ORTEGA RETURNS, BUT WHAT NEXT?

C O N F I D E N T I A L MANAGUA 002521

SIPDIS

SIPDIS

DEPARTMENT FOR WHA/CEN, WHA/USOAS

E.O. 12958: DECL: 11/14/2016
TAGS: PREL PGOV PINR KDEM NU
SUBJECT: ORTEGA RETURNS, BUT WHAT NEXT?

REF: A. MANAGUA 2518

B. MANAGUA 2492

C. MANAGUA 2450

Classified By: Ambassador Paul A. Trivelli. Reasons 1.4 (B,D).


1. (C) SUMMARY: In winning back the Presidency of Nicaragua,
16 years after his disastrous dictatorship, Sandinista
National Liberation Front (FSLN) leader Daniel Ortega may
have temporarily obtained the redemption he has so long
desired, but the challenges he faces are steep. Elected with
only 38% of the valid votes counted so far, under an
arrangement crafted to allow him to win, Ortega is clearly a
minority president, and that minority, as well as the
majority who opposed him, will expect him to deliver on his
promises of "zero unemployment" and "zero hunger". He must
convince over 62% of skeptical Nicaraguan voters, as well as
much of the international community and the private sector,
that he has indeed changed. Authoritarian by nature, Ortega
must govern with eroded executive authority, as
Constitutional reforms enter into effect in January 2007, and
his party will be unable to legislate without the support of
other parties.


2. (C) Ortega must also manage the conflicting interests and
"ambitions" of his inner circle and balance the demands of
Venezuelan caudillo Hugo Chavez with the requirements of the
international financial institutions (IFIs) to prevent
capital flight and encourage new investment needed to
generate jobs. Finally, he will need to maintain a workable,
if not always amicable, relationship with the U.S. to keep
our foreign assistance and Nicaraguan ex-pat remittances
flowing, and to maintain investor confidence in the country.
He may have won the elections, but it will be a delicate and
difficult transformation for Ortega to shift from guerrilla
politician "ruling from below" to a legitimate, responsible
leader of the left. END SUMMARY.

A MINORITY PRESIDENT IN A COUNTRY OF SKEPTICS
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3. (C) Daniel Ortega's November 5 presidential victory may
have finally bestowed on him the redemption he has so long
desired, but Ortega's challenges will be daunting. Having
won with 38% of the valid votes counted so far, Ortega is
clearly a minority president, who will be hard-pressed to
deliver to his supporters, and those who opposed him, his
Pollyanna promises of "zero unemployment" and "zero hunger".
Ortega will also face the skepticism of over 62% of the
voters who did not vote for him and must still convince them
that he is a changed man. Nicaraguans will expect Ortega to
maintain the conciliatory, peaceful demeanor he evinced
during his campaign, as he grapples with the country's
daunting poverty and its antiquated infrastructure, in
particular its obsolete energy sector and inadequate
roadways. Added to those who did not vote for him are tens
of thousands of disenfranchised Nicaraguans who, if they
could have voted, would probably have voted for another
candidate. If Ortega fails to convince, skeptics who can
afford to, could leave the country or park their capital
abroad as a safeguard.

CONSTRAINTS --DIVIDED HOUSE AND CONSTITUTIONAL LIMITS
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4. (C) Ortega will also face a divided National Assembly,
whose FSLN members cannot legislate without the support of
the other parties. While we can be certain that the
FSLN-dominated Supreme Electoral Council (CSE) will make sure
that the combined Assembly seats of the opposition parties do
not total the magic 2/3 majority required for constitutional
reforms, the FSLN will not obtain the 47 seats required for a
simple majority and will need to negotiate with either the
ALN or the PLC to legislate. And, if the ALN and PLC (along
with, or without the MRS) decide to group together to pass
ordinary legislation, they will be able to do so. Ortega
will also enjoy less executive authority after Constitutional
reforms enter into force on 20 January 2007, changes that
require National Assembly approval of cabinet and independent
regulatory agency appointments as well as ambassadorships.
(COMMENT: We can expect Ortega to limit the effect of these
constitutional changes by making cabinet appointments after
he takes office on 10 January and before the reforms kick in
on 20 January; further, the individuals appointed to the
regulatory agencies were approved by the FSLN in November

2005. END COMMENT.)
A FICKLE PRIVATE SECTOR, CYNICAL FOREIGN INVESTORS
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5. (C) Ortega must also convince Nicaragua's skeptical
private sector that he will adhere to his commitments to
them. Just days before the election, he signed a ten-point
commitment with the Chamber of Commerce and Industry
(CACONIC) and its members pledge to hold Ortega to his word.
CACONIC's "Basic Points for Governability and Economic
Development" (Managua 2450) includes the transformation of
Nicaragua's judiciary; free exercise of economic activities;
advancement of free trade agreements; the reform of public
institutions; a productive infrastructure; public order to
promote free enterprise and a stable business climate;
credit, training, and technical assistance for small and
medium enterprises; fiscal equity, the expansion of the tax
base, and the reduction of tax burdens on the private sector;
strengthening of public contracting; and, unrestricted
currency flows. (COMMENT: In addition to signing the CACONIC
points, Ortega has stated he will continue with economic
reforms per Nicaragua's IMF program and has started meeting
with business and banking chambers to provide reassurance
regarding his economic programs. END COMMENT.)

CONTENDING WITH INTERNAL POWER GRABS
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6. (C) Not only will Ortega be expected to deliver on his
promises of creating jobs and reducing poverty, but he will
also have to contend with the conflicting interests and
"ambitions" of his inner circle: wife Rosario Murillo,
VP/Arnoldo Aleman Godfather Jaime Morales Carazo, and
millionaire/presidential-hopeful Bayardo Arce. Serving as
Ortega's campaign manager, Murillo is clearly the power
behind the throne; in his victory rally she passed him notes
and whispered advice throughout the event.

DEALING WITH HUGO, IFIS, AND THE GRINGOS
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7. (C) Ortega can expect "Uncle Hugo" to come collecting for
all of the generous support and endorsement the Venezuelan
caudillo provided Ortega during the campaign. He will be
hard pressed to balance Chavez's demands with the stringent
requirements of the IFIs to prevent capital flight and
encourage new investment to generate more employment.
President-elect Ortega also must develop and maintain a
workable, if not always amicable, relationship with the U.S.
and other like-minded governments if he is to keep their
foreign assistance and Nicaraguan ex-pat remittances flowing.
Notwithstanding the fact that as a minority president of an
impoverished, indebted country that can ill afford to incur
the ire of the international donor community in general and
the United States in particular, Ortega's authoritarian
nature may get the best of him. Further, his party's
influence over most powers of state -- the judiciary, the
CSE, and over half of Nicaragua's municipalities -- may
hinder the economic and political reforms that Nicaragua
needs to build infrastructure, attract investment, create
jobs, and reduce poverty.


8. (C) Ortega's alliance with Venezuela and Cuba could hurt
progress on CAFTA, cooperation in international fora, and
erode our bilateral relationship vis-a-vis law enforcement
and military cooperation, as well as efforts to combat
terrorism, narco-trafficking and trafficking in persons
(TIP). A poor relationship with the United States would
reduce or even end assistance programs, would spell the
deceleration of investment, trade, and economic growth, and
possibly trigger an upswing in migration outflows.
Specifically, if Ortega fails to abide by U.S. legislative
requirements -- including demonstrating progress on property
claims resolution, cooperation in combating terrorism,
narco-trafficking, and TIP, respect for intellectual
property, and honoring CAFTA -- Nicaragua could lose
much-needed assistance and jeopardize U.S. trade and
investment flows.


9. (C) Ortega will likely discover that it was easier to
rule from below than to govern from above -- where
Nicaraguans and the international community will now hold him
accountable for his actions. Indeed, his conciliatory,
subdued demeanor may be more attributable to his reported
heart trouble than to a sincere change in direction. In any
event, he must walk a fine line between the demands of Chavez
and the requirements of the international donor community, in
particular the U.S. government. And, unlike Chavez, Ortega
cannot tap into seemingly unlimited oil revenues and cannot
afford to err.
TRIVELLI