EEB A/S SULLIVAN MEETS WITH PRESIDENT ORTEGA

UNCLAS SECTION 01 OF 03 MANAGUA 000839

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA, WHA/CEN, WHA/EPSC, WHA/AND, EEB AND EEB/TPP
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

E.O. 12958: N/A
TAGS: ECON PREL PRGOV ETRD NU
SUBJECT: EEB A/S SULLIVAN MEETS WITH PRESIDENT ORTEGA

REF: A. MANAGUA 820


B. MANAGUA 815


1. (SBU) Summary: On February 27, A/S Sullivan met with
President Ortega and members of his cabinet at FSLN
headquarters. The entire ninety minute meeting was covered
on live television. A/S Sullivan delivered a positive
message centered on the U.S. strategy of Total Economic
Engagement (TEE * applying and integrating all economic
tools in our bilateral relationship with Nicaragua * and
delivering real results for Nicaragua.) He emphasized that
maintaining a vibrant democracy, open markets, improved
business climate, respect for private property, and the
sanctity of contracts are critical to ensuring continued
investment, increased trade, and poverty reduction. Ortega
stated at the outset that he valued the U.S. economic
relationship and wanted to deepen it. He supported economic
reforms, greater investment, and taking further advantage of
CAFTA and MCC, but also lamented that these programs and
approaches were not delivering sufficient poverty relief.
A/S Sullivan stressed the link between anchoring democracy
and continuing economic reforms to meet Ortega's economic
growth and poverty reduction goals. Ortega concluded that
while social and economic change does require democracy,
"real democracy" comes only after social and economic change
and is better instituted through citizens councils. End
Summary


2. (U) On February 27, A/S Sullivan capped off his day in
Nicaragua with a ninety-minute meeting with President Ortega.
President Ortega was flanked by the First Lady, Vice
President, and nine ministers, agency directors and
presidential advisors. Among those in attendance were
Minister of Foreign Affairs Samuel Santos, Presidential
Advisor on Economic Issues Bayardo Arce, National Policy
Advisor Paul Oquist, the President of the Free Trade Zone
Commission, and the Ministers of Agriculture and Trade.

Atmospherics: A different meeting in a unique location
-------------- --------------


3. (U) The meeting was held at FSLN headquarters, from which
President Ortega currently governs. The "kiosk room," as it
is called, sports walls decorated in an assortment of
abstract shapes and symbolic designs in a multitude of bright
primary and secondary colors. On the wall behind President
Ortega was a design combining native American and Asian
cultural symbols all centered around a Hand of Fatima with an
evil eye in the center. All twenty attendees sat around a
large, square, glass topped, violet wicker table sitting in
matching violet wicker arm chairs (envision 1970s hippie
motif combined with 1980's disco decor.) Behind the table
were seven rows of chairs upholstered in multi-colored
fabric, filled with members of the media.


4. (SBU) President Ortega was flanked by the First Lady, Vice
President and nine ministers, agency directors and
presidential advisors. Among those in attendance were
Minister of Foreign Affairs Samuel Santos, Presidential
Advisor on Economic Issues Bayardo Arce, National Policy
Advisor Paul Oquist, the President of the Free Trade Zone
Commission, and the Ministers of Agriculture and Trade. As
President Ortega's speech dragged on, the Ministers became
distracted. Santos took a nap behind his hand and then got
up to pace behind the president, eventually standing against
a wall. Arce soon got up to join him and they both chatted
with First Lady Murillo. The First Lady spent her time
issuing orders to her assistants and passing notes to
ministers, paying little attention to what her husband was
saying. Members of the press would periodically check that
their recording equipment was on, but otherwise, socialized
throughout Ortega's speeches. The only Nicaraguan thoroughly
engaged in Ortega's exposition was former American citizen,
now Nicaraguan, Paul Oquist, who listened through our
interpretation receiver and took extensive notes. Whenever
A/S Sullivan spoke, however, every member of President
Ortega's team, especially the First Lady, paid close
attention.

Total Economic Engagement Yielding Real Results
-------------- --


5. (U) President Ortega opened the meeting by pledging to
continue to deepen trade and economic relations and to "lay
the foundation for continuing cooperation between our
countries." A/S Sullivan overviewed his full day of meetings
with GON officials and site visits, including the
Seminole-owned cattle ranch, INCAE, and the ITG Cone-Denim
site. A/S Sullivan emphasized that the staff of the ITG
Cone-Denim site stated that their $100 million investment
which will directly and indirectly employ thousands of
Nicaraguans would not have happened without CAFTA. He stated
that the U.S. is committed to a partnership with Nicaragua to
achieve economic growth and poverty reduction while anchoring
democracy in the region. A/S Sullivan then highlighted U.S.
Total Economic Engagement in Nicaragua, including CAFTA,
USAID's $200 million in programs over five years, the $175
million MCC compact, critical debt relief, OPIC's work on
housing and infrastructure development and potential
cooperation in the energy field, particularly biofuels. He
stated that we are seeing real results from CAFTA and our
integrated Total Economic Engagement strategy: exports are up
24 percent in less than a year under CAFTA, bringing total
Nicaraguan trade to the U.S. to $1.5 billion, and foreign
investment is increasing. He pointed out that Total Economic
Engagement entailed partnership. To take advantage of
opportunities provided under CAFTA, the MCC and other
programs the GON needs to continue to institute reforms,
including in areas such as business registration, tax
collection, property rights, and investment disputes. The
A/S concluded urging reform in these areas in partnership
with the U.S. to together move forward the GON's economic
growth and poverty reduction agenda.


6. (U) Ortega mentioned that he was pleased with the Seminole
tribe's investment which he stated would incorporate social
programs needed to attack poverty. Ortega reviewed the
economic issues facing Nicaragua, including: extensive
poverty, investment without "redistributing profits," the
effect of CAFTA on small farmers, the larger role for
companies beyond creating jobs, CAFTA vs. the Venezuelan
Bolivarian Alternative for the Americas (ALBA),the proposed
free trade negotiations with the EU, the low level of MCC
funding in comparison to other countries, energy companies
not meeting terms of contracts, Venezuelan help with the
energy crisis, alternative energy including biofuels,
progressive tax reform and the overuse of tax exemptions, the
relationship between property rights and land redistribution,
privatized companies underperforming, and health and
education challenges. Ortega stressed that the GON was
complying with its international commitments, including by
building the access road to ITG Cone-Denim. He noted that in
order to eliminate extreme poverty, the GON needed to
encourage projects such as the large textile factory, but
also to provide incentives for small producers that are
"disadvantaged under CAFTA." He lamented U.S. corn subsidies
and the rise in price of that commodity due to increasing
demand for biofuels, but stated that there was much potential
in Nicaragua for alternative energy investment, including in
sugar-based ethanol.


7. (SBU) On each of the economic issues A/S Sullivan raised,
President Ortega began with a positive statement reflecting
pragmatic thinking in line with U.S. policy, but would then
add one or more Sandinista caveats. The "negative effect" of
the economic policies, claimed Ortega, on Nicaragua's poverty
now required the FSLN to take a different approach.
President Ortega criticized CAFTA for being a series of
bilateral agreements, which therefore worked against the
Central American Customs Union, which is negotiating an FTA
with the EU that will include a "compensation fund."
Although he admitted that there had been some unexpected
successes with CAFTA, such as yellow corn, it was still not
reaching the small producers and was hurting others. He
called for a regional fund to "equalize the playing field"
between Nicaragua and other Central American countries and
the U.S. He also spoke about the GON's planned program to
provide the rural poor with land, cows, pigs and chickens.


8. (SBU) In responding to A/S Sullivan's argument that the
Nicaraguan government should do more to enact micreconomic
reforms and shorten the time needed to start businesses,
President Ortega agreed that the GON should do more to limit
red tape. However, President Ortega's views on the private
sector and its relationship with the government revealed an
expectation that companies investing in Nicaragua should
share profits with the employees and spend more on social
investment. In reference to the Spanish Ambassador's recent
statements in support of the Spanish energy distributor Union
Fenosa, President Ortega argued that ambassadors had no role
in advocating for private companies. In his view, the
private companies in the energy sector created the current
crisis by not meeting the terms of their contracts. He
affirmed that all contracts and concessions could be reviewed
at any time by the GON to ensure the terms were being met; if
they were not, they would be canceled. He stated that after
years of privatization and neo-liberalism there has been
economic growth, but poverty and illiteracy still remain. He
mentioned that he appreciated U.S. assistance, especially in
the health field, but stressed continuing challenges in this
area.

Democracy and Growth
--------------


9. (U) A/S Sullivan responded to President Ortega's criticism
of the social impact of privatization and neo-liberal
policies by stressing that U.S. companies carry out
investment in a socially responsible way. He noted that the
USAID-supported public private-partnership, "Nicaraguan
Handicrafts for Export Alliance" which he signed that day was
a great example of the U.S. promoting partnerships with small
businesses to get these goods to markets. He emphasized the
important role that democratic reform and rule of law have on
private sector growth and the alleviation of poverty. He
repeated the integral role that the sanctity of contracts and
open and transparent government play in building an economy
that grows enough to lift people out of poverty. A/S
Sullivan also stressed that the MCC Compact had benchmarks -
including indicators on economic freedom - that the U.S.
views as imperative to maintain eligibility and help
encourage greater FDI. He noted that the U.S. shares the
challenge of energy security and that President Bush was
focused on biofuels, featuring the topic in his State of the
Union Address. He re-emphasized his search for potential
areas of cooperation to help Nicaragua in this effort to grow
economically, highlighting alternative energy and the local
potential for bio-fuels as examples. A/S Sullivan concluded
by stressing that continuing to anchor democracy was integral
to taking advantage of the moment of opportunity on the
economic front, and that the ability to continue to improve
the business climate, increase growth, and attract greater
FDI could not be divorced from political developments and a
sustained commitment to democracy.


10. (SBU) President Ortega responded that while social and
economic change does require democracy, "real democracy"
comes only after social and economic change. He highlighted
how direct democracy, through his citizen councils, will be
the best way to ensure this. The members of the councils
(chosen by the FSLN and lead by party loyalists with the rank
of Ministers) would not only present ideas and engage in
dialogue with the GON, they would propose laws and assistance
projects which the GON would push through the National
Assembly. The councils would also serve as the "inspector
generals" by tracking whether the GON championed their ideas
and opinions. Ortega concluded by thanking A/S Sullivan for
his visit.

Comment
--------------


11. (SBU) It was not clear how much President Ortega's
comments were targeted at A/S Sullivan or the public watching
him on television. He used the occasion to deliver messages
on a range of issues. Headlines the next day focused on
President Ortega's criticism of the Spanish Ambassador's
advocacy for Union Fenosa, rather than on A/S Sullivan's
visit. Ortega appeared to be seeking common ground on the
laundry list of economic issues he raised; that he had his
entire cabinet present underscored the importance he placed
on the U.S.-Nicaragua economic relationship. With media in
attendance, he also was playing to the public. Continued
promotion of our Total Economic Engagement strategy, centered
on CAFTA and the MCC Compact is producing real economic
results, and should help restrain any dramatic shifts on the
economic front. End Comment.


12. (U) A/S Sullivan cleared on this cable.
TRIVELLI