Identifier
Created
Classification
Origin
07TAIPEI1485
2007-06-29 10:01:00
CONFIDENTIAL
American Institute Taiwan, Taipei
Cable title:  

TAIWAN BATTLES TO HOLD ON IN CENTRAL AMERICA

Tags:  PREL TW XK 
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C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001485 

SIPDIS

SIPDIS

E.O. 12958: DECL: 6/04/2032
TAGS: PREL TW XK
SUBJECT: TAIWAN BATTLES TO HOLD ON IN CENTRAL AMERICA
FOLLOWING LOSS OF COSTA RICA

REF: A. TAIPEI 01273

B. TAIPEI 01483

C. TAIPEI 01154

D. TAIPEI 01283

Classified By: AIT Deputy Director Robert S. Wang,
Reasons: 1.4 (b/d)

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001485

SIPDIS

SIPDIS

E.O. 12958: DECL: 6/04/2032
TAGS: PREL TW XK
SUBJECT: TAIWAN BATTLES TO HOLD ON IN CENTRAL AMERICA
FOLLOWING LOSS OF COSTA RICA

REF: A. TAIPEI 01273

B. TAIPEI 01483

C. TAIPEI 01154

D. TAIPEI 01283

Classified By: AIT Deputy Director Robert S. Wang,
Reasons: 1.4 (b/d)


1. (C) Summary: Central America remains a major focus of
Taiwan's diplomatic and foreign assistance programs following
the loss of Costa Rica. Over half of Taiwan's foreign
assistance is channeled to Central America, where six
countries still recognize Taipei, and to the Caribbean, where
Taiwan has five diplomatic partners. Costa Rica's recent
decision to switch recognition from Taipei to Beijing has
raised serious concerns here about Taiwan's long-term ability
to compete against a "rising China." Taiwan MOFA officials
see Nicaragua and Panama as potentially most likely to follow
Costa Rica's lead in switching recognition to Beijing.
Nevertheless, Taiwan still enjoys some competitive advantages
in the region stemming from well-received business
investment, assistance programs, and participation in a
regional development bank. President Chen and Vice President
Lu are scheduled to travel to Central America this summer to
help strengthen ties with Taiwan's remaining allies there.
End Summary.

Central America the Key Battle Ground
--------------


2. (C) Accounting for a quarter of Taiwan's 24 diplomatic
partners, Central America has garnered the lion's share of
Taiwan foreign assistance and diplomatic attention over the
past two decades. Over half of International Cooperation and
Development Fund (ICDF),Taiwan's USAID equivalent,
assistance is channeled to Central America and the Caribbean
(Ref A). Taipei is also closely integrated into regional
financial institutions, such as the Central America Bank for
Economic Integration (CABEI),and is one of the largest
providers of financial and humanitarian assistance to the
region. Taipei's stepped-up engagement with Central America
dates to the early 1990s, when Taiwan developed a
multilateral approach to solidify its diplomatic and economic
ties with allies. Taipei is now attempting to replicate
those efforts in Africa and the South Pacific (Refs B & C).


3. (C) Panama Ambassador Julio Mock recently told AIT that

the strength of Taipei's engagement with Central American
countries is based on its participation in regional banks,
such as CABEI, and in regional fora, including the SICA
(System of Central American Integration). Mock said that the
May meeting in Belize between Taiwan and Central American
foreign ministers was a good example of regularized
multilateral exchanges that focus on financing new and
ongoing development projects in the region. Mock stated that
Taipei pours millions of dollars into individual countries
and regional projects, for example by contributing USD 150
million to the founding of CABEI in the early 1990s and
continuing contributions of about USD 20 million a year to
the bank. Mock noted that the interest earned by Taiwan's
loans and financing projects is then used to fund the
operations of the Central America Trade Association in Taipei
to encourage Taiwan investment in the region.

Costa Rica: A Linchpin Removed?
--------------


4. (C) Costa Rica's decision to switch recognition from
Taipei to Beijing in early June, however, has raised serious
doubts about Taipei's ability to compete against a "rising
China." (Ref D) Despite Taiwan's success in wooing
recognition from tiny Saint Lucia in May, the Costa Rica

TAIPEI 00001485 002 OF 003


switch reduces the overall number of diplomatic partners to
24, down from 29 when President Chen took office in 2000.
Foreign Minister James Huang (Chih-fang) told AIT that Taipei
is deeply concerned about its shrinking international space,
particularly after the loss of Costa Rica. Despite his
public announcements that the loss would not have a "domino
effect" on Taiwan's remaining Central American allies, Huang
said privately he is much less confident that Taiwan can hold
on all of its remaining Central American partners, given
China's growing influence and the leftist political tilt in
Latin America. Huang noted that his ministry will be under
great pressure over the next 3-6 months to prevent any
additional diplomatic losses as it works to shore up
relations in the region.


5. (C) Tamkang University Professor Kung Kwo-wei told AIT
that Costa Rica was the "centerpiece" of Taiwan's diplomacy
in the region. Its loss represents a "major blow" to Taiwan
both economically and symbolically because Beijing now has
another base besides Mexico in the region from which to
continue efforts to undermine Taipei's position. Outgoing
Costa Rica Ambassador to Taipei Mario Chea told AIT before
the break that despite enjoying over 60 years of close
relations with Taipei, San Jose simply could "not ignore"
Beijing. Chea said that Taiwan had on numerous occasions
implored Coast Rica to slow its trade with China, but he
observed, "If Taiwan companies do business with the PRC, why
can't Costa Ricans?" Chea complained that Taipei has done
little to increase Taiwan direct investment in Costa Rica
from the levels reached 20 years ago, explaining that the
trend has actually gone in the opposite direction with
textile factories moving out to neighboring countries with
lower labor costs.


6. (C) Despite the loss of Costa Rica, Professor Kung
Kwo-wei suggested that other Central American allies are
unlikely to recognize Beijing in the near term out of concern
to maintain their own foreign relations stable. Kung
explained that each country in Central America has its own
particular interests in maintaining relations with Taiwan.
If a key partner such as Costa Rica or Panama switches
recognition to Beijing, however, it does encourage other
Central American states to begin reassessing their
relationship with Taipei, Kung added.

The Fight is On for Nicaragua and Panama
--------------


7. (C) Taiwan MOFA officials see Nicaragua and Panama as
the most likely countries in the region to follow Costa
Rica's suit. Foreign Minister Huang admitted that Nicaragua
is now Taiwan's most tenuous relationship in the region. He
revealed that during his May visit to Managua President
Ortega said he was facing strong pressure from his party, as
well as urging by Castro and Chavez, to establish diplomatic
ties with Beijing. Huang believed he had managed to convince
Ortega, for the moment, that keeping ties with Taipei sends a
positive message to the U.S. and others that the Ortega
administration values stability. Huang explained that
Taiwan, as Nicaragua's largest foreign investor whose
companies employ about 25,000 people, has more economic clout
there than in Honduras or Guatemala. Taiwan has pledged to
work with Ortega on poverty alleviation programs and to help
Nicaragua expand its production of electric power.


8. (C) Heading the drive to keep Taiwan's remaining allies
on board, President Chen Shui-bian is scheduled to attend a
heads-of-state summit August. Vice President Annette Lu will
be making her own trip to the region next week, visiting
Paraguay for the 50th anniversary of Paraguay-Taiwan
relations and stopping in the Dominican Republic, Guatemala
and perhaps Panama. Foreign Minister Huang told AIT that he

TAIPEI 00001485 003 OF 003


would also be sending a "special envoy" to the region soon to
help shore up relations. As part of those efforts, Taipei
has also appointed a new ambassador to Nicaragua.


9. (C) Professor Kung said that despite Nicaragua's
potential vulnerability after the election of President
Ortega, Taiwan's strong business presence and generous
financial assistance are too important for Ortega to ignore.
Panama, on the other hand, has seen growing investment by
Beijing in the canal and associated service sectors, and
could be more susceptible, Kung suggested. Panama, like
Costa Rica, has the ambition to serve as the "Switzerland" of
the Americas and as such might find it advantageous for
strategic reasons to eventually go with Beijing.


10. (C) Panamanian Ambassador Julio Mock told AIT that
Panama-Taiwan relations remain solid and are not expected to
change under the current president's term, which expires in

2009. While China is a big market, Mock acknowledged, Panama
finds it easier to work on trade issues with a small country
like Taiwan, which is more willing to fund regional
development projects. Mock noted that an important component
of Panama's continuing support for Taipei is its belief that
the U.S. implicitly supports such a position.

An Uphill Struggle for Taiwan?
--------------


11. (C) Despite Taipei's loss of Costa Rica, Taiwan still
enjoys some advantages as it competes with Beijing in the
region. As the number of its diplomatic partners has
dwindled, Professor Kung noted, Taipei is better able to
focus its attention and assistance on those countries that
remain in its camp. Also, according to Kung, Taipei has
proven more capable than Beijing in following through on
promises of aid and investment. Countries like Honduras,
Nicaragua, and Guatemala, moreover, are poorer than Costa
Rica and Panama. Their economies are dependent on exports,
particularly of textiles, to the U.S. and compete directly
with products from China. As a result, the economic
incentives for working with Beijing are weaker in those
countries. Overall, however, Taiwan faces an uphill battle
as the initiative it announced in 2004 to promote FDI by
Taiwan businesses in the region has so far resulted in the
approval of only one company going in under this program.
Kung complained that MOFA so far has so far been doing only
the absolute minimum to retain relations.


12. (C) Taipei is also attempting to deploy new approaches
aimed at expanding its multilateral work and assistance
programs in the region. ICDF Policy Planning Director Chou
Yen-shin told AIT recently that ICDF is taking a "bottom up"
approach in hopes of engaging USAID, NGOs, and other U.S.
providers of foreign assistance in regions where Taiwan has
diplomatic partners. Chou, a DPP political appointee sent to
ICDF in 2004 to raise its profile, claimed that ICDF does not
aim to "politicize" such exchanges but seeks to boost its
image as a responsible donor of aid and assistance programs.
YOUNG