NICARAGUA'S CENIS- DEBT RENEGOTIATED, BUT

C O N F I D E N T I A L SECTION 01 OF 02 MANAGUA 000880

SIPDIS

STATE FOR WHA/CEN, WHA/AND, WHA/EPSC, INR/IAA AND EEB/OMA
STATE PASS TO OPIC AND USOAS
DEPT FOR USAID/LAC
DEPT ALSO FOR CA/VO/L/C
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

E.O. 12958: DECL: 07/09/2018
TAGS: EFIN ECON PGOV NU
SUBJECT: NICARAGUA'S CENIS- DEBT RENEGOTIATED, BUT
PERSECUTIONS JUST BEGINNING

REF: A. MANAGUA 808

B. MANAGUA 481

C. MANAGUA 450

D. MANAGUA 443

Classified By: Ambassador Paul Trivelli for reasons 1.4 b&d


1. (C) Summary: On July 7 Special Prosecutor Armando Juarez
filed formal accusations against 39 people for "crimes
against the economy of the country, fraud, and influence
peddling" in connection with the bailout of Nicaragua's
banking system and attendant issuance of bonds, originally
known as Negotiable Investment Certificates (CENIs). This
list of those accused includes opposition leader Eduardo
Montealegre and several former Central Bank Presidents and
Finance Ministers. Reports are that the final list was
scrubbed by President Ortega himself before its release.
Meanwhile, on July 4 the Central Bank and Bancentro signed a
final CENIs renegotiation agreement with the same terms as
BanPro had agreed to in June (Ref A). The combined
renegotiations will save the GON between USD 30-40 million in
net present value (NPV) terms. End Summary.

Let the Circus Begin ...
--------------


2. (U) On July 7 the Office of the Prosecutor General's
Special Prosecutor for the CENIs case Armando Juarez filed
formal accusations against 39 individuals for "crimes against
the economy of the country, fraud, and influence peddling,"
in connection with the bailout of Nicaragua's banking system
and attendant issuance of bonds, originally known as CENIs.
He requeS_d+QQ1}b&Q^%rFel restrictions for the
duration of the case. The list of accused includes Former
Finance Minister and opposition Managua mayoral candidate
Eduardo Montealegre (the country's most popular opposition
political figure),former Finance Ministers Esteban Duque
Estrada and Mario Flores, former Nicaraguan Central Bank
(BCN) Presidents Noel Ramirez and Mario Alonzo, former
Superintendent of bank Noel Sacasa, current BCN General
Manager Jose de Jesus Rojas, current BNC Financial Manager
Carlos Cerda, current BCN Legal Manager Juan Jose Rodriguez,
current Director of the Deposit Insurance Agency Vilma Leon
York and shareholders of Bancentro and BanPro, including the
President of La Prensa's (right of center daily) Board of
Directors Jaime Chamorro Cardenal. Most of these accused are
former members of the previous Bolanos administration.


3. (C) The Prosecutor General had intended to file the
charges last week, but reportedly had to delay because of
last minute consultations with the Presidency over who should
be on the list. Sources indicate that the Presidents of
Bancentro and BanPro, Roberto Zamora and Ramiro Ortiz Sr.,
were taken off the list by direct order from President
Ortega. Former President Bolanos was also on the preliminary
list of accused, but later was removed. The focus of the
Ortega government's accusations continues to be Eduardo
Montealegre (Ref C). The Special Prosecutor claims that each
of the accused played some role in the original issuance of
the CENIs in 2000-2001, the 2003 renegotiation of the CENIs
(which while it reduced Nicaragua NPV CENIs debt, did
increase nominal payments),and in the valuation and
liquidation of the failed banks' assets.


4. (U) In an effort to stall the impending indictments, on
July 3 Eduardo Montealegre filed a formal request that
Special prosecutor Juarez be removed from the case.
Montealegre cited Juarez' role as legal counsel for Francisco
Mayorga, president of one of the failed banks who was tried
and convicted for his role in the failures, as a conflict of
interest. (Note: Mayorga ended up only serving two years of
his nine year sentence. End Note) Montealegre also stated
that Juarez is a nephew of Ortega's former state Security
director and FSLN Political Director Lenin Cerna, and has
strong ties to the FSLN. On July 4, without denying any of
Montealegre's accusations, Deputy Prosecutor General Ana
Julia Guido (also a loyal FSLN member) dismissed
Montealegre's request to remove Juarez. The next legal steps
will include a review of the evidence and possible further
investigation by the criminal court judge. The judge
assigned to the case is Julio Cesar Arias, a member of the
FSLN who issued the sequestration orders on Bancentro and
BanPro's CENIs in April.

... While the Financial Cliffhanger is Resolved
-------------- --


5. (U) While the prosecution was getting started, on July 4
BCN President Rosales and Bancentro Executive Director Julio
Cardenas signed a final agreement for the renegotiation of
the remaining USD 31.4 million in CENIs. The terms are
exactly the same as those negotiated with BanPro in June (Ref
A); bonds with 20 year maturities, paying at 5% for the first
15 years and 5.25% percent for the last five. The 2008
payments due to Bancentro will be reduced from USD 7.3
million to just under USD 1 million. Overall, the GON has
reduced its CENIs debt load by 26.4% in net present value
(NPV) terms, according to BCN President Rosales. The IMF
reports that the NPV savings on both renegotiations will be
USD 30-40 million. Rosales will now formally request the
lifting of the sequestration order on Bancentro's CENIs, just
as he did with BanPro's. (Note: The BanPro CENIs were
officially released from sequestration on June 19. End Note.)

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


6. (C) Few would disagree that the FSLN is determined to use
the CENIs case as the basis for a political witch hunt. The
charges represent the first formal step in Ortega's efforts
to bring down members of the former Bolanos administration
still operating prominently in Nicaragua's political and
financial arena. Deputy Prosecutor Guido has admitted that
the main source of Juarez' investigation, and the basis of
the charges lodged against the group of 39, is the 2006
report by the National Assembly's Ethics Committee, headed by
PLC Deputy Donald Lacayo Nunez. Lacayo, at the time a
fervent supporter of former president and convicted felon
Arnoldo Aleman, and his Committee had little understanding of
banking or finance, which resulted in a report that was more
political than technical in nature.


7. (C) Settling the issue of whether the government will
honor its debt to BanPro and Bancentro should calm
international concerns about growing risk to Nicaragua's
financial sector for the time being. However, it has not
escaped public notice that BCN President Rosales has just
concluded renegotiating agreements in exactly the same manner
as had Montealegre and former BCN officials who are now
accused of wrongdoing. Several prominent economists, from
both sides of the political fence, have pointed out that if
Montealegre is convicted, the GON may have grounds to
invalidate Rosales' just concluded negotiations. Thus, the
specter of the GON reneging on its payment promises remains.
Indeed, Ortega's public statements on the CENIs reflect this
paradox. In one breath, he publicly praised the
renegotiation during a July 6 rally, but in the next stated
that all those accused in the case "should go to jail."

TRIVELLI