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Latin America & Caribbean

Daniel Inc: How Nicaragua's Ortega financed a political dynasty

Since taking office in 2007, Daniel Ortega has funneled more than $4 billion in Venezuelan petro-dollars through 'Albanisa', a spider's web of companies controlled by the Sandinista Front, outside state controls. The accumulated Venezuelan debt now hangs over the country, dwarfing the financial crisis over its social security system that sparked massive street protests.
5 May 2018 – 05:29 PM EDT
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In 2008, Rodrigo Obregón was rewarded for his dedication to Nicaragua’s leftwing Sandinista Front by being appointed deputy manager of ‘ Albanisa’, a multi-billion dollar cooperation agreement with oil-rich Venezuela.

A civil engineer by training, Obregón, saw it as a chance to continue contributing to the rebuilding of his country after decades of a seemingly endless cycle of dictatorship, revolution and civil war.

But, a decade later, as Nicaragua is plunging into another round of turmoil, he fears that the alliance with Venezuela has had the opposite effect. With an outstanding debt of more than $3 billion, Obregón and others warn that Albanisa was little more than a giant financial scheme to keep Sandinista President Daniel Ortega in power by rewarding his allies, including his wife and children, while leaving the country mortgaged to the hilt.

“Albanisa is the apple of Ortega’s eye,” said Obregón, who left the company in 2014 in disagreement with its management over concerns he says he raised about the political manipulation of its finances and lack of transparency.

“Ortega used Albanisa to buy everybody off in a way never seen before in the history of Nicaragua," he said in an interview at his office in Managua. "They did not allow anyone to put their hands on it, not even the country’s treasury officials.”

The world’s media was gripped in recent days by Nicaraguan street protests over Ortega’s rule that left at least 40 dead.

The protests were sparked by an unpopular tax hike to raise $250 million to bailout the country’s overburdened social security system, INSS. But behind those protests is a far murkier tale of alleged abuse of power, nepotism and financial irregularities, that makes the social security crisis pale by comparison.

"We are talking about a debt that is exponentially higher than the current Social Security deficit and that all of us Nicaraguans will have to pay," he lamented.

Sandinista combatant

Obregón grew up under the dictatorship of Anastasio Somoza working for the government as a civil engineer. Like many young Nicaraguans he sympathized with the Sandinista Front for National Liberation (FSLN), a revolutionary movement led by nine 'comandantes,' including Daniel Ortega.

Obregón says he supplied maps of the Managua sewer system to help clandestine urban guerrilla cells surprise Somoza’s National Guard. “They would pop up out of manhole covers to throw Molotov cocktails,” he recalled.

In July 1979, Somoza fled the country and the Sandinista comandantes took power. Obregón joined the new Ministry of Construction to head a bridge building unit. But, when civil war broke out between the Sandinistas and a U.S.-backed ‘Contra’ army, Obregón didn’t wait to be called up and volunteered, serving from 1984-1989. He reached the rank of captain, head of operations for an army battalion in northern Nicaragua.

"We were engaged in fierce fighting," he said, flicking through faded old black and whote photos from the time, showing him with his unit.

The war was petering out when Ortega was surprisingly defeated in elections in 1990, and peace returned.

Obregón joined a group of loyal Sandinista professionals and technicians dedicated to returning Ortega to power. There was plenty of work rebuilding the country and he is proud of his work in the south of Nicaragua rebuilding schools, roads and bridges.

The Sandinistas remained a powerful force in the country. Ortega ran unsuccessfully for election three times – 1990, 1996 and 2001 – before finally winning in 2006.

Albanisa is born

After his election, Ortega wasted no time in signing the cooperation agreement with Venezuela, joining the Petrocaribe program that offered oil supplies to its socialist allies on generous terms.

Under the deal, Venezuela’s state oil company, PdVSA agreed to supply its counterpart in Nicaragua, PetroNic, with all its oil needs. But only 50% of the payment was due up front, with the other half spread over 25 years, with only 2% interest.

To handle the arrangement, a joint venture was created - Albanisa – with 51% controlled by PdVSA and 49% by PetroNic.

At the same time, Venezuela’s state oil company, PdVSA, agreed to loan 50% of the value of the oil to a private Nicaraguan cooperative, CARUNA (Caja Rural Nacional), controlled by Ortega’s Sandinista Front. Ortega appointed the party's treasurer, Francisco Lopez, as vice-president of Albanisa.

Secret accounts

For years the affairs of Albanisa, which stands for 'Alba de Nicaragua S.A', were shrouded in total secrecy. In 2011, the Nicaraguan digital newspaper, Confidencial, published the first investigative article questioning “Albanisa’s Secret Accounts,” using leaked documents to highlight how the Venezuelan aid was diverted to Ortega's private control.

It followed up in 2015 and 2016 with more reports that shed light on dozens of companies linked to Albanisa, "pointing to the wasteful and discretionary manner in which oil revenues have been handled ... devoid of any economic rationality or investment logic."

Albanisa subsidiaries were created: from a forestry unit (Alba Forestal), a wind energy project ( Alba Generación), and a bank. There was also an oil refinery, an airline, a cellphone company, a hotel, a string of gas stations, luxury apartment buildings, a tilapia fish farm, a cotton and rice business, a pig farm and even a silk worm business.

The company grew to employ about 1,500 says Obregón spread across a network of offices. Two of Ortega's sons, Rafael and Laureano, were put in charge of some of the companies. "They walked around the office hallways like peacocks," said Obregón.

No public accounting exists for those companies, some of which appear to only exist on paper, according to Confidencial, as well reports by the opposition newspaper, La Prensa.

“We don’t know the legal structure, who the shareholders are, or if there are any profits," said Carlos Fernando Chamorro, the editor of Confidencial. "There is a total lack of government transparency. There needs to be an audit," he added.

Univision tried unsuccessfully to contact Albanisa, as well as the Nicaraguan government in Managua and its embassy in Washington DC, to seek comment.

The paper accused Ortega government officials of "concealing information and cloaking everything in extreme secrecy," describing the company as "a business incubator controlled entirely by the president’s family."

Obregón backs up much of what Confidencial has reported. During his four years with Albanisa he says he became gradually dismayed by the way projects were approved without proper research and consultation, such as market surveys or environmental impact studies.

One project in particular bothered him; a $4 billion refinery, named: 'Bolivar’s Supreme Dream,' named after Venezuelan independence hero Simon Bolivar. Nicaragua already had two refineries and did not produce any oil. “Who are we going to sell to?” he asked.

His boss, Lopez, told him not to worry about “bourgeois nonsense,” he recalled.

The refinery was never built, though Obregón estimates about $300-$400 million was spent on the project, which consists today of a few fuel storage tanks, according to local press reports.

After leaving the company in 2014, Obregón went to Confidencial, contributing to further articles exposing Albanisa's activities.

But, the allegations went largely overlooked outside Nicaragua.

For all its faults, Ortega's Nicaragua looked like a pretty successsful model to many observers, when compared to its neighbors - Honduras, El Salvador and Guatemala - engulfed in gang violence, drug trafficking and political scandal.

Stable authoritarianism

Critics say Albanisa's largesse has had an enormous impact on Ortega's political fortunes, helping stabilize the nation's finances, and stimulating years of steady economic growth that took the pressure off international and domestic criticism of his authoritarian style of government.

Albanisa freed Ortega from the constraints of traditional international aid agreements that poor countries must usually seek with the United States, the European Union or the United Nations. When the U.S. cut its $175 million aid program to Nicaragua, Ortega barely blinked an eye.

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Domestically, polling shows most low income, lower educated Nicaraguans, especially in rural areas, were satisfied with how democracy was working in Nicaragua. In 2016 Ortega enjoyed a 64% approval rating, according to the AmericasBarometer (LAPOP), published by Vanderbilt University.

The World Bank and the International Monetary Fund (IMF) have given largely high marks to Ortega's handling of the Nicaragua economy. "Despite global economic turbulence, Nicaragua has stood out for maintaining growth levels above the average for Latin America and the Caribbean," the World Bank wrote in an overview on April 16, days before the street protests erupted. It went on to highlight the government's "disciplined macroeconomic policies," and "pioneering strategies to fight poverty."

Albanisa had a large hand in that, critics say, giving Ortega a steady stream of funding for social programs, including food and housing, tightly managed by the Sandinista Front.

Albanisa brought in about $580 million annually until the funds began to slow, a huge sum for an economy the size of Nicaragua, accounting for 34% of state revenue and 23% of export earnings, economists say.

Of that money, 38% was spent on Sandinista social programs. The other 62% went into its investment portfolio, according to records examined by Nicaraguan economist Adolfo Acevedo.

The outstanding Albanisa debt stands at $3.2 billion, according to Acevedo, who estimates future annual payments at $180 million. With Venezuelan oil supplies drying up, Nicaragua is now obliged to buy its fuel on the open market. Economists like Acevedo worry that Nicaragua won't have enough cash to service the debt, as well as buy fuel.

No-one was immediately available at the World Bank or the IMF to comment about their assessment of Ortega's handling of the economy.

The State Department’s annual global 'Transparency' report in 2017 said Nicaragua had not publicly accounted for all the assistance it receives from Venezuela or properly audited Albanisa.

"Allocations to and earnings from state-owned enterprises were included in the budget on a net basis, but most state-owned enterprises, including ALBANISA, have not been subject to audit," it stated.

The tables turn

Ortega was re-elected for a third time in 2016 with an eye-popping 72% of the vote, though the legitimacy of the vote was widely questioned after the ruling Sandinistas rigged the Electoral Council.

However, in recent years the tables have gradually turned. A 50% drop in oil prices has dramatically curtailed Venezuela's ability to pay its own way, let alone help out its allies with discounted oil.

The flow of oil has fallen 80% since 2014 and Nicaragua has been forced to turn to the more expensive open market to secure its fuel needs with hard currency.

The IMF warned in June 2017 that the growing social security deficit and the reduction of Venezuelan cooperation "are likely to intensify spending pressures in the coming years." It went on to say that Nicaragua's ability to pay its debt "depends on the capacity of ALBANISA's assets to generate sufficient returns and maintain a low level of losses."

But the lack of transparency makes it impossible to know how well the investments are performing.

"Neither ALBANISA's nor CARUNA's assets are subject to supervision and externally audited accounts are not published. Thus, the quality of their investment portfolio is unknown." - IMF

Nicaraguan officials also assured the IMF that the outstanding debt is private between Venezuela and Albanisa. "There is no intention for the government to absorb any of the debts of ALBANISA with Venezuela," the IMF said.

But many Nicaraguans doubt the word of the government. "There is no doubt that this is a public between PetroNic and PdVSA .... in the end, we Nicaraguans will have to cover the 49% (owned by PetroNic) with our Central Bank reserves," said Obregón.

Things have only worsened in recent months, further undermining confidence in the Ortega government

In December 2017, the U.S. Treasury Department slapped sanctions on the Electoral Council's president, Roberto Rivas, alleging election fraud and financial corruption.

Meanwhile, the Trump administration has turned up the heat on the government of "Madman" Nicolás Maduro in Venezuela, imposing sanctions on more than 50 senior officials accused of undermining democracy. The U.S. Treasury also imposed sanctions prohibiting trading new debt and equity issued by the Venezuelan government and PdVSA.

U.S. officials have also warned local Nicaraguans businesses with U.S. ties to be careful about doing business with Albanisa. U.S. members of Congress have discussed a so-called 'NICA Act' seeking to dissuade foreign investment in Nicaragua by imposing strict democratic conditions on loans by the major international financial institutions.

Albanisa represents “the tragedy of the Ortegas: so greedy for power and riches, too much easy money from Venezuela,” said Richard Feinberg, a Latin America expert at the University of California, San Diego. “Now they are trapped, afraid of leaving power for fear of exposure and justice at the hands of the people.”

Obregón says he still receives threats after leaving the company. "I get phone calls. They say things like: ‘this is the last day of your life, say goodbye,’” he said.

“They are afraid that people will discover the waste of money and all the improper dealings,” he added.

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