US may punish Nicaragua's Daniel Ortega with $64 million aid cut

US concerns over last year's questionable municipal elections in Nicaragua could be strong enough to cause leftist President Daniel Ortega, a cold-war nemesis of the US, to lose $64 million in development aid.

In a Wednesday meeting with the board of directors of the Millennium Challenge Corporation (MCC), an international development initiative started during the Bush administration, Secretary of State Hillary Clinton will discuss whether to cancel the remaining portion of a $175 million compact awarded in 2006.

In December, the US government froze new aid after expressing serious concern about "the government of Nicaragua's manipulation of municipal elections and a broader pattern of actions inconsistent with the MCC eligibility criteria."

Those concerns haven't diminished with time, as Mr. Ortega refuses to address the electoral issue and thumbs his nose at those who question his government. The situation has MCC officials feeling exasperated.

"I mean, these guys stole the elections," says Rodney Bent, chief executive officer of the MCC.

Mr. Bent says the MCC was initially willing to "suspend judgment" of Ortega because the US "really wanted to prove that we could make it work." The MCC, which considered its Nicaraguan project exemplary, urged Ortega to find a "Nicaraguan solution" to the electoral problem so they could continue building roads, providing assistance to small farmers, and push forward on a project to title property.

'Freer' without the aid?

Instead, Ortega wrote off the MCC, saying the suspended aid made Nicaragua feel "freer" and that any aid canceled by the US will be replaced by Venezuelan President Hugo Chávez, whose list of promises to Nicaragua grows longer all the time.

Bent and the MCC team, including a Nicaraguan staff that's working with more than 5,000 small producers in the northern Pacific agricultural region, can only shake their heads at Ortega's willingness to blow off aid to the second poorest country in the hemisphere. The situation, according to one MCC insider in Nicaragua who refused to be named, is like a "family gathering getting ruined when the drunken uncle shows up."

Nicaragua is not the only country to have trouble complying with the MCC's basic democratic eligibility criteria. There are 14 "threshold" countries that don't quite qualify for MCC programs, but are receiving smaller assistance packages aimed at working toward specific areas of compliance so they can eventually apply for a full MCC grant.

But with the exception of Madagascar, which recently had its MCC program canceled following a coup, Nicaragua is one of the few countries moving away from eligibility criteria, rather than working toward it.

"In the case of Nicaragua, where you see really a huge variation from the norm of good governance, we say 'Hold the phone, is this a partner who we can do good stuff with?' " says Bent.

Europeans also considering canceling funds

There could be much more at stake for Nicaragua than just $64 million in MCC development aid. Nicaragua's Budget Support Group, a group of nine European donor countries plus Canada, last year suspended about $70 million in aid over similar concerns about last year's mayoral elections, in which the Sandinistas are accused of stealing some 40 municipal races.

The European donors have been similarly frustrated by attempts to discuss last year's elections with Sandinista officials and will be watching closely as the MCC makes its precedent-setting decision.

"If the United States is not going to continue with its programs, that is a very important signal for Nicaragua, and one that we will also take very seriously," says Dutch Ambassador Lambert Grijns, of the European Union's Budget Support Group.

Nicaraguan opposition leaders worry that the MCC decision could be the first domino to fall.

"June 10 looms like D-Day, as in 'donors' day' for Nicaragua," said Liberal Constitutional Party (PLC) lawmaker Francisco Aguirre, of the national legislature's Budget Commission. "Other traditional donors, as opposed to Venezuela and Iran, – Ortega's new friends – have similar concerns and will no doubt be influenced by the decision taken in Washington."

Adds opposition political leader Edmundo Jarquín, a former ambassador and analyst for the Inter-American Development Bank in Washington: "The democratic standards of European countries are no less than those of the United States, so the decision by the American government will have consequences in other countries."

For small Nicaraguan farmers who have benefited from MCC aid, it's unimaginable that any politician would willingly let it go.

"Maybe Ortega doesn't need the help, but the poor do and we're thankful for it," says cassava farmer Luis Salazar, who credits MCC assistance for helping him turn his farm around and save it from the brink of ruin in 2007. "Without this help, I would be in the same situation today as I was before."