Nicaragua Network Hotlines for June 27, 2007

News topics covered in this Hotline include:

• Ortega says power crisis will be resolved in 2008
• IMF wants Nicaragua to incorporate Petronic in public sector
• Plaza of the Revolution is re-inaugurated
• Nicaragua announces possible incorporation into Banco Sur
  

Topic 1: Ortega says power crisis will be resolved in 2008

The worsening electricity crisis dominated the news this week. Blackouts are not only making life miserable for ordinary people, especially in Managua, but are having an increasing economic impact. Losses are estimated at between US$10-20 million according to economist René Vallecillo, with a loss of more than 40% in sales registered in Managua markets according to the Merchants Association. Vallecillo said that small and medium companies are most affected by the cuts in electricity because the majority of them do not have generators. Director of the Municipal Corporation of Markets of Managua (COMMEMA) Héctor Ruiz Domínguez said that in the nine Managua markets, around 1,500 retailers sell meat, one of the sectors most affected by the energy cuts. Seafood is also affected due to the lack of refrigeration. President of the National Association of Rice Producers (ANAR) Fernando Mansell said that electricity interruption in the rice sector has considerable consequences: “Without electricity there is no [rice] production.” Vallecillo said, “Energy is crucial for all economic activities. Without electricity, industrial, farming, commercial and textile sectors cannot function.”

The Nicaraguan power sector needs at least US$15 million for the purchase of electricity in the Central American market. Venezuelan President Hugo Chávez’ assurance on January 11 that the country would not have any more energy problems because his country would guarantee the petroleum needed, has turned out not to be true because Nicaragua lacks the capacity to produce sufficient power. On June 19 another diesel powered generator failed, increasing Nicaragua’s electricity shortfall. The present maximum power demand in Nicaragua is 480 megawatts. Nearly a third of the population was affected by blackouts on June 19.

Executives of power sector companies met June 20 in Managua to analyze the gravity of the crisis. Presidential economic adviser Bayardo Arce said there were positive gestures made by some companies at the meeting, including talks of contributions by the oil companies Esso and Glencore, sugar companies, an energy generating company, and Union Fenosa, the Spanish company that holds the electricity distribution franchise. However the rest of the companies in the sector provided no answers, “just excuses” at this critical moment in time “that can only be solved with money for fuel purchase and putting the plants to work at full capacity,” said Arce. He also said that the government has arranged the funding needed to purchase electricity from the Central American grid.

The energy sector does not expect to see any improvements before unit three of the Managua Plant returns to operation. Executives of the state company GECSA told Ley that unit three of the Managua Plant will enter into operation June 21, which will supply another 40 megawatts of electricity. Union Fenosa Manager of Communications Jorge Katín said that they tried to import another 20 megawatts from Panama, but faced interrupted energy flow problems with Costa Rica, supposedly due to network problems. He said that this is not the first time that Nicaragua has purchased electricity from Panama and Costa Rica has taken part of it. However, even with the energy imports from Panama, the deficit would have still remained high.

President Daniel Ortega announced again that in October electricity generator plants will come from Venezuela that will generate 60 megawatts in addition to the generator promised by the Taiwanese government that will produce another 30 megawatts. He also revealed that during his recent visit to Iran he requested 300 megawatts from the Iranian government and soon technicians from that country will arrive to do the necessary studies to install the electric plants. Ortega said that the energy saving fluorescent light bulbs donated by Cuba are already in Nicaragua and will be distributed in an orderly fashion. “The truth is that we have a situation that I am convinced we are gong to solve that was not solved in 16 years, which we are going to solve by the first trimester of next year; we are going to have more stable energy.”


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Topic 2: IMF wants Nicaragua to incorporate Petronic in public sector

The International Monetary Fund (IMF) wants Nicaragua to include revenue and expenses from Petroleum of Nicaragua (Petronic) as part of the public sector budget, in an apparent turnaround from its usual demand that everything be privatized. Petronic is a private company with state participation that will administer the oil resources received through cooperation with Venezuela, calculated at US$320 million annually.

“The Fund made a plan to incorporate Petronic in the consolidated public sector and, of course, we are making the corresponding calculations to see if it would affect the plan that we had elaborated,” said Antenor Rosales, Central Bank President. Rosales said that the IMF “showed the intention to allow Nicaragua” to spend up to two percent of Gross National Product, around US$112 million, for social programs.
President Daniel Ortega said that he will not allow the IMF to control the financial operations derived from the petroleum transaction with Venezuela. He said that Petronic works as an independent company and counterpart of Venezuela Petroleum (PDVSA) and has been outside of state control for years. “The Fund wants Petronic to stop being a company because they want to control it to avoid that Petronic contribute to the social work and development of the country,” said Ortega. Representative of the IMF Humberto Arbulú said that the IMF has not imposed conditions on the government, given that “since we began to talk, officials expressed clearly to us that they would have absolute priority on the program and would not accept any type of imposition.”

The next round of negotiations will take place in Managua from June 25 to July 6 and will be centered on “working on a letter of intent.” Rosales explained that the signing of a new program with the IMF is in conjunction with the World Bank poverty reduction strategy. This is the fourth round of negotiations that the IMF has had with the Ortega government. In this round, they intend to approach the subject of cooperation with Venezuela, the amounts of International Reserves anticipated for the next three years, and the income projected by the government with the new tributary reform. This will be the Sandinista government’s first economic agreement with the IMF since Daniel Ortega became president on January and would make access to the financial aid of the international community possible for Nicaragua. The last agreement with the IMF, signed during the previous government, expired December 12, 2006.


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Topic 3: Plaza of the Revolution is re-inaugurated

The 1996 musical fountain that was constructed in the former Plaza of the Revolution was demolished three weeks ago. In that plaza on July 19, 1979 Nicaraguans welcomed the victorious Sandinista guerrillas in celebration of the overthrow of the dictatorship of Anastasio Somoza Debayle. In a ceremony filled with pomp, President Ortega reinaugurated the plaza on June 23 as the Plaza of the Revolution to commemorate the 71st birthday of one of the founders of the FSLN, Carlos Fonseca, as a “symbol of the fights and victories of the Nicaraguan people.”

At the ceremony, the Sandinistas played a Spanish version of John Lennon’s song “Power to the People.” The plaza was decorated by flashy colors and psychedelic lights were projected on the surrounding buildings. In the spot where the musical fountain previously stood, two platforms were placed, one where the folkloric group Matzehuatl appeared and one where the President and guests of honor sat. A large Nicaraguan flag and a black and red Sandinista flag were raised in front of the old National Palace alongside giant portraits of Augusto C. Sandino, Rubén Darío and Carlos Fonseca. With this reinauguration, the government headed by Ortega recovered a symbol of the Sandinista era that had been erased by previous governments.


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Topic 4: Nicaragua announces possible incorporation into Banco Sur

Central Bank President Antenor Rosales announced Nicaragua’s incorporation into the Bank of the South (Banco Sur) as long as it will be beneficial. Current Banco Sur affiliates are Argentina, Bolivia, Brazil, Ecuador, Paraguay and Venezuela. The Banco Sur project, proposed by Venezuela, poses an alternative to World Bank and the IMF funding. Its members hope to operate before the end of 2007, although the amount of funds that member countries are expected to contribute has still not been declared.

President of the association representing big business, Superior Council of the Private Business (COSEP) of Nicaragua, Erwin Krüger, agreed. “Everything that comes to finance Nicaragua, in soft credits, is positive.” He added that a possible incorporation of Nicaragua to Banco Sur is not reason to exclude the country from its programs from cooperation with the IMF, World Bank, or other multilateral organisms.

In related news, President Ortega announced that he has offered the Presidential Palace to the government of Venezuela to establish an area office of the Bolivarian Alternative of the Americas (ALBA). The presidential building was constructed at the beginning of 2000 with a donation of US$10 million from Taiwan and was occupied by his predecessors Arnoldo Alemán and Enrique Bolaños. Ortega does not use the Presidential Palace because its maintenance is expensive.

Ortega made this statement June 21 during the inauguration of a branch of the National Bank of Economic and Social Development (BANDES) of Venezuela. The offices were opened in Managua in the Invercasa building as part of the Venezuelan government’s cooperation with Nicaragua in financing small producers who lack credit at local banks. BANDES initiated operations by giving a donation of US$10 million to public organizations and US$9.65 million in credits to rural cooperatives. The opening of operations of the BANDES is framed within the agreement of the ALBA.

The bank will start with a portfolio of credit of almost US$20 million dollars, of which US$10 million will be destined to projects promoted by different state institutions, like the National Water and Sewage Company (Enacal), the Police, the Ministry of Health (Minsa), the Post Office, and the Nicaraguan Electric Company (Enel). BANDES will rely on the authorization of the Supervision of Nicaraguan Banks to operate solely as a representative office, which means that it will not be able to receive public deposits.

The remainder of the financing will be of US$9.65 million granted to different producer cooperatives including Nicaraocoop, Ecocafen, Caruna and Sisina, covering 11,000 cooperatives total. The interest rate for credit will be five percent, with a grace period of two years, due to the interest of BANDES to support producers and not to make a profit. The financing will stimulate the cultivation of crops such as beans, peanuts, sesame, coffee, vegetables, and the raising of pigs, said BANIDES President Rafael Isea. Isea explained that BANIDES, as an instrument of ALBA, gives special attention to farming development because nourishment is fundamental for the people’s sovereignty. Within the framework of ALBA, integration goes much beyond mere commercial relations, Isea said. President Daniel Ortega said that the opening of the BANDES branch is the first manifestation of financial aid promised to producers.

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This hotline is prepared from the Nicaragua News Service and other sources. To receive a more extensive weekly summary of the news from Nicaragua by e-mail or postal This hotline is prepared from the Nicaragua News Service and other sources. To receive a more extensive weekly summary of the news from Nicaragua by e-mail or postal service, send a check for $60.00 to Nicaragua Network, 1247 E St., SE, Washington, DC 20003. We can be reached by phone at 202-544-9355. service, send a check for $60.00 to Nicaragua Network, 1247 E St., SE, Washington, DC 20003. We can be reached by phone at 202-544-9355.