Identifier
Created
Classification
Origin
09MANAGUA173
2009-02-13 20:41:00
CONFIDENTIAL
Embassy Managua
Cable title:  

NICARAGUA: ORTEGA TIGHTENS HIS BELT, BUT GON

Tags:  EFIN ECON EAID PGOV PREL NU 
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R 132041Z FEB 09
FM AMEMBASSY MANAGUA
TO SECSTATE WASHDC 3755
INFO WHA CENTRAL AMERICAN COLLECTIVE
MEDTRE FAC COMFORT
COMPHIBRON SIX
MILLENNIUM CHALLENGE CORP WASHDC
DEPT OF TREASURY WASHINGTON DC
DEPT OF LABOR WASHINGTON DC
CDR USSOUTHCOM MIAMI FL
NSC WASHINGTON DC
DIA WASHINGTON DC
CIA WASHDC
C O N F I D E N T I A L MANAGUA 000173 


STATE PASS OPIC AND IAF
STATE PASS USAID/LAC

E.O. 12958: DECL: 02/12/2019
TAGS: EFIN ECON EAID PGOV PREL NU
SUBJECT: NICARAGUA: ORTEGA TIGHTENS HIS BELT, BUT GON
PLEDGES SANDINISTA ECONOMIC PRIORITIES ON TRACK

Classified By: Classified by DCM Richard M. Sanders for reasons 1.4 (b) and (d).

C O N F I D E N T I A L MANAGUA 000173


STATE PASS OPIC AND IAF
STATE PASS USAID/LAC

E.O. 12958: DECL: 02/12/2019
TAGS: EFIN ECON EAID PGOV PREL NU
SUBJECT: NICARAGUA: ORTEGA TIGHTENS HIS BELT, BUT GON
PLEDGES SANDINISTA ECONOMIC PRIORITIES ON TRACK

Classified By: Classified by DCM Richard M. Sanders for reasons 1.4 (b) and (d).


1. (C) Summary. Faced with a withdrawal of European budget
support and decreased economic growth as a result of the
global economic crisis, on January 20, President Daniel
Ortega issued a presidential decree introducing a number of
austerity measures to cut $67 million in expenditures from
the 2009 budget. The austerity measures will apply across
the board to all state ministries, and the Ministry of
Finance will be the enforcer. Quickly following Ortega's
decree, on January 23, First Lady Rosario Murillo and Finance
Minister Alberto Guevara (along with other members of the
cabinet) unveiled the blueprint of the GON,s response to the
economic crisis, the "Program for the Defense of Production
and Employment." Guevara and the First Lady addressed
Nicaraguan financial stability and international cooperation,
public investment, agricultural production, the social safety
net, and employment. Ortega and Guevara, in addition to
Central Bank President Antenor Rosales, have all recently
expressed unequivocal support for continued cooperation with
the International Monetary Fund's (IMF) Poverty Reduction and
Growth Strategy (PRGF),which forms the bedrock of
Nicaragua's relationship with traditional donors. End
Summary.

Hard Times...
--------------


2. (C) In response to the freezing of European budget
support, and the effects of the global economic crisis on
Nicaragua, President Ortega, during a two-hour televised
presentation, announced on January 20 the implementation of
austerity measures to counteract a projected 2009 budget
deficit of $127 million. Ortega told his assembled cabinet
that the deficit will be addressed by a cut in government
expenditures by $67 million, and that the remaining amount
will be covered by a GON $30 million bond issuance, along
with a $33 million withdrawal from the Central Bank's
international reserves. Ortega emphasized that every GON
ministry must present a report on its savings one month

following the presidential decree; subsequently, quarterly
reports shall be filed detailing the savings achieved.
Ortega's cost-cutting measures range from broad civil service
personnel issues (a hiring freeze for the first three
quarters of 2009) to the mundane (GON employees must print
documents using both sides of a sheet of paper).


3. (U) Not surprisingly, Ortega used his January 20
presentation to argue that the global economic crisis facing
Nicaragua (and the world) was the consequence of the failed
U.S. economic model, i.e., neoliberal capitalism. He added
that it was misfortunate that Nicaragua was "trapped" in this
model, and that the United States, a primary customer of
Nicaraguan exports, is now importing less from the developing
world. In Ortega's view, Nicaragua must turn to alternative
and more reliable trading partners such as Russia, Iran, and
fellow countries in the Bolivarian Alternative for the
Americas (ALBA). He criticized the steps that the USG had
taken to address the economic crisis, observing that "there
is money to subsidize banks and big companies, but no money
to prevent people from losing their homes."


4. (C) During the same presentation, Ortega said that
Nicaragua will adhere to its obligations under the
International Monetary Fund's three-year Poverty Reduction
and Growth Strategy (PRGF),including the maintenance of an
adequate level of international reserves (currently about
$1.1 billion). Similar supportive statements on the IMF were
made by Central Bank president Antenor Rosales to the
Nicaraguan media in the days after Ortega's speech. Comment:
In the past, Ortega has referred to the IMF as "an
instrument of the Empire" (e.g., the United States). He
seems to have toned down this rhetoric now that he needs the
IMF to help him convince traditional donors not to leave.
End Comment.

...But the FSLN's Agenda Marches On
--------------


5. (U) Following Ortega's austerity measures pronouncement,
on January 23, First Lady Rosario Murillo and Finance
Minister Guevara rolled out the "Program for the Defense of
Production and Employment," which reinforced Ortega's decree
and reassured the FSLN faithful that the Sandinista social
agenda will continue unabated in 2009, despite budgetary
hardships. Highlights of The GON's "Program" included
financial stability and international cooperation, public
investment, agricultural production, and employment.

Financial Stability and International Cooperation
-------------- --------------


6. (U) Guevara declared that the GON will continue to
maintain a stable monetary policy, particularly with regard
to its 5% crawling-peg cordoba exchange rate regime vis-a-vis
the dollar, along with free convertibility. Following
Ortega's lead, Guevara signaled that the GON will retain an
adequate level of international reserves, and will continue
to respect the terms of the IMF's Poverty Reduction and
Growth Facility (PRGF) program. In addition, the Central
Bank will provide "extraordinary financial assistance" to the
Nicaraguan financial system. Specifically, the Central Bank
will request a $200 million credit line from the Central
American Bank for Economic Integration (CABEI) to inject
liquidity into the local banking system. The GON will
continue to negotiate with the European Union (EU) to restore
2009 budget support (which was withheld as a result of
fraudulent November 9 municipal elections on November 9,
2008).


7. (U) A focal point of the "Program" will be increased
trade with fellow ALBA countries and Russia, China, and
India. To help finance this increased trade, Guevara said
the GON is requesting $300 million loan from the
Inter-American Development Bank (IADB). The GON will honor
its debts and will encourage citizens to honor personal
loans. Note: Despite speculation that the GON would not be
able to meet its debt service obligations on February 2, the
government did pay out the $100 million it owed. End Note.

Public Investment
--------------


8. (U) Under the FSLN plan, the GON will prioritize
infrastructure projects, especially the construction of
roads, schools, and the expansion of water and electricity
services. The GON forecasts that this effort will create
40,600 jobs. The GON will expand its "Zero Usury" program
to issue low interest loans to 70,000-90,000 women. In
addition, the GON's "Zero Hunger" program will be enlarged to
include more beneficiaries. Improved government supervision
of all projects will avoid "under-execution."

Agricultural Production and Related Investments
-------------- --


9. (U) Minister of Agriculture Ariel Bucardo announced a
number of measures to assist poor farmers in the 2009/2010
planting cycle, including a program to distribute improved
seeds and 14,000 tons of fertilizer. A GON fund of $17
million will be made available in the 2009 budget to help
finance the poorest producers. Agricultural import and
export requirements will be made less onerous, and
Nicaragua's integration with the rest of Central America's
food markets will intensify. Bucardo also stated that
Nicaraguan students will be encouraged to study agriculture
and related careers. First Lady Murillo emphasized that state
universities must work closely with the GON to encourage
graduates with agricultural majors to work in the farming
sector to decrease the "technical assistance deficit" in
Nicaragua.

Social Safety Net and Employment
--------------


10. (U) Notwithstanding a GON increase in the minimum wage
by 60% over the last 20 months, the GON will negotiate new
minimum wage salaries with all stakeholders in a way that
protects secure employment. Subsidies for public
transportation and other basic services will continue, along
with a stable supply of basic grains and foodstuffs in order
to satisfy domestic demand. The Nicaraguan Technological
Institute will increase its capacity to provide job skills
for the unemployed from 15% to 20%.

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


11. (C) The GON has engaged in a very public full-court
press since mid-January to reassure the Nicaraguan public,
international donors, and the private sector that the FSLN is
capable of implementing sound macroeconomic policies in a
very challenging environment. Stories regarding the
country's fiscal difficulties appear on the front pages of
Nicaragua's two major newspapers almost daily. Confronted
with a larger-than-usual budget deficit in 2009 as a result
of greatly diminished European budget support (by at least
$60 million so far) and the global economic crisis, Ortega
appears to be scrambling to fill the budget breach while
putting on a brave face for the party faithful.


CALLAHAN