Identifier
Created
Classification
Origin
09MANAGUA359
2009-04-03 16:56:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Managua
Cable title:  

NICARAGUAN FISCAL PROCESS TRANSPARENT, BUT

Tags:  EAID ECON PREL NU 
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VZCZCXRO9307
RR RUEHLMC
DE RUEHMU #0359/01 0931656
ZNR UUUUU ZZH
R 031656Z APR 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 3984
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHCV/AMEMBASSY CARACAS 1352
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
UNCLAS SECTION 01 OF 02 MANAGUA 000359 

SENSITIVE
SIPDIS

TREASURY PLEASE PASS TO SARA SENICH

E.O. 12958: N/A
TAGS: EAID ECON PREL NU
SUBJECT: NICARAGUAN FISCAL PROCESS TRANSPARENT, BUT
VENEZUELAN FUNDS REMAIN OFF-BUDGET

REF: STATE 28885

UNCLAS SECTION 01 OF 02 MANAGUA 000359

SENSITIVE
SIPDIS

TREASURY PLEASE PASS TO SARA SENICH

E.O. 12958: N/A
TAGS: EAID ECON PREL NU
SUBJECT: NICARAGUAN FISCAL PROCESS TRANSPARENT, BUT
VENEZUELAN FUNDS REMAIN OFF-BUDGET

REF: STATE 28885


1. (SBU) Summary: Per Ref A, Embassy Managua reports that
Nicaragua is in compliance with Section 7088 (c) of the
Department of State, Foreign Operations, and Related Programs
Appropriation Act (SFOAA). The Nicaraguan budget is publicly
available on the Ministry of Finance,s website, and is
reviewed and approved by the National Assembly. The budget
does not, however, accurately or completely reflect funds
originating from Venezuela, which remains a controversial
issue with the National Assembly. As part of its Poverty
Reduction and Growth Facility agreement (PGRF),the IMF is
trying to establish an accurate accounting of these funds.
Nicaragua's current IMF program also includes work on
improving transparency regarding capital expenditures. USAID
and other international donors continue to work with the GON
to improve fiscal transparency. End Summary.

Nicaraguan Budget is Available on Website...
--------------


2. (U) Per Ref A request, Post reports that Nicaragua's budget
process meets acceptable standards for transparency as
outlined in Section 7088 (c) of the SFOAA. The official
budget is made public, both in its proposed and National
Assembly approved versions, on the Ministry of Finance's
website (www.hacienda.gob.ni). The website details overall
revenues and expenditures and breaks out the budget by
ministry and agency. Each ministerial budget details
salaries, current expenditures, donor projects, and capital
expenditures. Nicaragua's budget development and
administration is governed by Law 550, the Public
Administration and Budgetary Regime Law, which requires that
the national and municipal budgets meet World Bank and IMF
standards.

...But Venezuelan Assistance Difficult to Assess
-------------- ---


3. (SBU) Since President Ortega took office in January 2007,
Venezuela has provided significant sums of off-budget
assistance to the Nicaraguan Government. A September 2008
Central Bank Report (published largely at the IMF,s behest)
listed $88.6 million in government-to-government assistance
in 2007. That assistance included $69.3 million in
&petroleum cooperation,8 provided through ALBA Nicaragua,
S.A. (ALBANISA),a joint venture between Petronic, a

Nicaraguan state-owned oil company owning a 45% share, and
PDVSA, a Venezuelan state-owned oil company owning a 55%
share. According to an agreement signed by Ortega and
Venezuelan President Hugo Chavez, ALBANISA buys oil from
Venezuela's PDVSA and pays 50% of the bill within 90 days.
From the balance, ALBANISA loans 25% to a local development
fund and 25% to an ALBA Fund, both of which undertake
development projects in Nicaragua. ALBANISA is supposed to
repay these funds at an interest rate of 2% over 23 years,
following a 2-year grace period.


4. (SBU) President Ortega,s 2008 Annual Report states that
total funding through ALBANISA was $375 million from its
launch in 2007 through 2008, but this may not include
off-budget assistance to the ruling FSLN (Sandinista National
Liberation Front) party. The FSLN appears to have used this
part of this assistance to invest in party building, pay for
party projects and political propaganda, and fund the
campaigns of pro-government candidates in the November 2008
municipal elections. The GON has not explained how it has
disbursed Venezuelan assistance or the mechanisms by which
such assistance was processed, making a full assessment of
the impact of such assistance difficult.


5. (SBU) Questions have arisen in the National Assembly
regarding Petronic,s 45% stake in ALBANISA, which would seem
to assign it a 45% share of ALBANISA debt. Walmaro
Gutierrez, the FSLN Chairman of the Economic Commission in
the National Assembly, counters that although PETRONIC is
state-owned, the company is not subject to legislative
authorization requirements that would otherwise apply to
government entities. Gutierrez points out that the 1979 law
that established Petronic allows the company to acquire
foreign debt without approval of the National Assembly.
Opposition leaders argue that the 2003 Debt Law makes it
clear that any debt acquired by state-owned companies )-

MANAGUA 00000359 002 OF 002


especially long-term financing beyond that required for
operating a business -- must be included in the government
budget and is subject to approval by the National Assembly.


6. (SBU) There is little transparency about how ALBANISA
funds are used. ALABANISA manages some funds directly, while
others are administered by a FSLN-linked financial
cooperative, ALBA-CARUNA. In implementing social programs
and infrastructure construction, they may even be mixed with
funds provided through the national budget. For example,
government officials have provided contradictory information
regarding funding for the &Zero Hunger8 program, at times
claiming that it is supported with ALBANISA proceeds and at
other times claiming that resources from the national budget
are used. Similar questions have been raised about funding
for &Houses for the People,8 a government program that
officials claim was supported by ALBANISA but now appears to
have been financed by the Nicaraguan Social Security
Institute (INSS).
USG Efforts to Improve Fiscal Transparency
--------------


7. (U) USAID funds a project aimed at institutional
strengthening of management systems which includes
restructuring the budgets of the Ministries of the Family and
Health towards results based budgeting. This process
increases the transparency and accountability of the use of
public funds.

International Donors, Work on Fiscal Transparency
-------------- --------------


8. (U) Other donor programs include:

- World Bank: Project to increase efficiency, productivity and
transparency in the public sector. Total: $23.5 million.
Initiated: March 2004. Ended: June 2008.

- Inter American Development Bank: National Budget Audit.
Project helps the Controller General's Office in preparing a
reference framework and action plan to prepare financial
audits and comply with budget execution as required by
international donors who contribute to Nicaragua,s budget.
Total: $407,000.


9. (SBU) The GON is currently in its second year of a
three-year Poverty Reduction Growth Facility (PRGF) agreement
with the IMF. Two structural components of the agreement are
capital spending controls and tax administration, both of
which programs are focused on improving quality and
transparency. In addition, under the PRGF the GON agreed to
monitor and report on Venezuelan aid both to the public and
private sectors. In accordance with this requirement, the
GON,s Central Bank published a report in September 2008
which detailed Venezuelan assistance to Nicaragua in 2007
(however, many observers complained that the figures provided
by the Central Bank were grossly underestimated).
CALLAHAN