VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #0665/01 1441901
ZNY CCCCC ZZH
R 231901Z MAY 08
FM AMEMBASSY MANAGUA
TO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHC/SECSTATE WASHDC 2654
INFO RUMIAAA/CDR USSOUTHCOM MIAMI FL//J2/J3/J5//
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

C O N F I D E N T I A L MANAGUA 000665 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, EEB/TRA, INR/IAA 
 
E.O. 12958: DECL: 05/20/2018 
TAGS: ELTN ECON ELAB EFIN PGOV NU
SUBJECT: NICARAGUA: TRANSPORTATION STRIKE ENDS WITH A 
SUBSIDY 
 
REF: A. MANAGUA 611 
     ¶B. MANAGUA 578 
 
Classified By: Ambassador Paul A. Trivelli for reasons 1.4 (b,d) 
 
¶1. (C) Summary:  On May 16, President Daniel Ortega announced 
a package of measures which successfully ended the national 
transportation strike (Refs A and B).  The Government of 
Nicaragua's (GON) principal concession is a $1.30 per gallon 
subsidy for the transport sector on the purchase of diesel 
and gasoline to be funded through unspecified ALBA sources. 
Transport unions and collectives quickly accepted Ortega's 
offer, and abandoned the strike en masse.  Speculation exists 
that the subsidy will instead be financed through a rise in 
gasoline prices for other consumers.  The land shipping 
sector was specifically excluded from the settlement, unless 
it submits to government oversight and rate regulation. 
Meanwhile, a black market in subsidized gasoline has already 
emerged.  In the end, Ortega still confronts a potential loss 
of political strength, plus a slippery slope of new 
entitlement demands, renewed strikes, and implementation woes 
linked to his hastily conceived subsidy proposal.  End 
Summary. 
 
Fuel Price and Other Concessions 
-------------------------------- 
 
¶2. (U) Late on May 16, President Daniel Ortega announced 
measures, accepted by the National Transport Coordinators, 
the principal organization representing strikers, to end the 
12-day-old national transportation strike, offering a 
$1.30/gallon subsidy on gasoline and diesel.  This offer 
followed a nationally televised presidential address only two 
days earlier in which Ortega had refused to concede more than 
a $0.50 per gallon subsidy for bus, taxi, and public 
transport operators throughout the country.  Of this, $0.30 
was to be funded from ALBA funds and $0.20 from the national 
budget, i.e., if approved by what most would characterize as 
a very uncooperative National Assembly.  The difference 
between the old and new offer is to come from Venezuelan ALBA 
petroleum subsidies. 
 
¶3. (U) According to Ortega, at $3.15/gallon, Nicaragua will 
have the cheapest gasoline in Central America for the 
transport industry.  He quoted per gallon prices in Honduras 
($3.79), Costa Rica ($4.20), Guatemala ($4.22), and El 
Salvador ($4.31) to make his point.  The subsidized fuel will 
be offered at 61 service stations throughout the country, 
including all national Petronic and some Shell stations. 
 
¶4. (U) Other measures to help the transport industry include 
the immediate importation of 25,000 tires, 5,000 batteries, 
and lubricants for buses and taxis, financed on favorable 
two-year terms with an interest rate not exceeding 8%. 
Ortega did not specify who will import the goods or provide 
financing.  In similar fashion, Ortega pronounced the 
importation and financing of 750 electronic bar-code readers 
to monitor passenger loads for intra-city Managua 
collectives, and 3,000 conversion kits to enable taxis to use 
natural gas as fuel.  Finally, working groups -- including 
transport, industry, wholesale, and retail trade 
representatives, as well as fuel distributors -- are supposed 
to develop additional proposals to address rising fuel prices. 
 
¶5. (U) Transport unions and collectives quickly accepted 
Ortega's offer, and abandoned the strike en masse, but have 
not yet been fully vindicated.  The important ground shipping 
sector is not included in the subsidy offer (see Paragraph 
9), nor have all strikers detained in various departments 
around the country been released from jail.  Skepticism 
remains as to how or even if the subsidy will be fully 
implemented. 
 
The Costs of the Strike 
----------------------- 
 
¶6. (U) Jose Aguerri, Director of the Federation of Nicaraguan 
Business Associations (COSEP), estimated that the national 
economy lost nearly $20 million as a result of the strike. 
Apparel manufacturers in the free trade zones may have 
suffered the most, particularly if some of their customers 
had decided to go elsewhere to contract orders during the 12 
day hiatus.  While transport unions threaten additional 
strikes should the government not follow through on Ortega's 
promises, Aguerri points out that the economy cannot sustain 
another strike without severe damage. 
 
Off Balance Sheet Financing and Black Markets 
--------------------------------------------- 
 
¶7. (C) Funds from the oil deal with Venezuela (ALBA funds), 
which Ortega claims amounted to as much as $520 million in 
2007 -- one-third of the national budget or 10% of national 
GDP, -- are a subject of much conjecture and suspicion. 
Though Ortega discussed ALBA financing of the new national 
transport subsidy, speculation exists that the subsidy will 
actually be financed through an increase in gasoline prices 
for other gasoline consumers.  (Note: The $520 million figure 
for ALBA funding in 2007 that Ortega brandished is 
unsubstantiated.  Other reports put the figure closer to $135 
million for 2007.) 
 
¶8. (C) The subsidy appears to be a hastily and ill-prepared 
offer.  As of May 22, many gasoline stations could not 
deliver fuel at subsidized prices, and those who did had long 
lines with which to contend.  Some station attendants request 
vehicle plate and driver identification information, others 
do not.  Proposals to control access to the subsidy include 
use of specially provided electronic operating cards, quotas 
established per trip by pre-arranged route, or each 
cooperative being assigned service stations.  In the 
meantime, a black market in subsidized gasoline has already 
emerged, with transport operators driving from station to 
station, filling up with gasoline, only to empty the tank for 
black market resale. 
 
Land Shipping Sector Excluded 
----------------------------- 
 
¶9. (SBU) Ground shipping was specifically excluded from the 
settlement, unless the sector agreed to submit to government 
oversight and rate regulation.  Nevertheless, Roberto 
Delgadillo, President of the Nicaraguan Transport 
Association, a leading cargo association, quickly joined his 
colleagues in calling off the strike.  Without relief, 
however, ground shipping prices could rise as much as 40% in 
the near future.  While negotiations are supposed to continue 
within the President's working groups, President of the 
Federation of Transport Collectives Antonio Betanco complains 
that, at the department level, working groups are made up of 
members of Ortega's Citizen Power Councils and Sandinista 
party members, thus adding a political quotient to 
negotiations.  In the mean time, the transport issue is off 
the national radar screen. 
 
Comment 
------- 
 
¶10. (C) In a nationally televised address on May 14, Ortega 
stated his unequivocal intention not to offer more than a 
$0.50 per gallon subsidy.  Two days later, he backed down. 
Whether this retreat shows weakness or political incompetence 
depends on one's viewpoint, but Ortega's mention of ALBA cash 
in the May 14 speech to the nation certainly gave strikers 
ample reason to hold firm for a better deal.  Having shown 
his willingness to open his ALBA strong box when things get 
tough, Ortega may also have opened the floodgates for others 
who are looking for ALBA-funded entitlements.  From any 
vantage point, Ortega's subsidy scheme demonstrates poor 
operational foresight; nobody on the street knows how it will 
be implemented.  Meanwhile, the specter of a renewed strike 
by ground shippers looms.  Ironically, they received almost 
nothing out of the strike settlement, even though they forced 
the issue for the rest of the sector. 
TRIVELLI