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06TAIPEI3878 2006-11-16 10:59:00 CONFIDENTIAL American Institute Taiwan, Taipei
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1. (C) Summary: Foreign Minister James Huang told the
Director on November 15 that Taiwan is cautiously optimistic
of its ability to preserve relations with Nicaragua under the
Sandinistas, emphasizing that Taiwan was pleasantly surprised
by both the tone and substance of the telephone conversation
between President Chen and President-elect Ortega on November

10. Nevertheless, Huang assessed that the next three to six
months in the relationship with Nicaragua will be a "critical
period" for Taiwan as the PRC presses to re-establish
diplomatic ties with the future Sandinista government. On
Beijing's recently concluded Africa-China Forum, Huang said
Taiwan's limited foreign affairs budget handicaps Taipei's
ability to compete with Beijing's "dollar diplomacy" in
Africa. End Summary.

President Chen's Telephone Conversation with Ortega



2. (C) The Director asked Foreign Minister James Huang
(Chih-fang) on November 15 about Taiwan's prospects for
maintaining diplomatic ties with Nicaragua once Daniel Ortega
is inaugurated as President in January, 2007. Noting that
Ortega had made shifting recognition to Beijing a campaign
pledge, Huang responded that he was cautiously optimistic of
Taiwan's ability to preserve relations. He noted that Taiwan
was pleasantly surprised by both the tone and substance of
the telephone conversation between President Chen and
President-elect Ortega on November 10. Ortega received
Chen's 25 minute call "warmly" and politely, using language
that Taiwan's interpreter said is normally reserved for
intimate friends. President Chen, who made concluding
remarks in Spanish, offered to work with Ortega to help
realize his campaign goal of eradicating poverty and boosting
rural development. Huang said Ortega responded positively to
Chen's remarks, expressing a desire to see the bilateral
relationship "consolidated and enhanced."

Huang Analyzes Taiwan's Challenges in Nicaragua



3. (C) Huang suggested that the next three to six months in
the relationship with Nicaragua will be a "critical period"
for Taiwan as the PRC seeks to re-establish diplomatic ties
with the future Sandinista government. Huang noted that
working in Taiwan's favor is the goodwill that has built up
between the two countries over the past 16 years. Taiwan has
devoted extensive resources to help Nicaragua modernize its
transportation and economic infrastructure, bailing Managua
out of a financial crisis on at least one occasion. Huang
demurred discussing the extent of Taiwan's financial
assistance with the Director. (Note: Taiwan will send Vice
Minister for Latin American Affairs Javier Hou to lead a
delegation that will explore ways to cement bilateral
relations. Huang said Taiwan is also working to send a
political "heavyweight" to attend Ortega's inauguration in
January. End Note.)

4. (C) Huang asserted Beijing is working hard to court
Ortega. Taiwan's major challenge will be overcoming the
Sandinista's traditionally good relations with the PRC and
their "ideological" closeness. Huang was certain that
Beijing was already discussing financial assistance and other
economic incentives to gain Managua's recognition, but said
money or past ties will not be the only factors in Ortega's
calculations. Ortega appears to be less "ideological" than
in the past and may want to maintain some distance from the
leftist camp in order to keep a balanced relationship with
the U.S. Huang suggested that, following what he
characterized as the "Panama model" of 2004 when Taiwan
stabilized relations with its new President, Ortega could
accept economic assistance from the PRC without a reciprocal
diplomatic quid pro quo.

Mexico as PRC's Broker in Central America?


5. (C) Turning to other regional concerns, Huang
characterized Mexico's recent activities in Central America
on behalf of the PRC as a "headache" for Taiwan. Huang
asserted that China is using Mexico as a platform to expand
its influence in the region. As an example, Huang cited
Mexican willingness to broker meetings in Europe, Mexico
City, and other locales between PRC Foreign Minister Li
Zhaoxing and leaders from Taiwan's diplomatic partners in
Central America. Huang added that he had no information on
the benefits Mexico received from the PRC for playing the
role of its intermediary in the region.

PRC "Dollar Diplomacy" at Work in Africa


6. (C) Huang raised the recently concluded China-Africa
summit in Beijing as an additional example of Beijing's
growing assertiveness in other parts of the developing world.
Huang portrayed the summit as evidence of China's increasing
clout in Africa, pointing to the write-off of USD 10 billion
in African debt and offer of USD 5 billion in preferential
loans and investment incentives. He added that in addition
to these above-board means the PRC has also used "dollar
diplomacy" to woo African leaders who maintain diplomatic
ties with Taiwan. As an example, Huang claimed that Beijing
had made USD 50 million in direct cash payments to the
Chadian President and USD 5 million to the Foreign Minister
in exchange for shifting recognition from Taiwan to the PRC.

7. (C) With a limited foreign affairs budget of
approximately USD 900 million and heightened public
accountability and institutional checks, Taiwan will find it
difficult to compete with China's "dollar diplomacy," said
Huang. Recent cuts of about USD 80 million proposed by
Taiwan's Legislative Yuan, initiated by the pan-Blue
opposition and targeted mainly at cutting funding for head of
state trips abroad, will further reduce Taiwan's diplomatic
competitiveness. Huang added he has been lobbying opposition
legislators to reverse the cuts, arguing they would affect
not only President Chen's final year in office, but also
severely hamper the next President's first few years of



8. (C) While professing cautious optimism about Taiwan's
prospects for holding on to Nicaragua, Foreign Minister Huang
nevertheless was also clearly aware of the threat to its
diplomacy posed by the PRC. In the face of Beijing's ongoing
efforts to squeeze Taiwan's international space, Taiwan would
have a major diplomatic success if it is able to maintain
relations with the Sandinista-led government. We will
probably not know Ortega's true intentions toward Beijing
until after his January inauguration. Given the suddenness
and unpredictability with which its diplomatic partners such
as Chad have switched recognition to Beijing and the
Sandinista's previous ties with the PRC, Taipei will continue
to be nervous about its ability to maintain this relationship
over the long term.