VZCZCXRO6735
RR RUEHLMC
DE RUEHMU #1317/01 3021437
ZNR UUUUU ZZH
R 281437Z OCT 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3302
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC

UNCLAS SECTION 01 OF 02 MANAGUA 001317 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR 
STATE FOR WHA/ESPC AND WHA/CEN 
STATE ALSO FOR EEB/BTA 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PGOV NU
SUBJECT: NICARAGUA: RHETORIC ASIDE, EXPORTS ARE BOOMING 
 
Summary 
------- 

¶1. (U) President Ortega has criticized CAFTA-DR for creating jobs 
that are not much more than slave labor, obstructing Central 
American integration, and failing to address economic asymmetries. 
Recently, he has called for a comprehensive renegotiation of the 
agreement.  Nonetheless, Nicaraguans are quietly benefiting from 
CAFTA-DR and other free trade agreements.  Exports to the United 
States rose 36% between 2005 and 2007, while exports to Central 
American more than doubled between 2002 and 2007.  Jobs in export 
industries pay twice as much as other blue collar employment.  Just 
as President Ortega selectively ignores the benefits of CAFTA-DR, 
perhaps we should ignore his calls for comprehensive renegotiation, 
and instead work quietly with willing Nicaraguan officials and 
exporters to improve implementation.  End summary. 
 
Ortega Calls for CAFTA-DR Renegotiation 
--------------------------------------- 

¶2. (U) Daniel Ortega has been a regular critic of CAFTA-DR, both as 
a member of the National Assembly when the agreement was approved 
and as President of Nicaragua as the agreement is implemented. 
Unwilling to acknowledge that CAFTA-DR has created higher-paying 
jobs, he has labeled employment in export industries as "not much 
more than slave labor."  On several occasions, he has blamed 
CAFTA-DR for "obstructing Central American integration efforts," 
despite evidence that Nicaragua's trade with neighboring countries 
has increased.  He has complained that "CAFTA-DR does not address 
economic asymmetries," ignoring preferential treatment for apparel, 
lengthy tariff phase-outs, and other concessions negotiated in the 
agreement.  On October 14, he went beyond the usual criticism to 
call for a "comprehensive renegotiation of the agreement, taking 
into account asymmetries." 
 
¶3. (U) While Ortega's rhetoric against capitalism and free trade 
continues unabated, Nicaraguans are quietly benefiting from free 
trade agreements with the United States, Central American neighbors, 
and others.  According to Central Bank data, exports accounted for 
40% of GDP in 2007, up from only 22% in 2002.  In 2007, total 
exports were $2.3 billion, more than double what they were in 2002 
and up 14% compared to 2006.  This export growth is a direct 
consequence of opportunities created by the U.S. - Central America - 
Dominican Republic Free Trade Agreement (CAFTA-DR) as well as 
regional integration efforts. 
 
CAFTA-DR Exports up 36% from 2005 to 2007 
----------------------------------------- 

¶4. (U) Nicaraguan exports to the United States totaled $1.6 billion 
in 2007, up 36% from 2005.  Apparel and wiring harnesses for 
automobiles were the leading exports, up 35% from 2005 to 2007. 
Furniture exports increased from $473,000 in 2005 to $4.2 million in 
¶2007.  All of these goods are manufactured in free trade zones, 
where 121 firms directly employ 87,500 workers in assembly jobs.  On 
occasion, Ortega has called this slave labor, but at $150/month, the 
average monthly wage in export industries is nearly twice that of 
other blue collar workers. 
 
¶5. (U) CAFTA-DR is also creating opportunities in rural areas. 
Agricultural exports to the United States rose 44% between 2005 and 
¶2007.  Buoyed by rising commodity prices, coffee, meat, shrimp, 
sugar, and tobacco showed the greatest increases.  Trade data also 
show significant growth in exports of fresh fruits and vegetables, 
up 59% from 2005 to 2007.  In a welcome development, value-added 
production related to agricultural goods is on the increase. 
Exports of dairy products were up 90% between 2005 and 2007, peanut 
oil 106%, and rum 85%. 
 
Agriculture Dominates Trade within Central America 
--------------------------------------------- ----- 

¶6. (U) Contrary to Ortega's claim that CAFTA-DR is obstructing 
regional integration, Nicaraguan exports within Central America more 
than doubled from 2002 to 2007, to $433 million.  Nicaragua can 
trade nearly all goods duty free within Central America, making the 
region Nicaragua's largest market after the United States. 
Agricultural products such as beef, fresh vegetables, and cheese are 
the leading exports. 
 
Comment: Renegotiate CAFTA-DR? 
------------------------------ 

¶7. (SBU) President Ortega's ideological baggage keeps him from 
seeing that Nicaragua is clearly benefiting from CAFTA-DR and could 
benefit more.  Even members of the FSLN's inner circle benefit -- 
most famously Economic Advisor to the President Bayardo Arce, 
through his association with an agricultural commodities trading 
company, Agricorp.  Ensuring that the benefits of trade extend 
beyond the likes of Arce remains a challenge for us.  Given the 
government's overall policymaking neglect and lack of interest in 
trade capacity building, our efforts to support the private sector 
are more important than ever. 
 
¶8. (SBU) Despite Ortega's criticism of CAFTA-DR and call for 
renegotiation, Trade Ministry officials continue to participate in 
CAFTA-DR forums.  Presidential Delegate for Investment Promotion 
Alvaro Baltodano has expressed interest in joining the Pathways to 
Prosperity Initiative.  He also continues to push for more flexible 
rules of origin for apparel to improve Nicaraguan market access. 
Just as Ortega selectively ignores the benefits of CAFTA-DR, perhaps 
we should ignore his calls for comprehensive renegotiation, and 
instead work quietly with willing Nicaraguan officials and exporters 
to improve implementation.  End comment. 
 
CALLAHAN