VZCZCXRO8579
RR RUEHLMC
DE RUEHMU #1268/01 2912200
ZNR UUUUU ZZH
R 172200Z OCT 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3266
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 03 MANAGUA 001268 
 
SENSITIVE 
SIPDIS 
 
STATE PASS EEB/CDA 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD NU
SUBJECT: NICARAGUA: RHETORIC VERSUS REALITY 
 
REF: A. MANAGUA 0763 
     ¶B. MANAGUA 0254 
 
Summary 
------ 

¶1. (SBU) On September 18, 2008, the Embassy and local 
business associations hosted the second Nicaraguan 
Competitiveness Forum, with financial support from the 
EEB/CBA Business Facilitation and Incentive Fund (BFIF). 
More than 120 government officials and business leaders 
attended this event, which was a follow-on to the Americas 
Competitiveness Forum held in August 2008.  Ambassador 
Callahan opened the event with a call for cooperation between 
the private sector and government to identify and eliminate 
bottlenecks that raise costs and reduce competitiveness. 
Government officials voiced their opinion that President 
Ortega's rhetoric is not detrimental to investment, but 
evidence suggests the contrary.  End summary. 
 
EEB/BFIF Funding for Second Forum on Competitiveness 
--------------------------------------------- ------- 

¶2. (U) On September 18, 2008, the Embassy, Nicaraguan 
Federation of Business Associations (COSEP), and American 
Chamber of Commerce of Nicaragua (AmCham) hosted the second 
Nicaraguan Competitiveness Forum, with financial support from 
the EEB/CBA Business Facilitation and Incentive Fund (BFIF). 
More than 120 government officials and business leaders 
affiliated with COSEP and AmCham attended the event, which 
was a follow-on to the August 2008 Americas Competitiveness 
Forum hosted by Secretary of Commerce Carlos Gutierrez in 
Atlanta.  The event was the second of a two-part series of 
BFIF-funded forums in Nicaragua (Ref A).  This one involved a 
general discussion on competitiveness issues, summarized 
here, as well as detailed analysis of issues related to 
electricity generation and distribution, summarized Septel. 
 
Ambassador: Nicaragua Falls in Competitiveness Rankings 
--------------------------------------------- ---------- 

¶3. (U) In his opening remarks, Ambassador Callahan warned 
participants that the relative decline of Nicaraguan 
competitiveness, as measured by the World Economic Forum and 
other groups, threatens the country's ability to attract new 
investment.  He emphasized the importance investors place on 
political stability and strong democratic institutions, in 
addition to financial market stability, respect for property 
rights, and the willingness of the government to fight 
corruption.  In an indirect response to President Ortega,s 
frequent criticism of what he terms "savage capitalism," the 
Ambassador told attendees, &Governments that have opened 
their borders to trade and investment are more successful in 
improving the standard of living for their people.8 
 
¶4. (U) The Ambassador provided examples of companies that 
have proven it possible to compete internationally from a 
base in Nicaragua.  He cited U.S. textile company ITG/Cone 
Denim and Mexican-Japanese manufacturer of automobile wiring 
harnesses Arnecom, as well as Nicaraguan businesses exporting 
fresh fruits and vegetables, dairy products, and other 
agricultural goods to overseas markets.  He reminded 
participants that companies such as these required an active 
dialogue with the government to identify and eliminate 
bottlenecks that raise costs and reduce competitiveness. 
 
USAID Consultant: Policy Stagnation and Rhetoric to Blame 
--------------------------------------------- ------------ 

¶5. (U) Eric Miller, an international consultant working with 
USAID project ProCAFTA, emphasized the positive benefits of 
Nicaragua's free trade policy.  For example, Nicaraguan 
exports increased from $895 million in 2001 to $2,313 million 
in 2007.  Foreign investment, which averaged $115 million a 
year during the 1990s, tripled to $345 million in 2007. 
Nonetheless, Miller warned that success can be short lived. 
He called for more collaboration between government officials 
and the private sector on issues such as trade facilitation, 
infrastructure, and other doing-business issues that could 
improve Nicaraguan competitiveness.  For example, businesses 
rely on Nicaraguan Customs to clear shipments promptly. 
Recently, Customs implemented 100% cargo inspection to 
increase revenue collection, but as a result businesses 
cannot deliver their goods on time. 
 
¶6. (U) Miller also warned that the perception of Nicaraguan 
risk is worsening.  In reference to President Ortega's 
inflammatory statements against the United States and 
capitalism, he told the audience, "Potential investors are 
not interested in the subtleties of politics; to them, 
rhetoric does matter."  Miller added that legislative and 
judicial uncertainty also contribute to country risk.  For 
example, uncertainty surrounding pending legislation 
governing coastal property has stopped tourism development in 
its tracks. 
 
Private Sector: Dialogue is the Solution 
---------------------------------------- 

¶7. (U) Jose Adan Aguerri, President of the Nicaraguan 
Federation of Business Associations (COSEP), who participated 
in the panel discussion that followed Miller's presentation, 
told the audience that COSEP continues to aggressively pursue 
its "Development Agenda" with the government. (Ref B).  COSEP 
remains committed to an export-led growth strategy 
emphasizing industry-specific initiatives as well as 
cross-cutting issues, such as public-private investment in 
energy and transportation infrastructure.  He acknowledged 
the need to include government priorities such as housing and 
education. 
 
¶8. (U) Aguerri called for a public-private commission to 
tackle bottlenecks in the economy such as bureaucratic red 
tape, lack of transportation infrastructure, and inefficient 
customs processing.  The immediate challenge is to save the 
jobs of thousands of apparel workers who face unemployment as 
a result of declining competitiveness.  Niels Ketelhohn, Dean 
of the INCAE Business School in Managua, also called on the 
government to include the private sector in policymaking. 
 
Arce: Look at Cuba 
------------------ 

¶9. (U) Bayardo Arce, President Ortega's Chief Economic 
Advisor, voiced agreement with Eric Miller's recommendations 
for improving Nicaraguan competitiveness.  He asserted that 
the government is exploring all options for infrastructure 
investment, including private sector participation in a 
deep-water port on the Atlantic Coast at Monkey Point, and in 
hydroelectric, wind, and geothermal energy projects. 
 
¶10. (U) The rest of Arce's remarks were political in nature. 
Arce complained that government officials were not invited to 
the event, unaware that at least 25 government officials had 
declined to attend.  He criticized the gridlock in the 
National Assembly for hampering the government's performance. 
 He argued that the financial crisis in the United States 
demonstrates that the private sector is not the answer to all 
economic challenges.  Justifying government scrutiny of tax 
returns and customs transactions, he resurrected false 
charges that ExxonMobil had not paid its taxes.  He dismissed 
concerns that Ortega's rhetoric has a negative impact on the 
investment climate, arguing that "no single speech is ever 
going to make an investor run."  He cited Cuba as an example 
of a country that attracts investment, despite strong 
rhetoric from its leaders.  Rebuking criticism from an 
audience member that country risk is increasing, Arce 
confused the concept of country risk with physical security, 
quipping, "Nicaragua is one of the safest countries in 
Central America." 
 
VP Morales Carazo: Rhetoric on Rhetoric 
--------------------------------------- 

¶11. (U) Vice President Morales Carazo, who spoke in Atlanta 
at the Americas Competitiveness Forum, identified major 
themes from the forum including transportation, marketing, 
tourism, and education.  Morales called for better 
coordination between the private sector and government, such 
as he had witnessed in Atlanta among other Latin American 
countries.  Carazo said he preferred to concentrate on 
education, especially technical education for agriculture, as 
a means to improve competitiveness over the long term. 
 
¶12. (U) Morales tried to rationalize Ortega's rhetoric toward 
the United States and free markets, saying, "Sometimes I have 
been called upon to explain that rhetoric does not always 
result in action; fortunately, they are not linked.8  Later, 
however, he admitted that rhetoric can sow doubt in the minds 
of potential investors.  He also explained, disingenuously we 
think, that some low-level government officials had 
misinterpreted political rhetoric to justify harassing 
businesses at the operational level. 
 
Comment: Rhetoric Matters 
------------------------- 

¶13. (SBU) In recent months, we have seen that the greatest 
concern of potential investors in Nicaragua has been 
President Ortega's rhetoric against the United States, free 
markets, and the private sector.  This shows that the claims 
of government officials that Ortega's rhetoric is irrelevant 
are not true.  While foreign investors looking at prospects 
in Nicaragua can easily focus their attention elsewhere, 
local investors with sunk costs have no place to go.  Many 
local businesses seem resigned to coping with the Ortega 
government as best they can.  COSEP's renewed interest in 
pursuing its "Development Agenda" reflects an awareness that 
Nicaragua's competitiveness is eroding.  Between a stagnant 
legislature and a hostile executive branch, the agenda 
appears to be going nowhere.  End comment. 
CALLAHAN