NICARAGUA: AMBASSADOR CALLS ON FREE TRADE ZONE

C O N F I D E N T I A L SECTION 01 OF 02 MANAGUA 001374 SIPDIS STATE PASS TO USTR/QUESENBERRY E.O. 12958: DECL: 11/12/2018 TAGS: ECON EINV ETRD PREL NU SUBJECT: NICARAGUA: AMBASSADOR CALLS ON FREE TRADE ZONE COMMISSIONER Classified By: Classified by Ambassador Robert J. Callahan, E.O. 12958, 1.4 (b)(d). ¶1. (C) Summary. The Ambassador met General (retired) Alvaro Baltodano on November 3 to get acquainted and encourage bilateral cooperation on bilateral trade and investment. Baltodano assured the Ambassador that Nicaragua would participate in the "Pathways to Prosperity" meeting to be held in Panama in December, but did not know how the delegation would be composed. Despite Ortega's calls to renegotiate "asymmetries" in CAFTA, Baltodano believes that Nicaragua should pursue improvements through the existing framework of the agreement. He acknowledged the difficulties caused by President Ortega's harsh rhetoric against the United States and global capitalism, but asserted that Ortega recognizes the value of foreign investment and support. Baltodano outlined an economic development plan for Nicaragua focusing on major infrastructure projects, but offered no basis for how it would be implemented. End summary. ¶2. (C) The Ambassador met General (retired) Alvaro Baltodano on November 3 to get acquainted and encourage bilateral cooperation on bilateral trade and investment. Baltodano heads the Free Trade Zone (FTZ) Commission. Nicaragua's FTZs are populated primarily by apparel manufacturers who export to the United States under CAFTA. Baltodano also heads ProNicaragua, a quasi-government investment promotion agency. His relationship with President Daniel Ortega dates to the mid 1970s, after Ortega was released from prison. Baltodano is known to have a close, personal relationship with Ortega; he served as Ortega's campaign manager in the 2001 presidential election. Baltodano is able to reach Ortega on the telephone on short notice, and has been known to influence Ortega's thinking, at least on tactical issues. Pathways to Prosperity -------------- ¶3. (SBU) The Ambassador noted that Nicaragua was the only country invited to the "Pathways to Prosperity" inaugural event, held on the margins of the U.N. General Assembly meeting in New York in September, which failed to participate, and inquired as to Nicaragua's interest. Baltodano assured the Ambassador that Nicaragua would participate in the ministerial to be held in Panama in December. He was not sure how the Nicaraguan delegation 
would be composed, but said that he planned to go. He requested a written invitation. (Note: The Ambassador had already written to General Baltodano and Minister of Trade, Industry, and Development Orlando Solorzano informing them that the Government of Panama will send formal invitations. We are following up to make sure this happens. End Note.) CAFTA -------------- ¶4. (C) Baltodano agreed with the Ambassador that Nicaragua benefits greatly from CAFTA. He stated that he does not believe that CAFTA needs to be renegotiated, despite Ortega's calls to renegotiate "asymmetries." Baltodano does think, however, that Nicaragua can improve its lot within the framework of the agreement. In particular, he wants a relaxation of the application of the one-for-one agreement (allowing a set amount of third country fabric in apparel exports to the United States) and, for what remains, he would like to replicate the less generous two-for-one agreement recently achieved by the Dominican Republic. He referred to his October meeting to discuss these matters with U.S. Trade Representative and Department of Commerce officials in Washington, D.C. Harsh Rhetoric -------------- ¶5. (C) Baltodano acknowledged the difficulties caused by President Ortega's harsh rhetoric against the United States and global capitalism, but asserted that Ortega recognizes the value of foreign investment and foreign assistance. He cited Ortega's supportive positions with respect to ITG/Cone Denim's $100 million investment in a denim plant, the $175 million Millennium Corporation Account project in the departments of Leon and Chinandega, and U.S. assistance to the North Atlantic Autonomous Region (RAAN) in the aftermath of Hurricane Felix. That said, Baltodano confessed that his job is not to inform the President of his mistakes, but rather to solve problems as they arise. In this vein, he prefers to separate politics from trade and investment matters as much as possible, but realizes that this is not always possible. The Ambassador recognized Baltodano's successful efforts to support ITG/Cone Denim, a satisfied U.S. investor by all accounts. ¶6. (SBU) Baltodano asserted that Ortega afforded him the political space he needed to attract foreign investors to Nicaragua. At this time, Baltodano's greatest challenge is replacing the recent loss of some apparel manufacturers. He is talking to Benneton (U.S.) among other companies to fill the void. (Note: For the first time since Nicaragua created free trade zones in early 1990s, employment has dropped as a result of companies departing for Southeast Asia. End Note.) ¶7. (C) The Ambassador noted ever growing concern in the international community over narrowing political space in Nicaragua and harassment of democracy oriented non-governmental organizations. Baltodano told the Ambassador that he thought President Ortega's meeting with non-governmental organizations (NGOs) a few weeks previous went well. There were no confrontations. (Comment: Our assessment is a bit different. In the meeting, Ortega essentially held court and the NGOs listened. Accused of money laundering and political interference, donors country NGOs relations with the government have deteriorated significantly in recent months. End Comment.) ¶8. (C) EconOff commented that bilateral relations seemed to be suffering from more than just harsh rhetoric. Relations with individual ministries and agencies had deteriorated across the board. Nicaraguan ministry and agency officials often do not respond to our inquiries and initiatives, and often erect barriers to cooperation. U.S. Department of Agriculture, for example, had invited 42 Nicaraguan technical staff to attend thirteen fully paid-for training events dealing with sanitary and phytosanitary standards. None received permission to travel. (Note: After considerable lobbying on the part of the previous ambassador, two individuals did receive permission at the last minute to attend two training events in June and July. We received calls from them over the weekend to make arrangements for Monday travel. As a consequence, the participants missed at least one day of their respective programs. End Note.) Failure to attend such training events limits Nicaragua's ability to take advantage of CAFTA and develop an agricultural industry. Baltodano expressed an interest in seeing the list of applicants who had been denied. The following evening at the Embassy's U.S. election night reception, the Ambassador handed the list to him; Baltodano promised to follow up. Economic Development Plan -------------- ¶9. (SBU) Baltodano outlined his economic development plan for Nicaragua. The plan revolves around building infrastructure, managing water resources, and promoting certain industries, such as agriculture and tourism. The infrastructure portion focuses on the construction of a deep water port on the Atlantic at Monkey Point, investment in geothermal and hydro power plants, and road construction. None of his ideas are new, and he offered no reason as to why they would be implemented, now. Comment -------------- ¶10. (C) Baltodano is a voice of reason within the Ortega government, at least on economic issues; he guards engagement with us on political matters. CALLAHAN