VZCZCXRO7024
RR RUEHLMC
DE RUEHMU #0054/01 0142001
ZNY CCCCC ZZH
R 142001Z JAN 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3635
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC
RUMIAAA/CDR USSOUTHCOM MIAMI FL

C O N F I D E N T I A L SECTION 01 OF 02 MANAGUA 000054 
 
SIPDIS 
 
STATE PASS OPIC AND IAF 
 
E.O. 12958: DECL: 01/13/2019 
TAGS: EFIN EAID ECON PGOV PREL NU
SUBJECT: NICARAGUA: 2009 BUDGET REMAINS ELUSIVE 
 
REF: (A) MANAGUA 08 1505 (B) MANAGUA 08 1489 
 
Classified By: Classified by DCM Richard M. Sanders for reasons 1.4 (b) and (d).
 
¶1.  (U) Summary. The GON remains without an approved 2009 
budget as a result of the political stalemate in the 
Nicaraguan National Assembly (ref A).  Finance Minister 
Alberto Guevara presented President Ortega's budget to the 
National Assembly back in October, but since then it has 
lingered in the legislative branch, which closed its 2008 
session on December 15.  Ortega's proposed 2009 budget ($1.7 
billion) represents a 13% increase from 2008, a modest amount 
given Nicaragua's estimated 2008 inflation rate of 15% (the 
highest in Central America).  GON revenue is estimated to be 
about $1.4 billion per year, leaving a fiscal deficit of 
approximately $300 million, which the Sandinista National 
Liberation Front (FSLN) hopes will be covered by 
international donors.  Because of the global financial crisis 
and a deterioration of political conditions within Nicaragua, 
most observers here now believe that Nicaragua's growth rate 
in 2009 will reach only 2%, which means that the GON will 
likely have to revise its budget downwards to reflect 
decreased revenues.  Meanwhile, President Ortega issued a 
decree on December 26 modifying the 2008 national budget by 
adding nearly $30 million, mostly for key government 
ministries that implement the FSLN's political agenda. 
Failure to approve a fully-financed 2009 national budget will 
seriously jeopardize the International Monetary Fund,s 
continued disbursements for Nicaragua under its three year 
poverty Reduction and Growth Facility (PRGF).  End Summary. 
 
2009 Budget Limbo Continues 
--------------------------- 
 
¶2.  (U) President Ortega's FSLN Government entered the New 
Year without an approved 2009 national budget, the result of 
a political impasse in the Nicaraguan National Assembly, 
mainly due to the opposition's allegations of fraud 
perpetrated during the November 9 municipal elections. 
Finance Minister Alberto Guevara presented President Ortega's 
$1.7 billion budget to the National Assembly in October, but 
to date it has not been approved by the legislature at either 
the committee-level or by the full plenary body, which closed 
its 2008 session on December 15. 
 
¶3.  (U) The 2009 FSLN budget focuses on "social 
expenditures," and consequently the ministries programmed for 
the biggest budgetary allocations include the Ministries of 
Health and Education (16.3% and 16.1%, respectively), 
followed by the Ministry of Transportation and Infrastructure 
at 7.3%.  By law, national universities get 6%, plus a 
subsidy for energy, water and telephone services.  Similarly, 
the Supreme Court gets 4% to operate the court system, while 
municipalities get 9% of the budget.  The 2009 budget 
allocates $11.4 million for energy subsidies and $7.6 million 
in transportation subsidies. 
 
¶4.  (U) Ortega's 2009 budget was originally (and very 
optimistically) based on an annual inflation rate of 9.5% and 
projected economic growth of 4.5% for 2009.  Because of the 
global financial crisis and a deterioration of political 
conditions within Nicaragua, however, most observers here now 
believe that Nicaragua's growth rate in 2009 will reach only 
2% at best. Nicaragua's annual rate of inflation in 2008 
reached approximately 15%, the highest in Central America. 
The GON's annual revenue is approximately $1.4 billion per 
year, leaving a fiscal deficit of about $300 million.  Local 
media have been reporting that the GON will propose a 
revision of its 2009 budget as a result of lower economic 
growth. 
 
¶5. (C) Mario Arana, former Central Bank President and Minister of Trade, told econoff on January 12 that according to a source in the current Ministry of Finance, the FSLN will soon announce 2009 "austerity measures" to reflect forecasted decreased economic growth and revenues for the national budget. According to Arana's source, the FSLN will then exploit this opportunity to dismiss remaining non-Sandinista civil service employees under the guise of fiscal savings. Arana told us the GON is permitted to disburse funds according to its proposed 2009 budget for up to 90 days into the New Year without National Assembly approval, but that he expects both branches of government to come to an agreement in the near future. Arana believes that the FSLN will take whatever fiscal steps are necessary to satisfy the International Monetary Fund's (IMF) Poverty Reduction and Growth Facility, which provides Nicaragua with much needed international reserves in support of its strong cordoba policy.
 
2009 Budget Support Dries Up 
---------------------------- 
 
¶6.  (U) At the same time that Nicaragua faces an extremely 
challenging fiscal year, European donors (with the exception 
of Switzerland and Norway) suspended their budget support 
assistance to Nicaragua in light of recent political events, 
particularly the irregularities that occurred during the 
November 9 municipal elections (ref B).  The European 
Commission has traditionally contributed approximately $40 
million per annum to the national budget, but recently Benita 
Ferrero-Waldner, EU Commissioner for External Relations, sent 
a letter to the GON indicating a suspension of its 2009 
budget support.  Overall, direct foreign assistance for the 
2008 Nicaraguan national budget was to have been $115 
million, but only $15 million of that amount was disbursed as 
a result of European outrage concerning FSLN intimidation of 
local NGOs and electoral fraud on November 9.  The World Bank 
(WB) and the Inter-American Development Bank (IADB) had 
previously approved $40 million in budget support for 
Nicaragua in 2008 and 2009, but these funds require pro-forma 
approval by the National Assembly, which has so far failed to 
take the necessary action. 
 
Daniel's After-Christmas Bonus 
------------------------------ 
 
¶7.  (U) Meanwhile, on December 26 President Ortega issued a 
presidential decree modifying Nicaragua's 2008 budget, 
adjusting it upwards by approximately $30 million.  The 
principal beneficiaries of Ortega's adjusted 2008 
budget-by-decree were the very ministries charged with 
implementing the FSLN's social agenda, such as the Ministry 
of Agricultures "Zero Hunger" program.  Finance Minister 
Alberto Guevara agreed promptly to comply with the 
presidential decree, asserting that President Ortega is fully 
capable of making such decisions as long as it is "for the 
benefit of the people." According to the Nicaraguan 
constitution, however, budgetary revisions must originate in 
and be approved by the National Assembly. As a result, 
Ortega's decree has sparked criticism from across the 
political spectrum that he is usurping power and has raised 
fears regarding the Ortega Government's increasingly 
authoritarian tendencies. 
 
COMMENT 
------- 
 
¶8.  (C) As former Central Bank President Arana pointed out, a 
pressing dilemma for the GON is that continued support from 
the International Monetary Fund (IMF) is directly contingent 
on the passage and financing of a sustainable national 
budget.  If at some point the IMF decides to discontinue or 
trim its three year Poverty Reduction and Growth Facility for 
Nicaragua, it could have a negative ripple effect on all 
multilateral lenders active here.  In the short-to-medium 
term, however, we expect that President Ortega will manage to 
meet his 2009 fiscal deficit through budget cuts, creative 
accounting and direct (or indirect) monetary assistance from 
Venezuela. 
CALLAHAN