FEATURED | The Interoceanic Canal, & U.S. Constructive Engagement toward Nicaragua

The Nicaraguan canal project is situated in complex political and economic environment. But it seems that the project, like my efforts to learn about it, has been suspended with no appetite for explanation on the part of the Nicaraguan government.

By Dr. R. Evan Ellis
Professor of Latin American Studies
U.S. Army War College - Strategic Studies Institute.

FEATURED | The Interoceanic Canal, & U.S. Constructive Engagement toward Nicaragua

My recent research trip to Nicaragua was two months in the planning, but resulted in fewer than 24 hours in country. My research and interview plan was transparent to business and government offices in Nicaragua. But the Nicaraguan government officially directed me to leave after having completed only an abbreviated day of interviews about the trans-oceanic canal project underway there.  

The Nicaraguan canal project is situated in complex political and economic environment. But it seems that the project, like my efforts to learn about it, has been suspended with no appetite for explanation on the part of the Nicaraguan government.

U.S. State Department spokesperson John Kirby acknowledged that Nicaragua had expelled three U.S. government officials, which included myself, from Nicaragua on the 14th of June, saying. “It was unwarranted and inconsistent with the positive and constructive agenda that we seek with the government of Nicaragua. Also, such treatment has the potential to negatively impact U.S.-Nicaraguan bilateral relations, particularly trade.” 

I traveled to Managua on June 13th for an eight-day academic research project, entering the country on a U.S. official passport to complete a research project sponsored by the U.S. Army War College and supported by colleagues in the U.S. embassy. I openly and transparently coordinated and planned the trip, with Nicaraguan as well as U.S. government officials, and clearly represented my affiliation and purpose for entering the country. After obtaining permission from my own institution to conduct the trip and coordinating with the U.S. embassy in Managua, I began reaching out to senior Nicaraguan officials, seeking interviews, including: Nicaragua’s ambassador to the U.S., Francisco Campbell; senior advisor to the President on the canal, Paul Oquist; and functionaries in the office of the President. During the routine questioning at the immigration checkpoint at Managua airport, I explicitly told the official reviewing my official passport that I am a professor with the U.S. Army War College Strategic Studies Institute, there in Managua for eight days to conduct interviews regarding the Nicaraguan canal project.  

Less than 12 hours later, at 11:15 p.m. local time, Nicaraguan officials visited me in my hotel and “invited” me to leave the country, informing me that I was not authorized to be in the country conducting an investigation regarding the canal, a supposedly transparent commercial project.  

My Nicaraguan colleagues assure me that there is no law in Nicaragua that allows the government to expel a person from the country conducting open academic research on a particular topic, after having been legally admitted by competent immigration authorities. As U.S. Ambassador to Nicaragua Laura Dogu put it in an interview with the news organization Confidencial, “we are focused on the importance of the freedom of expression… and I don’t think he was doing anything different than any other academic in the world.”  

While my visit was truncated, I did have the opportunity for numerous engagements with Nicaraguan colleagues, who gave me valuable insights regarding the project that have not been widely reported in the English-language press.  

I confirmed that the canal project itself is not physically progressing. In August 2014, Chinese workers surveyed properties along the canal route, accompanied by Nicaraguan police and military, but the government has not purchased land along the canal route, nor has it begun the preliminary port construction work in Brito that would be occurring if the canal project was advancing.  

I also learned that opposition to the canal project is more widespread than is commonly acknowledged outside Nicaragua, with 64 marches involving over 400,000 protesters against the canal since Public Law 840 (the law authorizing the Chinese company HKND) was passed three years ago. Additionally, there are over 175,000 signatures on the petition to repeal that law. Resistance is particularly strong in areas such as the municipality of Nueva Guinea, which has never had a strong state presence, and which was one of the strongholds for the contra rebels during Nicaragua’s civil war.  

I also uncovered even more reasons than I had before to question the financial viability of the project. My colleagues confirmed that the financial consulting firm McKinsey & Co. has indeed performed at least two studies for the project. No results were ever published from the second study, which was supposed to make the financial case for the project, suggesting that there is no credible business case for the canal that McKinsey is willing to stand behind.  

I also gained a deeper appreciation for how apparent bad-faith maneuvering and the excessive pursuit of self-interest on both sides have contributed to the project’s problems. The primary investor, Chinese billionaire Wang Jing, appears to have leveraged his Nicaraguan counterparts’ interest in personal power and enrichment to secure a deal that is more personally advantageous to Wang Jing than is commonly realized. As has been widely publicized, Public Law 840 allows Wang Jing’s company HKND to initiate projects and take land in virtually any part of Nicaragua (with the pro forma approval of his Nicaraguan counterparts) if deemed necessary for the canal, and to pay only trivial compensation to the Nicaraguan government for the use of the canal during the initial years of its operation.  

Less commonly discussed, however, is another interpretation of Public Law 840. If Wang Jing cannot build the canal, he has the option to sue the Nicaraguan government in a foreign (English) court for all expenses incurred to date on the project—possibly as much as $200 to $300 million. If this interpretation is accurate, Wang Jing’s lavish spending on publicity campaigns and studies has never truly risked his own capital, but rather, that of the Nicaraguan people.  

As highlighted by my own expulsion, the Nicaraguan government has managed the canal project behind a cloak of secrecy, possibly to conceal the personal benefits accruing to those involved on the Nicaraguan side. Wang Jing’s lack of Spanish and English language skills may have impeded his engagement with the Nicaraguan people, but my colleagues assured me that it has been the Nicaraguan leadership that has prevented the public from knowing details of the project, including controlling press access during official events.  

Similarly, while I once believed that the prestigious Washington D.C.-based consulting firm McLarty and Associates had terminated their relationship with the project because of their concern over their reputation, my colleagues argued that it was actually Nicaraguan officials who edged McLarty out of the project, because they didn’t like having an American middleman between themselves and Wang Jing.  

Overall, Wang Jing and the Ortega government appear to be disappointed with each other over the canal. As a colleague noted, Wang Jing was misled into thinking that the Ortegas could deliver Nicaragua as a country where he could do what he pleased to advance the project. The Ortegas thought that Wang Jing could produce the vast funds and companies to make the canal a reality. Both appear to have learned better, but they are now stuck in a marriage they cannot readily escape.  In the end, my unpleasant experience with the Nicaraguan government deepened my concern that the project will either go forward as a Chinese government (PRC) funded and built effort, complemented with lucrative concessions for friends of the Ortega family, or it will collapse once the November 2016 elections have taken place. At that time the government would not need the illusion that the project is progressing to avoid the political cost of acknowledging its failure.  

With respect to possible PRC funding for the canal, ironically, current U.S. relations with the Ortega regime could actually increase the odds of such a scenario. If Taiwan-PRC relations deteriorate under the new Taiwanese government of Tsai Ing-wen, the PRC could resume its “war for diplomatic recognition” with Taiwan, suspended since 2008 while the previous Taiwanese government sought rapprochement with the mainland. If the PRC resumes actively courting countries of the world recognizing Taiwan to change their position, Nicaragua, which previously briefly recognized the PRC during the 1979-1990 Sandinista government, would be a leading candidate to change its diplomatic recognition from Taiwan to the PRC again… particularly if doing so helped it to secure PRC funding for the canal.  

In the context of such incentives, or even without them, perceived U.S. acquiescence to the practices of the Ortega regime could help to persuade the PRC leadership that the U.S. will similarly accept, with only minor resistance, the PRC’s establishment of a strategic logistics foothold and a greatly expanded commercial presence in Central America through the construction of the Nicaraguan canal.

Without the vast majority of project funds coming from China, attracting the $50 billion to $100 billion that the canal and its associated projects could require will be virtually unthinkable in the present Nicaraguan environment. Generally, investors only make such large, long-term, low rate-of-return investments when they have near absolute confidence in the stability and transparency of the government, in which due process of law protects them and their investment from arbitrary actions by the host government. If the host government can arbitrarily expel an academic legitimately admitted into the country for asking questions about a commercial project with no type of due process whatsoever, investors can feel no security in investing billions of dollars for an infrastructure project that the government can easily expropriate.  

Nor is Nicaragua likely to attract significant numbers of tourists or other investors with such a reputation. As the unfolding economic disaster in Venezuela illustrates, a culture of arbitrary government action eventually chases out the productive enterprises that sustain the government and feed the people.  

Sadly, my expulsion was not the only way the Ortega regime prejudiced the country’s business environment that day. Hours after kicking me out of the country, the government also expelled two other officials who were in the country to review the security protocols of Nicaraguan businesses so that they could more easily export their products to the United States. As with my case, such actions only further impoverish the Nicaraguan people and will ultimately erode the bases of support that maintain the government in power.  

Beyond the damage that the Ortega regime is doing to the development and prosperity of its own people, the audacity of its expulsion of three U.S. citizens legitimately in the country conducting official U.S. government business suggests that the U.S. strategy of constructive, respectful engagement with the Nicaraguan regime is not working. Attempting to downplay Nicaraguan government abuses only emboldens the Nicaraguan government, and calls into question the U.S. resolve to discourage the Sandinista regime’s efforts to conceal its repressive nature and the possibly widespread criminal behavior of its leaders.  

As Nicaraguan voters prepare to go to the polls in November, the U.S. government has both the right and the moral obligation to work with civil society groups to advance meaningful democracy with the same enthusiasm that it applies to engaging with civil society groups speaking out against practices of non-ALBA governments, such as Honduras and Guatemala.  

As part of broader U.S. efforts to bolster democratic institutions, the rule of law and respect for human rights in the region, it is in the U.S. strategic interest to take a principled stand against both the Nicaraguan government’s eroding respect for democratic practices and the serious accusations regarding the criminal activity of its leaders.

With respect to credible accusations of criminal conduct, the U.S. must be clear that its own law enforcement agencies, as well as other international law enforcement agencies, are collaboratively monitoring such activities. Those connected to transnational organized crime, or enriching themselves at the expense of the Nicaraguan people, will not escape justice to live with their ill-gotten gains once they leave office.  

The U.S. should also work with partners in the region to impose costs on the Sandinista leadership for actions that undermine democracy in the country, such as refusing to permit observers from the U.S. government and the Carter Center for the country’s November 2016 elections. The time to prevent Nicaragua from degenerating into a Venezuela-style authoritarian regime is now, before civil society institutions are decimated and before government institutions are completely subverted by the Sandinistas.  

Beyond the question of Nicaragua’s democracy, the U.S. should also work more actively with Nicaragua’s neighbors such as Costa Rica, including extending security assurances, where Nicaraguan actions such as the purchase of Russian T-72 tanks has given those neighbors cause for insecurity. The U.S. needs to closely monitor the Russian-built Marshal Zhukov law enforcement training center, including collaboration with countries in the region sending personnel there, to ensure that the center is not being used for activities beyond the legitimate training of law enforcement personnel.  

Finally, if the Nicaraguan government does push ahead with a PRC-funded canal project, the U.S. should work with European, and other global stakeholders, to insist on international oversight and transparency, legal commitments of strict neutrality regarding access to the waterway, prioritization and usage fees, and an international oversight board. If the PRC funds and builds the canal without such international safeguards, the U.S. and other stakeholders must be prepared to treat it as an economically hostile act.

My brief trip to Nicaragua left me profoundly touched by the spirit of its people, even if stunned by the audacity of its government. It left me more sensitized to the importance of the rule of law, protecting citizens from arbitrary action by their government or privileged groups, and it left me with the desire to return someday, under a regime where academics and businessmen alike can be more secure in their person and in their investments, whether or not the country has a canal.  

About the Author:

Dr. R. Evan Ellis is professor of Latin American Studies at the U.S. Army War College Strategic Studies Institute. The views expressed in this article are strictly his own.

This article was first published at Latin America Goes Global's Website (June 26, 2016) and is republished on IndraStra.com with Author's Permission. All Rights Reserved by Latin America Goes Global.

Latin America Goes Global

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IndraStra Global: FEATURED | The Interoceanic Canal, & U.S. Constructive Engagement toward Nicaragua
FEATURED | The Interoceanic Canal, & U.S. Constructive Engagement toward Nicaragua
The Nicaraguan canal project is situated in complex political and economic environment. But it seems that the project, like my efforts to learn about it, has been suspended with no appetite for explanation on the part of the Nicaraguan government.
IndraStra Global
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