NICARAGUA: TRANSPORTATION STRIKE ENDS WITH A

C O N F I D E N T I A L MANAGUA 000665 SENSITIVE SIPDIS STATE FOR WHA/CEN, WHA/EPSC, EEB/TRA, INR/IAA E.O. 12958: DECL: 05/20/2018 TAGS: ELTN ECON ELAB EFIN PGOV NU SUBJECT: NICARAGUA: TRANSPORTATION STRIKE ENDS WITH A SUBSIDY REF: A. MANAGUA 611 ¶B. MANAGUA 578 Classified By: Ambassador Paul A. Trivelli for reasons 1.4 (b,d) ¶1. (C) Summary: On May 16, President Daniel Ortega announced a package of measures which successfully ended the national transportation strike (Refs A and B). The Government of Nicaragua's (GON) principal concession is a $1.30 per gallon subsidy for the transport sector on the purchase of diesel and gasoline to be funded through unspecified ALBA sources. Transport unions and collectives quickly accepted Ortega's offer, and abandoned the strike en masse. Speculation exists that the subsidy will instead be financed through a rise in gasoline prices for other consumers. The land shipping sector was specifically excluded from the settlement, unless it submits to government oversight and rate regulation. Meanwhile, a black market in subsidized gasoline has already emerged. In the end, Ortega still confronts a potential loss of political strength, plus a slippery slope of new entitlement demands, renewed strikes, and implementation woes linked to his hastily conceived subsidy proposal. End Summary. Fuel Price and Other Concessions -------------- ¶2. (U) Late on May 16, President Daniel Ortega announced measures, accepted by the National Transport Coordinators, the principal organization representing strikers, to end the 12-day-old national transportation strike, offering a $1.30/gallon subsidy on gasoline and diesel. This offer followed a nationally televised presidential address only two days earlier in which Ortega had refused to concede more than a $0.50 per gallon subsidy for bus, taxi, and public transport operators throughout the country. Of this, $0.30 was to be funded from ALBA funds and $0.20 from the national budget, i.e., if approved by what most would characterize as a very uncooperative National Assembly. The difference between the old and new offer is to come from Venezuelan ALBA petroleum subsidies. ¶3. (U) According to Ortega, at $3.15/gallon, Nicaragua will have the cheapest gasoline in Central America for the transport industry. He quoted per gallon prices in Honduras ($3.79),Costa Rica ($4.20),Guatemala ($4.22),and El Salvador ($4.31) to make his point. The subsidized fuel will be offered at 61 service stations throughout the country, including all national Petronic and some Shell stations. ¶4. (U) Other measures to help the transport industry include the immediate importation of 25,000 tires, 5,000 batteries, and lubricants for buses and taxis, financed on favorable two-year terms with an interest rate not exceeding 8%. Ortega did not specify who will import the goods or provide financing. In similar fashion, Ortega pronounced the importation and financing of 750 electronic bar-code readers to monitor passenger loads for intra-city Managua collectives, and 3,000 conversion kits to enable taxis to use natural gas as fuel. Finally, working groups -- including transport, industry, wholesale, and retail trade representatives, as well as fuel distributors -- are supposed to develop additional proposals to address rising fuel prices. ¶5. (U) Transport unions and collectives quickly accepted Ortega's offer, and abandoned the strike en masse, but have not yet been fully vindicated. The important ground shipping sector is not included in the subsidy offer (see Paragraph 9),nor have all strikers detained in various departments around the country been released from jail. Skepticism remains as to how or even if the subsidy will be fully implemented. The Costs of the Strike -------------- ¶6. (U) Jose Aguerri, Director of the Federation of Nicaraguan Business Associations (COSEP),estimated that the national economy lost nearly $20 million as a result of the strike. Apparel manufacturers in the free trade zones may have suffered the most, particularly if some of their customers had decided to go elsewhere to contract orders during the 12 day hiatus. While transport unions threaten additional strikes should the government not follow through on Ortega's promises, Aguerri points out that the economy cannot sustain another strike without severe damage. Off Balance Sheet Financing and Black Markets -------------- ¶7. (C) Funds from the oil deal with Venezuela (ALBA funds), which Ortega claims amounted to as much as $520 million in 2007 -- one-third of the national budget or 10% of national GDP, -- are a subject of much conjecture and suspicion. Though Ortega discussed ALBA financing of the new national transport subsidy, speculation exists that the subsidy will actually be financed through an increase in gasoline prices for other gasoline consumers. (Note: The $520 million figure for ALBA funding in 2007 that Ortega brandished is unsubstantiated. Other reports put the figure closer to $135 million for 2007.) ¶8. (C) The subsidy appears to be a hastily and ill-prepared offer. As of May 22, many gasoline stations could not deliver fuel at subsidized prices, and those who did had long lines with which to contend. Some station attendants request vehicle plate and driver identification information, others do not. Proposals to control access to the subsidy include use of specially provided electronic operating cards, quotas established per trip by pre-arranged route, or each cooperative being assigned service stations. In the meantime, a black market in subsidized gasoline has already emerged, with transport operators driving from station to station, filling up with gasoline, only to empty the tank for black market resale. Land Shipping Sector Excluded -------------- ¶9. (SBU) Ground shipping was specifically excluded from the settlement, unless the sector agreed to submit to government oversight and rate regulation. Nevertheless, Roberto Delgadillo, President of the Nicaraguan Transport Association, a leading cargo association, quickly joined his colleagues in calling off the strike. Without relief, however, ground shipping prices could rise as much as 40% in the near future. While negotiations are supposed to continue within the President's working groups, President of the Federation of Transport Collectives Antonio Betanco complains that, at the department level, working groups are made up of members of Ortega's Citizen Power Councils and Sandinista party members, thus adding a political quotient to negotiations. In the mean time, the transport issue is off the national radar screen. Comment -------------- ¶10. (C) In a nationally televised address on May 14, Ortega stated his unequivocal intention not to offer more than a $0.50 per gallon subsidy. Two days later, he backed down. Whether this retreat shows weakness or political incompetence depends on one's viewpoint, but Ortega's mention of ALBA cash in the May 14 speech to the nation certainly gave strikers ample reason to hold firm for a better deal. Having shown his willingness to open his ALBA strong box when things get tough, Ortega may also have opened the floodgates for others who are looking for ALBA-funded entitlements. From any vantage point, Ortega's subsidy scheme demonstrates poor operational foresight; nobody on the street knows how it will be implemented. Meanwhile, the specter of a renewed strike by ground shippers looms. Ironically, they received almost nothing out of the strike settlement, even though they forced the issue for the rest of the sector. TRIVELLI