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TO RUEHC/SECSTATE WASHDC IMMEDIATE 0715
INFO WHA CENTRAL AMERICAN COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 MANAGUA 000111 
 
SIPDIS 
STATE PASS OPIC AND IAF 
STATE PASS USAID/LAC 
 
E.O. 12958: DECL: 2020/02/22 
TAGS: ECON EFIN EAID PGOV PREL NU
SUBJECT: BUSINESS LEADERS ON ALBA'S ECONOMIC CLOUT IN NICARAGUA 
 
CLASSIFIED BY: RobertJCallahan, Ambassador; REASON: 1.4(B), (D) 
 
Summary 
 
 
 
¶1.  (C) Participants in the Ambassador's February 5 economic 
roundtable shared observations and anecdotes concerning the 
influence of Chavez's Bolivarian Alliance for the Americas (ALBA) 
funds in the Nicaraguan economy.  Attendees stressed that the 
ongoing economic downturn in Venezuela could eventually result in 
significant revenue problems for President Ortega's Sandinista 
National Liberation Front (FSLN) party if Chavez decides to cut 
funding for his political allies.  WalMart Nicaragua reported a 
surprising spike in January sales at its local supermarket chains, 
while a prominent local banker predicted anemic economic growth in 
¶2010.  On the drought affecting Nicaraguan agricultural production, 
attendees admitted it was significant, but described it as mainly a 
problem in the three northern departments of Nueva Segovia, Madriz, 
and Esteli. 
 
 
 
Candy and Snack-Making Stimulus Plan 
 
 
 
¶2.  (C) The impact of ALBA funds in Nicaragua dominated the 
Ambassador's February 5 economic roundtable.  All attendees 
concurred that the estimated annual infusion of approximately $600 
million from Venezuela into a small economy such as Nicaragua's 
(GDP of just $6 billion) creates significant market distortions. 
Alejandro Martinez Cuenca, former Minister of Economy in the 1980s 
during the first FSLN government, now a successful entrepreneur, 
told the Ambassador that in December, during the lead-up to 
Christmas, First Lady Rosario Murillo ordered $500,000 worth of 
sweets in the city of Masaya (population 150,000).  In Managua, 
according to Cuenca, the First Lady made a similar order in 
December by spending $300,000 on cookies. 
 
 
 
¶3.  (C) Both of these moves, according to Martinez Cuenca, 
constituted astute ALBA-led stimulus drives, employing thousands of 
people in a highly visible effort.  He laughingly told the 
Ambassador that the First Lady's order in Masaya transformed the 
entire town into a candy-making factory.  Martinez Cuenca also said 
that unlike during typical Christmas seasons, he was amazed to see 
markets busy and open until 2:00 a.m. on Christmas Eve, and he 
opined that this was another example of ALBA funds weaving their 
way into the larger economy.  Drawing on these examples, he 
commented that after three years of ALBA cash infusions (which 
began in 2007 with President Ortega's inauguration), the FSLN was 
becoming savvy at exploiting these funds for populist appeal. 
Martinez Cuenca predicted similar moves on the part of the FSLN as 
2011 presidential elections approach. 
 
 
 
Are ALBA Funds Sustainable? 
 
 
 
¶4.  (C) Eduardo Montiel, a professor of economics at INCAE, a 
prominent local business school, told the Ambassador that 
Venezuela's domestic economic troubles suggest that transfers of 
$600 million annually to Nicaragua are not sustainable.  Joaquin De 
Magalhaes, Venezuelan General Manager for Exxon Mobil in Nicaragua, 
countered that compared to Venezuela's foreign exchange reserves of 
over $30 billion, Chavez's investment in Nicaragua is actually 
quite small, and one that pays enormous political dividends. 
Martinez Cuenca estimated that Ortega and the FSLN could last about 
one year in the event of an ALBA funds cutoff; after that, Ortega 
would encounter serious problems if he attempted to continue his 
lavish patronage programs and aggressive acquisition of assets in 
Nicaragua.  He also commented on the folly of Venezuela's new dual 
exchange rate regime, saying that the FSLN's attempt to adopt a 
similar mechanism in the 1980s was a dismal failure.  In the end, 
such a mechanism leads to the creation of a complex, arbitrary 
bureaucracy incapable of managing monetary policy. 
 
MANAGUA 00000111  002 OF 003 
 
 
Some Signs of Life in the Economy... 
 
 
 
¶5.  (C) Eduardo Garcia, head of WalMart Nicaragua, told the 
Ambassador that sales at both of its grocery chains in Nicaragua 
were way up in January.  In particular, Garcia said that sales at 
WalMart's discount grocery store chains in Nicaragua, Pali, were up 
by 15% in January.  Garcia was unable to pinpoint a specific reason 
for the spike in sales, but others in the roundtable speculated 
that the First Lady's December "stimulus" may have contributed. 
Duilio Baltodano of Cisa Agro, a major Nicaraguan food processor, 
said that the agricultural outlook for 2010 looks favorable. 
 
 
 
...But Drought Affects Northern Nicaragua 
 
 
 
¶6.  (C) Giving credence to numerous media reports of drought-like 
conditions in Nicaragua, Alredo Velez, Corporate Vice President for 
Cargill, said that his company had recently placed a large order 
for sorghum, but that the supplier was only able to produce 55% of 
the desired quantity.  Velez told the Ambassador this represented 
tangible proof that the drought is affecting agricultural yields. 
Roberto Bendana of CafC) Don Paco, a major coffee producer, 
confirmed the severity of the drought, but commented that the 
primary impact is being felt by subsistence farmers in the northern 
Nicaraguan departments of Esteli, Madriz, and Nueva Segovia. 
Eduardo Garcia of WalMart Nicaragua said that the drought has 
affected its supply chain in northern Nicaragua.  He added that he 
had contacted the Nicaraguan Ministry of Agriculture to discuss the 
drought and how WalMart might work with them to address it, but 
that the GON denied the problem.  Duilio Baltodano of Cisa Agro 
said in the face of the drought, farmers in the north are selling 
cattle because there is no pasture for grazing; in turn, this has 
led to lower prices for livestock. 
 
 
 
...And Prominent Banker Bearish on 2010 
 
 
 
¶7.  (C) Ramiro Ortiz Jr. of BANPRO, Nicaragua's largest bank, said 
that 2010 will resemble 2009, e.g. growth will be modest.  Interest 
rates are increasing as a result of bad consumer loans.  Ortiz 
added that one dilemma facing Nicaraguan banks is excess liquidity 
due to the scarcity of promising investments or clients.  He also 
said that BANPRO, along with BANCENTRO, regularly buy GON bonds, 
which pay a return of 6-8% depending on the maturity.  Ortiz 
defended these purchases as sound investments when compared to 
extremely unfavorable yields in the United States.  When pressed 
about the reliability of the GON to honor its debt obligations, 
Ortiz told the Ambassador that the GON has not defaulted on its 
debt since 1991, and that President Ortega wants to avoid a 
financial crisis at all costs.  Ortiz did acknowledge, however, 
that the GON's foreign buyers of bonds have all but disappeared. 
 
 
 
Comment 
 
 
 
¶8.  (C) We believe that Martinez Cuenca's analysis with regard to 
the FSLN's readiness to exploit ALBA funds for populist gain is 
spot on.  As the 2011 presidential election campaign heats up, we 
fully expect that President Ortega -- and especially First Lady 
Rosario Murillo -- will not hesitate to spend ALBA funds lavishly 
in order to cast his image as economic rainmaker.  In the unlikely 
event that Chavez decides to discontinue ALBA funding for 
Nicaragua, it is conceivable that Ortega could turn to more drastic 
economic moves (i.e. nationalizations) in order to cement his FSLN 
 
MANAGUA 00000111  003 OF 003 
 
 
political apparatus. 
 
 
 
¶9.  (U) Participants: 
 
 
 
--Joaquim de Magalhaes, General Manager, Exxon Mobil. 
 
 
 
--Erwin Kruger, President, Dracma magazine (a monthly economic 
journal), and former Chief of Staff of the Presidency during the 
Chamorro Government in the early 1990s. 
 
 
 
--Roberto Bendana, Executive Director, CafC) Don Paco and former 
head of the Competitiveness Commission under the Bolanos 
Administration. 
 
 
 
--Alejandro Martinez Cuenca, President of the International 
Foundation for Global Economic Challenge (FIDEG).  Martinez Cuenca 
is also an economist, a businessman, and FSLN member.  He was 
Ortega's Minister of Economy in the 1980s. 
 
 
 
--Eduardo Montiel, Professor of Economics, INCAE (Central American 
Business School). 
 
 
 
--Ramiro Ortiz Jr., Director, BANPRO. 
 
 
 
--Alfredo Velez, Corporate Vice President, Cargill Nicaragua. 
 
 
 
--Eduardo Garcia, WalMart Nicaragua. 
 
 
 
--Duilio Baltodano, President, Cisa Agro, an agricultural commodity 
trader and distributor. 
CALLAHAN