VZCZCXYZ0009
PP RUEHWEB

DE RUEHMU #0163/01 0430015
ZNR UUUUU ZZH
P 120015Z FEB 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 3743
INFO RUEHKG/AMEMBASSY KINGSTON PRIORITY 0187
RUEHME/AMEMBASSY MEXICO PRIORITY 5736

UNCLAS MANAGUA 000163 
 
SENSITIVE 
SIPDIS 
 
FROM THE AMBASSADOR 
STATE FOR P, WHA, H 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM SNAR NU
SUBJECT: SCENESETTER FOR THE VISIT TO NICARAGUA BY CODEL 
ENGEL -- FEBRUARY 18-20, 2008 
 
¶1. (SBU) On behalf of Embassy Managua, I want to warmly 
welcome you to Nicaragua.  Your visit is an opportunity to 
underscore our continuing commitment to the Nicaragua people 
and willingness to engage with the Nicaraguan government on 
areas of mutual concern, while emphasizing our growing 
concerns about the state of democracy and rule of law.  The 
U.S. Government's top priorities in Nicaragua are to help the 
Nicaraguan people preserve democratic space and to 
demonstrate the good will of the United States.  At the same 
time, we seek to maintain intense engagement with Nicaragua 
by continuing our significant economic, 
democracy-strengthening, and social-assistance programs for 
the Nicaraguan people, and our successful counter-narcotics 
cooperation. 
 
 
DEMOCRACY RETREATING 
-------------------- 
 
¶2. (SBU) During the first seventeen years of democratic 
transition (1990-2007), Nicaragua made strides in the 
development of democratic institutions, increases in social 
welfare, the protection of civil rights, the development of a 
professional army, and the establishment of an open market 
economy.  Our robust assistance program has facilitated these 
improvements.  Since the return of the Sandinista National 
Liberation Front (FSLN) to power in January 2007, however, 
Nicaragua has drifted sharply away from democratic governance 
toward increasing authoritarianism.  The most recent and 
ominous manifestation of this shift was the FSLN's campaign 
to win the November 2008 municipal elections at any cost. 
Using the legal framework when convenient - ignoring it when 
not - it outlawed two political parties, acted to debilitate 
civil society organizations working in governance areas, used 
the Supreme Electoral Council (CSE) to manipulate voter 
registration and exclude observers, and employed its network 
of Citizen Power Councils (CPCs) to carry out door-to-door 
registration and affiliation surveys and to attack and 
intimidate opponents. 
 
¶3. (SBU) Election day on November 9, 2008 was characterized 
by massive irregularities and the absence of credible 
electoral observation.  The CSE approved preliminary results 
favoring the FSLN candidates, despite a demand for a recount 
from the opposition parties and civil society.  Violence 
erupted when mobs of government supporters blocked marchers 
attempting to protest the election fraud.  On November 20, 
Nicaragua's electoral authority formally announced that the 
governing FSLN had won 105 out of 146 municipalities, 
contradicting the results it had posted earlier on its own 
website.  Efforts through the National Assembly to nullify 
the elections or open the results to an international audit 
have not been successful to date.  Independent observers, 
backed by tallies provided by the opposition, indicate that 
opposition candidates may have won election in at least 30 of 
the municipalities awarded to the FSLN, including Managua. 
 
¶4. (SBU) In January 2009, in a continuation of their "pacto" 
power-sharing agreement, the FSLN and former president and 
convicted felon Arnoldo Aleman struck a deal that handed 
control of the National Assembly to the FSLN and its allies 
in exchange for the dismissal of all convictions against 
Aleman.  This new corrupt alliance provides a governing 
majority that allows the regime to restrict democratic space 
rapidly.  President Daniel Ortega is expected to seek 
constitutional changes that would allow him to stay in power 
beyond the current term of five years and would create a 
semi-parliamentary system that would ensure that the FSLN and 
Aleman's Constitutional Liberal Party split power between 
themselves. 
 
¶5. (SBU) In addition to the pressures on non-FSLN political 
parties, the Nicaraguan government in August and September 
initiated a general crackdown on international and local 
non-governmental organizations (NGOs) involved in democracy 
promotion or otherwise critical of the government.  On August 
27, the government brought charges against the International 
Republican Institute and other local NGOs, alleging that 
these organizations improperly sought to influence municipal 
elections by hosting a seminar in which former Mexican 
president Vincente Fox criticized the anti-democratic actions 
of the Ortega government.  On September 24, the government 
opened investigations of 17 prominent civil society 
organizations for supposed money laundering of aid from 
international donors.  As a result of these investigations, 
the government raided several offices, froze accounts, 
performed onerous tax audits, and canceled the registration 
of some organizations.  Most recently, the Nicaraguan 
government and FSLN Deputies in the National Assembly have 
proposed new legislation to increase government control over 
civil society, including potential restrictions on activities 
and a requirement that all foreign funding be channeled 
through the government rather than going directly to the 
NGOs.  Despite the pressures on traditional civil society 
groups, Nicaragua's press remains largely free and 
independent. 
 
 
THE PEOPLE'S PRESIDENT 
---------------------- 
 
¶6. (SBU) The overarching theme of President Ortega's 
administration is poverty alleviation.  Reflecting his 
Marxist studies, he believes that inequalities within 
Nicaraguan society have their origins with the wealthy class, 
or "oligarchy."  The only way to change things is for the 
poor to take control of their government and pursue 
socialism.  On June 23, 2008, Ortega declared that 
"socialism" was the only way forward.  With this statement, 
he joined Chavez in the search for a new socialist model, 
Socialism for the 21st Century, the outlines of which are 
still being drawn. 
 
¶7. (SBU) With the help of First Lady and chief propagandist 
Rosario Murillo, Ortega has plastered the country with 
billboards of himself and inundated radio and television, 
especially in the runup to the November municipal elections, 
with political slogans and advertisements extolling the 
virtues of the FSLN.  In some, he has proclaimed himself the 
"People's President" and more recently claims that to "serve 
the people is to serve God."  In town hall meetings held 
weekly, he regularly accuses his political enemies of 
corruption, savage capitalism, and with being members of the 
oligarchy or remnants of the Somoza dictatorship.  In form 
and function, Ortega is successfully blurring the distinction 
between party and state by tying FSLN symbols to every aspect 
of government and managing funds from Venezuela off-budget. 
Ortega continues to operate his presidency out of FSLN party 
headquarters. 
 
¶8. (SBU) With the power-sharing agreement that gave him 
control of the National Assembly, Ortega's control now 
extends into every branch of government, including the 
executive, judiciary, the elections council (CSE), municipal 
government, and the legislature.  To consolidate control of 
the executive branch after coming to office in January 2007, 
Ortega fired over 7,500 civil servants in his first year in 
office, depriving the country of needed expertise to manage 
programs, and replacing them with personal loyalists.  He 
controls the judiciary through political appointments at all 
levels and a network of magistrates, including in the Supreme 
Court. 
 
¶9. (SBU) In order to expand his reach into all levels of 
society and government, Ortega has created the Citizen Power 
Councils (CPCs) to supplant existing civil society 
organizations and legally-mandated mechanisms for public 
input to and oversight of government.  Reminiscent of the 
ruthless Committees for the Defense of Sandinismo (CDSs) in 
the 1980s, the CPCs have been used to intimidate, threaten 
and stir public demonstrations against the FSLN's opponents. 
Letters of recommendation from the CPCs are frequently 
required to obtain government employment or social services. 
CPCs are increasingly involved in the distribution of 
government housing, food and healthcare and such aid is often 
directed towards party loyalists rather than those in most 
need. 
 
 
THE ECONOMY 
----------- 
 
¶10. (U) The Central American Free Trade Agreement (CAFTA-DR) 
came into force between the United States and Nicaragua in 
April 1, 2006.  The agreement has kept the United States 
Nicaragua's largest trading partner.  U.S. exports to 
Nicaragua were USD 890 million in 2007 and imports from 
Nicaragua were USD 1.6 billion.  About 25 wholly or partly 
owned subsidiaries of U.S. companies operate in Nicaragua. 
The largest of these are in energy, light manufacturing, 
financial services, retail and aquaculture. 
 
¶11. (SBU) Nicaragua is primarily an agricultural country, but 
services (especially tourism, commercial, and financial), 
light manufacturing (mostly apparel), construction and 
seafood have grown in importance in the last few years. 
Lacking a large internal market, Nicaragua depends on exports 
for economic growth.  In 2007, total exports were USD 2.3 
billion, equivalent to 40 percent of Nicaragua's GDP. 
Traditional exports such as coffee, meat, and sugar still 
lead the list of Nicaragua's exports, but the fastest growth 
has taken place in light manufacturing (apparel and 
automobile wiring harnesses), food processing, seafood and 
new agricultural products such as peanuts, sesame, melons, 
tomatoes, and onions.  Tourism has become the nation's third 
largest foreign exchange earner, with some 60,000 American 
citizens or residents traveling to Nicaragua yearly -- 
primarily on business, as tourists, and to visit relatives. 
Many Nicaraguans depend upon remittances from family members 
living in the United States and Costa Rica.  In 2007, 
remittances totaled about USD 800 million, or about 12 
percent of GDP. 
 
¶12. (U) Despite the growth in the export sector, Nicaragua 
remains the second-poorest nation in the hemisphere. 
Officially, unemployment is at 4.9 percent of the workforce, 
but this figure does not include the informal sector, which 
comprises an estimated 60 percent of the total workforce.  In 
2007, growth was 3.8 percent, bringing GDP to USD 5.72 
billion.  Growth in 2008 is expected to come in at around 2 
percent.  Problems on the horizon include slowing foreign 
investor interest as the result of increasing political risk 
and persistent trade and budget deficits.  Foreign 
assistance, including donations, concessional loans, and debt 
relief constitute approximately 25 percent of the budget, and 
have been needed to bridge these deficits. 
 
¶13. (SBU) The government's actions during last November's 
municipal elections have damaged Nicaragua's relationship 
with foreign donors, including the European Union and the 
United States.  The European Union has frozen more that USD 
60 million in direct budget support and other assistance. 
The government is seeking to make up this shortfall by 
seeking assistance from Russia, Iran, Libya and Venezuela but 
with no visible success.  According to official press 
releases, in 2007-2008, Venezuelan development assistance to 
Nicaragua was about USD 375 million, but this may not include 
additional undeclared and off-budget assistance to the ruling 
FSLN party.  The FSLN appears to have used this part of 
assistance to invest in party building, pay for party 
projects and political propaganda, and to fund the campaigns 
of pro-government candidates in the November 2008 municipal 
elections. 
 
COUNTER-NARCOTICS AND MERIDA 
---------------------------- 
 
¶14. (SBU) Nicaragua is not a major drug producing country. 
However, because of its geographical location, it continues 
to serve as a significant transshipment point for South 
American cocaine and heroin destined for the United States. 
There is evidence that this narcotics trade is increasingly 
tied to arms trafficking as well.  This situation, combined 
with Nicaragua's weak adherence to the rule of law and 
democratic standards, judicial corruption, the politicization 
of the prosecutor's office and the Supreme Court, and 
insufficient funding for law enforcement institutions, makes 
Nicaragua a convenient location for narcotraffickers and its 
financial system an attractive target for money laundering. 
Despite these weaknesses, the Nicaraguan government, 
particularly the Nicaraguan National Police (NNP) and the 
Nicaraguan Navy, have made a determined effort to combat 
domestic drug abuse and the international narcotics trade. 
In FY 2008, these combined forces seized approximately 19,505 
kilograms of cocaine and over USD 4,742,000 in currency.  In 
2008, the NNP also recorded its first seizure of 
pseudoephedrine in Nicaragua. 
 
¶15. (SBU) U.S.-Nicaraguan cooperation on counter-narcotics 
activities has been excellent and is one of the high-points 
in our bilateral relationship.  Under the Merida Initiative, 
Nicaragua will receive USD 3,385,907 in FY08 funding, plus 
access to regional programs, such as training positions at 
the International Law Enforcement Academy in San Salvador. 
Under the Merida Initiative, Nicaragua will receive 
additional training and support for participation in the 
Central American Fingerprint System, aid to special vetted 
units, improved policing and police equipment, improved 
prison management, improved border inspection capabilities, 
firearms stockpile management and destruction, and special 
programs directed at at-risk youth. 
 
 
¶16. (SBU) There is, however, growing concern over the 
potential politicization of the Nicaraguan police and armed 
forces.  In the November 2008 post-election violence, the NNP 
failed to take measures to adequately protect opposition 
protesters and there were reports of their direct involvement 
in instances of abuses or electoral violations.  Recent 
replacements of senior leaders in the NNP indicate that 
Ortega may be increasing his personal control over the 
organization. 
 
MILLENNIUM CHALLENGE SUSPENSION 
------------------------------- 
 
17.(U) The Millennium Challenge Corporation (MCC) is funding 
a USD 175 million poverty reduction grant with Nicaragua, 
which provides direct assistance to some of the poorest 
regions and promotes long-term development goals.  The 
five-year grant, signed July 14, 2005, seeks to support those 
living in the departments of Leon and Chinandega by 
significantly increasing incomes of rural farmers and 
entrepreneurs.  The compact is designed to reduce 
transportation costs, improve access to markets, strengthen 
property rights, increase investment, and raise incomes for 
farms and rural businesses.  In order to be eligible for MCC 
assistance, a country must be committed to policies that 
promote political and economic freedoms, investments in 
people, control of corruption, and respect for civil 
liberties, as measured by 17 independent policy indicators. 
 
¶18. (U) MCC determined that political conditions leading up 
to, during, and following Nicaragua's November 2008 municipal 
elections were inconsistent with MCC's eligibility criteria. 
As a result, MCC has suspended disbursements not already 
contracted, principally for rural road construction, and for 
implementation of its property regularization program pending 
a review of political conditions in the March 2009 MCC Board 
meeting.  Because of the impact a suspension could have on 
Nicaragua's rural poor, MCC will continue to provide 
assistance to local farmers, farming cooperatives and other 
rural businesses by continuing its rural business development 
project. 
CALLAHAN