UPDATED SCENE SETTER FOR CODEL BURTON

UNCLAS MANAGUA 002065

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR WHA/CEN AND H FOR MIKE SMITH

E.O. 12958: N/A
TAGS: PGOV ECON OVIP KDEM NU
SUBJECT: UPDATED SCENE SETTER FOR CODEL BURTON

REF: A. A. SECSTATE 147809

B. B> MANAGUA 01678


1. (U) SUMMARY: Post welcomes the members of Codel Burton to
Nicaragua and has developed an agenda that addresses the
Codel's interest in discussing the upcoming elections with
major political parties, registering bi-partisan support for
a free, fair and transparent election process, and visiting a
USAID project for former gang member rehabilitation. This
scene setter offers economic, USG assistance, political, and
election 2006 overviews, as well as brief descriptions of
planned Codel activities. The cable is organized as follows:

- Economic Background
- USAID Programs in Nicaragua
- Millenium Challange Corporation (MCC) Program in Nicaragua
- Political Background
- The 2006 Elections
- U.S./CEPPS and Civil Society Elections Support
- Codel Burton Activities and Meetings

Specific scene setters that outline each meeting and activity
in greater detail, including participants and press
availability, are provided separately by e-mail to Mark
Walker. END SUMMARY.

Economic Background
--------------


2. (U) Nicaragua has come a long way since the early 1990s,
when the economy was in a shambles and uncertainty prevailed.
The country qualified for major debt relief under the
heavily indebted poor country initiative (HIPC) and was able
to manage its way through a local banking crisis precipitated
in the early 2000s. Today, Nicaragua is on the right
economic track and boasts a fairly healthy business
environment. In 2005, GDP grew 4%, down from 5.1% in 2004.
In 2005, rising oil prices caused inflation to rise slightly
to 9.6%. To achieve long-term success, Nicaragua must
maintain macroeconomic and political stability, educate more
of its population, foster greater investment (especially in
the power and transportation sectors),reform the judicial
system, and resolve Sandinista-era property confiscation
cases and problems in the registration of land titles.


3. (U) Since April 1 2006, Nicaragua has implemented
CAFTA-DR with noticeable effect on its bilateral trading
relationship with the United States. U.S. exports to
Nicaragua in the second quarter of 2006 exceeded those in the
previous quarter by 10%. NicaraguaQ,s exports to the United
States in the second quarter exceeded those in 2005 by almost
29%. Much of this latter increase is related to new U.S.
markets for Nicaraguan agricultural and food products.
Notwithstanding, the United States sustains a substantial
trade surplus with Nicaragua. Historically, the United
States has been the source of roughly 20% of Nicaragua's
imports and the destination for approximately 30% of its
exports.


4. (U) CAFTA-DR is also prompting investors to take a closer
look at Nicaragua. Access to the U.S. market that CAFTA-DR
provides is complemented by NicaraguaQ,s proximity to the
United States, a variety of investment incentives, and low
labor costs. Currently, there are about 25 wholly or partly
owned subsidiaries of U.S. companies operating in Nicaragua.
The largest of these are in energy, financial services,
manufacturing, and fisheries. The country is also attracting
U.S. investor interest in tourism.

USAID Programs in Nicaragua
--------------


5. (U) From 1990 to 2006, USAID assistance to Nicaragua
totaled $1.7 billion. The current assistance program
includes the following overall goals: foster responsible,
transparent governance; provide assistance for economic
growth; promote investment in people through better
governance of social institutions and improved access to
quality health services and education. The 2006 USAID budget
is divided thus:

Ruling Justly: $9.4 million
Economic Freedom: $14.6 million
Health/Education: $14.4 million
P.L. 480 Food Security: $9.7 million

-- Strengthening Democracy: USAID supports the
modernization of Nicaragua's judicial system and legal
reforms that increase access to justice, rule of law, and
protection of human rights. USAID assists civil society
organizations that promote legal reform, advocate for
government transparency, and increase public awareness of
citizens' rights. USAID also provides election support to
help Nicaragua comply with internationally recognized
standards for free and fair elections.

-- Increased Trade, More Jobs, Higher Incomes: USAID
assistance promotes increased trade and investment,
development of a competitive, market-oriented economy, and
improved environmental management to help Nicaragua take
advantage of the opportunities of the CAFTA-DR agreement and
other free trade agreements.

-- Healthier, Better Educated People: USAID concentrates
its social sector assistance on efforts to: improve
government capacities to plan and manage health and education
investments; increase access to quality education at the
primary level; and improve health status at the household and
community level.

-- Food Security: Reaching 43,700 poor rural households,
activities focus on increasing the production and marketing
of high-value, non-traditional crops to increase family
incomes. Complementary feeding, maternal health and child
survival activities improve health and nutrition in high-risk
communities.

MCC Program in Nicaragua
--------------


6. (U) Through its MCC Compact, the Government hopes to take
advantage of two major competitive pluses for Nicaragua: its
fertile land and its connection to markets in Honduras, El
Salvador, and the United States. After extensive
consultations, the GON identified insecure property rights,
under-developed infrastructure, and low value-added rural
business activity as the greatest barriers to growth that
could be addressed with MCA assistance.


7. (U) The Compact will contribute to improving the lives of
the residents of Leon and Chinandega by raising the average
household income and will serve as a model to replicate in
other regions of the country. The Compact has three primary
objectives: increase investment by strengthening property
rights in Leon; reduce transportation costs between Leon and
Chinandega and domestic, regional and global markets; and
help producers transition to higher value products and
activities.

Political Background
--------------


8. (U) Since the inception of democratic rule in Nicaragua
in 1990, political power has been contested between two
majority forces: the Liberals on the right, and the
Sandinistas on the left. The civil war and economic
mismanagement in the 1980s, and the Sandinista giveaway of
government property to party leaders in 1990 (the "pinata"),
turned a significant majority of the population against the
Sandinista Front (FSLN),preventing the FSLN from winning
national elections. Recognizing demographic realities, the
Sandinistas have consistently promoted divisions on the right
and worked to maximize their voting strength by building a
large and disciplined party structure.


9. (U) Nicaragua's opposition forces came together under the
United National Opposition (UNO) to win the 1990 elections,
but soon splintered apart. The Liberal Constitutional Party
(PLC) emerged as the dominant Liberal force, in large part
due to the energetic and charismatic leadership of party
president Arnoldo Aleman. The rest of UNO broke away into an
alphabet soup of minor Liberal parties: the traditional
Conservative Party (PC),which was reduced to a small
minority except in a few areas, the Nicaraguan Resistance
(PRN) formed by ex-Contra fighters, and parties formed to
represent the evangelical population, such as the Nicaraguan
Christian Path Party (CCN),and the Christian Alternative
(AC).


10. (U) Discontent also grew within the FSLN after the 1990
"pinata" of FSLN leader Daniel Ortega and Ortega's continued
electoral defeats during that decade. Some leftist elements
broke away from the FSLN during this period, most notably the
Sandinista Renovation Movement (MRS) under the leadership of
revolutionary activist Dora Maria Tellez. The FSLN was
better able to maintain its integrity, however, using
threats, coercion and discipline, and incentives. Despite
repeated defeats, Ortega pledged to "rule from below" using
residual Sandinista influence in governmental institutions
such as the police, armed forces, and the court system.


11. (U) The PLC and Arnoldo Aleman emerged victorious in the
1996 national elections, but were unable to gain a
supermajority (56 votes) in the National Assembly, which
would have allowed the party to name Supreme Electoral
Council (CSE) and Supreme Court (CSJ) magistrates without
Sandinista votes. This situation led to a political pact
between the PLC and FSLN to divide control of the
institutions of government between the two parties, which has
continued to the present time. Hence, virtually all
employees of governmental institutions that are controlled by
appointments by the National Assembly are affiliated with the
PLC or FSLN and serve the interests of those parties.


12. (U) Before the 2001 election, the PLC was able to bring
most of the smaller democratic parties into an alliance.
Aleman personally selected Enrique Bolanos as the alliance's
presidential candidate as well as many of the National
Assembly and Central American Parliament deputy candidates.
This process is known as the "dedazo" (finger). Bolanos won
the election and instituted an anti-corruption campaign.


13. (U) In 2003, Aleman, who pilfered tens of millions of
dollars from state coffers, was convicted of fraud and money
laundering, stripped of his parliamentary immunity (which he
enjoyed as an ex-President) and sentenced to 20 years in
prison. This process caused a great upheaval in the Liberal
ranks. When the dust settled, a small number of Liberal and
Conservative deputies broke from the PLC alliance to form a
new political caucus to support Bolanos, but the vast
majority remained loyal to Aleman (owing their power to
Aleman's "dedazo") and condemned the President as a traitor.
The Conservatives and Liberals, unhappy with Aleman's
continued influence in the PLC, formed the Alliance for the
Republic (APRE),a party loyal to and supported by the
Bolanos administration.


14. (U) Aleman and Ortega manipulated the pact and
Sandinista control of the judiciary to allow greater degrees
of freedom for Aleman (he began his sentence in a prison
cell, was moved to a hospital, then to house arrest, and now
is allowed to move freely about Managua under "medical
parole") in exchange for concessions to the FSLN in the CSE
and CSJ. (Comment: The pact has provided obvious benefits to
Aleman and Ortega, but alienated Liberals and Sandinistas
disgusted with their leaders' concessions to the enemy and
anti-democratic and corrupt manipulation of the powers of
state. End Comment.) The pact has consistently attacked and
undermined the Bolanos administration, at times threatening
the stability of the country.


15. (U) Having won comfortable majorities since 1990, the
Liberals lost badly in the 2004 municipal elections. The
Sandinistas won 88 of 152 municipalities, the PLC 58, APRE
five, and the PRN one. The Sandinistas claimed victory with
a plurality of the vote in most of their 88 municipalities,
with the PLC, APRE and other minor parties dividing the
anti-Sandinista vote. The abstention rate was also slightly
higher than normal, which many people blamed on the voters'
unhappiness with the pact.

The 2006 Elections
--------------


16. (U) Three candidates emerged in 2005 to challenge the
Aleman-Ortega pact. Excluded from the majority parties by
the two caudillos, Sandinista dissident Herty Lewites broke
from the FSLN to head the MRS ticket, and Liberal dissident
Eduardo Montealegre formed the Nicaraguan Liberal Alliance
(ALN) out of PLC dissidents, the PC, PRN, and other small
democratic parties. PLC outcast and prominent Bolanos
Administration official Jose Antonio Alvarado ran as the APRE
candidate. Daniel Ortega was once again the pre-ordained
candidate of the FSLN, and Bolanos' vice president Jose Rizo
was chosen as the PLC candidate in April 2006.


17. (U) The CSE deadline to register party candidates at the
end of May 2006 drove both a consolidation and division
amongst the political parties. The Christian Alternative
(AC) party left Lewites' alliance, changed its name to
Alternative for Change (same initials) and chose the erratic
Eden Pastora as its presidential candidate. Jose Antonio
Alvarado became Jose Rizo's running mate in the PLC, but APRE
joined the ALN. Arnoldo Aleman again imposed several
unpopular PLC deputy candidates by "dedazo," causing Jose
Rizo to threaten to resign his candidacy (he backed down).


18. (U) The political upheaval did not end in May -- MRS
candidate Lewites died from heart complications in early
July. Lewites' running mate Edmundo Jarquin assumed the
candidacy and MRS leadership convinced popular Sandinista
revolutionary songwriter Carlos Mejia Godoy to accept the
vice presidential nomination. Despite predictions among some
pundits that MRS votes would migrate to the FSLN, or perhaps
the ALN, JarquinQ,s poll numbers remain similar to LewitesQ,.
However, the shift of Liberal politicians back and forth
between the PLC and ALN, depending on their calculation of
personal benefit, continues.


19. (U) Since the beginning of the official campaign in
mid-August, relations between the ALN and PLC have continued
to deteriorate. The PLC has accused Montealegre of bilking
the Nicaraguan people out of hundreds of millions of dollars
by undervaluing the assets of failed banks, forcing the
Central Bank to make up the difference in Negotiable
Indemnization Certificates (CENIs, or debt bonds). Although
completely fabricated, the mediaQ,s vigorous pursuit of the
story had been hurting MontealegreQ,s campaign by raising
doubts among independent voters and diverting his attention
from the campaign. However, the recent denunciations of a
PLC insider have exposed the CENI scandal as nothing more
than a plot to discredit Montealegre and have implicated
senior PLC officials including Presidential candidate Jose
Rizo.


20. (U) The bad blood caused by the PLCQ,s smear campaign
and RizoQ,s insistence on remaining a Presidential candidate,
make a union of the liberal parties increasingly unlikely.
With the Sandinistas also divided into two parties, it
appears there will be five candidates on November 5.


21. (U) The latest CID-Gallup-sponsored official poll
released at the end of August showed the following results
for the parties:

FSLN: 29%
ALN: 23%
PLC: 14%
MRS: 14%
AC: 1%
None: 19%


22. (U) As with earlier polls, the CID-Gallup poll showed
that the FSLN would lose in a second round and the ALN would
be the likely winner. Thus the FSLN is focusing all its
efforts on a first round victory by leveraging a
pact-inspired change in the Electoral Law that enables a
front-running candidate to win the election in the first
round with only 35 percent if there is a five percent lead
over the next most popular contender.


23. (U) Results of an M and R poll released September 11
(poll conducted on September 7-8, sample size 802 nationwide,
3.5% error) showed Montealegre as the candidate most widely
perceived to be the next President. Interestingly, Carter
Center representatives dismissed the poll results, given the
small sample size and the fact that it did not include truly
rural voters (M&R reached out only to people with phones.).

Q: Who do you think will be the next President?
Montealegre: 35.2%
Ortega: 22.3%
Uknown/no answer: 18.6%
Jarquin: 12.5%
Rizo: 11.1%
Pastora 0.1%

Q: Who do you intend to vote for?
Montealegre: 36.2%
Jarquin: 19.2%
Ortega: 16.7%
Uknown/no answer: 16.2%
Rizo: 11.1%
Pastora 0.1%


24. (U) On September 13, CNN and Channel 2 co-sponsored a
presidential debate featuring Montealegre, Rizo, Jarquin and
Pastora. Daniel Ortega did not participate, declaring the
debate format "artificial." According to M and R, 113,000
households in Managua watched the debate and Jarquin was
perceived as the winner, followed by Montealegre. Jarquin,
about whom there were initial doubts because he lacks
LewitesQ, charisma, continues to perform well and draw voters
from both the FSLN and ALN.

U.S./CEPPS and Civil Society Election Support
--------------


25. (U) The Consortium for Elections and Political Processes
Strengthening (CEPPS) partners IFES, IRI, and NDI and their
local affiliates are now fully engaged in helping Nicaraguans
prepare for their November 5 national elections. Although
the election program activities are exerting a significant
positive impact on the electoral environment, significant
challenges remain. Ortega remains outspoken against
international observers, the CSE has fallen behind in the
voter ID distribution process and IRI has recently come under
fire for the production of dated political party poll watcher
training manuals. Despite these difficulties, the CEPPS
partners continue to forge ahead. A summary of CEPPS efforts:

-- The final electoral regulation governing electoral
challenges or "impugnaciones" was released on September 7.
Domestic observation groups Ethics and Transparency (ET) and
the Institute for Development and Democracy (IPADE) have come
out strongly criticizing the regulation, highlighting the
increased potential for manipulation of the process by
nullifying entire voting stations. The new electoral
challenge regulations lower the burden of proof required to
justify nullification of entire voting centers, leaving the
door open for cases such as Granada. With NDI support, IPADE
held an international conference on the challenges process
September 12. Electoral experts from the US, Mexico, and
Costa Rica analyzed the regulation and implications for the
upcoming elections. IPADE is preparing a conference paper
highlighting concerns over the legal challenge regulation and
proposing best practices for the upcoming election.

-- Voter List Audit and Voter ID Study: NDI, working with
ET, finalized a civil society audit of the voter roll
(padron) and a three-month study of the process to acquire a
voter ID (cedula). According to the voter roll audit,
roughly 25% of the voting population is incorrectly listed on
the padron, which will impede their ability to vote.
Further, 10% of the voting population (individuals currently
possessing a national/voter ID) is not included in the
padron. The voter identification study revealed the need for
effective distribution of voter IDs. Of the 537 individuals
who applied for national identification cards at the
beginning of the study, only 101 (18.8%) received their ID
cards in the 90 day period prescribed by law. The study will
be extended through the election to ensure the CSE is
implementing the recommendations proposed by ET to expedite
the delivery of voter IDs in the run-up to the elections.
NDI has offered to provide training to all the political
parties on how to use the findings of the voter roll audit
and the voter ID study to ensure their constituents are
registered to vote and have the necessary documentation to
participate in the election.

-- IFES Support to the CSE: Based on an assessment of
technical deficiencies within the CSE and lessons learned
from the Atlantic Coast election, IFES is conducting
train-the-trainer sessions for national, regional, and
municipal CSE officials involved in the electoral process.
Additionally, they have conducted a survey of all outstanding
voter IDs. IFES estimates roughly 200,000 new voter IDs must
be produced and distributed prior to the election.
Additionally, approximately 200,000 voter IDs from previous
years have not been distributed. This information has been
included in the CSE hotline and website, as well as in guides
and CDs distributed throughout the country. With IFES
support, the CSE has refurbished an electoral bus that will
be used to provide election information and distribute voter
IDs throughout the 17 Departments. Three motorcycles have
been purchased to access remote communities.

-- Voter Education and Awareness: IRI is providing
grassroots voter education and awareness projects with four
Nicaraguan civil society organizations. Youth Vanguard
distributed flyers promoting voting and obtaining voter ID
cards at university campuses from April through July.
Movement for Nicaragua (MpN) placed both radio and television
ads encouraging citizens to obtain their voter IDs prior to
the August 6 deadline. MpN and IPADE canvassed secondary
schools encouraging 16-18 year olds to participate in the
electoral process and obtain a voter ID. Youth organization
JUDENIC initiated a "Rock the Vote" campaign on August 14.
The campaign, which challenges youth to participate in the
electoral process, includes TV and radio spots and eight
concerts throughout the country.

-- Political Party Poll Watchers: To defend the minority
party vote, IRI is training 12,000 political party poll
watchers for the MRS and 18,000 for the ALN. Political party
poll watcher manuals, which were developed by IRI several
months ago, were pulled from circulation following criticism
by the CSE for the use of outdated electoral information.
The manuals are currently being updated with the latest
electoral regulations.

Codel Burton Activities and Meetings
--------------


26. (U) Meeting with ALN Representatives: The Codel will
have breakfast with Eduardo Montealegre, presidential
candidate of the Nicaraguan Liberal Alliance, and other ALN
officials to discuss the upcoming national elections.
Montealegre has promised to destroy the PLC-FSLN pact, fight
poverty, promote economic growth using micro-finance programs
and DR-CAFTA. Although he is seen as the most viable rival
to the FSLN, his campaign continues to struggle with internal
unity, reaching rural voters and inadequate campaign finances.


27. (U) Meeting with Vice Minister of Foreign Affairs: The
Codel will meet with Javier Williams-Slate, VM of Foreign
Affairs. Williams-Slate, a Miskito, is very knowledgeable
about the current political situation on the Atlantic Coast,
one of the regions where electoral fraud is of greatest
concern.


28. (U) Meeting with OAS Representatives: The Codel will
lunch with the President of the OAS Election Observer Mission
(EOM),Gustavo Fernandez, technical director Patricio Gajardo
and special envoy to facilitate dialogue in Nicaragua, Dante
Caputo (former Argentinean Foreign Minister). The OAS EOM is
engaged with the CSE (and others in the GON) to ensure the
November elections are transparent and fair. In August, the
OAS issued an interim report on NicaraguaQ,s electoral
process and there is discussion about an October update. The
OAS, who will field 200 observers on Election Day, has been
repeatedly and harshly criticized by Daniel Ortega, who
claims the OAS is seeking to discredit the election results
in case of an FSLN victory.


29. (U) USAID Fenix Foundation: Launched in 1997, Fenix
runs a small farm on the outskirts of Managua that provides
employment and training (including AIDs awareness and
prevention) to former gang members between the ages of 16-21
seeking to reintegrate into society. Rep. Burton will
participate in a short hand-over ceremony of a vehicle.
Ceremony will include the Fenix Director and a police
representative with extensive gang-related experience. This
will be a press event.


30. (U) Meeting with MRS Representatives: In the afternoon,
the Codel will meet with MRS senior staff (Jarquin will be
campaigning in the northern departments Sept 21-24). Jarquin
spent the last several years outside of Nicaragua working at
various international institutions. He was the MRS vice
presidential candidate prior to the unexpected death of Herty
Lewites in early July. Jarquin has promised to uphold
Lewites' legacy and fight the PLC-FSLN pact, and claims that
he offers Nicaraguan voters a "responsible Left" option.
(Comment: The Codel may wish to ask JarquinQ,s team how an
MRS administration would handle relations with Venezuela and
Cuba and inquire about his views on CAFTA. End Comment.)
TRIVELLI