VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #1009/01 2871602
ZNR UUUUU ZZH
R 141602Z OCT 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 4656
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1376
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/USDOC WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RUCJAAA/USSOCOM MACDILL AFB FL

UNCLAS MANAGUA 001009 
 
STATE FOR WHA/CEN 
STATE PASS TO USTR 
TREASURY FOR SARA SENICH 
TREASURY FOR INL AND OWH 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EAGR ETRD EINV USTR NU
SUBJECT: EL NINO EFFECT HURTING NICARAGUAN ECONOMY 
 
REFS: A) MANAGUA 941, B) MANAGUA 698 
 
SUMMARY 
------- 

1.(SBU) A drought caused by the El Nino climatic phenomenon is 
having a negative impact on many sectors of the Nicaraguan economy, 
including agriculture, banking, and energy.  President Ortega's 
response has been to reassure the public that the drought is not as 
severe here as in other Central American countries, and that the 
Government of Nicaragua (GON) is ready to deal with it.  Many 
experts, however, question the government's plan and are concerned 
that it might further the Sandinista National Liberation Front's 
(FSLN) political and commercial interests.  With neither a coherent 
government strategy nor adequate financing to deal with the negative 
impact of the drought, it appears that the economy will continue to 
suffer for the remainder of 2009 and well into 2010. 
 
AGRICULTURAL SECTOR HURTING 
--------------------------- 

¶2. (U) In 1997, the last time El Nino hit Nicaragua, agricultural 
production fell by 14 percent, with revenue losses of approximately 
$21 million.  Since the El Nino effect began in Nicaragua in August 
of this year, most of the country's agricultural regions have 
experienced a sharp decline in rainfall when compared to last year. 
Many agricultural regions, most notably in Leon and Chinandega, have 
experienced rainfall declines of 70, 80, and even 90 percent. 
 
¶3. (U) Producers are understandably worried.  Yields of staples such 
as corn, rice, soy, sorghum, sugar, peanuts, and beans have 
suffered; crop failures have occurred already this year.  Many 
farmers did not sow seeds for the second planting cycle because they 
were hoping for rainfall increases.  Benjamin Dixon, Vice Minister 
of the Agriculture and Forestry Ministry(MAGFOR) has said that the 
GON plans to tell farmers to sow for the third planting cycle on 
October 15, one month earlier than usual, in hopes that the October 
rainfall will be higher.  Other crops, such as plantains, are 
growing but the lack of rainfall has greatly diminished their size. 
The coffee industry appears to be stable, according to local media 
reports, but there is concern that this year's beans might be less 
flavorful and fetch lower prices. 
 
¶4. (U) Cattle ranchers have been hit extremely hard this year. 
Ranchers in Leon told Econoff that they have been forced to sell 
their products at below normal prices because of a lack of feed and 
good pastureland; their cattle are growing thin, falling ill, and 
dying.  Beef prices are currently lower because ranchers have sold 
off their herds for fear that their cattle will continue to lose 
weight.  Dairy producers have seen declines of at least 20 percent 
in milk production due to a lack of food and water for their cows. 
The Chamber of Nicaraguan Milk Producers (CANISLAC) is lobbying the 
GON to create a fund of $59 million to help the industry to plant 
feed grains in areas of eastern Nicaragua less affected by the 
drought.  They also want preferential energy rates to help keep 
irrigation costs down.  According to Wilmer Fernandez, President of 
CANISLAC, there will be a marked shortage of milk products and 
higher prices for consumers if the GON does not act immediately. 
 
OTHER SECTORS IMPACTED 
---------------------- 

¶5. (SBU) Bankers are concerned that farmers will be unable to repay 
their loans.  Officials from BANPRO, the largest bank in Nicaragua, 
told Econoff they are particularly concerned about peanut growers, 
who have received large loans.  Diego Vargas, a peanut grower, 
acknowledged that some growers are worried about being able to repay 
loans, because the drought is affecting yields.  The drought is also 
adversely affecting the energy sector.  Ernesto Martinez Tiffer, the 
Executive Director of the National Electricity Company (ENEL), told 
local media that reservoirs are low and the country will need to 
import more oil to make up for a fall in hydroelectric power. 
 
¶6. (U) On September 23, USAID organized a conference in Managua on 
food security. The drought's impact on the poorer rural areas of the 
country was a repeated topic of discussion.  Experts in attendance 
were worried that the drought will have ripple effects on employment 
and inflation, as well as increase levels of hunger and poverty in 
an already desperately poor country.  Bean prices have been rising 
steadily.  Farmers have an agreement to feed their workers during 
the harvest, so a rise in the cost of beans significantly raises the 
cost of employing laborers.  Enrique Zamora, General Manager of 
Lafise International Trade Finance, told Econoff that Nicaragua may 
have to import staples such as beans and corn that are typically 
grown in abundance domestically.  In addition, aid organizations 
fear that the drought will affect subsistence farmers -- already 
poverty stricken -- most severely of all. 
 
GOVERNMENT RESPONSE 
------------------- 

¶7. (SBU) During the initial stages of the drought, the GON lacked a 
plan to address it.  As the drought's impact intensified, President 
Daniel Ortega asserted that it is not hitting Nicaragua as hard as 
in other countries and that yields for the first harvest were good. 
He has appointed his wife, Rosario Murrillo, to head a commission to 
address alleged speculation in basic grain prices.  He stated that 
the state-owned Nicaraguan Basic Foods Company (ENABAS) will buy 
basic grains directly from rural farmers and small producers at 
"fair prices," so that they are not "victimized by intermediaries 
and speculators that have been trying to bleed our rural brothers 
dry."  Farmers have told Econoff that the government does not 
understand the seriousness of the problem, as evidenced by the 
President's insistence that the first harvest was excellent and that 
the drought does not present a huge threat.  In addition, the 
Nicaraguan Farm Producer's Union (UPANIC) opposes recent large 
budget cuts to MAGFOR and to Banco Produzcamos (Ref. B), which 
provides microcredit to many small farmers.  The fact that these 
cuts are happening while the sector is confronting the drought 
provides further confirmation to agricultural producers that the 
government does not grasp the scope of the crisis. 
 
¶8. (SBU) Many agricultural experts, including Manuel Alvarez, 
President of UPANIC, have stated that ENABAS does not have the 
capacity to carry out this plan.  Alvarez said that other potential 
buyers, such as El Salvador, offer better prices to producers for 
staples than ENABAS does.  ENABAS also has difficulty in its basic 
operations.  According to local media reports, ENABAS has 103 silos, 
but only 10 are still in operation.  Other silos have either fallen 
into disrepair or been sold to the private sector. 
 
POSSIBLE ULTERIOR MOTIVES 
------------------------- 

¶9. (SBU) Despite GON assurances that it can effectively deal with 
the drought, agricultural experts opine that ENABAS lacks funds to 
support the government's plan.  It sells grain to consumers for less 
that it paid, causing the company to be dependent on external 
funding.  Many Nicaraguans, such as Senor Zamora of Lafise, suspect 
that it comes from Venezuela via ALBANISA, the joint venture between 
Venezuelan oil parastatal PDVSA and its Nicaraguan counterpart 
PETRONIC, which monotizes Venezuela's subsidized petroleum sales 
here.  They believe that ALBANISA is using the drought as an 
opportunity to impose predatory pricing to drive other buyers out of 
agricultural markets.  In addition, experts worry that the GON will 
impose or threaten to impose price controls, as it has did in the 
1980s, which will only harm the economy further.  Banking officials 
noted in a meeting with the Ambassador that the triple-threat of the 
drought, the No Pago Movement to repudiate debts owed to 
microfinance lenders (Ref. A), and the GON's tax reform plan 
(Septel) will exacerbate poverty and social problems, for which the 
GON will likely blame the United States. 
 
COMMENT 
------- 

¶10. (SBU) The drought caught the GON and private sector off guard, 
and neither is prepared to handle it effectively.  The GON's plan to 
deal with the drought may end up doing more harm than good, and 
might simply serve to further the political machinations of the 
ruling Sandinistas and their Venezuelan backers.  For an 
agriculturally-based economy like Nicaragua's, this drought presents 
economic challenges which the GON is not equipped to address.  Its 
effects will be felt for the remainder of 2009 and well into 2010. 
 
 
CALLAHAN