NICARAGUA: NEW GOVERNMENT MOVES QUICKLY TO

UNCLAS MANAGUA 000405 SIPDIS SIPDIS STATE FOR WHA/CEN, WHA/EPSC, AND OES STATE FOR USTR - DOLIVER, MBURR STATE FOR DOC - AWATSON, DWEEMS, JGEHR, MSIEGELMAN E.O. 12958: N/A TAGS: SENV EAGR ETRD EINV PGOV NU SUBJECT: NICARAGUA: NEW GOVERNMENT MOVES QUICKLY TO UNTANGLE LOGGING BAN SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY. ¶1. (SBU) Summary. New government officials have moved quickly to put the logging industry back on track by modifying a June 2006 total moratorium on raw timber exports. The stated policy goals of the moratorium were to curb illegal logging activity and to spur foreign investment in wood manufacturing. The ban achieved neither goal, instead forcing the closure of legitimate businesses while illegal logging activity continued to flourish. Although the Ortega administration has acted quickly to save millions of dollars in investment, it has not yet addressed the environmental devastation caused by rampant illegal logging. While the initial steps taken by the new government suggest that it is sensitive to investors, questions remain whether it can shape and enforce good forestry law. End Summary. Logging Moratorium Cripples Forestry Sector -------------- ¶2. (U) In June 2006, a logging moratorium on raw timber exports derailed the timber industry. Law 585 put in place a logging ban on six hardwood species and outlawed the export of all wood in plank or roll form -- 95% of wood exports -- requiring that wood undergo a "second transformation" prior to export. The goals of the law were to curb illegal logging activity and spur foreign investment in wood manufacturing, leading to job creation. Law 585 achieved neither goal, instead forcing the closure of legitimate businesses while illegal logging activity continued to flourish. ¶3. (U) Investors struggled to comply with Law 585, but it was an uphill battle. The law failed to clarify whether or not the ban applied to work plans approved before its passage. It also lacked a grandfather clause for logs cut before Law ¶585. Furthermore, it failed to define to whom the "second transformation" rule applied or to include a grace period for existing investment. With only a few months remaining in 2006 and a change of administration looming, officials from the previous administration were reluctant to interpret the law or to push the National Assembly for clarification. New Government -------------- ¶4. (U) New government officials have moved quickly to put the logging industry back on track by modifying the June 2006 total moratorium on raw timber exports. Shortly after taking office on January 10th, the new director of the National Institute of Forestry (INAFOR),William Schwartz Cunningham, eased a "second transformation" requirement put in place by Law 585, dictating that all wood for export be planed and the edges molded. Schwartz Cunningham assured investors that wood with "minimal surfacing (scraping or sanding)" would be approved for export. Amanda Lorio Arana, the new Minister of the Environment and Natural Resources (MARENA),reversed her predecessor's decision to suspend the issuance of CITES certificates for mahogany exports -- even mahogany in "second transformation" -- while she awaits further guidance on Law ¶585. ¶5. (SBU) At a January 26th meeting of the National Forestry Council (CONAFOR) -- a committee composed of officials from the Ministry of Agriculture and Forestry (MAGFOR) and MARENA -- the council invited private sector representatives to meet its new members from the Ortega administration. The hour-long meeting focused on the relationship between public and private interests in the forestry sector, and CONAFOR's plans to address the concerns of private interests. A representative from a U.S. lumber trading company attended the meeting and reported to EconOff that CONAFOR council members appeared ready to resolve the long-standing problems created by Law 585. He characterized new officials as being more "flexible and attentive" than those from the previous administration. Hector Ramos, head of the Forestry Industry Association, told EconOff that he is optimistic about the new administration. He noted that in the coming weeks he and other businessmen will meet with MAGFOR and INAFOR officials who have promised to "resolve issues." Comment -------------- ¶6. (SBU) Despite good intentions to reduce illegal logging, Law 585 has created more problems than it solved. Although the Ortega administration has acted quickly to save millions of dollars in investment, it has not yet addressed the environmental devastation caused by rampant illegal logging. While the initial steps taken by MAGFOR and MARENA might suggest that the new government is sensitive to investors, questions remain whether it can shape and enforce good forestry law. End Comment TRIVELLI