VZCZCXYZ0000
OO RUEHWEB

DE RUEHMU #0764/01 1681950
ZNY CCCCC ZZH
O 161950Z JUN 08
FM AMEMBASSY MANAGUA
TO RUEAUSA/DEPT OF HHS WASHINGTON DC IMMEDIATE
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHC/SECSTATE WASHDC 2751

C O N F I D E N T I A L MANAGUA 000764 
 
SIPDIS 
 
HHS FOR SECRETARY LEAVITT 
 
E.O. 12958: DECL: 06/18/2018 
TAGS: ECON PREL SOCI ETRD EFIN NU
SUBJECT: NICARAGUA: SCENESETTER FOR VISIT OF HHS SECRETARY 
LEAVITT 
 
REF: A. MANAGUA 628 
     ¶B. MANAGUA 579 
     ¶C. MANAGUA 573 
     ¶D. MANAGUA 481 
     ¶E. MANAGUA 338 
 
Classified By: Ambassador Paul Trivelli for reasons 1.4 b&d 
 
Introduction 
------------ 

¶1. (SBU) We look forward to your visit June 25-26 to meet 
with President Ortega, students at UNAN, and political and 
economic leaders.  Your visit comes as Nicaragua prepares for 
municipal elections in November.  President Ortega's 
political maneuvering in the last 18 months has resulted in a 
significant blurring of the line between the party and the 
state, diminishing democratic space and slowing the economy. 
Efforts by past administrations have begun to yield results 
in health and education, but this progress is being 
undermined by the recent economic downturn. 
 
Health and Social Trends 
------------------------- 

¶2. (U) The current population of Nicaragua is 5.4 million; 
life expectancy at birth is 72.9 years.  Since 1991, 
Nicaragua has steadily improved prenatal care coverage and 
made impressive gains in infant mortality, which has dropped 
from 52 deaths per 1,000 live births in 1991 to 29 per 1,000 
in 2007.  The percentage of women in monogamous relationships 
currently using a modern family planning method is 69.8% and 
the total fertility rate has decreased from 4.6 children per 
family in 1992/3 to 2.7 in 2006/7.  The country has made 
progress in controlling the spread of diseases by achieving 
and maintaining high vaccination coverage (85%) and 
introducing vaccines, e.g., the MMR vaccine in 1998, the 
pentavalent vaccine in 1999, and the rotavirus vaccine in 
¶2006.  Since 2004, infectious disease has fallen from fourth 
to fifth place among the leading causes of death, with the 
number of such deaths down nearly 50% since 1996. 
 
¶3. (U) Social indicators for Nicaragua have also been 
improving.  UNESCO statistics show that 90% of primary school 
age children were enrolled in 2006, up from 73% in 1991.  In 
2007, the Minister of Education reported overall school 
enrollment of 86.5%.  Nicaragua's score on the United Nations 
Human Development Index rose by 43% from 1990 to 2007 (from 
0.496 to 0.710).  Despite these statistical gains, the 
benefits of economic development have been uneven; over 50% 
of Nicaraguans fall below the UN poverty line.  Blackouts, 
water shortages, weak transportation infrastructure, and high 
energy prices disproportionately affect the poorest, 
especially in rural areas. 
 
U.S. - Nicaragua Relations 
-------------------------- 

¶4. (SBU) The Embassy continues to engage with the Nicaraguan 
Government on areas of common interest, despite President 
Daniel Ortega's frequent public criticism of the United 
States.  The military and National Police remain relatively 
independent, apolitical forces, and our cooperation with 
these institutions to counter terrorist and criminal threats 
remains good.  We also support those elements of Nicaragua's 
civil society, private sector, political class, and 
government willing to defend Nicaragua's fragile democracy. 
USAID's program supports efforts to strengthen democracy; 
promote economic growth, especially through market-driven 
assistance for small farmers; and improve education and 
health care systems.  Millennium Challenge Corporation is in 
the third year of a five year, $175 million compact that 
promotes rural business development, builds transportation 
infrastructure, and improves property registration.  USDA 
assistance provides financing to small farmers and supports 
government programs on sanitary and phytosanitary standards 
for food exports.  U.S. Treasury provides important technical 
assistance on debt management and tax collection, while an 
extensive Peace Corps program supports rural development, 
health education, and English-language teaching. 
 
Foreign Policy 
-------------- 

¶5. (SBU) Ortega has pursued close ties with Venezuela and 
cooperative relations with Iran.  Immediately after his 
inauguration, Ortega signed on to Chavez' Bolivarian 
Alternative for the Americas (ALBA), and in late 2007 he 
concluded an agreement with Venezuela that redirects up to 
50% of oil purchases to development programs.  Opposition 
leaders and democracy watchdog groups complain that 
accounting for this off-budget funding is not transparent. 
President Ortega quickly sided with Venezuela and Ecuador and 
briefly broke relations with Colombia in March over 
Colombia's strike against the FARC's compound in northern 
Ecuador.  Despite reciprocal state visits, Iran, has still 
not concluded an investment deal nor responded to Ortega's 
request to forgive its sovereign bilateral debt.  On the 
multilateral front, President Ortega has succeeded in having 
former Foreign Minister Miguel d'Escoto, known to detest the 
United States, chosen by the Group of Latin American 
countries to serve a one-year term as U.N. General Assembly 
President beginning September 2008. 
 
Political Climate 
----------------- 
¶6. (C) President Ortega has skillfully used his political 
pact with former President and convicted felon Arnoldo Aleman 
to wrest control over most institutions of government and 
blur the distinction between party and state.  The 
centerpiece of Ortega's "second phase of the revolution" is 
the introduction of Qadhafi-style "direct democracy" in 
Nicaragua through the establishment of Citizen Power Councils 
(CPCs).  These groups, nominally representing civil society, 
but directed by First Lady Rosario Murillo, are bypassing 
elected municipal governments and increasingly assuming a 
leading role in the distribution of FSLN patronage, such as 
housing and discounted food. 
 
¶7. (C) November 2008 municipal elections dominate the 
political landscape at this time.  Ortega's FSLN party will 
face a weakened democratic opposition in what many view as a 
referendum on his direct democracy model and his poor record 
of governance during the first two years of his term (Ref C). 
 On June 11, the Supreme Electoral Council, controlled by 
Aleman and Ortega, barred two prominent democratic parties 
from participating in the upcoming elections, further 
narrowing democratic space, eliminating potential challenges, 
and stretching their political reach. 
 
Macroeconomic and Financial Outlook 
----------------------------------- 

¶8. (SBU) Although frequently critical of free trade and 
capitalism, Ortega has so far maintained the legal and 
regulatory underpinnings of the market-based economic model 
of his predecessors.  Economic growth for 2007 was 3.8%. 
Many independent economists believe 2008 growth will be 
closer to 2.5%, given the local drop in investment and 
construction and the impact the U.S. the economic slow down 
may have on trade and remittances. 
 
¶9. (SBU) Under an International Monetary Fund program signed 
in October 2007, the Nicaraguan Government agreed to 
implement free market policies linked to targets on fiscal 
discipline, spending on poverty, and energy regulation. 
Ortega's frequent populist rhetoric calls into question his 
commitment to these targets.  Inflation is on track to exceed 
20% this year, boosted by rising fuel and food prices, 
increase in aggregate demand, and a 30% increase in the 
minimum wage for most occupations.  The lack of a strong 
anti-inflation program is worrisome to many economists, given 
the likelihood that off-budget Venezuelan assistance has 
created excess liquidity.  In addition, the government 
replaced a successful agricultural development program that 
provided improved seeds and technical assistance to farmers 
for a program that provides a families identified by local 
CPCs with livestock and unimproved seeds.  Complicating the 
situation is that budget execution remains far below targets, 
leaving needed infrastructure and other capital projects on 
the drawing board. 
 
Trade and Investment 
-------------------- 

¶10. (U) Trade continues to be the primary engine of economic 
growth for Nicaragua.  In 2008, the volume of exports has 
grown 18% over the same period in 2007.  On April 1, 2006, 
CAFTA-DR entered into force for the United States and 
Nicaragua.  Exports to the United States, which account for 
55% of Nicaragua's total exports, were $1,608.4 million in 
2007, up 36.3% from 2005. 
 
¶11. (C) Despite important protections for investment included 
in CAFTA-DR, the investment climate has steadily worsened 
since Ortega took office.  On more than a dozen occasions, 
the government has used its tax, customs, and property 
administrations to pressure individuals and companies into 
accepting noncommercial terms in concessions or contracts. 
Uncertain property rights also contribute to the 
deterioration of the investment climate, especially for 
tourism investment.  Foreign investment inflows totaled $337 
million in 2007, including U.S. firm Cone Denim's $100 
million mill (Ref A) and Mexican and Spanish investment of 
 
$120 million in telecommunications infrastructure. 
 
Comment 
------- 

¶12. (C) This will be the first USG visit since the President 
Ortega's recent actions to prevent two opposition parties 
from standing in national municipal elections in November and 
perhaps even the presidential elections in 2011.  Your visit 
provides an opportunity to express USG concerns that these 
actions call into question the government's commitment to 
democratic principles.  Our bilateral agenda with Nicaragua 
counts on progress in key areas such as: increasing 
democratic space, reducing corruption, practicing good 
governance, and honoring CAFTA agreements.  Your dialogue 
with Nicaraguan opposition leaders and private sector 
representatives will also demonstrate U.S. resolve in 
continuing its economic engagement and partnership with the 
Nicaraguan people. 
TRIVELLI