SCENESETTER FOR CODEL NELSON

UNCLAS MANAGUA 000436

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/CEN AND H FOR MIKE SMITH

E.O. 12958: N/A
TAGS: ECON KCRM KDEM PGOV PINR PREL PTER SMIG SNAR NU
SUBJECT: SCENESETTER FOR CODEL NELSON


1. (U) SUMMARY: Post welcomes members of CODEL Nelson to
Nicaragua February 18 to 20. With the return of Daniel
Ortega to the presidency and changes in the National
Assembly, your visit comes at a most propitious time. The
United States remains committed to supporting Nicaragua's
democratic and economic development by promoting good
governance, strengthening civil society, encouraging a
vibrant private sector, and implementing free market
policies--including the advancement of CAFTA. You will have
an opportunity to meet with members of the executive and
legislative branches, leaders of the newly emerging
democratic opposition, and representatives from the private
sector. Although we will have the opportunity to discuss key
challenges and opportunities in our relations with Nicaragua
upon your arrival, we are providing the following highlights
of the current political climate, economic
background, social issues, and relevant USG assistance
programs to help you prepare for your visit. END SUMMARY

Political Background and Current Climate
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2. (U) Despite its considerable progress toward democratic
consolidation and greater macroeconomic stability following
the turmoil of the 1980's, Nicaragua's democratic development
remains incomplete. Since the return of democratic rule in
1990, marked by the election of Violeta Chamorro to the
presidency, political power has been contested between two
majority forces: the Liberals on the right, and the
Sandinistas on the left. After losing three separate races
for president since 1990, FSLN candidate Daniel Ortega
emerged the winner in his fourth run in the November 5, 2006
national election, with 38 percent of the vote. A confluence
of events and sharp divisions among the Liberal forces
created a perfect recipe for Ortega's victory.


3. (U) A unique feature of Nicaragua's political system is
the existence of "el pacto" (the pact),a power sharing deal
between the Liberal Constitutional Party (PLC),led by former
President Arnoldo Aleman, and the FSLN, led by Daniel Ortega.
The pact has enabled the two main parties to share control
of the institutions of government and helped perpetuate an
atavistic caudillo-style rule which has continued to the
present time. A key provision of the pact changed the rules
of the presidential game by lowering the requirement for a
first-round victory to 35 percent of the popular vote with a
five percent lead over the second place contender, one of the
factors that paved the way for Ortega's comeback.


4. (U) Another significant factor in Nicaraguan politics is
the continued influence of Aleman in the Liberal camp. As a
result of President Bolanos' (2001-2006) anti-corruption
campaign, Aleman was convicted of money laundering and fraud
in 2003. This motion led to a split within the Liberal camp
between Aleman loyalists, who remained with the PLC and
viewed Bolanos as a traitor, and Liberals disillusioned with
the PLC who, joining forces with some of the smaller
democratic parties, coalesced into the Nicaraguan Liberal
Alliance (ALN). Although sentenced to a 20 year prison
sentence and ostensibly under house arrest, Aleman is
currently on "medical parole" and moves freely about Managua,
thanks in large part to the pact and Sandinista control of
the judiciary. Aleman and his wife enjoyed front row seats
alongside guests of honor at Ortega's inauguration on January
10 -- clear evidence that the pact continues.


5. (U) Five political parties participated in the November
2006 national election, and four of the parties won seats in
the National Assembly. The ALN under the leadership of
Eduardo Montealegre was a key contender in the 2006 race by
capturing 28 percent of the vote, and represents one of the
viable emerging democratic alternatives. While pre-election
polls looked promising for Montealegre, who proved to be
Ortega's leading challenger, the Ortega-Aleman pact prevented
a second round showdown dealing a victory for the "35 win by
5" finisher.


6. (U) Meanwhile on the left, the FSLN breakaway party of the
Sandinista Renovation Movement (MRS) fielded the charismatic
former Mayor of Managua Herty Lewites to challenge Ortega,
but his sudden death in July possibly took some wind out of
the MRS' sails. His successor Edmundo Jarquin was not able
to gain sufficient ground to compete with Ortega among the
Sandinista faithful. Ortega benefited from both divisions:
on the right among the Liberals, and his traditional
hard-core support on the left.

Campaign Promises and Social Issues
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7. (U) Although the second poorest country in the Western
Hemisphere, Nicaragua has made progress on the economic front
in the past 16 years by achieving macroeconomic stability,
greater social investment, and steady growth. UNESCO
statistics show that 88% of primary school age children were
enrolled in 2004, an increase from 73% in 1991. Most recent
statistics from the Minister of Education reported 92% school
enrollment in 2005. The infant mortality rate dropped from
52 deaths per live births in 1991 to 31 per 1000 in 2004.
Nicaragua has also improved in prenatal care coverage, and
made impressive gains in the United National Human
Development Index (HDI). The average GDP growth rate for
Nicaragua from 1980
to 1989 was a negative -0.78% and in 2006 it is expected to
reach a positive 3.7%. Despite the statistical gains,
however, the benefits of economic development have been
uneven. Poverty, blackouts, water shortages, and high
gasoline prices are a fact of Nicaraguan life.


8. (U) President Ortega's challenge will be to continue
economic policies to sustain the momentum of progress made
over the past 16 years, delivering on his sweeping campaign
promises such as zero poverty and hunger, creating jobs,
expanding access to education and healthcare, while also
following through on his vision for a new Nicaraguan
government of solidarity, peace, and reconciliation.


9. (U) According to a public opinion poll published on the
eve of Ortega's inauguration, the Nicaraguan people expressed
greater confidence in Ortega's ability to manage the economy
than in his ability to govern the political arena. Six out
of ten Nicaraguans polled for the survey were optimistic
about an Ortega presidency, and expressed hope in terms of
greater prosperity, social stability, and peace under his
administration. Nevertheless, the survey also found that the
same percentage of people believed that the government
institutions would be weaker and the "pact" between the FSLN
and PLC would be even stronger under an Ortega government,
thus weakening democracy and undermining the rule of law.
Indeed, during his first mandate in office, Ortega has moved
to concentrate executive power in the Presidency.

USG Assistance to Nicaragua
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10. (U) The United States supports the economic development
of Nicaragua and the prosperity of the Central American
region as a whole. To build upon the achievements of the
past 16 years, the Nicaraguan Government must maintain fiscal
responsibility, generate greater investment (especially in
the power and transportation sectors),educate more of its
population, reform the judicial system, and regularize its
land titling system and resolve 1980s property confiscation
cases.


11. (U) As Nicaragua's largest trading partner, the United
States is the source of roughly one-fifth of Nicaragua's
imports and the destination for approximately one-third of
its exports. CAFTA-DR plays an important role in generating
economic prosperity for Nicaragua and other Central American
countries. In 2006, bilateral trade with the United States,
including free trade zone products, increased 29% over 2005
levels. Moreover, Nicaraguan exports of non free trade zone
products surpassed $1 billion for the first time. As a
result of CAFTA-DR, Nicaraguan exporters have begun to ship
new agricultural and food products to the U.S. market.


12. (U) As one of the primary international donors working
with the Nicaraguan government, the United States has
contributed $1.7 billion since 1990 to Nicaragua's efforts to
strengthen democracy, provide jobs and higher living
standards for its people, and deliver quality healthcare and
education to Nicaraguan families. The current USAID program
is investing $250 million over five years in support of
democracy, economic growth, health, and education. To give
an example of some of the positive effects of U.S.
assistance, this past year USAID launched an $8 million
Family Health Project which will target 1,342 rural
communities in 70 municipalities nationwide to improve health
services for approximately 100,000 women and children. In
2006, 48,929 poor rural households received food security
assistance. Activities focused on increasing the production
and marketing of high-value, non-traditional crops to
increase family incomes. Complementary feeding, maternal
health and child survival activities improved health and
nutrition in high-risk communities.

13.(U) Under the Millennium Challenge Corporation (MCC)
Compact with Nicaragua, the United States is investing $175
million over five years to expand production, reduce poverty,
and modernize Nicaragua's infrastructure in the departments
of Leon and Chinandega. The Compact features $92.8 million
to upgrade key roads and technical assistance to improve the
road maintenance capabilities of the Ministry of
Transportation. During the fall of 2006, the MCC held a
conference to attract investment to the region and worked
with the Nicaraguan Government to deliver the first 26 of
43,000 land titles to be issued under the property titling
component of the program.

New Horizons Humanitarian Assistance
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14. (U) The U.S. military is also playing a vital role in
improving the quality of life for many Nicaraguans at the
community level, currently through a $4.3 million
humanitarian program financed by U.S. Southcom, executed with
the assistance of the U.S. Embassy and Nicaraguan military
forces. This New Horizons project includes the construction
of a new school in the rural community of La Calera, in the
department of Carazo, as well as improvements in the water
quality, medical services, and
veterinary services that will provide help to the communities
of La Pita, El Sol, and Santa Teresa. Estimated U.S.
military assistance from 2006 to 2007 totals $17 million.

Security and Law Enforcement
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15. (U) The United States must continue to encourage
Nicaragua to strengthen its police and military capacity to
cope with corruption; money laundering; and trafficking in
narcotics, arms, and persons--illicit activities tied with
terrorism, gangs, and transnational crime. A breakdown in
law enforcement would pose not only a security threat, but
would also alienate investors and impede economic growth.
Consequently, sustained efforts to engage and promote
professionalization of the Nicaraguan military and police
forces, and increase civilian control of arms inventories,
are integral to U.S. pro-democracy programs in Nicaragua.

MANPADS
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16. (U) The Nicaraguan Army currently holds 1,051 MANPADS in
its official inventory. The Nicaraguan Government maintains
that it needs the MANPADS to counter national security
threats from neighboring countries. The United States has
significantly upgraded security measures where the missiles
are stored. We are working at all levels of government and
with civil society to convince the Ortega Administration
that the terrorist threat and maintenance/security costs
posed by the MANPADS far outweighs any realistic military
application.

Combating Narcotics Trafficking
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17. (U) Nicaragua is a major transit country for drugs moving
northward to the United States by land, sea, and air. In the
past, most of the drug movement has occurred on the Atlantic
Coast, a region that has served as a haven for smugglers, but
more recently, there has been increased air and maritime
trafficking along the Pacific Coast of Nicaragua. Another
area of concern is the Penas Blancas land crossing on the
Costa Rican border to the south, where more than 200 trucks
transit daily. Under an agreement with the Nicaraguan
Government established in 1997, the State Department's Bureau
of International Narcotics and Law Enforcement (INL) is
providing assistance to improve Nicaragua's National Police
(NNP) and naval interdiction capabilities. In addition to
providing technical assistance and anti-narcotics training,
the U.S. has helped recondition Nicaraguan Navy patrol craft,
particularly for drug interdiction on the Atlantic Coast.

Combating Trafficking in Persons
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18. (U) Nicaragua is a source country for women and children
trafficked internally and across borders for the purpose of
sexual exploitation, and is currently on Tier 2 of the State
Department's trafficking in persons (TIP) watch list. The
Nicaraguan government's protection efforts during the 2005
TIP reporting period showed improvements in its prevention
efforts. Progress in bringing traffickers to justice,
however, remained weak. The government needs to increase
investigations, improve victim services, and work with the
National Assembly to pass reforms that bring the penal code
up to international anti-trafficking standards. The United
States is encouraging the Nicaraguan government to improve
its record on prevention, prosecution, and protection of
victims, and is funding several pilot projects to assist
non-governmental organizations and civil society in building
capacity to help raise awareness of the trafficking
phenomenon.

Conclusion
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19. (U) Given President Ortega's social agenda and theme of
national reconciliation in addition to U.S. interests in
encouraging democratic consolidation and economic prosperity,
there is much common ground to discuss during your upcoming
visit. Continued U.S. assistance, future trade, and
investment in Nicaragua will be tied to continued progress in
a number of key areas, such as continuing progress on
property claims resolutions, reducing corruption, practicing
good governance; cooperation in combating terrorism,
narco-trafficking, and trafficking in persons; respect for
intellectual property rights; and honoring CAFTA agreements.
Your dialogue with Nicaraguan leaders, counterparts in the
National Assembly, and private sector representatives will
help demonstrate U.S. resolve in supporting peace,
prosperity, and partnership in Nicaragua.

TRIVELLI