TAIWAN-NICARAGUA RELATIONS: BUSINESS SAVES THE DAY?

C O N F I D E N T I A L SECTION 01 OF 02 TAIPEI 000214 SIPDIS SIPDIS E.O. 12958: DECL: 01/23/2032 TAGS: PREL TW SUBJECT: TAIWAN-NICARAGUA RELATIONS: BUSINESS SAVES THE DAY? Classified By: AIT Deputy Director Robert S. Wang, Reason 1.4 (b/d) ¶1. (C) Summary: Nicaraguan Consul General Armando Boza is cautiously optimistic about the future of Taiwan-Nicaragua relations, predicting that Managua will probably maintain diplomatic ties with Taipei for at least another year. Despite making a pre-election pledge to switch recognition to Beijing, President Ortega for now cannot afford to alienate Taiwan and its extensive business investments by turning immediately to Beijing. With Ortega in power, however, Beijing is likely to intensify efforts to woo Managua and is expected to establish a Commerce and Trade Office and a China News Agency office there sometime this year. End Summary. ¶2. (C) Consul General of Nicaragua Armando Boza told AIT on January 23 he is "cautiously optimistic" about the future of Nicaragua's political stability and economic development under President Daniel Ortega. Although initially disappointed that Ortega won the presidential race last year, Boza assessed that Ortega's statements so far signal an intent to remain quiet and low-key when it comes to political reform. Ortega's top priority is improving Nicaragua's economy. As president of the second poorest country in Latin America, Boza continued, Ortega needs to deliver on his election promise to lower unemployment. Pushing a leftist political agenda would only undermine the country's delicate economic recovery. ¶3. (C) Because of these economic calculations, Managua will likely maintain its diplomatic ties with Taiwan for the "foreseeable future," at least another year, Boza predicted. Despite making a pre-election pledge to switch recognition to Beijing, Ortega for now cannot afford to alienate Taiwan and its extensive business investments. Taiwan has 18 large-scale textile and clothing factories in Nicaragua and runs substantial medical and agricultural assistance programs. By breaking off diplomatic relations with Taipei, Ortega would risk driving Nicaragua into a recession if Taiwan companies decided to pull out. ¶4. (C) Taiwan Ministry of Foreign Affairs Assistant Director-General for Economic and Trade Affairs Andrea Lee (Hsin-yeh) also told AIT on January 23 that Taiwan-Nicaraguan ties are secure for at least the remainder of the year. Lee characterized Taiwan's ability to maintain formal diplomatic recognition in the face of PRC pressure as a foreign policy "victory" made possible by the Taiwan business community. Lee acknowledged that MOFA officials, including Taiwan's ambassador to Nicaragua, had done a poor job of building relations with Ortega ahead of his electoral victory. Rather, Taiwan chose to support ALN-PC candidate Eduardo Montealegre. Taiwan businessmen, on the other hand, had built up extensive ties to Ortega and the Sandinistas in order to "get things done" in the Nicaraguan National Assembly. Because of these ties, the Taiwan business community was able to serve as a bridge between Ortega and the Taiwan government, Lee explained. ¶5. (C) Taiwan, the largest foreign investor in Nicaragua, dominates Nicaragua's large textile and labor-intensive industries, providing much employment in the local economy. Lee suggested Taiwan's economic leverage in part makes Ortega reluctant to switch recognition to Beijing immediately. At a minimum, it would take Beijing 3-5 years to be able to fill the void left by Taiwan companies if they pulled out. Taiwan business, he explained, has invested in Nicaragua to take advantage of CAFTA and special low interest loans from the Taiwan government. Taiwan government support to business would probably cease if Nicaragua switched recognition, increasing the incentive for Taiwan companies to relocate factories to neighboring countries. ¶6. (C) Lee suggested that with Ortega in power Beijing will intensify efforts to woo Managua. By the end of the year the PRC will probably establish a Commerce and Trade Office and a TAIPEI 00000214 002 OF 002 China News Agency office as it has done in Panama. Beijing is expected to work on boosting Chinese economic investment and to launch various assistance programs. Consul General Boza predicted that Beijing will also continue to use Mexico as a base to expand its economic interests in the region, especially with Taiwan's diplomatic partners. Comment -------------- ¶7. (C) Although buoyed by their small victory in holding onto Nicaragua despite Ortega's inauguration as President in January, Taiwan diplomats have no room to breathe easy. With a circle of diplomatic partners that has now dwindled to 24, Taipei is likely to face intensified pressure from Beijing, particularly in Central America where 12 countries currently recognize Taiwan. YOUNG