R 132041Z FEB 09
FM AMEMBASSY MANAGUA
TO SECSTATE WASHDC 3755
INFO WHA CENTRAL AMERICAN COLLECTIVE
MEDTRE FAC COMFORT
COMPHIBRON SIX
MILLENNIUM CHALLENGE CORP WASHDC
DEPT OF TREASURY WASHINGTON DC
DEPT OF LABOR WASHINGTON DC
CDR USSOUTHCOM MIAMI FL
NSC WASHINGTON DC
DIA WASHINGTON DC
CIA WASHDC

C O N F I D E N T I A L MANAGUA 000173 
 
 
STATE PASS OPIC AND IAF 
STATE PASS USAID/LAC 
 
E.O. 12958: DECL: 02/12/2019 
TAGS: EFIN ECON EAID PGOV PREL NU
SUBJECT: NICARAGUA: ORTEGA TIGHTENS HIS BELT, BUT GON 
PLEDGES SANDINISTA ECONOMIC PRIORITIES ON TRACK 
 
Classified By: Classified by DCM Richard M. Sanders for reasons 1.4 (b) and (d).
 
¶1.  (C) Summary. Faced with a withdrawal of European budget 
support and decreased economic growth as a result of the 
global economic crisis, on January 20, President Daniel 
Ortega issued a presidential decree introducing a number of 
austerity measures to cut $67 million in expenditures from 
the 2009 budget.  The austerity measures will apply across 
the board to all state ministries, and the Ministry of 
Finance will be the enforcer. Quickly following Ortega's 
decree, on January 23, First Lady Rosario Murillo and Finance 
Minister Alberto Guevara (along with other members of the 
cabinet) unveiled the blueprint of the GON,s response to the 
economic crisis, the "Program for the Defense of Production 
and Employment."  Guevara and the First Lady addressed 
Nicaraguan financial stability and international cooperation, 
public investment, agricultural production, the social safety 
net, and employment.  Ortega and Guevara, in addition to 
Central Bank President Antenor Rosales, have all recently 
expressed unequivocal support for continued cooperation with 
the International Monetary Fund's (IMF) Poverty Reduction and 
Growth Strategy (PRGF), which forms the bedrock of 
Nicaragua's relationship with traditional donors.  End 
Summary. 
 
Hard Times... 
------------- 
 
¶2.  (C) In response to the freezing of European budget 
support, and the effects of the global economic crisis on 
Nicaragua, President Ortega, during a two-hour televised 
presentation, announced on January 20 the implementation of 
austerity measures to counteract a projected 2009 budget 
deficit of $127 million.  Ortega told his assembled cabinet 
that the deficit will be addressed by a cut in government 
expenditures by $67 million, and that the remaining amount 
will be covered by a GON $30 million bond issuance, along 
with a $33 million withdrawal from the Central Bank's 
international reserves.  Ortega emphasized that every GON 
ministry must present a report on its savings one month 
following the presidential decree; subsequently, quarterly 
reports shall be filed detailing the savings achieved. 
Ortega's cost-cutting measures range from broad civil service 
personnel issues (a hiring freeze for the first three 
quarters of 2009) to the mundane (GON employees must print 
documents using both sides of a sheet of paper). 
 
¶3.  (U) Not surprisingly, Ortega used his January 20 
presentation to argue that the global economic crisis facing 
Nicaragua (and the world) was the consequence of the failed 
U.S. economic model, i.e., neoliberal capitalism.  He added 
that it was misfortunate that Nicaragua was "trapped" in this 
model, and that the United States, a primary customer of 
Nicaraguan exports, is now importing less from the developing 
world.  In Ortega's view, Nicaragua must turn to alternative 
and more reliable trading partners such as Russia, Iran, and 
fellow countries in the Bolivarian Alternative for the 
Americas (ALBA).  He criticized the steps that the USG had 
taken to address the economic crisis, observing that "there 
is money to subsidize banks and big companies, but no money 
to prevent people from losing their homes." 
 
¶4.  (C) During the same presentation, Ortega said that 
Nicaragua will adhere to its obligations under the 
International Monetary Fund's three-year Poverty Reduction 
and Growth Strategy (PRGF), including the maintenance of an 
adequate level of international reserves (currently about 
$1.1 billion).  Similar supportive statements on the IMF were 
made by Central Bank president Antenor Rosales to the 
Nicaraguan media in the days after Ortega's speech.  Comment: 
In the past, Ortega has referred to the IMF as "an 
instrument of the Empire" (e.g., the United States).  He 
seems to have toned down this rhetoric now that he needs the 
IMF to help him convince traditional donors not to leave. 
End Comment. 
 
...But the FSLN's Agenda Marches On 
----------------------------------- 

¶5.  (U) Following Ortega's austerity measures pronouncement, 
on January 23, First Lady Rosario Murillo and Finance 
Minister Guevara rolled out the "Program for the Defense of 
Production and Employment," which reinforced Ortega's decree 
and reassured the FSLN faithful that the Sandinista social 
agenda will continue unabated in 2009, despite budgetary 
hardships.  Highlights of The GON's "Program" included 
financial stability and international cooperation, public 
investment, agricultural production, and employment. 
 
Financial Stability and International Cooperation 
--------------------------------------------- ---- 

¶6.  (U) Guevara declared that the GON will continue to 
maintain a stable monetary policy, particularly with regard 
to its 5% crawling-peg cordoba exchange rate regime vis-a-vis 
the dollar, along with free convertibility.   Following 
Ortega's lead, Guevara signaled that the GON will retain an 
adequate level of international reserves, and will continue 
to respect the terms of the IMF's Poverty Reduction and 
Growth Facility (PRGF) program.  In addition, the Central 
Bank will provide "extraordinary financial assistance" to the 
Nicaraguan financial system.  Specifically, the Central Bank 
will request a $200 million credit line from the Central 
American Bank for Economic Integration (CABEI) to inject 
liquidity into the local banking system.  The GON will 
continue to negotiate with the European Union (EU) to restore 
2009 budget support (which was withheld as a result of 
fraudulent November 9 municipal elections on November 9, 
2008). 
 
¶7.  (U) A focal point of the "Program" will be increased 
trade with fellow ALBA countries and Russia, China, and 
India.  To help finance this increased trade, Guevara said 
the GON is requesting $300 million loan from the 
Inter-American Development Bank (IADB).  The GON will honor 
its debts and will encourage citizens to honor personal 
loans.  Note: Despite speculation that the GON would not be 
able to meet its debt service obligations on February 2, the 
government did pay out the $100 million it owed.  End Note. 
 
Public Investment 
----------------- 

¶8.  (U) Under the FSLN plan, the GON will prioritize 
infrastructure projects, especially the construction of 
roads, schools, and the expansion of water and electricity 
services.  The GON forecasts that this effort will create 
40,600 jobs.   The GON will expand its "Zero Usury" program 
to issue low interest loans to 70,000-90,000 women.  In 
addition, the GON's "Zero Hunger" program will be enlarged to 
include more beneficiaries. Improved government supervision 
of all projects will avoid "under-execution." 
 
Agricultural Production and Related Investments 
--------------------------------------------- -- 

¶9.  (U) Minister of Agriculture Ariel Bucardo announced a 
number of measures to assist poor farmers in the 2009/2010 
planting cycle, including a program to distribute improved 
seeds and 14,000 tons of fertilizer.  A GON fund of $17 
million will be made available in the 2009 budget to help 
finance the poorest producers.  Agricultural import and 
export requirements will be made less onerous, and 
Nicaragua's integration with the rest of Central America's 
food markets will intensify.  Bucardo also stated that 
Nicaraguan students will be encouraged to study agriculture 
and related careers. First Lady Murillo emphasized that state 
universities must work closely with the GON to encourage 
graduates with agricultural majors to work in the farming 
sector to decrease the "technical assistance deficit" in 
Nicaragua. 
 
Social Safety Net and Employment 
-------------------------------- 

¶10.  (U) Notwithstanding a GON increase in the minimum wage 
by 60% over the last 20 months, the GON will negotiate new 
minimum wage salaries with all stakeholders in a way that 
protects secure employment. Subsidies for public 
transportation and other basic services will continue, along 
with a stable supply of basic grains and foodstuffs in order 
to satisfy domestic demand.  The Nicaraguan Technological 
Institute will increase its capacity to provide job skills 
for the unemployed from 15% to 20%. 
 
Comment 
------- 
 
¶11.  (C) The GON has engaged in a very public full-court 
press since mid-January to reassure the Nicaraguan public, 
international donors, and the private sector that the FSLN is 
capable of implementing sound macroeconomic policies in a 
very challenging environment.  Stories regarding the 
country's fiscal difficulties appear on the front pages of 
Nicaragua's two major newspapers almost daily.  Confronted 
with a larger-than-usual budget deficit in 2009 as a result 
of greatly diminished European budget support (by at least 
$60 million so far) and the global economic crisis, Ortega 
appears to be scrambling to fill the budget breach while 
putting on a brave face for the party faithful. 
 
 
CALLAHAN