TRIPARTITE AGREEMENT OVER MINIMUM WAGE RAISE, BUT REFORM STILL LOOMS

C O N F I D E N T I A L SECTION 01 OF 03 MANAGUA 000524

SIPDIS

DEPT FOR WHA/CEN KRAAIMOORE & INR/UAA - EMERSON
DEPT FOR DRL MAGGIO
STATE PASS USAID
STATE PASS USOAS

E.O. 12958: DECL: 02/24/2018
TAGS: ELAB PGOV NU
SUBJECT: TRIPARTITE AGREEMENT OVER MINIMUM WAGE RAISE, BUT REFORM STILL LOOMS

REF: A. 2008 MANAGUA 1213

B. 2008 MANAUGA 1187

Classified By: Amb. Robert J. Callahan for reasons 1.4 (b & d)


1. (C) SUMMARY: On May 14, a tripartite commission of
industry, labor and government representatives reached an
agreement over the next minimal wage hike for Nicaraguan
workers. This is the first time in four previous rounds (see
reftel B) that all three parties reached agreement without
the Ministry of Labor (MITRAB) having to issue a formal
decree. Beginning May 15, workers in the agriculture sector
would receive a 13% increase, while basic service workers
would see an 11% change and industrial and government workers
an 8% increase to their monthly wages. The tripartite
agreement follows a similar March 12 tripartite agreement on
wage hikes within Nicaragua's Free Trade Zones (FTZ) and
occurs amidst a political battle to reform the minimum wage
law. Post believes that the most important battle over any
reform to minimum wage laws will be fought within the
Sandinista National Liberation Front (FSLN). END SUMMARY

MINIMUM WAGE AGREEMENT OF 8, 11, 13 PERCENT INCREASES
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2. (SBU) For the first time in recent memory, and after two
months of negotiations, industry, labor and government
representatives reached a tripartite consensus over the next
minimum wage increase (see reftel B). Effective May 15,
agricultural workers will receive a 13 percent increase in
their wages, or approximately 183 cordobas (US$9) more per
month. In the basic services sector, which includes
business, transportation and financial workers, there will be
an 11 percent increase. For other labor sectors --
industrial workers (outside of FTZs),domestic servants,
government workers and fisherman, as well as small business
-- there will be an eight percent increase, or approximately
150 cordobas (US$7.50) more per month. With low inflation,
labor leaders backed away from demanding higher increases on
assurances from business representatives that a smaller wage
hike would translate into better job security for Nicaraguan
workers. Tripartite commission members noted that the
worldwide economic crisis and recent wave of job losses in
the apparel industry have helped foster a more conciliatory
tone among participants. The tripartite commission will meet
next on November 19, 2009.


FREE TRADE ZONE MINIMUM WAGE AGREEMENT CAME FIRST
-------------- --------------


3. (SBU) This recent general wage hike comes two months after
a separate deal was reached for FTZ workers. On March 12, a
tripartite commission of business, labor unions and MITRAB
signed a two-year minimum wage agreement for workers within
Nicaragua,s FTZs. The "Emergency Economic and Labor
Agreement" established minimum wage increases of 8 percent in
2009 and 12 percent in 2010 for FTZ workers and calls for the
creation of an FTZ tripartite labor commission as a forum for
resolving labor issues. The accord's preamble acknowledges
the world economic crisis and declares that this agreement
was necessary to preserve employment, strengthen FTZ
stability and attract investment. Parties to the agreement
included seven labor union representatives led by Sandinista
Workers, Central (CST) Union President Luis Barbosa, two
private businesses, and MITRAB Minister Jeannette Chavez.
(NOTE: The FTZ minimum wage agreement is independent of
general biennial minimum wage process and incorporates the
central reform of a predictable, annual wage adjustment. END
NOTE)

POLITICAL BATTLE OVER MINIMUM WAGE REFORM
--------------


4. (SBU) With this round of wage negotiations now concluded the stage is set for a political battle over reforms to the minimum wage law, which currently mandates a biennial review of wages in nine different economic sectors (see reftel B). The Federation of Nicaraguan Business Association (COSEP) proposed and lobbied the National Assembly for reforms that require only an annual review. Business owners believe that this change would improve the investment climate by increasing the predictability of production costs during the year and would eliminate some of the uncertainty of populist policies by the Ortega government. The Constitutional Liberal Party (PLC),the FSLN-aligned Nicaraguan Liberal Alliance party (ALN),as well as some prominent Sandinistas support the proposed reforms. In February 2009, PLC National Assembly Deputy and President of the Labor Committee Carlos Noguera expressed his support for the reform. However, organized labor affiliated with the FSLN opposes any change, while other labor unions seem interested in compromise and dialogue.

FSLN PUBLIC OPPOSITION - PRIVATE SUPPORT
--------------


5. (U) During a March session of the GON's Social Cabinet,
First Lady and Communication Coordinator Rosario Murillo
insisted that it was fundamental to the Sandinista movement
to improve the minimum wage at least twice a year, a position
also shared by the MITRAB Minister Chavez. FSLN National
Assembly Deputy and head of the FSLN caucus Edwin Castro
publicly opposed the reforms, echoing populist rhetoric that
changing the law would make "Nicaragua's poor poorer and the
rich, much richer," and that any opposition deputies who
supported the reform would be the potential beneficiaries.


6. (C) Embassy contacts in COSEP's labor committee told us
that several prominent FSLN members privately supported
reforms, including Vice President Jaime Morales, Presidential
Advisor for Economic Issues Bayardo Arce, and President of
the Nicaraguan Central Bank Antenor Rosales. Both Arce and
Rosales have publicly stated that the GON should adopt a more
flexible position on reform to the minimum wage law, arguing
that such reforms would help the GON to preserve employment
in the formal sector. When the measure comes to a vote, our
contacts believe that there would be enough support in the
National Assembly to approve the reforms despite FSLN
populist rhetoric.

INTERNATIONAL SUPPORT FOR REFORM?
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7. (C) COSEP representatives told us that they were also
developing an additional lobbying strategy for minimum wage
reform through international fora. Nicaragua is the only
country within the CAFTA-DR free trade agreement and the
Central American Integration System (SICA) that has a
bienniel minimum wage review process. This runs counter to
initiatives for greater integration and harmonization of
labor laws for the region. COSEP representatives believe that
pressure from neighboring countries, nearly all of which are
now led by left of center presidents, could also be a factor
in helping Nicaragua to change its existing laws.

LABOR UNION REACTION MIXED
--------------


8. (SBU) In February 2009 FSLN Deputy and Secretary General
of the National Workers Front (FNT) trade union Gustavo
Porras insisted that the minimum wage law should not be
changed. Porras was joined by CST union Secretary General
Luis Barbosa in opposing any change, and both leaders
threatened to call their union members out into the streets
to defend their labor rights. Meanwhile, some non-FSLN
affiliated union leaders seemed more amenable to proposed
reforms, declaring that it was more important to maintain
employment than guarantee biennial wage increases. These
leaders from non-FLSN labor unions also emphasized the need
for dialogue rather than rhetoric in minimum wage
negotiations.


COMMENT
--------------


9. (C) Although the wage increase is below recent hikes of 15
and 18 percent, it comes at a critical time for Nicaraguan
businesses looking to stay afloat in turbulent economic
conditions. Moving to a once-a-year review would give the
private sector the opportunity to better estimate labor costs
and make investments accordingly, and have increased
employment stability.


10. (C) Post believes that the next phase of the political
battle over minimum wage reform could take place publicly
between FSLN and Liberal Deputies in the National Assembly,
with labor unions, COSEP and MITRAB providing the ammunition.
However, the most important fight will be the private one
within the FSLN -- between its successful business owners and
populist ideologues. In the end, post believes that cooler
heads may prevail in the National Assembly to pass reforms to
the minimum wage law. If anything, the recent national and
FTZ minimum wage agreements, which involved prominent FSLN
union leaders, may be prototypes of how the issue could be
resolved.
CALLAHAN