VZCZCXRO5367
RR RUEHLMC
DE RUEHMU #0885/01 1932334
ZNY CCCCC ZZH
R 112334Z JUL 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2878
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRL/AMEMBASSY BERLIN 0141
RUEHHE/AMEMBASSY HELSINKI 0058
RUEHLO/AMEMBASSY LONDON 0101
RUEHSM/AMEMBASSY STOCKHOLM 0143
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC
RUMIAAA/CDR USSOUTHCOM MIAMI FL

C O N F I D E N T I A L SECTION 01 OF 04 MANAGUA 000885 
 
SIPDIS 
 
STATE FOR WHA, WHA/CEN, EEB/OMA AND INR/AA 
STATE PLEASE PASS TO USAID/LAC 
TREASURY FOR SARA SENICH 
 
E.O. 12958: DECL: 07/16/2018 
TAGS: EAID EPREL PGOV ECON NU
SUBJECT: NICARAGUAN DONORS GROW DISENCHANTED WITH ORTEGA 
 
REF: A. MANAGUA 761 
     ¶B. MANAGUA 2479 
     ¶C. MANAGUA 2255 
     ¶D. MANAGUA 2203 
 
Classified By: Ambassador Paul Trivelli for reasons 1.4 b&d. 
 
¶1. (C) Summary: Over the last six months, bilateral foreign 
donors in Nicaragua have grown increasingly disillusioned 
with the Ortega administration.  This disappointment has 
coincided with an unrelated shift in European assistance 
agencies' priorities away from Central America towards Africa 
and other poorer regions.  So far, Sweden, the United 
Kingdom, and Germany have withdrawn assistance in some form 
from Nicaragua.  The Supreme Electoral Council's decision to 
disqualify two opposition parties (Ref A) resulted in an 
attitudinal shift within the broader donor community.  As a 
result, all donors to Nicaragua, including multilaterals, 
issued a strong joint public statement, expressing concern 
with the closing of Nicaragua's democratic space.  The GON's 
reaction was swift and virulent, with President Ortega and 
both Vice Foreign Ministers publicly insulting the donors. 
Assistance agencies have stuck by their message and begun to 
systematically re-examine their programs and priorities. 
With donor assistance accounting for almost 25% of the 
Nicaraguan budget, the GON seems to have reconsidered its 
position and have scaled back the rhetoric.  We do not 
believe, however, Ortega is quite ready to forgive the 
donors' outbursts.  End Summary. 
 
Donors Are Re-Examining Their Programs... 
----------------------------------------- 

¶2. (SBU) Over the last six months, bilateral foreign donors 
in Nicaragua have grown increasingly disillusioned with the 
Ortega administration.  The lack of dialogue with the GON and 
its strong focus on assistance from "non-traditional" donors, 
such as Venezuela and Iran, have left many feeling side-lined 
from Nicaragua's development process (Refs B, C).  The recent 
presentation of a draft National Development Plan which is in 
large part a political diatribe against the U.S., the EU, 
free markets and western assistance, contained none of the 
plans, projects, and targets the donors need to align their 
programs with Nicaraguan priorities. 
 
¶3. (C) This disappointment has coincided with an unrelated 
shift in European assistance agencies' priorities away from 
Central America towards Africa and other poorer regions. 
Sweden was the first donor to announce its departure (Ref D) 
in 2007.  It initially cut its direct budget support and 
subsequently announced the closing of its Embassy by 2009. 
The next was Germany, which decided not to provide direct 
budget support in 2008, but has kept the rest of its 
assistance in place.  At the end of 2007, the United Kingdom 
(DFID) announced that it will be pulling out of direct budget 
support, closing its DFID offices in 2010, and shifting it 
assistance for the next four years to NGOs.  (Note: The 
Budget Support Group is composed of the Inter-American 
Development Bank, the World Bank, the European Union, the 
U.K., Norway, the Netherlands, Germany, Switzerland, and 
Finland.  BSG observers are the IMF, UNDP, Sweden, Canada, 
and the United States. End Note.)  Privately, donors explain 
the decision to withdraw was made all the less painless by 
the Ortega administration's focus on consolidating power and 
wealth, complete disregard for prior assistance models and 
existing programs, and determination to re-write the last 17 
years of Nicaraguan history, falsely asserting that no 
progress was made on poverty reduction during that period. 
 
...They React Publicly... 
------------------------- 

¶4. (C) An attitudinal shift within the broader donor 
community, including the multilateral donors, occurred when 
the Supreme Electoral Council (CSE) decided to disqualify two 
opposition parties, a move widely judged as purely political 
with no legal justification (Ref A).  The Budget Support 
Group (BSG) and other European and multilateral donors met 
with representatives of one of the parties (MRS - Sandinista 
Renewal Movement) and the President of the National Assembly 
Judicial Commission Jose Pallais, in the days leading up to 
the CSE announcement, and with opposition leader Eduardo 
Montealegre in the days following.  While most donors were 
reluctant to take drastic steps such as cutting assistance in 
response to the GON's actions, they exhibited a clear sense 
of frustration and anger, and a new awareness of how deeply 
the FSLN and its pact with Arnoldo Aleman has imbued every 
aspect of Nicaraguan life.  The result was a strong public 
statement, signed by all bilateral and multilateral donors, 
including Japan, Taiwan, UNDP, and the World Bank, groups 
traditionally unwilling to criticize the government.  The 
statement expressed the donors' concern with the closing of 
Nicaragua's democratic space and emphasized good governance 
and democracy as fundamental principles of all assistance 
agreements. 
 
...And the Government Responds 
------------------------------ 

¶5. (U) The response from high level members of the GON was 
immediate and vitriolic asserting that donors had no right to 
interfere or comment on domestic politics.  President Ortega, 
playing on EU Ambassador Francesca Mosca's name (mosca means 
fly in Spanish), called donors "flies which land on trash;" 
that only provide Nicaragua with miniscule amounts of 
assistance.  Vice-Foreign Minister Manuel Coronel Kautz, in a 
public meeting with donors on the CSE's case, used a vulgar 
colloquial expression comparing the donors to a "woman who is 
never satisfied."  Vice-Foreign Minister for Foreign 
Assistance Valdrak Jaentschke was the most emphatic, claiming 
that donors have "done nothing positive in the country in the 
last 17 years" and that "if the donors say that there is no 
cooperation because we do not do something, we do not have a 
choice but to say, if you want to take it- take it, that is 
the final statement of dignity."  He added that donors have 
the bad habit of "getting overly involved in internal issues" 
and "they are trying to do democracy and development in a way 
that has not worked."  He also claimed donors were 
coordinating anti-Ortega lobbying activities by NGOs. 
Jaentschke closed saying that Europe "has a huge social debt 
with Latin America since the colonial times."  (Note: Despite 
this strong rhetoric, President Ortega and his government 
were quite welcoming and calm during the visit of HHS 
Secretary Leavitt on June 25. End Note.) 
 
Donors Next Steps 
----------------- 

¶6. (SBU) Donors, through the Canadian Director of Cooperation 
Kerry Max ) as chairman of the Donor's Group - and EU 
Ambassador Mosca, publicly stood by their statement and 
concerns.  There were several follow-up meetings with the GON 
emphasizing the clear tie between an open democracy and 
assistance programs.  Max highlighted that donors will be 
looking closely at the GON's actions regarding the upcoming 
license renewal for opposition television station Channel 2. 
 
¶7. (C) Privately, bilateral donors are starting to make 
decisions about future funding.  The Netherlands will not 
provide budget support in 2009, Finland will not either, DFID 
will not disburse its 2008 budget support funds, and the 
European Union has delayed finalizing some programs and is 
considering withdrawing budget support.  Donors are also 
studying whether to re-channel budget support funds though 
other mechanisms or to withdraw it altogether.  (Note: 2007 
Budget Support was USD 80 million; USD 110 million was 
pledged for 2008. End Note.)  Donors are reluctant to 
re-direct funds into programs with ministries given current 
problems with under-execution of projects.  Re-directing 
funds to civil society is not an option for many donors due 
to funding regulations requiring GON approval.  The likely 
result will be that Nicaragua loses the funds. 
 
¶8. (C) Multilateral donors are more sanguine at the moment. 
During a meeting with the Ambassador, World Bank (WB) ResRep 
Joseph Owen stated that it is not in the WB's mandate to 
comment on democracy and governance; focusing instead on 
development programs that would take place irrespective of 
the government in power.  He admitted that the IFIs and UN 
agencies tend to give the GON more benefit of the doubt than 
it deserves.  Their objective is to keep a foot in the door, 
so they can help the GON "see the error of its ways."  During 
a review of the BSG's fundamental principles, the 
multilateral donors were the most resistant to including in 
the final report any serious criticism of the GON's good 
governance and rule of law performance or any mention of the 
increasing role of the Citizen Power Councils (CPC), 
government-sponsored community level pressure groups.  This 
does not mean, however, that they are not concerned by recent 
events.  The WB is encountering problems with CPCs and is 
worried about an FSLN supported non-debt-payment movement 
developing in the northern parts of the country affecting a 
range of micro-credit lending institutions.  It has frozen 
USD 20 million pending the results of the much delayed 2007 
end of year IMF review.  The IDB has recently brought in 
several speakers to discuss the importance of free markets 
and effective governance and regulation.  Most importantly, 
the IFIs and UN agencies all signed on to the donor statement 
regarding the CSE decision. 
 
Comment 
------- 

¶9. (C) Interestingly, the European ambassadors are now 
admitting that our more dire, long held, more jaundiced view 
of Ortega's ambitions may be right after all.  They were 
reluctant to criticize several early GON moves that affected 
the opposition.  It took a blatant attack on two political 
parties and the hunger strike of a prominent former guerrilla 
(Ref A) to jolt them.  The MRS's close ties to European 
social democratic parties doubtless made European governments 
especially sensitive to its plight.  With donor assistance to 
Nicaragua accounting for almost 25% of its budget, it is 
perhaps a risky move by the GON to turn it guns on the EU and 
other donors.  While Venezuelan assistance of USD 520 million 
does outstrip other donor assistance, that assistance is not 
reliable.  The GON seems to have now realized that fact and 
the rhetoric has scaled back, but we do not believe Ortega is 
quite ready to forgive the donors' outbursts. 
 
Bilateral Assistance Levels in Nicaragua 
---------------------------------------- 

¶10. U) Below is a table of total bilateral donor assistance 
levels: 
(Source EU Blue Book and Embassies- USD millions) 
 
Country                         2007               2008 
--------------------------------------------- ---------- 
Spain                           28.4               61.4 
Denmark                         39.4               43.0 
European Commission             74.0               47.2 
Germany                         20.3               42.2 
Netherlands                     39.5               36.3 
United States                   37.5               35.7 
Sweden                          43.1               29.7 
Finland                         22.2               20.8 
Luxembourg                      13.2               16.9 
Canada                          17.0               14.0 
Austria                          8.9                8.0 
United Kingdom (DFID)            5.2                7.7 
Italy                            6.5                3.6 
France                           3.3