ORTEGA SENDS FIRST ECONOMIC SIGNALS

UNCLAS MANAGUA 002565

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/FO, WHA/CEN, WHA/EPSC, EB AND INR

E.O. 12958: N/A
TAGS: ECON ETRD EINV PGOV NU
SUBJECT: ORTEGA SENDS FIRST ECONOMIC SIGNALS

REF: A. MANAGUA 2463


B. MANAGUA 2428


1. (U) Summary: Starting November 8, President-elect Daniel
Ortega delivered several public and private messages aimed at
reassuring listeners that his next presidency will not
represent a return to the Marxism of his past. He emphasized
that there would be no "dramatic changes" in Nicaragua's
economic system, that current IMF, WB and IDB programs would
continue, and showed an interest in negotiating a new Poverty
Reduction and Growth Facility (PRGF) agreement. In public
statements Ortega focused on his willingness to promote
pro-business policies and maintain respect for private
property. He stated he would continue with CAFTA, but would
explore other markets like China, India, Mercosur, and
Venezuela's ALBA. Ortega and his team also met with donors
providing budget support, IFI resident representatives and
Nicaragua's Executive Director in the IMF. In all of his
meetings and speeches in the last two weeks, Ortega tied his
pro-business and economic stability statements to his
anti-poverty plans, emphasizing that he needed to promote
policies that encouraged investment and growth because he
could not eliminate poverty with a stagnant economy. For
now, the IFIs, donors and the business community seem
satisfied, expressing cautious optimism. Experience has
taught them, however, that Ortega's actions, including the
naming of his economic cabinet, will speak more loudly than
his words. For now, Nicaraguans prefer to believe in
Ortega's desire to "pay his debt" to them by eradicating
poverty. End Summary.

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Ortega Promises to Stay the Course
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2. (U) As soon as his win was assured, President-elect Daniel
Ortega set out to meet with local and international business
leaders, resident representatives of the IFIs, and major
western donors providing budget support. He also visited a
major industrial site. Ortega's meetings and public
statements on economic policy seem to have been strategically
designed to reassure foreign investors and the local business
community that his next presidency will not resurrect the
Marxist policies that typified his first tenure in office.
Before the election, bankers, investors, and leading business
people warned that an Ortega victory would lead to an
immediate withdrawal from the country of much of Nicaragua's
capital. So far, Ortega has succeeded in quelling such fears.


3. (U) In a November 8 press conference with Ortega,
President Bolanos noted the many economic successes in
Nicaragua since the 1980s. In particular, he highlighted
improved macroeconomic stability, increased trade and
investment, and rising international reserves. Inflation is
under control and the currency stable. Bolanos explained
that these achievements were the result of structural
adjustment programs, international trade agreements, strong
fiscal discipline, and forward-leaning regulatory changes.


4. (U) Ortega responded to Bolanos by acknowledging these
achievements and committing his government to maintaining and
improving upon Bolanos' macroeconomic gains. He proclaimed
that he would make no "dramatic or radical changes" in
Nicaragua's economic system, and promised to respect
Nicaragua's agreements with the IMF, IDB, and World Bank.
Ortega declared that his overarching goal for his second
presidency was to "pay his debt to the Nicaraguan people" by
eradicating poverty. He called upon Nicaragua's "economic
actors" to work with him to achieve this goal.


5. (U) That same day, Ortega met with a group of 150 business
persons representing some of the largest investments in the
country, and delivered a pro-business message. He repeated
his pledge not to make any radical changes to macroeconomic
policies currently in place. Ortega said that while he would
continue working with CAFTA, he would explore other markets
like China, India, Mercosur, and Venezuela's ALBA to find
alternatives for producers currently "marginalized" by CAFTA
provisions. (Note: He did not elaborate as to how or which
producers are marginalized. End Note.) He stated that his
government would respect private property in its effort to
meet the demands of the social sector through legal and
constitutional means, i.e., without engaging in the kind of
land grabs that characterized his first presidency. He
promised to promote growth by supporting laws and policies
that would attract bigger and better investments to
Nicaragua. In each instance, Ortega tied his statements to
an anti-poverty theme, explaining that he would promote
policies that encouraged investment and growth because he
could not eliminate poverty if private enterprise or the
banking system did not function. Ortega then invited the
business sector to work with him to create jobs and end
poverty.


6. (U) That night at a celebratory rally, Ortega repeated to
his supporters the message that private property must be
respected and that land invasions were not acceptable. He
promised the crowd that anyone without land would receive it,
but that it would have to happen in an orderly and legal
fashion. This time around, the government would buy property
and then deliver it, with full legal title and farming
implements, to those without land.

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Meeting the Right Folks, Saying the Right Things
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7. (U) The week of November 13, Ortega met with local
bankers, donors providing budget support, a major U.S.
textile investor, IFI resident representatives, as well as
Nicaragua's own Executive Director to the IMF. In addition,
his economic transition team met with a visiting IMF Mission
in town for a final assessment of Nicaragua's performance
under its PRGF, which concludes December 12. In these
encounters, Ortega and his transition team repeated the
themes of maintaining macroeconomic stability and continuing
pro-business polices. Ortega consistently linked maintaining
macroeconomic stability to his goal of fighting poverty,
stressing that macroeconomic stability should not be viewed
as a goal in and of itself. One of the week's events
included a very public visit to the free trade zone
construction site of U.S. firm Cone Denim's USD 80 million
factory.


8. (SBU) On November 14, Ortega met with Nicaragua's IMF
Executive Director and on November 17, he met with the
resident representatives of the IMF, World Bank, and IDB. At
both meetings he repeated the statements that his government
would continue on-going programs and not make dramatic
changes to the macroeconomic policies currently in place.
Members of Ortega's economic team told the visiting IMF
Mission on November 15 that Ortega's government would like to
explore the possibility of entering into a new three-year
PRGF program, one that would fit with the FSLN's "Plan de
Gobierno" and put Nicaragua on the path of no longer needing
IMF programs.

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O.K. for Now, We'll Wait and See
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9. (U) Formal responses from the outgoing government and
private sector to Ortega's statements have been conciliatory,
emphasizing a desire to work together for the common good of
Nicaragua. President Bolanos, echoing Eduardo Montealegre's
concession speech, stated that he stood ready to support the
incoming government in its efforts to combat poverty as a
"constructive" member of the opposition. (Note: Bolanos
later announced that, as ex-president, he would accept his
"automatic" seat in the National Assembly. End Note.) The
Council of Private Enterprise (COSEP) promised to work with
the Ortega administration to develop Nicaragua and help the
country grow. Three of Nicaragua's top bankers, including
Roberto Zamora of Bancentro, Luis Rivas of Banpro, and Silvio
Lanuza of Banco de Finanzas stated that Ortega's
pronouncements were welcomed and would help to stabilize the
financial system after the election. Indeed, after a
pre-election drop of over 6%, bankers report that deposits
have stabilized (reftel A). The bankers emphasized that
Ortega would have to keep the current macroeconomic policies
in place to ensure the financial system remains healthy and
stable. Budget Support Group donors welcomed the positive
signals so far, but have expressed concern over Ortega's lack
of public pronouncements on corruption and judicial
independence. Donors emphasized these two issues during
their meeting with Ortega, presenting them as fundamental
principles of the budget support program and essential for
the development of a strong investment climate.

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Comment: Actions Speak Louder Than Words
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10. (SBU) Ortega's first economic policy statements after the
election appear to mark a shift toward the center and away
from the Marxist ideology of his past. They may also be a
tacit acknowledgment that 62% of the electorate did not vote
for him, and that most Nicaraguans are comfortable with
current economic policy. In all of his meetings, speeches,
and press interviews Ortega has consistently supported
staying the current macroeconomic course, working with IFIs,
promoting foreign and domestic investment, and expanding free
trade. However, at every turn he ties his support to a
promise to reorient the government toward serving the poor
and eradicating poverty. In particular, he focuses on
creating jobs, improving access to credit for small and
medium-sized farmers and business persons, enhancing
Nicaragua's contribution to production and value chains,
providing electricity to all, launching preventative health
campaigns and literacy programs, as well as diversifying
agricultural and industrial production.


11. (SBU) The reaction of the private sector to these
messages so far has been one of cautious optimism. Private
investors wonder whether the policies Ortega thinks will
stimulate the economy and promote investment are ones that
they can support. Here, actions will speak louder than
words. All are waiting to see who Ortega names to key
positions in his economic cabinet. Rumors abound, up to and
including everything from keeping Bolanos' team in place to a
complete overhaul. Most believe that Ortega will ask former
Sandinista Mario Arana to stay on as Central Bank President.
Other rumored holdovers include Finance Minister Mario
Flores, Internal Revenue Director Roger Arteaga and Institute
of Tourism Director Maria Nelly Rivas. However, a more
likely Minister of Finance may be FSLN stalwart Bayardo Arce.
Other names which have surfaced are Silvio Conrado for
Minister of Trade and Industry and Virgilio Silva for
Director General of Customs.


12. (SBU) Nicaragua's reality is that Sandinismo has always
been famous for its "double discourse," taking actions that
contradict spoken promises. While some Nicaraguans fear that
the contradictions of the 1980s will repeat themselves, for
the time being most prefer to believe that Ortega wants to
build on existing economic gains so that he can "pay his debt
to the Nicaraguan people," i.e., eradicate poverty in the
hemisphere's second poorest country. Indeed, Ortega has a
once in a lifetime opportunity to replace his legacy of
destruction and abject poverty with one of growth,
development, and the creation of an emerging middle class.
End Comment.
TRIVELLI