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RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
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RUEAIIA/CIA WASHINGTON DC
RUEKJCS/OSD WASHINGTON DC

C O N F I D E N T I A L MANAGUA 000093 
 
SENSITIVE 
SIPDIS 
DEPT FOR WHA/CEN 
DEPT FOR H -- PASS TO CODEL DODD 
PANAMA FOR CODEL DODD 
FROM AMBASSADOR CALLAHAN TO SENATORS DODD AND CORKER 
 
E.O. 12958: DECL: 2020/02/16 
TAGS: OREP PREL PGOV NU
SUBJECT: CODEL Dodd: Scenesetter for Nicaragua 
 
CLASSIFIED BY: Robert J. Callahan, Ambassador, Department of State, 
Exec; REASON: 1.4(B), (D) 
 
¶1. (C) Senator Dodd, Senator Corker, your visit to Nicaragua comes 
as we face exceptional challenges in the political environment here 
with a government that is suspicious and critical of the United 
States Government (USG), even as the Nicaraguan public remains 
fundamentally pro-U.S. and increasingly disillusioned with its own 
leaders.  Troubling phenomena include: the judicial decisions 
permitting Ortega to run for consecutive re-election; economic 
uncertainty; loss of donor assistance; consolidation of party 
control over national and local government; and an active 
party-patronage system that rewards loyalty and punishes dissent 
and opposition. 
 
 
 
¶2.  (C) Your visit comes exactly one year after that of a House 
delegation led by HIRC Western Hemisphere Sub-Committee chair, Rep. 
Eliot Engel.  As with Chairman Engel, we expect that your 
government interlocutors (in President Ortega's absence we are 
seeking a meeting with Vice President Jamie Morales) will give you 
a friendly reception.  This should, however, not obscure the 
underlying pressures and tensions that the ruling Sandinista party 
increasingly brings to bear on Nicaragua's civil society, media, 
democracy and the institution of the military.  Even the Embassy is 
not free from harassment.  Your visit demonstrates the value we 
place on cooperation and the seriousness of our continuing 
commitment to assist the Nicaraguan people.  These are messages 
worth repeating in your meetings. 
 
 
 
POLITICAL CONTEXT 
 
 
 
¶3.  (SBU) The FSLN once again controls all four branches of 
government -- Executive, Legislative, Judicial and Electoral. 
Beginning with his re-election to the Presidency in 2007 -- with 
only 38% of the vote and via a power-sharing agreement, known as 
the "pacto"(alliance) with Arnoldo Aleman, former President and 
now-honorary president of the Constitutional Liberal Party (PLC), 
Daniel Ortega has now moved to consolidate political power in 
himself and his family.  Control of all national-level government 
organs, combined with the FSLN's local Citizen Power Councils 
(CPCs), has permitted Ortega and the Sandinista party to actively 
restrict the ability of civil society, NGOs, the media and the 
opposition to exercise their civic rights.  Ortega's stated goal is 
consecutive re-election and to remain in power beyond the end of 
his term in 2011.  In a February 2009 speech, Ortega declared the 
FSLN in a "permanent campaign" against the political opposition. 
In October 2009, a chamber of the Supreme Court dubiously cleared a 
major obstacle to President Ortega's intention to run for 
consecutive re-election.  The court declared "unconstitutional," on 
human rights grounds, the article of the Constitution that 
prohibits re-election, and applied the decision only to the FSLN. 
Meanwhile, Nicaragua's economy is distressed.  Off-budget 
assistance from Venezuela has not entirely remedied the major 
budget shortfalls caused by reductions in donor funds after the 
government refused to address credible allegations of serious fraud 
during municipal elections in November 2008.  Social services, 
including healthcare and education, also suffer from three rounds 
of budget cuts in 2009, which have allowed, however, the GON to 
maintain relations with the IMF, although it is becoming 
increasingly difficult for them to meet commitments. 
 
 
 
CONSTANT ATTACKS AGAINST NGOS, MEDIA & OPPOSITION 
 
 
 
¶4.  (C) Since entering office in 2007, Ortega has consolidated 
power across all levels of government.  Perhaps the only remaining 
independent government institution is the professional military. 
The FSLN already controls the four branches of the national 
government through the "pacto" with the PLC.  Ortega announced the 
creation of Citizens Power Councils (CPCs) in 2007 as a form of 
grassroots "direct democracy" independent of political affiliation; 
however, by the end of 2008, CPCs were overwhelmingly 
FSLN-controlled local organizations.  One recent national poll 
showed that less than 5 percent of Nicaraguans participate in CPCs. 
The FSLN is actively limiting the ability of civil society and the 
media to exercise their civic rights.  The FSLN has repeatedly 
called out party rank-and-file to violently confront opposition 
marches that are peaceful, properly permitted and critical of the 
government's anti-democratic actions. 
 
 
 
¶5.  (C) Ortega and the FSLN cannot abide dissent or criticism. 
Ortega has repeatedly denounced his critics -- including opposition 
media and politicians, civil society, ex-FSLN leaders -- as 
"traitors" and "agents" of the U.S. "imperialist conspiracy."  Even 
FSLN stalwarts of the 1979 revolution who speak out, such as former 
Culture Minister Ernesto Cardenal, have been harassed with spurious 
legal cases and tax audits that seek to intimidate and silence. 
Opposition media has been particularly under pressure.  In June and 
November 2009 the GON arbitrarily blocked the signal and 
confiscated the equipment of two different opposition radio 
stations.  The government has expanded FSLN-owned radio, by 
enhancing broadcast capacity and purchasing financially-strapped 
independent rural stations.  In January 2010, the FSLN tried to 
conceal the fact that it had strong-armed the owner of a rival 
opposition television broadcaster to sell his station to the Ortega 
family using Venezuelan funds.  The sale places two of Nicaragua's 
five over-the-air broadcasters in government hands. 
 
 
 
MCC, OTHER DONOR CANCELATIONS HURT 
 
 
 
¶6.  (C) On June 10, 2009 the Millennium Challenge Corporation (MCC) 
board announced the cancellation of approximately $62 million of 
USG assistance as a consequence of election fraud perpetrated by 
the GON during the November 2008 municipal contests.  Government 
and FSLN party leaders, including Ortega himself, claim that the 
USG has interfered with Nicaragua's sovereignty and its internal 
affairs by asking them to account for the electoral fraud.  The 
cancellation came after six months of diplomatic efforts to urge 
the GON to address the fraud.  Of the five-year, $175 million MCC 
Compact, over $110 million had already been spent or obligated. 
The loss of the remaining $62 million in aid was a blow 
economically and politically to the Ortega government, particularly 
since the impact would be felt acutely in the FSLN's historical 
base of Leon and Chinandega.  Public reaction to the MCC decision 
generally placed the blame on the Ortega administration.  Also as a 
result of the November election fraud, the European Union (EU) and 
several European nations suspended donor assistance in the form of 
direct budget support, which accounted for a significant portion of 
Nicaragua's operating budget.  This has placed other financing 
deals, with the World Bank, the IMF and other International 
Financial Institutions (IFIs), in jeopardy.  The government managed 
to struggle through 2009, but projections for 2010 are increasingly 
bleak. 
 
 
 
ECONOMY LOOKS BLEAK 
 
 
 
¶7.  (SBU) Agriculture remains the dominant economic activity in 
Nicaragua, but retail and financial services, along with light 
manufacturing, have expanded since 2005.  Lacking a large domestic 
market, Nicaragua depends heavily on exports for economic growth. 
In 2009, exports totaled approximately $2.3 billion, equivalent to 
33% of GDP.  Traditional exports such as coffee, meat, and sugar 
still lead the list, but the fastest growth has taken place in 
light manufacturing (apparel assembly and wiring harnesses for 
automobiles), food processing, seafood, and new agricultural 
commodities such as peanuts, sesame, melons, and onions.  Tourism 
has become the nation's third-largest foreign exchange earner, with 
some 200,000 American citizens or residents traveling to Nicaragua 
annually.  Many Nicaraguans depend upon remittances from family 
members working abroad in the United States and Costa Rica.  In 
2009, remittances totaled approximately $700 million, equivalent to 
about 11% of GDP. 
 
 
 
¶8.  (SBU) Nicaragua enjoyed robust rates of market-led economic 
growth from 1994-2006, but since the Ortega Administration 
reassumed power in 2007, increased political risk has contributing 
to slower growth and falling employment.  President Ortega has 
declared his intent to implement socialism in Nicaragua, but he 
says that model would maintain a role for the private sector.  High 
international petroleum prices, along with mandatory wage 
increases, contributed to high rates of inflation in 2007 and 2008, 
but in 2009 the inflation rate decreased dramatically.  In 2009, as 
a result of the global economic crisis and domestic political 
factors, the economy contracted by 1%. The Nicaraguan Central Bank 
expects the economy will grow by 2% in 2010.  According to official 
government sources, the unemployment rate in Nicaragua is estimated 
at 4.9%, but this figure does not include an estimated 65% of 
workers employed in the informal sector.  Weak rule of law, endemic 
corruption, and the lack of judicial independence deter investment 
and undermine commercial interests. 
 
 
 
¶9.  (SBU) The U.S.-Central America Free Trade Agreement (CAFTA) 
came into force between the United States and Nicaragua in 2006. 
The agreement has solidified the United States as Nicaragua's 
largest trading partner; estimated exports of Nicaraguan goods to 
the United States totaled $1.612 billion in 2009, while imports 
from the United States into Nicaragua totaled approximately $680 
million.  Approximately 25 wholly or partly-owned subsidiaries of 
U.S. companies operate in Nicaragua.  The largest of these are in 
energy, light manufacturing, retail, financial services, and 
aquaculture.  President Ortega's harsh rhetoric against the United 
States, capitalism, and free trade has had a negative effect on 
foreign investor attitudes and perceptions of country risk.  Since 
President Ortega took office, Nicaragua has fallen in the World 
Economic Forum's Competitive Index Ranking from 95th place in 2006 
to 120th in 2008. 
 
 
 
¶10.  (SBU) After Haiti, Nicaragua is the second-poorest nation in 
the hemisphere.  The Ortega administration negotiated a three-year 
Poverty Reduction and Growth Facility (PRGF) with the International 
Monetary Fund (IMF) in 2007 in order to maintain budget support 
from international donor countries.  However, the majority of this 
budget support has been suspended indefinitely because of negative 
donor response to the massive fraud perpetrated by the FSLN in the 
2008 municipal elections.  As a result, the Government of Nicaragua 
faces large budget deficits for the foreseeable future, depriving 
the country of capital for much needed infrastructure improvements. 
The United States provided over $70 million in development and 
humanitarian assistance to Nicaragua in 2009 
 
 
 
¶11.  (SBU) According to official press releases, Venezuelan 
development assistance to Nicaragua since Ortega took office in 
2007 has totaled more than $1 billion, including loans, grants, and 
foreign direct investment.  The FSLN appears to have used part of 
this 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. 
Ortega has used ALBA funds to implement his vision of a mixed 
economy by investing in electricity generation, a hotel, cattle 
ranch, and television station; some financing is provided only to 
businesses that agree to export to Venezuela.  Although accounting 
lacks transparency, the government claims funds were also used for 
social programs to build housing and roads, reduce hunger, and 
improve access to credit. FSLN-dominated CPCs are tasked with 
identifying participants in these programs. 
 
 
 
ATTACK ON U.S. HAITI RESPONSE:  AN OPPORTUNITY FOR COOPERATION? 
 
¶12.  (C) In public speeches, Ortega frequently attacks the United 
States as an expansionist, imperial militaristic power.  On January 
15 in the immediate aftermath of the Haiti earthquake, Ortega 
accused the United States of "manipulating a drama to put U.S. 
troops in Haiti."  Expressing concern that U.S. troops had occupied 
the airport and U.S. ships had surrounded the country, he claimed 
that this was a pretext to establish a U.S. base.  He said that, 
"by occupying Haiti, the United States is occupying Latin America 
and Caribbean territory."  Ortega criticized U.S. troop presence 
even though Nicaragua itself had also deployed 34 military 
search-and-rescue personnel to assist in the relief effort.  The 
Government of Nicaragua has twice renewed this deployment and may 
do so again later in February.  These deployed troops were trained 
under the U.S. Global Peacekeeping Operations Initiative (GPOI) 
partnership that we have with the Central America Combined Forces 
(known by its Spanish acronym CFAC).  CFAC-member nations have been 
asked to respond to the UN Peacekeeping Office call to augment the 
post-earthquake MINUSTAH presence in Haiti.  Nicaragua told the 
CFAC Secretariat that it could not participate if Honduras was 
included.  (Ortega has refused to recognize any post-Zelaya 
government in Tegucigalpa.)  Last week, I broached this same topic 
with the military high command and was told that while the military 
wanted to participate, politically it could not do so if the CFAC 
response included Honduras.  With some careful coordination, 
Nicaragua might be persuaded to deploy in support of MINUSTAH. 
 
 
 
COMMENT 
 
 
 
¶13. (C) Many of the current circumstances Nicaragua faces mirror 
the last time the FSLN was in power in the 1980's: economic 
turmoil; overt efforts to consolidate one-party control over both 
the national and local government; active repression of civil 
society, independent media and the opposition; and an active FSLN 
propaganda machine to claim greater public support for the party 
and its agenda.  Unlike the 1980's, however, Nicaragua has made 
significant economic progress since the return of democracy in 1990 
and, while its political institutions are weak and easily 
manipulated, civil society, the Catholic Church, the media, and 
more serious elements of the opposition have in fact pushed back 
and restricted the GON's ability to pursue its authoritarian 
agenda. 
CALLAHAN