VZCZCXRO9307
RR RUEHLMC
DE RUEHMU #0359/01 0931656
ZNR UUUUU ZZH
R 031656Z APR 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3984
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1352
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 000359 
 
SENSITIVE 
SIPDIS 
 
TREASURY PLEASE PASS TO SARA SENICH 
 
E.O. 12958: N/A 
TAGS: EAID ECON PREL NU
SUBJECT: NICARAGUAN FISCAL PROCESS TRANSPARENT, BUT 
VENEZUELAN FUNDS REMAIN OFF-BUDGET 
 
REF: STATE 28885 
 
¶1. (SBU) Summary:  Per Ref A, Embassy Managua reports that 
Nicaragua is in compliance with Section 7088 (c) of the 
Department of State, Foreign Operations, and Related Programs 
Appropriation Act (SFOAA).  The Nicaraguan budget is publicly 
available on the Ministry of Finance,s website, and is 
reviewed and approved by the National Assembly.  The budget 
does not, however, accurately or completely reflect funds 
originating from Venezuela, which remains a controversial 
issue with the National Assembly.  As part of its Poverty 
Reduction and Growth Facility agreement (PGRF), the IMF is 
trying to establish an accurate accounting of these funds. 
Nicaragua's current IMF program also includes work on 
improving transparency regarding capital expenditures.  USAID 
and other international donors continue to work with the GON 
to improve fiscal transparency.  End Summary. 
 
Nicaraguan Budget is Available on Website... 
-------------------------------------------- 
 
¶2. (U) Per Ref A request, Post reports that Nicaragua's budget 
process meets acceptable standards for transparency as 
outlined in Section 7088 (c) of the SFOAA.  The official 
budget is made public, both in its proposed and National 
Assembly approved versions, on the Ministry of Finance's 
website (www.hacienda.gob.ni).  The website details overall 
revenues and expenditures and breaks out the budget by 
ministry and agency.  Each ministerial budget details 
salaries, current expenditures, donor projects, and capital 
expenditures.  Nicaragua's budget development and 
administration is governed by Law 550, the Public 
Administration and Budgetary Regime Law, which requires that 
the national and municipal budgets meet World Bank and IMF 
standards. 
 
...But Venezuelan Assistance Difficult to Assess 
--------------------------------------------- --- 
 
¶3.  (SBU) Since President Ortega took office in January 2007, 
Venezuela has provided significant sums of off-budget 
assistance to the Nicaraguan Government.  A September 2008 
Central Bank Report (published largely at the IMF,s behest) 
listed $88.6 million in government-to-government assistance 
in 2007.  That assistance included $69.3 million in 
&petroleum cooperation,8 provided through ALBA Nicaragua, 
S.A. (ALBANISA), a joint venture between Petronic, a 
Nicaraguan state-owned oil company owning a 45% share, and 
PDVSA, a Venezuelan state-owned oil company owning a 55% 
share.  According to an agreement signed by Ortega and 
Venezuelan President Hugo Chavez, ALBANISA buys oil from 
Venezuela's PDVSA and pays 50% of the bill within 90 days. 
From the balance, ALBANISA loans 25% to a local development 
fund and 25% to an ALBA Fund, both of which undertake 
development projects in Nicaragua.  ALBANISA is supposed to 
repay these funds at an interest rate of 2% over 23 years, 
following a 2-year grace period. 
 
¶4.  (SBU) President Ortega,s 2008 Annual Report states that 
total funding through ALBANISA was $375 million from its 
launch in 2007 through 2008, but this may not include 
off-budget assistance to the ruling FSLN (Sandinista National 
Liberation Front) party.  The FSLN appears to have used this 
part of this assistance to invest in party building, pay for 
party projects and political propaganda, and fund the 
campaigns of pro-government candidates in the November 2008 
municipal elections.  The GON has not explained how it has 
disbursed Venezuelan assistance or the mechanisms by which 
such assistance was processed, making a full assessment of 
the impact of such assistance difficult. 
 
¶5.  (SBU) Questions have arisen in the National Assembly 
regarding Petronic,s 45% stake in ALBANISA, which would seem 
to assign it a 45% share of ALBANISA debt.  Walmaro 
Gutierrez, the FSLN Chairman of the Economic Commission in 
the National Assembly, counters that although PETRONIC is 
state-owned, the company is not subject to legislative 
authorization requirements that would otherwise apply to 
government entities.  Gutierrez points out that the 1979 law 
that established Petronic allows the company to acquire 
foreign debt without approval of the National Assembly. 
Opposition leaders argue that the 2003 Debt Law makes it 
clear that any debt acquired by state-owned companies )- 
 
MANAGUA 00000359  002 OF 002 
 
 
especially long-term financing beyond that required for 
operating a business -- must be included in the government 
budget and is subject to approval by the National Assembly. 
 
¶6.  (SBU) There is little transparency about how ALBANISA 
funds are used.  ALABANISA manages some funds directly, while 
others are administered by a FSLN-linked financial 
cooperative, ALBA-CARUNA.  In implementing social programs 
and infrastructure construction, they may even be mixed with 
funds provided through the national budget.  For example, 
government officials have provided contradictory information 
regarding funding for the &Zero Hunger8 program, at times 
claiming that it is supported with ALBANISA proceeds and at 
other times claiming that resources from the national budget 
are used.  Similar questions have been raised about funding 
for &Houses for the People,8 a government program that 
officials claim was supported by ALBANISA but now appears to 
have been financed by the Nicaraguan Social Security 
Institute (INSS). 
USG Efforts to Improve Fiscal Transparency 
------------------------------------------ 
 
¶7. (U) USAID funds a project aimed at institutional 
strengthening of management systems which includes 
restructuring the budgets of the Ministries of the Family and 
Health towards results based budgeting.  This process 
increases the transparency and accountability of the use of 
public funds. 
 
International Donors, Work on Fiscal Transparency 
--------------------------------------------- ---- 
 
¶8. (U) Other donor programs include: 
 
- World Bank: Project to increase efficiency, productivity and 
transparency in the public sector.  Total: $23.5 million. 
Initiated: March 2004. Ended: June 2008. 
 
- Inter American Development Bank: National Budget Audit. 
Project helps the Controller General's Office in preparing a 
reference framework and action plan to prepare financial 
audits and comply with budget execution as required by 
international donors who contribute to Nicaragua,s budget. 
Total: $407,000. 
 
¶9. (SBU) The GON is currently in its second year of a 
three-year Poverty Reduction Growth Facility (PRGF) agreement 
with the IMF.  Two structural components of the agreement are 
capital spending controls and tax administration, both of 
which programs are focused on improving quality and 
transparency.  In addition, under the PRGF the GON agreed to 
monitor and report on Venezuelan aid both to the public and 
private sectors.  In accordance with this requirement, the 
GON,s Central Bank published a report in September 2008 
which detailed Venezuelan assistance to Nicaragua in 2007 
(however, many observers complained that the figures provided 
by the Central Bank were grossly underestimated). 
CALLAHAN