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S E C R E T SECTION 01 OF 08 MANAGUA 000573 

NOFORN 
SIPDIS 

DEPT FOR WHA/CEN AND INR/IAA 
DEPT PASS TO USAID/LAC - CARDENAS AND BATLLE 
DEPT PASS TO USOAS 
ROME FOR VATICAN CITY 
NSC FOR FISK AND ALVARADO 
SOUTHCOM ALSO FOR POLAD 

E.O. 12958: DECL: 05/05/2018 
TAGS: PGOV EAID ECON PTER PREL NU
SUBJECT: THE ORTEGA ADMINISTRATION AT 15 MONTHS: SLIPPING 
DOWNHILL 

REF: A. MANAGUA 520 
¶B. MANAGUA 500 
¶C. MANAGUA 443 
¶D. MANAGUA 340 
¶E. MANAGUA 325 
¶F. MANAGUA 289 
¶G. MANAGUA 263 
¶H. MANAGUA 130 
¶I. 2007 MANAGUA 2135 
¶J. 2007 MANAGUA 1730 
¶K. 2007 MANAGUA 964 
¶L. 2006 MANAGUA 2611 

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

¶1. (S/NF) Summary and Background: Fifteen months into his 
second administration, Ortega continues to skillfully use his 
political pact with former President and convicted felon, 
Arnoldo Aleman to keep pro-democracy forces divided, 
vulnerable to coercion, and unable to mount sustained 
opposition. Ortega continues to allow U.S. and other donor 
assistance programs to operate, though he regularly attacks 
the evils of "savage capitalist imperialism." Our 
cooperation with the Police and Military remains good, both 
for training and in fighting narcotics and other forms of 
trafficking--but Ortega continues his quest to bring both 
institutions under his direct control. Ortega's has 
strengthened ties with Iran and Venezuela, and become openly 
sympathetic to the FARC. Our access to the government has 
decreased dramatically, with even routine items requiring 
Ambassadorial intervention. Civil Society and the media are 
under attack. Elections on the Atlantic Coast remain 
suspended. Underlying the political and policy turmoil, 
Nicaragua's economic indicators are not encouraging. This 
message provides an assessment of some of the trends we 
observe from Ortega and his government after fifteen months. 
End Summary. 

Ortega's Faltering Economy 
- - - - - - - - - - - - 

¶2. (SBU) In 2007, the Ortega Administration coasted on the 
achievements of the Bolanos government, but that ride is 
about to end. The government essentially adopted Bolanos' 
2007 and 2008 budgets, and used them as the basis for 
negotiating a new Poverty Reduction and Growth Facility 
Agreement with the IMF. Foreign investment remained stable 
in 2007 thanks to commitments made during the Bolanos years. 
Exports are up this year by 21% over 2007 levels. In most 
other respects, however, the Ortega government is not faring 
well. Growth expectations have fallen while inflation 
expectations have risen. In 2007, inflation reached 17% and 
annualized inflation is running at 22% for 2008, the second 
highest rate in Latin America. The lack of a strong policy 
response to rising oil and food prices worries independent 
economists, some of whom suspect that hidden foreign 
assistance from Hugo Chavez has created excess liquidity. 
Minimum wages rose 30% in the last year, but still do not 
cover the soaring cost of food and transportation. To quell 
demand and keep prices down, the government removed import 
tariffs on basic food items through December 2008, made 
documenting export shipments more difficult, and instructed 
the state-owned grain storage company to intervene in local 
markets. So far in 2008, the Agricultural Ministry has 
failed to deliver needed seeds to farmers in time for 
planting, although it has become aware of the urgency need to 
do so. More radical measures related to food supply may be 
coming, as President Ortega has just concluded a regional 

MANAGUA 00000573 002 OF 008 


"food sovereignty" summit in Managua on May 7. In other 
areas, line ministries continue to fall short of spending 
targets, leaving needed infrastructure and other capital 
projects on the drawing board and causing the construction 
sector to suffer. Tourism and power sectors, both key to 
national economic development plans, limp along as the result 
of government mismanagement. While the economic slowdown in 
the United States, Nicaragua's largest export market and 
source of investment, has attracted political rhetoric, the 
government has no clear policy response. The Central Bank 
has lowered its expectations for economic growth in 2008 to 
3.8% from 4.5% in January, but most economists believe that 
the figure will be closer to 3.0%. 

Manipulating Economics for Political Ends: CENIs 
- - - - - - - 

¶3. (C) In December 2006, we identified several key 
indicators (REF L) that would guide our assessment of how 
well Ortega was fulfilling his campaign promises to the 
Nicaraguan people, including adherence to fiscally 
responsible, sound macroeconomic, free market policies. 
Fifteen months later the results are disturbing. On April 
15, the government failed to pay on a set of government bonds 
(CENIs) that it has issued to compensate healthy banks for 
absorbing the assets and liabilities of insolvent banks at 
the beginning of the decade (REF C) . The bond issue was 
originally politicized in 2006 by Arnoldo Aleman, but 
resurrected by President Ortega to investigate the leading 
opposition figure, Eduardo Montealegre, who is running for 
Managua Mayor against the FSLN candidate, former three-time 
world champion boxer, Alexis Arguello. Nonpayment on the 
bonds may damage Nicaragua's relationship with the IMF and 
other international financial institutions, and already 
caused credit rating agencies to put two Nicaraguan banks on 
a ratings watch. As a consequence, since April 15, the 
government has been unable sell public debt instruments--no 
one is buying. Nevertheless, key government officials are 
seemingly convinced that they can navigate this slippery 
slope to their political advantage, much as they did when 
they deployed Sandinista judges and government institutions 
to force ExxonMobil to buy Venezuelan oil. 

(C) U.S. Citizen Property Claims ) A meltdown in the works? 
- - - - - - - - - - - 

¶4. (C) Another of the vital markers we identified in 2006 
was government progress on resolving outstanding U.S. citizen 
property claims (REF L). Here again the trend is worrisome. 
As of May 1, 2008, the Ortega Administration had resolved 
just 12 Embassy-registered claims for the 2007-2008 waiver 
year; significantly fewer than the 86 resolved during the 
last full year of the Bolanos Administration. We have 
continued to press for the resolution of the remaining 657 
U.S. citizen claims, which include some of the most difficult 
and complex. Our efforts have been frustrated by the decided 
lack of cooperation on the part of the government. The 
Property Superintendent limits her agency's contact with 
Embassy staff to just one meeting per month and no longer 
allows Embassy staff to accompany U.S. claimants to 
individual meetings with the government. The Attorney 
General requires that all communications on property be 
directed to him via Ambassadorial letter. In the meantime, 
the Attorney General has administratively dismissed 54 U.S. 
citizen claims; then categorized them as having been 
"resolved." He recently passed to us a list of an additional 
88 claims that he dismissed because the claimants were 
somehow connected to the Somoza regime. If the situation 

MANAGUA 00000573 003 OF 008 


fails to improve, we may need to consider implementation of 
Section 527 sanctions. While implementing Section 527 
sanctions would conflict with the January 2007 Deputies 
Committee-approved strategy of "positive engagement" with the 
Ortega Administration, we fear that taking no action would 
undercut the credibility of Section 527 as a tool to pressure 
action on outstanding claims. For this reason, we suggest as 
third way, such as a letter from the Secretary putting the 
government on notice. 

(C) Security Forces: Still Independent, for the time being 
- - - - - - - - - - - - 

¶5. (C/NF) The security forces continue to be a bright spot. 
The Nicaraguan Army and the Nicaraguan National Police (NNP) 
remain two of the few independent, apolitical forces in 
Nicaragua despite the Ortega Administration's clear goal of 
reverting both the NNP and the Nicaraguan Army back into 
completely subsidiary organs of the Sandinista Front, as they 
once were during the days of the Sandinista Revolution (REF 
G). The continued institutional independence and 
professionalism of the NNP and the Nicaraguan Army has been 
one of the few positive indicators remaining under Ortega's 
increasingly authoritarian regime and has been the foundation 
of our strongest remaining areas of cooperation with the 
current administration. However, Ortega's continued attacks 
against the NNP, in general, and against popular NNP Chief 
Aminta Granera, in particular, have taken their toll. Most 
notably, since Ortega's dismissal of several high-level NNP 
officials in March 2008 (REF F), Granera has shied away from 
the public spotlight and avoided even the appearance of 
acting against Ortega's interests. The NNP's failure to 
intervene in the violent protests that recently erupted in 
the RAAN have cost both the organization, and Granera 
herself, credibility in the eyes of the Nicaraguan public and 
is a clear indication of Ortega's success in his drive to 
reassert personal control over the organization (REF A). A 
recent spike in crime rates has further damaged the NNP's 
image, especially a worrisome increase in brazen, 
foreigner-targeted crimes. Granera's long term prospects as 
police chief are uncertain at best. If the FSLN does well in 
November's municipal elections, most observers of the NNP 
believe that Granera will retire and make way for her current 
second in command, Carlos Palacios. Palacios is an Ortega 
loyalist who has alleged, albeit unproven, ties to organized 
crime and corruption in Nicaragua. Despite this, we believe 
that he will still be a cooperative, if difficult, partner to 
work with on future law enforcement assistance efforts. 

¶6. (S/NF) One of Ortega's first efforts in 2007 was an 
attempt to bring the military under his direct control. 
After the National Assembly forced him to abandon two 
separate candidates for Defense Minister, he chose to leave 
the top two seats at Defense vacant and bestow the "rank of 
minister" on a weak, but personally loyal Secretary General 
with no relevant experience. The Ministry has since been 
purged of all professional-level technocrats, with all key 
positions now staffed by FSLN ideologues. The 
marginalization of the Defense Ministry has allowed the 
uniformed military to largely retain its professional and 
apolitical stance, but has left no civilian buffer between 
Ortega and Chief of Defense General Omar Halleslevens. Thus 
far, the popularity and sheer personality of Halleslevens, as 
well as the personal relationship between the General and the 
President, have prevented Ortega from asserting direct 
control. However, beginning last July, Ortega has used his 
speeches at all military events and venues as a platform to 
attack the U.S. and our "interventionist policies." On 

MANAGUA 00000573 004 OF 008 


multiple occasions Ortega has singled out U.S. military 
personnel in attendance to receive his verbal lashings. 
Halleslevens has been careful to avoid public disputes with 
Ortega, but has also repeatedly and firmly asserted the 
military's apolitical stance and its obligation to defend the 
Constitution, not a particular political party. We have not 
observed the political interference in military promotions 
and assignments that we have witnessed with the National 
Police. In fact, most military observers believe that 
Halleslevens will complete his full term through 2010, though 
they predict Ortega will move to install a more malleable 
figure to replace him. This appears to be borne out by 
recent sensitive reporting. 

(S) Ortega Foreign Policy: Petulant Teen or Axis of Evil 
Wannabe? 
- - - - - - - - - - - - 

¶7. (S/NF) As expected, Ortega's foreign policy shifted 
substantially to the left after January 2007 (REF L). 
Despite Ortega's early and reassuring move to name moderate 
Sandinista Samuel Santos as foreign minister, over the last 
fifteen months Ortega's infatuation with Venezuela and Iran, 
and the promotion of the ardent U.S.-hater Miguel d'Escoto 
for UNGA president (REF B), would indicate that Ortega's 
guiding principle in foreign relations seems to be, "Will 
this annoy the U.S.?" Over time, Santos and the ministry 
have played an increasingly ceremonial role. Routine tasks 
normally be handled at the working-level require 
Ambassadorial advocacy and, despite Santos's assurances to 
the contrary, almost never seem to gain traction. Recently, 
we were advised that Ortega sought a meeting with Embassy TDY 
visitors. We found the Ministry had no knowledge of the 
meeting nor the means to obtain any details. We were only 
able to confirm the details after sending an email directly 
to First Lady Rosario Murillo. We agree with our diplomatic 
circuit colleagues that the Ministry has virtually ceased to 
function. 

¶8. (S/NF) Chavez "Mini-Me": With respect to Venezuela, 
Ortega is a willing follower of Chavez who has replaced 
Castro as Ortega's mentor. Initially the relationship seemed 
largely a mutual admiration society with Chavez slow to send 
assistance; however, the ALBA alliance has finally begun to 
produce monetary benefit for Ortega and the FSLN. We have 
first-hand reports that GON officials receive suitcases full 
of cash from Venezuelan officials during official trips to 
Caracas. We also believe that Ortega's retreat last year 
from his demand that the Citizens Power Councils (CPCs) be 
publicly funded was due in part to the fact that the 
Venezuelan cash pipeline had come on-line. Multiple contacts 
have told us that Ortega uses Venezuelan oil cash to fund the 
CPCs and FSLN municipal election campaigns. Several 
unconfirmed reports indicate that Ortega will have as much as 
500 million dollars at his disposal over the course of 2008. 

¶9. (S/NF) Unrequited Love for Iran: Regarding Iran, Ortega 
had earnestly hoped to improve relations with Iran, which he 
views as Nicaragua's revolutionary soul mate, both having 
toppled authoritarian regimes in the same year, 1979. But 
Ortega's early flurry of activity that re-established formal 
relations and saw reciprocal state visits appears to be a 
case of unrequited love. Iran has sent multiple "private 
investment delegations" (REF E), but to date, Tehran has 
signed no investment deals nor responded to Ortega's request 
to forgive Nicaraguan sovereign debt held by Iran. In fact, 
Taiwan has been more forthcoming with direct assistance than 
Iran. 

MANAGUA 00000573 005 OF 008 



¶10. (S/NF) "What the FARC?" Perhaps the most disturbing 
recent development in Ortega's foreign policy relates to his 
increasingly public support for the FARC. Ortega and the 
FSLN have a long-standing, clandestine relationship with 
Manuel Mirulanda and the FARC, but which publicly had seemed 
dormant until five months ago when Ortega initiated 
saber-rattling against Colombia over the San Andres 
archipelago during an ALBA meeting in Caracas. Tensions 
reached a peak in March when Ortega, at the behest of Chavez, 
broke diplomatic relations with Colombia, following its 
strike into Ecuador against FARC leader Raul Reyes, only to 
restore them a day later after a tempestuous Rio Group 
meeting. Since that point, Ortega has come perilously close 
to declaring open support for the FARC. In late April, 
Ortega appeared at the airport to greet Lucia Morett, a 
Mexican student and alleged FARC supporter who survived the 
March attack. Media reports persist that Ortega offered 
asylum and citizenship to Morett. The Foreign Ministry's 
reply to our direct questions on the topic was "nothing was 
requested, nothing was offered," insisting that media usage 
of the terms "asylum" and "refugee" are incorrect. Sensitive 
reporting indicates that recently the Government of Ecuador 
rebuffed Ortega's request, through intermediaries, that Quito 
send two additional Colombian survivors to Managua. 

(C) The Opposition and Municipal Elections: Quixotic Errand? 
- - - - - - - - - - - - - - - - - 

¶11. (C) The most important event on Nicaragua's political 
horizon is the November municipal election. Given Ortega's 
unpopularity, the current economic decline, and several 
political factors, one would expect Ortega opponents to hold 
excellent odds at the ballot box. Even so, opposition 
parties have fumbled about without setting a clear direction. 
Confusion reigns in the Liberal camp. The Supreme Electoral 
Council (CSE) decision in February to remove Eduardo 
Montealegre as leader of the Nicaraguan Liberal Alliance 
(ALN) party -- forcing him to re-activate his Vamos Con 
Eduardo (VCE) political movement -- followed quickly by 
Eduardo's decision to run for mayor under a PLC-VCE alliance 
banner, left many in the Liberal rank-and-file feeling angry, 
betrayed and confused. Polling shows that many Liberals 
still believe a vote for the ALN is a vote for Eduardo. The 
shortened electoral calendar forced parties to set up party 
machinery and identify candidates more rapidly than in past 
years. As a result, candidate selection was rushed, with 
many choices made based more on personal connections than on 
electoral viability. The presence of "the Pacto," the 
de-facto power-sharing alliance between Ortega and former 
President Aleman, was felt as well, perhaps most strongly in 
Matagalpa. In February nine opposition parties, including 
the ALN, MRS and a PLC that had rejected Aleman, banded 
together to select consensus candidates. A unity slate was 
announced, but only days later cast aside when Aleman 
insisted on picking the mayoral candidate for Matagalpa under 
the new PLC-VCE alliance. The nine-party unity evaporated 
with each party now putting forward its own individual slate. 

¶12. (C) The Liberal unity of the PLC-VCE alliance is 
tenuous. We see parallel, rather than complementary 
structures for policy formulation, strategy, voter outreach, 
fundraising, etc. Guidance and funding from National-level 
leadership is almost non-existent, with many candidates 
unclear how to proceed. We often come away bemused from 
meetings with rural mayoral candidates who appear oblivious 
of the need to develop platforms and campaigns. Many such 
candidates, several of whom could be described as 

MANAGUA 00000573 006 OF 008 


"charisma-challenged," seem to believe that simply being 
non-FSLN will be enough to get them elected. The perennial 
problem of funding persists. Several times a week we are 
approached by local candidates for campaign financing, voter 
registration support and the like. Even with the 
environmental advantages enjoyed by opposition candidates and 
parties, training and clear direction by opposition parties 
will be essential to seriously challenge Ortega's 
well-organized, highly-disciplined, and apparently 
Venezuelan-financed FSLN/CPC election machine. 

What About the Atlantic Coast? 
- - - - - - - - - - - - 

¶13. (C) On April 4 the Supreme Electoral Council (CSE) voted 
to delay elections in three communities on the Atlantic Coast 
for six months. The CSE, whose magistrates owe their loyalty 
to President Daniel Ortega and Aleman, ignored widespread 
support from hurricane-affected communities in the RAAN to 
proceed with elections as scheduled. In the weeks leading up 
to ) and since ) the CSE decision, tensions between pro- 
and anti-election supporters have run high, causing violence 
and bloodshed on at least one occasion. Liberal leaders in 
surrounding municipalities are convinced the government will 
use the delay to manipulate voter registries by moving 
pro-FSLN voters from the affected coastal municipalities to 
Liberal-dominated interior municipalities thus tipping the 
vote towards FSLN candidates. 

¶14. (C) On April 24, the National Assembly -- on its second 
try -- issued a non-binding resolution overturning the CSE's 
decision. On April 25, the Assembly's Justice Commission 
voted out two decrees, one formalizing the Assembly's 
decision of the day before, and the second calling for an 
authentic interpretation of electoral law to prevent the CSE 
from exercising such authority in the future. Both decrees 
will face serious challenges as the FSLN will use its control 
of the Supreme Court and CSE to nullify these measures. As 
the legal struggle plays out in the legislative, judicial, 
and electoral branches of government, pro- and anti-vote 
supporters in the RAAN are preparing for a possible struggle 
of their own, including the use of violence, even armed 
tactics. 

Un-unified Civil Society Concerned By Diminishing Democratic 
Space 
- - - - - - - - - - - - - - - - 

¶15. (C) Across the political spectrum Nicaraguan civil 
society actors are concerned about the anti-democratic 
tendencies of the Ortega Administration and see an 
increasingly hostile environment for organizations seeking to 
operate freely and independently. Since Ortega assumed 
office in January 2007, many NGOs, particularly those openly 
critical of the government, have experienced various forms of 
harassment, interference, intimidation, financial pressure, 
and threats both from the government and FSLN loyalists. 
Although some actions appear to be innocuous on their 
surface, e.g. unannounced audits by tax authorities and 
related financial penalties, the overall cumulative effect 
appears to be part of a slow, deliberate effort by the 
government to discourage and undermine the independence, 
credibility, and operations of these groups and their 
advocacy of citizen rights and freedom. NGOs, including the 
traditionally left-leaning Office of the Civil Coordinator, 
often have been targeted based on an arbitrary application of 
the law or trumped up charges. Others, such as the 
center-right Permanent Commission for Human Rights (CPDH), 

MANAGUA 00000573 007 OF 008 


have received death threats against members of their staffs 
and families. Most civil society groups regard the 
establishment of the Citizen Power Councils (CPCs) under the 
central control of the FSLN's executive branch as a direct 
attempt to sideline and ultimately supplant the work of civil 
society. 

¶16. (C) These organizations, which represent diverse 
elements of Nicaraguan society, share a common conviction 
that civil society is the only viable sector that can keep 
Nicaragua on a democratic path and stop Ortega's 
authoritarian aspirations. Unfortunately, they lack clear 
direction on how to reach their destination and have missed 
many opportunities to really make their mark. Although they 
mounted a successful protest against the CPCs in September, 
they were unable to produce a ripple effect that inspired a 
wider pro-democratic movement. Initially galvanized to come 
together to oppose the government's encroachment on citizen 
rights and freedoms, civil society has not yet demonstrated a 
capacity or commitment to building any sort of unified 
alliance or response to the challenges facing the country. 
Some organizations, led by the Movimiento por Nicaragua 
(MpN), have pledged to unite as a coalition, but to little 
avail. Most NGOs suffer from a shortage of resources and 
lack of a long-term vision to work proactively on concrete, 
sustainable projects. Internal divisions, egos, leadership 
rivalries, and competition for donor resources and 
international cooperation also present impediments to 
building a long-term civic alliance. Despite the weaknesses 
of Nicaraguan civil society organizations, however, they 
remain one of the strongest forces working in defense of the 
country's democratic spaces. Support from the international 
community will be crucial if they are to make an impact, 
given the pressures they face. On our part, we have begun a 
USD 1 million small grants program for our democratic civil 
society friends. 

Shut Them Up: Independent Media Being Squeezed Too 
- - - - - - - 

¶17. (SBU) In the first few months of 2008, there has been a 
marked decline in press freedom in Nicaragua. Recent threats 
to press include the politicized use of the judicial system 
to convict a prominent local newspaper owner and editor of 
libel, and the mounting of a dubious public radio and TV 
campaign against the same media owner and an opposition 
leader, Montealegre, for alleged public theft. Journalists 
continue to report that only "official Sandinista" media 
outlets, often those owned and operated by children of the 
President and First Lady, have access to government 
information. The Ministry of Health has selectively banned a 
reporter from its premises for reporting that was not in its 
favor. In a space of two weeks in April, four national radio 
stations (3 independent and 1 Sandinista) reported serious 
equipment theft at their transmission towers which knocked 
them off the air for 8-12 hours each. To date, there are no 
convictions for any of these crimes. A few months ago, 
private, apparently partisan security forces surrounding the 
president handcuffed a local reporter when he tried to 
approach the Ambassador to tape public comments at an outdoor 
event. 

Comment 
- - - - 

¶18. (S/NF) Our bilateral interests and commitment to the 
Nicaraguan people remain unchanged. Our goals are to keep 
Nicaragua on the democratic path; to combat corruption, 

MANAGUA 00000573 008 OF 008 


terrorism and all forms of trafficking; to promote private 
sector-led development and to protect the interests of U.S. 
citizens residing in Nicaragua. Though our interests remain 
unchanged, Ortega has made it increasingly difficult for us 
to work towards these goals, by restricting our access and 
pressuring our partners. He has scrupulously avoided either 
an outright rejection of U.S. assistance or a direct policy 
confrontation with Washington. However, he has worked 
assiduously to undermine any domestic opposition, and thus 
our ability to find partners capable of imposing pressure for 
meaningful change. The Ortega-Aleman political pact remains 
active, and the single greatest, though not the only, 
obstacle to a more open, transparent Nicaragua. Ortega has 
mis-managed the economy and has repeatedly permitted, if not 
instigated, government intervention in the energy and finance 
sectors for clearly political ends. Ortega continues to 
close the space in which independent voices of civil society 
and media can educate and defend the rights of Nicaraguans. 
Though he has not publicly abandoned his post-election 
commitments to keep the country on a democratic path and 
maintain responsible free market policies, there are multiple 
signs that Ortega seeks only one goal ) consolidation of 
power to perpetuate his rule. 
TRIVELLI