages, and regulatory approvals, a task that Aguerri likens 
to "trench warfare." 
 
Comment: Still Worlds Apart 
--------------------------- 

¶15. (SBU) Ortega is capable of fostering the public appearance of a 
cordial and constructive relationship with the private sector even 
as he targets specific individuals and their businesses for 
government administered punishment when they cross his political 
path.  As a result, his relationship with the private sector is 
barely cordial and marginally constructive.  With few exceptions, 
members of the private sector fear Ortega because they know he will 
not hesitate to abuse his authority to advance his political agenda. 
 Nonetheless, Ortega's behavior is a far cry from the 1980s, and for 
that the private sector is thankful.  We expect COSEP to remain 
cautious about assuming a high political profile, but to enter the 
fray when government actions (or inaction) seriously affect the 
ability of its members to conduct business. 
 
TRIVELLI