VZCZCXRO1606
RR RUEHLMC
DE RUEHMU #1427/01 3331256
ZNR UUUUU ZZH
R 281256Z NOV 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3439
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 001427 
 
SENSITIVE 
SIPDIS 
 
STATE PASS OPIC AND IAF 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON PGOV PREL NU
SUBJECT: NICARAGUA: FINLAND CUTS BUDGET SUPPORT 
 
SUMMARY 
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¶1. (U) On October 22, the Embassy of Finland announced an end to its 
$2.5 million annual assistance to the national budget of Nicaragua. 
Finland is now the fourth country to withdraw direct budget 
assistance, after Germany, Sweden, and Great Britain. The Budget 
Support Group (BSG), a group of five countries including Finland, 
plus the European Union, the World Bank, and the Inter-American 
Development Bank, provides direct contributions to the general 
budget of Nicaragua.  To date, the BSG has withdrawn a total of $21 
million from the national budget.  In 2007 The IMF, under its three 
year Poverty Reduction and Growth Facility Program (PRGF) approved a 
$120.4 million arrangement in support of the government's economic 
programs; so far about $47 million has been disbursed.  End Summary. 
 
 
FINLAND TO END BUDGET SUPPORT ASSISTANCE 
---------------------------------------- 
 
¶2. (U) The Embassy of Finland announced in a letter sent on October 
22 its decision to discontinue the disbursement of $2.5 million to 
the general budget of Nicaragua.  A member of the Nicaraguan Budget 
Support Group since 2005, Finland has donated approximately $85 
million to Nicaragua during the last five years.  So far in 2008, 
Finnish assistance to Nicaragua has totaled $16.5 million, including 
$2.5 million destined for the national budget which now will not be 
disbursed.  According to the letter, the reason for the decision was 
dissatisfaction with the fact that the GON has not published the 
final version of its 2008-2012 Human Development National Plan. 
Other reasons for Finnish discontent include the failure to account 
for Venezuelan funds flowing into Nicaragua, the decision of the 
Supreme Electoral Council to prohibit two political parties from 
competing in 2008 municipal elections, and government harassment of 
local NGOs.  The Embassy of Finland indicated that it would find 
another way to channel these funds.  For now, Finland's 2009 budget 
still includes $19 million for foreign assistance to Nicaragua. 
 
GET IN LINE 
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¶3. (U) Finland is not the first country to withdraw budget support 
from Nicaragua since Daniel Ortega became President. In August 2007, 
Sweden announced it would end its foreign assistance to Nicaragua, 
as a result of its decision to shift focus on countries in Africa 
and Eastern Europe.  Observers in Nicaragua speculated that the true 
reason behind the Swedish decision was Ortega's prohibition of 
therapeutic abortion, an assertion denied by the Swedish Ambassador. 
 Germany announced in April of 2008 its suspension of budget support 
in Nicaragua.  The United Kingdom's Department for International 
Development (DFID) announced that it plans to close its 
representational offices in Nicaragua in April of 2009, and withdraw 
$4 million destined for the 2009 national budget.  According to 
DFID, London took the decision to invest in more economically 
vulnerable regions such as Africa, Asia, and the Middle East.  DFID 
will continue its cooperation with Nicaragua through indirect 
assistance projects.  The IMF supports the Nicaraguan budget through 
its three year $120 million Poverty Reduction and Growth Facility 
Program (PRGF) arrangement in support of the government's economic 
programs.  To date, about $47 million has been disbursed. Future 
disbursements are contingent on satisfactory IMF reviews, the last 
of which was canceled for safety concerns  following street protests 
and disturbances in Nicaragua in the wake of municipal election 
fraud allegations. 
 
THE BUDGET SUPPORT GROUP 
------------------------ 
 
¶4. (U) The Budget Support Group is composed of Germany, Norway, the 
Netherlands, the United Kingdom, Sweden, Switzerland, the European 
Commission, the World Bank, and the Inter-American Development Bank. 
 This group entered into a "Joint Financing Agreement" with the GON 
in May 2005 to support the efforts of the GON to attain sustainable 
economic growth and a reduction of poverty in the long run.  Budget 
support is a direct contribution to the general budget using the 
accounting and procurement systems of the GON.  These funds, which 
are not destined to a particular use, but to the total budget 
itself, allow the GON to allocate its resources according to its 
priorities.  The Budget Support Group created a Performance 
Assessment Matrix (PAM), which includes a number of indicators that 
are used for monitoring performance.  The matrix includes five 
sectors: macroeconomics, public finance, the productive sector, 
social sector and governance.  The cooperation of the Budget Support 
Group is supposedly contingent upon accomplishments demonstrated in 
the PAM. 
 
LOCAL REACTION 
 
MANAGUA 00001427  002 OF 002 
 
 
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¶5. (U) Opposition politicians from the Constitutional Liberal Party 
(PLC) said the Finnish action will cause other European countries to 
follow suit.  In their view, the blame lies with mismanagement and a 
policy of confrontation on the part of President Ortega.  In a 
defensive statement, FSLN Vice Minister of Foreign Affairs Manuel 
Coronel Kautz argued that the Finnish decision would not greatly 
impact Nicaragua's development, and expressed doubt that other 
countries would follow.  Kautz warned that no country should 
"interfere in another country's internal policies." 
 
COMMENT 
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¶6.  (SBU) The Finnish decision reflects negatively on Nicaragua as a 
worthy partner for donor assistance, especially in light of 
accusations of wholesale fraud surrounding municipal elections.  Of 
particular concern is that most budget support typically goes to 
poverty reduction programs.  Nicaragua now faces a 2009 budget (not 
yet approved by the National Assembly) with $21 million less in its 
coffers than what it thought it would have.  The reaction so far on 
the part of the FSLN to Finland's decision appears to be 
indifference.  Many assume that Venezuela will step up to the plate 
as caretaker of the Bolivarian Alternative for the Americas (ALBA), 
which Nicaragua joined immediately upon President Ortega's ascension 
to office.  This may not be easy for Caracas, having promised 
development projects to countries around the world when oil prices 
were rising to $100 per barrel.