Nicaragua
A Time for Opportunities and Opportunists
The Mitch tragedy offers a unique potential, perhaps the last one, for a meeting of minds between state institutions and the organizations of civil society to transform Nicaragua and make it viable. An opportunity to weave threads of greater solidarity, realism and honesty, creative forms of austerity and shared responsibility back into the social fabric, into its political class and into its economic model. But the signs are that it will instead be used by opportunists, those quickest on their feet to further their own ambitions.
Nitlápan-Envío team
The government officially concluded the national emergency committee's activities on the night of November 24, three weeks after it began to function without a "state of emergency" ever being decreed. At the same time it was announced that a new stage was being initiated to respond to the disasters Mitch left behind: that of rehabilitating, reconstructing and transforming the country.
This process would be headed up for six months by a special presidential commission that would then turn into the National Economic and Social Planning Council, an institution contemplated in the Constitution but never before taken seriously by the government. This same presidential commission prepared the document that the Nicaragua government is presenting in Washington on December 10-11 to the Consultative Group on Central America, set up by donor countries to organize the international community's emergency aid plan for the region's countries.
Did Mitch have a class bias? The Nicaraguan government turned over the task of evaluating damages to the United Nations, through its Economic Commission on Latin America (ECLA). While that effort has not yet concluded, it is already clear, 40 days after the tragedy, that Mitch has dashed the government's optimistic projections, particularly regarding the macroeconomic indicators, growth expectations and targets set in the Enhanced Structural Adjustment Facility (ESAF). On the other hand, the figures accompanying those official forecasts did not take nearly the beating that the economy of the poorest peasants did.
Mitch unarguably vented its worst fury on the poorest of Nicaragua's rural poor. Their needs for credit, technical assistance, land and a major voice in managing their development are now even more imperative than before the hurricane. The unexpected flows of foreign aid could be an opportunity to meet these needs. But to turn such serious problems into an opportunity, a lot of agreements will need to be forged, ones that really represent the interests of those affected and are not skewed by political interests.
Comparing the map of the affected zones with the government's official poverty map (on these two pages) shows a lot of overlap. While some very poor municipalities were spared, only one municipality that was hit--ironically, Posoltega, the most battered of all--does not figure among the country's poorest.
For all that, the hurricane itself didn't have a class bias, as some have commented, suggesting some divine will or mythical curse against the poor. The class bias was in the hurricane's damage and was the result of very concrete social, economic and environmental factors. Over time the poor have been pushed into the most ecologically fragile zones, those least appropriate for agriculture and therefore the most vulnerable to disaster. The flooding swept away all the crops in the lowlands around the mouths of rivers, which is where so many peasants plant. Furthermore, the huge volume of rain that fell in the normally drier zones left the bulk of peasant agriculture in ruins as it drastically eroded extensive crop areas on the slopes of hills and mountains, the only land available to poor peasants in these regions.
We were already in bad shape, but that doesn't interest the IMF What will the impact of the hurricane damage be on the national economy as a whole in the near future and over the longer haul? Any answer to that must begin by recalling the state of Nicaragua's economy before Mitch--which was unquestionably not very good. The government's projections start from the fact that the gross domestic product (GDP) has shown continual growth since 1994. Official estimates, according to Central Bank data, were that we would reach an annual per-capita GDP of $491 by the year 2000, when the structural adjustment implemented through the ESAF II agreement ends. Since the per-capita GDP in 1990 was $485, this extremely moderate official projection was nothing to get excited about even before the hurricane came along to knock it on its ear.
Both Ministry of Labor and Central Bank data indicate that 53.5% of the economically active population was considered unemployed or underemployed in 1995. Before Mitch's passage, the government optimistically announced that it expected to lower that rate to 45.3% by 2000. Far from meriting optimism, it was another very sobering forecast, since the under/unemployment rate in 1990 was 44.3%. And if that weren't depressing enough, it in fact implies an increase in absolute numbers, since the population has grown in that decade. The real message behind these two trumpeted
forecasts is that the country has suffered from new levels of misery and impoverishment for a decade only to end up with almost the same percentage of unemployed and underemployed and the same per-capita income that we had in 1990.
Indicators such as the above, however, are not what the International Monetary Fund monitors. In its evaluation of a country that is applying a structural adjustment program, the only indicators that really interest the IMF are the gap between public spending and income, otherwise known as the fiscal balance, and the gap between the import and export bills, the trade balance. Nicaragua's structural adjustment is geared precisely to reduce these gaps.
The fiscal gap that the outgoing Chamorro administration saddled its successor with at the end of 1996 was quite large: 14.3%. President Arnoldo Alemán's Liberal government managed to reduce it to 8.5% in just one year. The gap has narrowed even more since the signing of ESAF II, and was projected to only be 4% by the year 2000, the goal agreed to in the ESAF.
But then came Mitch. Tax income, which had been on a continuous growth curve, dropped, while extraordinary spending to deal with the disaster can be predicted. Even though figures are not yet available, this reality makes it clear that the public spending deficit will now tend to widen again rather than continue closing. To keep this from happening, the government has three options: seek additional outside resources, raise taxes, and slash the state employee roster even more. As a matter of fact, it is already moving on all three fronts. First, the resources the government is requesting in Washington obviously come on top of those already pledged. Second, it has raised liquor and cigarette taxes and is angling to renew enforcement of the new Tax Law provision requiring national NGOs to pay taxes on donations received. It had temporarily backed off under organized pressure from the NGOs after Mitch, but since Nicaragua's NGOs receive an estimated $150 million annually to finance a wide range of projects, the government now plans to reform the law further to establish which organizations must start paying again in 1999. Third, it has begun laying off dozens more public employees, particularly but not only from the health sector, electricity and telecommunications.
For those monitoring ESAF implementation, the trade balance deficit is as important as the public spending deficit. The gap in the trade balance is financed with external resources: either foreign donations or loans, which leads to the country's increased indebtedness. Even with the government's optimistic projections, our trade balance for 2000 would have been in the red. And it was already forecast that 1998 export volumes would not exceed those of 1997. After the hurricane, exports will be lower than predicted and imports will grow much more: massive quantities of food and reconstruction materials, for example, will have to be imported.
Export production sparedThe government was projecting growth rates of at least 6% annually for the next few years. Immediately after Mitch, spokespeople for the government economic plan stated that, even with all the hurricane damage, the economy would grow 3%, an expectation that seems implausible. Nonetheless, when breaking down the damage by category and the weight that each one has on the whole of the national economy, some explanations start to emerge.
The hurrican directly affected about 900 acres of coffee, but the country has over 45,000 acres planted with coffee. The same is true of sugarcane: the government estimated losses at only about 10% of the 34,000 or so acres of cane grown in the country. Not even in Posoltega, the area most affected in the whole country, did the mudslide touch the canefields. In fact the abundant rains benefited the plantations. The San Antonio refinery, together with its Flor de Caña brand rum factory, which make up one of Nicaragua's most emblematic economic emporiums, stand less than five miles away from the mudslide's tragic path. Not even this, however, is a sign that the hurricane was somehow mysteriously directed against the poor. It is simply another demonstration that impoverishment and ecological disaster usually go hand in hand. Large-scale export production was largely spared because it is carried out on better situated land.
Who was set back 25 years?Based on its first estimates, the government announced that the hurricane had apparently ruined only about 15% of the country's agricultural production, but since it had earlier estimated that the agricultural sector would grow 15% in 1998, it deduced that Mitch would leave the country at the same production level as last year. In other words, it hadn't been so bad after all. Later the damage estimates began to climb, once the whole of what had happened began to be more realistically analyzed. Now it is certain that 1998 will close with negative growth.
Conservative or not, the figures serve as a point of reference to show that the bulk of the country's export production wasn't harmed. In Honduras it will be hard to fill a single box of bananas for export next year. In Nicaragua, bananas were sent out in the days immediately following the hurricane, even though one of the largest banana-growing zones is in the middle of the most affected areas in the western region.
But this is the picture looking only at export crops. The perspective changes completely if we look at basic grain production. Some 40% of the area planted in beans was devastated, as was 32% of the area planted in corn. The ruination is in the area of peasant food production, in tortillas and gallo pinto, the daily dish of mixed rice and beans. And the peasant economy produced 70% of the food consumed in Nicaragua. The next nine months, before the new first-planting harvest is ready, will be very difficult for the country's massive number of poor; starvation is predictable among those in both the countryside and the cities.
Considering only the overall data and the damage to value-added production, the country's agricultural situation doesn't seem so bad. But throughout the peasant zone hit by Mitch, what has happened is a veritable hecatomb. The most succinct assessment came from a peasant from the disaster area, who said, "The country wasn't set back 25 years, but I sure was!"
Land is neededWhat are the challenges raised by this bitter new peasant tragedy? The main one is the reconstruction of Nicaragua's newly devastated rural areas, but is the country prepared to meet it? A reading of the recent past would suggest that the answer is no. Nicaragua lacks the "institutionality" (a fashionable new nation-building term that encompasses structures, laws, norms and other necessary instruments, as well as attitudes or culture) through which to find and provide land to people who can no longer go back and plant where they did before. An appropriate institutional response would, for example, be to carry out a new agrarian reform, finding idle farms and moving people onto them who no longer want to live where they were.
The mayor of Posoltega announced from the outset that she would need over 3,600 acres to provide to ruined peasant families before planting time next year. The question is this: Is the institutionality that this government has been creating capable of assuming this challenge? It is well known that the Agrarian Reform Institute's priority in the past few years has been very different than its name implies: the institute has been processing indemnification payments for all those affected by the agrarian reforms of the 1980s and the early 1990s.
Credits are neededA large majority of the peasants who did not lose their farms and land were still affected by serious soil damage, and need credit to rebuild their production. The question is, who's going to extend them this credit? Up until two years ago there was the National Development Bank, not very user-friendly to small producers, but it has been replaced by the Rural Credit Fund, which hasn't even begun to function. The only accessible options for at least one sector of newly ruined peasants are the NGOs working in alternative credit programs. But even though there are many such organizations, their coverage is still very limited, just a drop in the bucket, and they tend to work under adverse conditions.
One such negative condition is rooted in the culture itself. Many credit beneficiaries tend to look on a loan as a donation. In the current situation, saturated with propaganda about the "international aid" flowing into the country and the government's efforts to get its own debt pardoned, expectations about subsidies within the rural culture could easily get triggered again. Nonetheless, if historical disasters and erroneous policies were what fostered this dangerous culture, a lot has been done in the past few years to force its retreat. It would be a real error to think that all the peasants in the affected zones are just looking to get their debts written off. Their main need at this point, now that they've fallen to the bottom of the pit, is the same as before the hurricane: credit.
These peasants urgently need additional credit so that, by their own effort, they can rehabilitate their production units. The logic of emergency aid, of humanitarian aid—which turns individuals into objects of charity—conspires against the logic of a reconstruction in which people should be subjects of their own development.
Technology is neededAnother challenge has to do with technology. Immense expanses of land have suffered very severe damage. Many farms may need to change the crops they grow and the technology they use to do it. Who is going to support that important process? The government has an Institute of Agricultural Technology (INTA), but it has been newly redesigned to supply its services exclusively to those who can pay for them.
Most of these needs for technology transfer were intense even before Mitch swung through the area drowning the old ways of doing things and seriously affecting the productive capacity of many farms. The multiplication of cattle diseases and crop pests due to the heavy rain demands immediate technical assistance. The lack of good quality seeds is an endemic problem only worsened by Mitch. The pasturelands buried under layers of sand, the reduction of the forest cover and the many eroded plots require a major dose of technical assistance in regeneration, soil conservation and various reforestation methods. Food for the small-scale livestock basic to the peasant diet and income is another problem that demands immediate attention.
All these features of this dramatic portrait could provide opportunities for a coordinated arrangement between the government and NGOs specializing in technology transfer. Such an agreement should occur in this and many other areas. Rural Nicaragua can be rebuilt; it's a possible task. The peasants who live in the affected zones want more than anything to rebuild their lives. The problem is whether and how the rest of society is organizing to support their decision to get on with it.
"Time for patriotism"?The government has proclaimed that this is "time for patriotism" and proposes that we all rebuild the country "together." Everyone united. But beyond the rhetoric there is no real indication in the spheres of power that this opportunity will be used to such ends. Worse yet, after the first stupor passed, the signs coming from the highest levels even suggest that all the controversial issues demanding a just response in the pre-Mitch script will remain buried in the mountains of mud that Mitch left us. The government and the FSLN could simply consolidate their pact, shielded behind the laudable justification of "national unity for reconstruction." Among other things, this pact will involve weakening the Comptroller General's Office and getting rid of its current head, further undermining the already weak institutional structures, altering the electoral calendar and ignoring those pledged to the ethical fight against impunity until they give up from exhaustion. The eternal opportunists, and some new ones, are already crawling out of the woodwork, quite prepared to turn this grief to their advantage.
After a number of Liberals in government and Sandinistas in the FSLN spent the first three weeks of the emergency accusing each other of using the disaster to obtain political advantages, Arnoldo Alemán and Daniel Ortega got back down to their pre-Mitch discussions to forge a bipartisan pact. On November 23, three days after a particularly long meeting, Ortega announced that the FSLN would back the government's request to the international community for special reconstruction funds and its initiatives to speed up Nicaragua's entry into the Initiative for Highly Indebted Poor Countries (HIPC), which would allow part of the country's foreign debt to be written off.
That same international community had leaned on both political leaders to assure Nicaragua's "governability." The strongest pressure was applied by the respective heads of the International Monetary Fund and the Inter-American Development Bank, Michel Camdessus and Enrique Iglesias, who visited the country three weeks after the disaster. Governability is a priority objective for their institutions, and they made clear that they wanted to see guarantees of it in the plans that the government is to present to the Consultative Group in Washington in December, and again in Stockholm in April.
This international pressure also obliged the government to create commissions, which were to include civil society and business representatives, to consult with on the formulation of this plan. As it has done on other occasions, the government incorporated these sectors, but in a skewed and hardly representative manner. It especially singled out for invitation big business names from the Supreme Council of Private Enterprise (COSEP) and certain personalities linked to specific NGOs, but only in their individual capacity. Not only that, it called them all just to present them with a plan that had already been formulated and was virtually closed to new proposals.
The FSLN-Government pact is still afloatMitch forced Arnoldo Alemán and Daniel Ortega to put a different spin on their ongoing spectacle of confrontation-conciliation, as did the need of both men to halt the downhill slide in their popularity. The most recent public opinion polls taken after Mitch show that indifference to or rejection of them both is increasing. Our own last poll, discussed in this same issue of envío, confirms that a majority does not recognize the leadership of either one, although Alemán's slide has been more precipitous.
The unexpected and painful emergency has offered these two erstwhile archenemies an opportunity to extol the bipartisan pact they have been working toward on the grounds of unity. Such a justification would have been, if not impossible, at least far more difficult and controversial before—assuming anyone took it seriously enough not to laugh.
Since the negotiations were unveiled in August, the contents of the agreement have been changing somewhat according to the party swings and the personal and/or political swings of those controlling the discussions. Its essence, however, remains intact. Both before and after Mitch, that essence is to consolidate a two-party system and retool the country's institutional structures on behalf of the interests of those two parties' upper echelons. Whatever professionalism, autonomy and capacity to function effectively that the country's still fragile institutions have developed would be sacrificed on the altar of this objective. And since it seeks to blinder the population into thinking only about two leadership figures, it would put an end to any thought of shaking off the age-old dependence on "strongman" politicians, or caudillos, as they are known in Latin America.
Put off municipal elections?Mitch seems to have derailed the possibility of introducing the constitutional reforms being hammered out by these two forces into the National Assembly for passage during this legislative session, which ends this month. Unless the changes are pushed through in some miracle of last-minute midnight voting, the earliest they will now go into effect is the year 2000, since constitutional reforms require two rounds of approval, in two separate legislative years.
But what Mitch took away with one blow it gave with another. It has offered Alemán's Constitutionalist Liberal Party (PLC) and Ortega's FSLN a unique justification for an electoral change that both appear extremely eager to push through. As Conservative Party head Noel Vidaurre charged in early December, the two parties want to postpone the municipal elections, scheduled for February of 2000, until the following year, combining them with the presidential elections as in 1996.
In objective terms, the debate has its pros and cons. The more separate elections there are, the more disrupted and polarized community organization remains. Financially, it is cheaper to combine the elections; administratively, it is easier to guarantee their efficiency and transparency if they are separate. The Supreme Electoral Council (CSE) stood by the transparency argument until Mitch, but now may have changed its perspective since nearly two hundred thousand of those left homeless are potential voters. The fact that they will surely end up with new addresses and may even move to new municipalities will affect not only the Civil Registry, but also the electoral rolls and the mapping of polling places for the municipal elections. To make matters worse, the CSE budget does not begin to cover such an enormous challenge.
But these mundane concerns are of little interest to the Liberal and Sandinista leaders. For them the salient issue is to assure the conditions for people to vote a straight party ticket. The more ballots they have to deal with at one time, the more likely they are to mark them all the same, which obviously favors the two front-running parties. If, on the other hand, voters have the luxury of only thinking about their local conditions and evaluating which municipal candidates are most likely to resolve their problems why, they just might vote for someone else! A strong local leader from a party that has little national projection, say, or perhaps an up-and-coming young person with fresh leadership potential who decides to run as a municipal candidate for what is known as a "popular petition association."
The ever more ambiguous and two-faced FSLNThe Alemán-FSLN pact is riddled with contradictions. A considerable segment of the Sandinista grassroots still does not back this agreement, which has obliged Ortega to engage in a dual discourse since August that has become increasingly confusing. He finds himself mixing conciliatory expressions regarding the government and even his personal nemesis, President Alemán, with his more traditional agitating and menacing rhetoric. For a leader who is already on thin ice ethically, the political costs of this exercise are making it harder and harder to sustain.
A few days after the conciliatory Ortega announced on television that the FSLN would accompany President Alemán in the Consultative Group meeting in Washington, his party's left wing forced him to head up a demonstration against the government's economic policy and new layoffs of dozens of public service employees—some of them Sandinista unionists. On December 3, the demonstrators, who numbered no more than two thousand, were treated to a couple of hours of the menacing Ortega threatening to fill Managua with barricades if the government doesn't change the course of its economic policy.
In an attempt to somewhat neutralize this ambiguity, Ortega made a gesture that was as unexpected as it was laden with new confusions. He invited Cardinal Obando to participate at his side in the Sandinista street demonstration. The cardinal declined with a polite smile.
The pessimism of the ever poorer vs. the government's false optimismThe majority of Nicaraguans need no urging to oppose the current economic policy, but that doesn't automatically mean that they would put up a barricade or back Daniel Ortega. Much less do they understand and support the institutional or legal contents that are at stake in the Ortega-Alemán pact. Confusion reigns, and is getting deeper as the impoverishment worsens.
A pre-hurricane study by the International Foundation for Global Economic Development (FIDEG) shows that in the country's largest cities, where underemployment has grown sharply, the proportion of the population whose income covers only half of the basic market basket has risen from 40.8% in 1993 to 63.5% this year. Most Nicaraguans have seen their incomes deteriorate as a result of the structural adjustment program, and are now losing even more purchasing power as the prices of basic goods shoot up in the wake of the hurricane. The general opposition with which some Sandinistas will greet the final Ortega-Alemán pact is thus fully justified. It already reads like tacit Sandinista approval of an economic policy that has further impoverished the majorities, particularly those with the strongest Sandinista tradition: public sector employees and urban dwellers in general.
Even amid the erosion of living standards prior to Mitch, the government clung to its optimistic projections for the year, particularly regarding the behavior and social impact of inflation. The optimism was such that Central Bank president Noel Ramírez, the powerful spokesperson for the government's economic policy, announced months ago that the daily slide in the córdoba's value relative to the dollar would slow to one centavo a day. According to the government, this was possible because, thanks to low inflation, an exchange rate had been reached that was adequate to stimulate Nicaraguan exports.
No hurricane was needed to rip the mask from this analysis. Several weeks before Mitch, Ramírez himself had to admit that 1988 exports would be below those of 1997. His explanation was that the Asian crisis was making any change in the government's exchange rate policy impossible given the risks of a world recession, which could negatively affect the demand for and prices of Nicaraguan exports. Exports will obviously now fall even more than forecast for the close of 1998, due not only to Asia but also to Mitch. As for inflation, the government's goal was to end 1998 with an 8% cumulative year-end rate, but even official figures recognize that it has already hit 15%, also largely thanks to Mitch.
The unbearable foreign debt: dreams vs. realityThe drop in export income and the need for additional resources to reconstruct the country make the need to reduce Nicaragua's foreign debt service payments more urgent than ever. The government's most cherished project even before Mitch was Nicaragua's entrance into the HIPC Initiative. Now, thanks to Mitch, this dream could come true in 1999, a year before it was projected to happen. But we need to be clear that, even turned reality, the official dream gives little reason for optimism.
The government has engaged in an extremely costly publicity campaign to convince the population that any relief in the country's difficult economic situation will depend on the foreign debt being at least reduced significantly, if not written off completely. Although the HIPC Initiative is a new twist in this campaign, it is just another in the long line of government assurances over the past eight years that, if the population can just hang on and tighten its belt yet another notch, we will soon reach the Promised Land. But, as before, the expectations that the government has tried to spark through this new propaganda have little to do with reality.
All that the HIPC Initiative essentially means is that Nicaragua's creditors will adapt the country's foreign debt to its capacity to pay. The thrust of the initiative is not to pardon our debt, but to get us into a position to be able to pay on it—however little, for however long it takes.
Nor does the initiative directly seek development, much less assure it, since it contributes no net benefit that would free up resources for investment in development. Even once we have been admitted to it, our financial obligations will always be a considerable burden on our small economy. It is true that if we pay, it's because we have external income that allows us to, but nothing guarantees that any debt reduction will be accompanied by an increase in our net external income. It could even decrease. Below we look closer at what it is possible to write off in the framework of the HIPC Initiative and what the trade-off is. As can be seen, this analysis suggests not only that the national situation will get no miraculous relief, but could worsen. To understand this, we need to explode two myths.
First, although we have been led to think that the pardon offered by the HIPC Initiative covers Nicaragua's entire debt, it in fact deals directly with only a small part of it. To appreciate this fully, it is helpful to go back over the evolution of Nicaragua's foreign debt. By the time the FSLN lost power in 1990, the debt had reached nearly US$13 billion. That amount represented approximately 6.8 times the country's total annual Gross Domestic Product. Between 1990 and 1997, the Chamorro government's negotiations succeeded in reducing the debt by half through a series of important write-offs. Two countries alone—Russia, which pardoned almost $3.1 billion, and Mexico, which wrote off a bit over $1 billion—reduced more of Nicaragua's debt than all the Paris Club member countries combined in that same period. The latter countries, the wealthiest on the planet, pardoned a total of just over $1.027 billion. It is also important to bear in mind that most of the countries that wrote off bilateral debts in those years—Russia, the Czech Republic, Mexico, Colombia, Venezuela and Argentina—were a) not on the priority debt service list so did not expect to see any money for the foreseeable future in any case, and b) will never make another loan to Nicaragua.
In 1997, Nicaragua began to look into the possibility of climbing aboard the HIPC Initiative, an idea that had come up in the Paris Club. The initiative would reduce Nicaragua's debt with the Club member countries by 80%, but on two conditions: 1) that Nicaragua meet certain targets previously established in the Enhanced Structural Adjustment Facility (ESAF) agreement, and 2) that Nicaragua get its other creditors to also forgive its debts with them, or at least slash them by the same 80%.
While Mitch has made it impossible for the Alemán government to meet the first of those two conditions this year, our creditors are very aware that, even without the hurricane, it would have been difficult. It is particularly hard to meet ESAF's required international currency reserves level, given the huge gap in Nicaragua's trade balance, with the price tag for its imports still more than double that of exports.
As far as the second condition is concerned, these are some of the relevant numbers. Before the hurricane, Nicaragua's total debt was just over US$6,073 billion, and was distributed as follows:
28% multilateral lending institutions
25% Paris Club countries
17% other Central American countries
12% former socialist countries
8% other Latin American countries
5% other countries
4% international commercial banks
1% various suppliers
100%
As this breakdown shows, the debt to the Paris Club countries represents exactly a quarter of Nicaragua's entire debt. Pardoning it by no means signifies canceling 80% of the whole debt. If Nicaragua were admitted into the HIPC right now, it would still owe just over US$4.778 billion.
Even if Nicaragua were to successfully negotiate the second HIPC condition, getting all other creditors to reduce Nicaragua's debt by 80% as well, the debt would still be a little over US$1.2 billion. While that may seem like a big drop, even this amount represents two years of the country's total exports.
Once within the initiative the annual interest payments on this reduced debt would be adjusted so that they not exceed 20% of Nicaragua's export earnings. Based on present export earnings, that would be in the neighborhood of $90-100 million. That is certainly an achievement, but the amount would still be very onerous for our small economy. It should be remembered that we have not been not been servicing all our debts for the past several years, just those with the priority list of creditors that we want to continue loaning more to us. This year, those priority payments amounted to just over US$200 million, so the relief would not be felt quite as much as we have been led to imagine.
Not only that, it is also very revealing to discover why Nicaragua has not yet renegotiated what it owes to the creditors that don't belong to the Paris Club. The reason is that any debt that is renegotiated gets added to the priority list, which would make interest payments on it obligatory. By the end of 1997, Nicaragua had accumulated US$774.4 million in back interest payments on those "non-priority" debts, which is partly interest on the unpaid interest.
As can be seen, then, in Nicaragua's case—and probably in the cases of the other impoverished countries seeking admission to the HIPC—it is hard to become really solvent by pardoning 80% of 25% of the debt, particularly as long as import levels are almost double those of exports.
The second myth that needs to be dispatched is the idea that Nicaragua is paying its debt with its own resources.
The Nicaraguan government has had a fair amount of success in controlling the fiscal deficit and being able to earmark almost 20% of the national budget for payment on the foreign debt—all of which is required as part of the conditions imposed by the structural adjustment program. But this success would have been impossible had Nicaragua not received enough donations over these same years to cover almost half of those debt payments.
In 1998, the government planned to pay US$208.8 million in debt service: $121.5 million in capital amortization, and $87.9 million in interest. At the same time, it was programmed to receive $106.9 million in donations from the international community: $30 million in hard currency to make debt payments and cover the balance of payments deficit, and $76.9 million as resources tied to specific projects. Even though tied donations are not directly earmarked for payment on the debt; they free up for that use domestic resources that would otherwise have to be used for the projects.
In addition, the government got US$351.1 million in loans on soft terms this year, of which it expects to receive $168.9 million in cash and $183.1 in tied resources. Adding together the liquid resources from both loans and donations, it turns out that Nicaragua received $198.9 million, enough to cover 95% of this year's foreign debt service payments.
Reducing part of the debt through admission to the HIPC Initiative could mean the loss of some of these donated resources or concessionary loans, which would mean having to use more of the country's own resources to deal with its renegotiated debt payment commitments. It is easy to see that this could be a very disadvantageous trade-off.
It's all like a circle, the end of which is a new beginning. We are pardoned so we can go on paying. We pay with what we are loaned and are loaned more so we can go on paying. It needs to be understood that the foreign debt is not a problem of amounts of money, but is essentially a mechanism that the North uses to maintain control of the South's economies.
The report to WashingtonWriting off any part of the debt is necessary and important, but is far from enough. At this moment the most important thing for Nicaragua is to get new resources at a low cost so it can reconstruct and reactivate the economy, especially the economy of the rural part of Nicaragua devastated by the hurricane.
The reason for the Nicaraguan government's trip to Washington, together with the rest of Central America's governments, was precisely to meet with the Consultative Group for the emergency in Central America and try to get funds for reconstruction. The price tag of the reconstruction program that the government took with it is $1.52 billion, equal to the estimated amount of the material losses caused by the hurricane and to nearly a year of the country's overall economic activity. A central component of the program is modernization of the country's road and energy infrastructure. The investment cost to modernize these two sectors alone, which unarguably suffered severe damage due to the hurricane, is over $1 billion, more than two-thirds of the total cost of the reconstruction program.
The government is evidently trying to milk the opportunity opened up by the Mitch disaster to create a more modern and efficient infrastructure to attract national and foreign private investment. But this opportunity to get new resources has revealed some fairly flagrant official "opportunism." A clear demonstration of this is that among the re-construction projects is one to widen the country's main commercial artery, which runs between Managua and Masaya, from a two-lane to a four-lane highway. Where is the opportunism in that? It lies in the fact that Mitch damaged not so much as a square inch of this highway. (See the article on Wiwilí in this issue for a discussion of the real need for road reconstruction and modernization.)
The magnitude of the road modernization program indicates that, if approved, the government will administer an unprecedented amount of extraordinary resources. The national construction companies—some of which are owned by high Liberal government officials and major businessmen linked to the President and others by quite sizable Sandinista entrepreneurs—stand to benefit in amounts never imagined before the passage of Mitch.
The package for the construction industry is even more promising given that the government has included in it the building of 41,000 housing units, for a value of US$204 million, and 100 health posts and over 300 schools, for $100 million. Since the way the benefits from this reconstruction-construction boom are divvied up will be crucial, it is one of the underlying issues in the political negotiations between the FSLN and the government. One only need recall the powerful national construction companies that were developed in the wake of the earthquake that destroyed Managua in 1972, closely linked to top officials in the Somoza dictatorship.
The contrast between the damage that the hurricane caused to the peasant economies of the country's poorest zones and the entrepreneurial modernization project presented by the government as a "national reconstruction program" reveals one of the clearest and cruelest signs of the opportunism for the moment. The government has no program, or perhaps does not even want one, to rehabilitate the peasant economy. It is rather using the human and ecological tragedy of Mitch to consolidate a project for the country that is not a national project for the simple reason that it continues to exclude the peasantry.
A great opportunity for civil societyThe reconstruction program being proposed in Washington is not what Nicaragua is demanding. And the pact between Daniel Ortega and Arnoldo Alemán, two leaders who represent neither the interests nor the aspirations of the majority of Nicaraguans, is not the consensus building that Nicaragua needs.
Mitch and the government's response to it have inspired civil society to test out its own consensus-building capacity. Previous to Mitch, civil society had experienced a burgeoning of organizations with a number of different expressions: nongovernmental organizations, social movements, networks, associations of producers (both men and women), unions and professional organizations, federations, coordinating bodies and more. Many of them had already established diverse forms of coordination around specific interests or particular areas of work over the years. But no structure existed that could coordinate them all in any search for a holistic response to the national situation.
To deal with the first moments of the emergency, some 320 organizations began to work together, calling this coordination effort the Nongovernmental Emergency Relief and Reconstruction Coalition. It is the first experience in Nicaragua's recent history in which civil society has formed anything so comprehensive.
The organizations participating in this new experience work in a wide range of activities: preventive and curative health care (both physical and psychosocial); formal and non-formal education; environmental protection; the economy; children, adolescents and youth; community development and promotion; women's empowerment and sexuality; local power; housing; credit; urban and rural development; nutrition; agricultural production; forestry production; micro businesses; human rights; research; communications; foreign debt; trade; cultural promotion; cooperatives; and churches and pastoral work. Some are regional or national organizations; others have departmental and/or local expressions. In one way or another they are present in virtually all the country's municipalities and departments, particularly the 72 municipalities most damaged by Mitch.
Among their many member organizations, they know the interests, needs and demands of the social sectors they work with and for whom they act as ongoing interlocutors. They also have the capacity to coordinate with the other social actors that could contribute knowledge, experience and resources to the process of reconstruction and growth.
A "different" NicaraguaVia this coalition, born as a result of Mitch, all these organizations meet and pool their territorial and other knowledge, their global, specific and sectoral visions, their capacity to mobilize people and their advocacy and lobbying clout and experience. Naturally, there have been all kinds of ups and downs but the overall results so far have been very promising.
Right from the start, the new coalition recognized the need to come up with holistic responses to the problems, ones that would maintain a national vision while including elements specific to the different sectors of society. Its document, titled "Turning the Mitch Tragedy into an Opportunity for the Human and Sustainable Development of Nicaragua," which Coalition representatives took to the Consultative Group meeting in Washington, does precisely that in 20-odd well thought out and succinctly written pages. In its introductory comments, the document identifies the great challenge that we Nicaraguans have before us in reconstructing and transforming our country: "We do not want to build the 'same' country. We want a reconstruction model that, rather than returning us to pre-hurricane 'normality,' is self-supporting and human, one that enables us to eradicate both extreme poverty and extreme wealth, that works to overcome the great inequalities in possessions, knowledge and power among Nicaraguans. Mitch has reminded us that our 'development' is increasingly less sustainable and more inhuman."
The coalition recognizes that "neither the government on its own, nor organized civil society alone, nor even international cooperation with all its resources has the capacity to deal with these colossal challenges by itself" and that the moment demands "a greater organizational capacity that permits maximum utilization of the human and technical-material resources that already exist and that we could get in the future." It proposes that this capacity be translated into a consensual National Emergency and Reconstruction program hammered out together by the government structures, organized civil society, the more developed business sector, small and medium business and international cooperation. This program should include within it a definition of the priorities, roles, commitments and participation mechanisms for each of these actors.
The Coalition's own document serves as one model for precisely that. It first lays out a series of general principles then delineates what it sees as the concrete roles for both the national government and international cooperation. It also offers an interesting list of very concrete and viable proposals for both the short and the longer term for nine major issues: health, education, community and housing infrastructure, agricultural and forestry production, environment and development, micro- and small businesses, civic participation and control (including ideas for mechanisms), a social audit, and resources.
This document and its specific contents would be an impressive achievement under any circumstances, but are even more so given that over 300 organizations coming together for the first time contributed their respective ideas, concerns and experiences into a richly coherent and useful proposal in less than a month's time. It is proof that a horse designed by committee is not necessarily a camel. It is rather a monument on some very real level to the best of what the collective participation of committed and experienced people and organizations can produce. While in an ideal world any government would be proud of such an achievement by its civil society, the issue in Nicaragua is rather whether the contributions of this civil society will be taken into account; whether this civil society will even be listened to.
The challenge that Mitch has thrown to these NGOs, to the state and its institutions, to all of society, is that of knowing how to empower the victims and their local organizations. The key for evaluating any reconstruction program, whether small, medium or large, will be in calibrating the degree to which the affected people, organizations, communities and municipalities are playing the leadership role in their own reconstruction. And it will lie in measuring the degree to which those mediating the external resources coming in to the NGOs, the religious groups, and the state itself are stimulating the organization of the people or not. A few months, or perhaps even a few years from now, this will be the best yardstick to measure whether Mitch, apart from being a tragedy and an opening to so many opportunists, was also an opportunity for many Nicaraguans.
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a monthly magazine of analysis on Central America