VZCZCXYZ0000
RR RUEHWEB
DE RUEHMU #0665/01 1441901
ZNY CCCCC ZZH
R 231901Z MAY 08
FM AMEMBASSY MANAGUA
TO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHC/SECSTATE WASHDC 2654
INFO RUMIAAA/CDR USSOUTHCOM MIAMI FL//J2/J3/J5//
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
C O N F I D E N T I A L MANAGUA 000665
SENSITIVE
SIPDIS
STATE FOR WHA/CEN, WHA/EPSC, EEB/TRA, INR/IAA
E.O. 12958: DECL: 05/20/2018
TAGS: ELTN ECON ELAB EFIN PGOV NU
SUBJECT: NICARAGUA: TRANSPORTATION STRIKE ENDS WITH A
SUBSIDY
REF: A. MANAGUA 611
B. MANAGUA 578
Classified By: Ambassador Paul A. Trivelli for reasons 1.4 (b,d)
1. (C) Summary: On May 16, President Daniel Ortega announced
a package of measures which successfully ended the national
transportation strike (Refs A and B). The Government of
Nicaragua's (GON) principal concession is a $1.30 per gallon
subsidy for the transport sector on the purchase of diesel
and gasoline to be funded through unspecified ALBA sources.
Transport unions and collectives quickly accepted Ortega's
offer, and abandoned the strike en masse. Speculation exists
that the subsidy will instead be financed through a rise in
gasoline prices for other consumers. The land shipping
sector was specifically excluded from the settlement, unless
it submits to government oversight and rate regulation.
Meanwhile, a black market in subsidized gasoline has already
emerged. In the end, Ortega still confronts a potential loss
of political strength, plus a slippery slope of new
entitlement demands, renewed strikes, and implementation woes
linked to his hastily conceived subsidy proposal. End
Summary.
Fuel Price and Other Concessions
--------------------------------
2. (U) Late on May 16, President Daniel Ortega announced
measures, accepted by the National Transport Coordinators,
the principal organization representing strikers, to end the
12-day-old national transportation strike, offering a
$1.30/gallon subsidy on gasoline and diesel. This offer
followed a nationally televised presidential address only two
days earlier in which Ortega had refused to concede more than
a $0.50 per gallon subsidy for bus, taxi, and public
transport operators throughout the country. Of this, $0.30
was to be funded from ALBA funds and $0.20 from the national
budget, i.e., if approved by what most would characterize as
a very uncooperative National Assembly. The difference
between the old and new offer is to come from Venezuelan ALBA
petroleum subsidies.
3. (U) According to Ortega, at $3.15/gallon, Nicaragua will
have the cheapest gasoline in Central America for the
transport industry. He quoted per gallon prices in Honduras
($3.79), Costa Rica ($4.20), Guatemala ($4.22), and El
Salvador ($4.31) to make his point. The subsidized fuel will
be offered at 61 service stations throughout the country,
including all national Petronic and some Shell stations.
4. (U) Other measures to help the transport industry include
the immediate importation of 25,000 tires, 5,000 batteries,
and lubricants for buses and taxis, financed on favorable
two-year terms with an interest rate not exceeding 8%.
Ortega did not specify who will import the goods or provide
financing. In similar fashion, Ortega pronounced the
importation and financing of 750 electronic bar-code readers
to monitor passenger loads for intra-city Managua
collectives, and 3,000 conversion kits to enable taxis to use
natural gas as fuel. Finally, working groups -- including
transport, industry, wholesale, and retail trade
representatives, as well as fuel distributors -- are supposed
to develop additional proposals to address rising fuel prices.
5. (U) Transport unions and collectives quickly accepted
Ortega's offer, and abandoned the strike en masse, but have
not yet been fully vindicated. The important ground shipping
sector is not included in the subsidy offer (see Paragraph
9), nor have all strikers detained in various departments
around the country been released from jail. Skepticism
remains as to how or even if the subsidy will be fully
implemented.
The Costs of the Strike
-----------------------
6. (U) Jose Aguerri, Director of the Federation of Nicaraguan
Business Associations (COSEP), estimated that the national
economy lost nearly $20 million as a result of the strike.
Apparel manufacturers in the free trade zones may have
suffered the most, particularly if some of their customers
had decided to go elsewhere to contract orders during the 12
day hiatus. While transport unions threaten additional
strikes should the government not follow through on Ortega's
promises, Aguerri points out that the economy cannot sustain
another strike without severe damage.
Off Balance Sheet Financing and Black Markets
---------------------------------------------
7. (C) Funds from the oil deal with Venezuela (ALBA funds),
which Ortega claims amounted to as much as $520 million in
2007 -- one-third of the national budget or 10% of national
GDP, -- are a subject of much conjecture and suspicion.
Though Ortega discussed ALBA financing of the new national
transport subsidy, speculation exists that the subsidy will
actually be financed through an increase in gasoline prices
for other gasoline consumers. (Note: The $520 million figure
for ALBA funding in 2007 that Ortega brandished is
unsubstantiated. Other reports put the figure closer to $135
million for 2007.)
8. (C) The subsidy appears to be a hastily and ill-prepared
offer. As of May 22, many gasoline stations could not
deliver fuel at subsidized prices, and those who did had long
lines with which to contend. Some station attendants request
vehicle plate and driver identification information, others
do not. Proposals to control access to the subsidy include
use of specially provided electronic operating cards, quotas
established per trip by pre-arranged route, or each
cooperative being assigned service stations. In the
meantime, a black market in subsidized gasoline has already
emerged, with transport operators driving from station to
station, filling up with gasoline, only to empty the tank for
black market resale.
Land Shipping Sector Excluded
-----------------------------
9. (SBU) Ground shipping was specifically excluded from the
settlement, unless the sector agreed to submit to government
oversight and rate regulation. Nevertheless, Roberto
Delgadillo, President of the Nicaraguan Transport
Association, a leading cargo association, quickly joined his
colleagues in calling off the strike. Without relief,
however, ground shipping prices could rise as much as 40% in
the near future. While negotiations are supposed to continue
within the President's working groups, President of the
Federation of Transport Collectives Antonio Betanco complains
that, at the department level, working groups are made up of
members of Ortega's Citizen Power Councils and Sandinista
party members, thus adding a political quotient to
negotiations. In the mean time, the transport issue is off
the national radar screen.
Comment
-------
10. (C) In a nationally televised address on May 14, Ortega
stated his unequivocal intention not to offer more than a
$0.50 per gallon subsidy. Two days later, he backed down.
Whether this retreat shows weakness or political incompetence
depends on one's viewpoint, but Ortega's mention of ALBA cash
in the May 14 speech to the nation certainly gave strikers
ample reason to hold firm for a better deal. Having shown
his willingness to open his ALBA strong box when things get
tough, Ortega may also have opened the floodgates for others
who are looking for ALBA-funded entitlements. From any
vantage point, Ortega's subsidy scheme demonstrates poor
operational foresight; nobody on the street knows how it will
be implemented. Meanwhile, the specter of a renewed strike
by ground shippers looms. Ironically, they received almost
nothing out of the strike settlement, even though they forced
the issue for the rest of the sector.
TRIVELLI