VZCZCXRO6321
RR RUEHLMC
DE RUEHMU #1213/01 2751700
ZNR UUUUU ZZH
R 011700Z OCT 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3215
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 001213 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ETRD EINV PGOV KTEX NI
SUBJECT: NICARAGUA: GOVERNMENT DECREES 18% WAGE HIKE 
 
REF: MANAGUA 01187 
 
¶1. (U) Summary.  On September 24, Labor Minister Jeannette 
Chavez ended the latest round of Nicaraguan minimum wage 
negotiations by decreeing an 18% increase for all 
occupations.  Dean Garcia, Executive Director of the 
Nicaraguan Association of Apparel Manufacturers (ANITEC), 
called the most recent increase "catastrophic for the 
sector."  During the past 16 months, the Nicaraguan 
Government has increased the minimum wage by 60%.  Gustavo 
Porras, an FSLN Deputy and President of the National Workers 
Front (FNT), expressed support for the government's 
announcement, despite having to settle for far less than the 
53% he originally demanded.  End summary. 
 
¶2. (U) On September 24, Labor Minister Jeannette Chavez ended 
the latest round of Nicaraguan minimum wage negotiations by 
decreeing an 18% increase in the minimum wage for all 
occupations beginning October 1.  Ministerial Decree 
JCHG-010-09-08 ended two months of negotiations among the 
private sector (represented by the Federation of Nicaraguan 
Business Associations, COSEP), labor unions (represented by 
rival FSLN-dominated trade unions and opposition unions), and 
the Nicaraguan Government (represented by the Ministry of 
Labor).  Unable to reach an agreement, the Ministry of Labor 
unilaterally declared the wage hike, as allowed by the 
Minimum Wage Law (625/2007).  Reftel describes the 
negotiations in detail. 
 
¶3. (U) Representatives of the private sector have criticized 
the government's decision and warn that the wage increase 
could have a negative impact on employment and inflation. 
Among the most vocal critics is Dean Garcia, Executive 
Director of the Nicaraguan Association of Apparel 
Manufacturers (ANITEC), who said that the most recent 
increase, after previous increases of 15% in January 2008 and 
18% in June 2007 (for a cumulative increase of 60% in 16 
months), "would be catastrophic for the sector."  Garcia said 
that although most apparel assembly workers earn more than 
the previous minimum wage of $103 a month, many manufacturers 
would need to increase wages to meet the new minimum of $121 
a month.  He said that to maintain worker productivity, wage 
increases would have to be passed on to those who earn $150 
to $200 a month as the result of incentive pay. 
 
¶4. (SBU) In addition to rising wages, Garcia told Econoff 
that apparel manufacturers in Nicaragua will need to deal 
with a 12% increase in electricity rates (at 17 cents per 
kilowatt, already the highest in the region).  Garcia added 
that customs delays are further eroding the competitiveness 
of the sector.  The cost increases occur at a time when price 
competition has become fierce as a result of the economic 
slowdown in the United States and strong Asian production 
growth.  He said that apparel buyers are looking elsewhere to 
place new orders, and as a result manufacturers in Nicaragua 
will begin to cut their work force.  Nicaraguan exports of 
apparel to the United States, which increased by 35% from 
2005 to 2007 (since CAFTA-DR implementation), are up only 2% 
for the first six months of 2008.  About 70,000 Nicaraguans 
are now employed in apparel manufacturing jobs. 
 
¶5. (U) COSEP President Jose Adan Aguirre called the wage 
increase "dangerous and unsustainable."  He predicted that 
employment would suffer as a result of the increase.  Local 
economist Nestor Avendano explained that the wage increase 
does not reflect productivity growth but instead tracks the 
consumer price index for food and beverages, which was up 
17.5% during the past six months.  He cautioned that the wage 
hike could contribute to further inflation.  Even without the 
wage increase, a number of local economists forecast 25% 
inflation for 2008. 
 
¶6. (SBU) The decree also increases the minimum wage by 18% 
for government employees.  Ministry of Finance Secretary 
General Ivan Acosta argued that the wage increase will have 
little impact on the national budget, because only about 
5,000 government employees earn the minimum wage.  The 
increase in the government's wage bill would be about $70,000 
a month. 
 
¶7. (SBU) Labor leaders were divided in their reaction to the 
decree.  They initially demanded a much higher increase, 
arguing that inflation had eroded purchasing power and 
prevailing wages were no longer sufficient for basic needs. 
Gustavo Porras, an FSLN Deputy who is also President of the 
National Workers Front (FNT), put a positive spin on the 
announcement in support of the government's position. 
Despite settling for much less than the 53% increase he 
originally demanded, Porras concluded that 18% was 
"reasonable and within the parameters we had calculated." 
Non-FSLN labor leaders complained that the private sector and 
the FSLN manipulated the minimum wage negotiation, to the 
detriment of Nicaraguan workers. 
 
¶8. (SBU) Comment.  With municipal electoral campaigns in full 
swing, resisting the temptation to increase the minimum wage 
would have been too much to expect from a government driven 
by populist propaganda rather than economic fundamentals. 
The apparel sector is especially sensitive to wage increases. 
 Over the past 12 months, the sector has shed more than 
10,000 jobs.  The situation is compounded by apparel 
manufacturers' inability to source fabric from the United 
States so that they can take full advantage of CAFTA-DR 
provisions that allow the use of inexpensive third-country 
fabrics.  Nicaragua is losing competitiveness and along with 
it, sorely needed jobs.  The government is likely to ignore 
this perspective, preferring a socialist explanation that 
blames capital for leaving when it can no longer exploit 
labor.  End comment. 
CALLAHAN