Dec. 18 (Bloomberg) -- Russian President Dmitry Medvedev hosted Nicaraguan President Daniel Ortega at the Kremlin as Russia rekindles its Soviet-era alliance with the Central American nation.

Medvedev expressed interest in participating in a Nicaraguan-proposed project to build a canal connecting the Pacific and Atlantic Oceans to compete with the Panama Canal, Russian state television reported.

“Our presence in Latin America, our friendly ties with key partners, including Nicaragua, is not a temporary trend,” Medvedev said today in Moscow after the meeting. “It is conscious choice, we will develop these contacts in all areas.”

Nicaragua is the only country to have joined Russia in recognizing the independence of the Georgian breakaway regions of Abkhazia and South Ossetia after a Russo-Georgian war in August. Ortega’s revolutionary Sandinista government was supported by Soviet military aid in the 1980s as it battled U.S.-backed Contra rebels.

Since the conflict with U.S.-backed Georgia provoked a rift with the West, Russia has stepped up efforts to bolster its influence in Latin America by courting anti-American allies. Russian warships last week docked at a port in Nicaragua after naval maneuvers with the Venezuelan navy.

During a visit earlier this year to Managua, Russian Deputy Prime Minister Igor Sechin said that Russia would study plans to fund offshore oil exploration projects in Nicaragua.

Medvedev and Ortega discussed cooperation in energy, space and agriculture, state broadcaster Russia Today reported.

Trade Ties

Trade turnover between Russia and Venezuela only amounted to $6.8 million last year, down from $230 million in the 1980s, the Kremlin said.

Nicaragua, the second-poorest country in the Western Hemisphere after Haiti, has relied on the U.S. as its largest foreign donor since Ortega was voted out office in 1990.

Ortega returned to office in January 2007 on pledges to respect private property and reconcile the country’s past divisions.

The U.S. threatened this week to cut anti-poverty programs if the government doesn’t resolve disputed municipal election results over the next 90 days.

Russia supported the Nov. 9 election outcome in Nicaragua, where Ortega’s Sandinista party won 105 of 146 mayoral seats amid claims of voting fraud.

While Russia has promised to restore its role in Nicaragua, in the current global financial crisis Russian energy firms are unlikely to commit resources to the country’s unproven reserves, Kommersant newspaper reported today, citing an official at Russia’s largest private oil producer, OAO Lukoil.

Building a canal to accommodate ships too large to navigate through Panama would cost $20 billion, according to a 2006 project put forward by former Nicaraguan President Enrique Bolanos. The Nicaraguan plan comes as the Panama Canal Authority says it has secured about half the financing it needed for a $5.2 billion expansion project to make room for larger vessels, which is expected to be completed in 2014.

-- With reporting by Eric Sabo in Managua. Editor: Andrew Atkinson

To contact the reporter on this story: Henry Meyer in Moscow at Hmeyer4@bloomberg.net

Last Updated: December 18, 2008 11:22 EST