Nicaragua
Time to Talk to Each Other... Not at each Other
As long as all those who have something to say and do in this crisis don’t set themselves to the task of finding solutions to the economic problems, Nicaragua will continue adrift, at mercy of the winds of political ungovernability.
Envío team
Nicaragua's crisis is expressed two ways, both demonstrating how far it has gone: the country is politically ungovernable and economically non viable. Virtually everyone agrees with this diagnosis, from the first US government official to the last Nicaraguan citizen. Everyone also agrees on the medicine: national understanding. From there the disagreements begin, starting with what is meant by national and by understanding.
None Can Govern AloneOnly economic specialists understand the amalgam of complex macroeconomic indicators that demonstrate why and how the economic model has proven not to be viable. But a definition heard often on the street sums it up: "The pie is tiny, and the government is neither sharing it equitably nor making it bigger."
The street also offers up a pretty fair description of the political ungovernability that has paralyzed the country: "This government is so weak and alone that anybody could bring it down. The only thing saving it is that nobody wants to."
The good news is that the crisis has become so severe that dialogue has become indispensable and inescapable. Neither the government, nor UNO, nor the FSLN could make Nicaragua governable without taking the interests of the other two into account.
While their consensus on this political point is a step forward, it is less clear what and how much each is willing to give up to make Nicaragua genuinely viable in economic terms. Economic viability means viable for all the nation's citizens, not just the leaders and the interests they represent. It is no easy task to make the economic pie grow, but the interests of most political leaders are growing by the day. Being a politician in Nicaragua has turned into a profitable business.
The Gulfs Are WideningNicaragua's economic problems will not be resolved merely by changing personnel or drafting new laws, or even by throwing money at them. They require major structural solutions, efficient institutions, executors in touch with reality and honest administrators.
In addition, the political tempo needs to get in sync with the economic one. While the politicians played musical chairs around the dialogue table for the past half year, two planting periods were lost, despite the first good rainy season in several years. The coffee cycle is now reaching its peak without clear governmental signals to the growers.
The gulf between the overworked proposals for a political understanding and the barely touched ones for a national economic project is widening by the day.
So is the gulf between the dialogue tables, groaning with detailed agendas, and the empty kitchen tables of the poor whom these politicians claim to represent. Then there is the gulf between politicized Managua and rural Nicaragua, which has become wide enough to drive a world through. Another dimension of the current crisis is the general skepticism about when these gulfs will be bridged and who will take the first step across.
The US Defines ItselfKey to understanding this turning point is that, after almost a year with no defined policy, the Clinton administration has finally broken its silence about Nicaragua's political crisis. In an appearance before the House Subcommittee on Hemispheric Affairs, Assistant Secretary of State for Inter American Affairs Alexander Watson expressed clear positions on the issue.
"The three main political forces the government of President Chamorro, the Sandinista National Liberation Front and the National Opposition Union have developed a mutual antagonism," Watson said, "to the point of producing national paralysis." It was another way of saying political ungovernability. The most optimistic analysts think that, in acknowledging the legitimate existence of all three forces, the United States is moving from a policy of fomenting polarization by encouraging UNO's anti Sandinista inclinations to one of "constructive neutrality."
Seeking to get paralytic Nicaragua on its feet and in line with other Central and South American countries that "share US values" in this "singular historic opportunity," Watson defined the new strategy. He expressed "full support" for the Chamorro government and called on UNO and the FSLN to restore "a basic consensus between themselves and with the government." It was a clear call for a tripartite dialogue.
Watson had an additional message to UNO: it should not believe that "Nicaragua's problems are resolved in Washington" or presume that it will receive support from the United States by showing more "intransigence." Deflating the central thesis of the ultra right in both countries that UNO lost the government due to President Chamorro's "original sin" of co governing with the Sandinistas he reiterated her conviction that the cycles of discord between the parties must end. "In practical terms," Watson said, "this meant that the UNO coalition, which had backed her candidacy, would not govern over the powerful Sandinista minority, but with it."
His central message to the FSLN was also clear: recognize the legitimacy of the power it preserved, even after losing the elections. According to Watson, the FSLN must choose between "its dictatorial past" and "a democratic future." The US insistence that military power be subordinated to civil power another element Watson underscored is an attempt to neutralize Sandinismo's most visible power: an army and a police that emerged from the people and successfully held US imperialism at bay for a decade.
Two choices are also open to Nicaragua itself: consensus or ruin. Either understanding among the three forces or ever less economic support, not only from the US, but from other countries as well.
Elementary, My Dear WatsonWatson's message has been repeated incessantly by John Maisto, the new US ambassador to Nicaragua. Ever since he presented his credentials on September 8, he has been saying it to politicians of all stripes, municipal mayors, government officials, business leaders and the media. This evident pressure for dialogue has strongly influenced the new realism with which Nicaragua's political leaders are seeking an understanding.
What all this demonstrates is that, though Nicaraguans should no longer think about resolving their problems in Washington, Washington still thinks it should resolve the problems of Nicaraguans. It's elementary, my dear Watson; money talks...and buys talk. And judging by a recent hour long televised interview with Maisto, it also buys the agenda. The novelty is that it is no longer being used, at least publicly, to take sides or force conclusions. While Maisto's tone did not lack condescension, he studiously put his comments in the context of choices, not ultimatums, and addressed all parties equally. The only unequivocal US policy positions he defended were "democracy" and the "free market."
A New Role for the USThis new foreign policy message to Nicaragua is a healthy change from the Reagan Bush era, but it still has a ways to go. It is time for the United States to face up to its historic record here, and concentrate its involvement on working with the international community and multilateral lending agencies to find a solution to the country's economic problems.
Nicaragua needs the United States to support the government's negotiation with the international community instead of mobilizing opinion around its own objectives. That is one role all Nicaraguans would like the US government to play.
Clinton's new foreign policy advocates the market. But until it is willing to back an economic policy designed by Nicaraguans that reactivates the country's own domestic market and includes an export program that permits Nicaragua to reenter the international market, the term remains an abstraction at best, and continuing economic non viability at worst.
In concrete terms, that means implementing programs to encourage export production, stressing the search for technological solutions that better use renewable economic resources, and supporting the design of plans to form human capital that will permit small and medium producers to develop. If the winds are truly shifting, the US should set that new course, steering away from its well known programs of "support for democracy," in which it finances media, unions and other organizations that only egg on the political polarization.
A Poor Start for DialogueWhat happened to the much heralded National Dialogue the government convoked in May? By July it had consumed a thousand hours with no result. And what happened to the Tripartite Dialogue conceived during the twin kidnappings of August, also sired by the government but this time midwifed by the Organization of American States and the Central American foreign ministers? It was stillborn. At literally the last minute, UNO refused to meet trilaterally until it had achieved "satisfactory" results in bilateral negotiations with the government.
Those negotiations quickly broke down when the government refused to disband the "center group" 10 National Assembly representatives from 4 parties who abandoned the intransigent UNO bench. UNO politicians have always accused the government of heavily bribing those legislators to pull out of its coalition. UNO leader Azucena Ferrey, who participated in September's bilateral talks, alleges that President Chamorro confirmed this accusation by retorting to UNO's demand: "When I bribed them, you criticized me for it; and now you want me to do it again?"
The issue of these legislators, who deprived UNO of its voting majority, has become UNO's main pretext for dialoguing, breaking off dialogue or pressuring in other ways. Its concern about this group has nothing to do with ethics; it is simple political mathematics. Already shut out of the executive branch, UNO was so irate at losing control of the legislative branch that it has boycotted the entire 1993 session. This created a political crisis, but the Assembly can at least still function since the FSLN and the center group constitute a quorum. In September 1992, when both those forces walked out after UNO used an illegitimate maneuver to gain control of the Assembly board, UNO caused an institutional crisis by legislating without a quorum.
Dialogue Breeds More DialogueAfter all this, what remains of the call for dialogue? What remains is a government that has gone from actively promoting trilateral talks to being just another participant in many bilateral ones. October witnessed countless rounds of publicly announced dialogues by shifting pairs of participants with overlapping political agendas. There also seem to have been other dialogues even more countless because they were private in which the emphasis was apparently more economic.
This new generation of bilateral talks began on October 7 when FSLN and UNO leaders met alone. The optimism sparked by that historic first was dashed 11 days later, when the talks broke off after three rounds. Managua mayor Arnoldo Alemán's Constitutionalist Liberal Party first said it was due to disagreements about the bill on military organization. UNO as a whole later said it was because the FSLN met with the center group at the same time. Despite the rupture, however, both sides spoke of "advances."
With the new signals from Washington, UNO started talking to the government again. Three commissions were created: one to expand the Council of Ministers and put Vice President Godoy, who has had no government functions since day one, at its head; a second to analyze issues regarding the judicial branch; and the third to evaluate UNO's 1990 government program and how much the government has executed. These two also spoke of "advances."
Those were the most publicized talks. But there were others: COSEP government, government FSLN, center group FSLN, government center group, UNO center group leaders, UNO FSLN leaders...
Then on October 28, the Christian Democratic Union (UDC), a year old unification of the Social Christian parties in UNO, presented a proposal called "National Accord of Governability" to open up the dialogue and create national consensus for governability. The proposal had a very concrete and detailed agenda, replete with deadlines. That generated new bilateral meetings: UDC UNO, UDC FSLN, government UDC, center group UDC, Maisto UDC... The most significant one was trilateral: UDC FSLN center group.
The document's key proposal addressed another polarized issue: constitutional reform. It proposed reaching agreement on reforms that could be approved by December 10, the end of the current Assembly session (constitutional reforms require passage in two consecutive sessions). This was a major departure from UNO's demand. Supported by Cardinal Obando y Bravo, UNO is insisting on the national election of a constituent assembly to write up a new Constitution. UNO said it would accept the UDC's idea only on the condition that, before starting to negotiate the reforms, UNO be given back its majority in the Assembly, including the board. This would mean persuading or forcing the centrists to relinquish their seats to their alternates, who are more pro UNO.
Both violence and dialogue are methods for solving problems, each valid in certain specific circumstances. But the use of each requires discernment. Abused, or used in excess, both can become spent as mechanisms, and the means confused with the end. There is nothing inherently negative about dialogue engendering more dialogue, but, given the tragic conditions in which the majority of Nicaraguans are living, it becomes offensive and could end up being fatal.
Endless dialogue feeds skepticism and starves hope, which is not the best foundation on which to build democracy. Worse yet, it delegitimizes the mechanism itself as ineffective, and thus reopens the door to the "efficacy" of violence which in the past three years has proven to be the only way to get the government to respond.
Coming Together, Coming ApartWhile these public and private dialogues have increased the consensus that agreements must be reached among the three major forces, they have also deepened the fissures within each, which could split wide open in any or all cases.
Even beyond the government's obvious lack of coordination, it has always suffered from tensions. At their base are presidential minister Antonio Lacayo's personal style and the power of finance minister Emilio Pereira and the economic Cabinet as a whole. This old fissure is spreading with the irreversible crisis of the political and economic models, respectively defended by the two men. It is also becoming more visible as the government is obliged to genuinely decide where and what to concede.
As for the FSLN, the electoral defeat widened the old dividing line between well off Sandinistas and destitute ones. On one side remained those tarred fairly or not with the "pinata" brush; on the other those who bitterly wondered what all their personal sacrifice had been for. While the tensions also have to do with personal styles, they are rooted fundamentally in the major contradiction now challenging the FSLN. To cite Sandinista sociologist Orlando Núñez, the FSLN has to "reconcile the demands of a liberal style, mercenary political democracy with the needs of economic democracy in conditions of extreme poverty."
Where and How to FightMajor tensions also arise frequently within the Sandinista forces around the issue of struggle methods. Distinct views exist regarding how, why and even whether the organized FSLN should authorize or disauthorize, encourage or thwart, lead or abort the struggles of the hungry and unorganized.
FSLN leaders insist that Nicaragua's problem is fundamentally economic. All Sandinistas and most of the population agree. The issue is how to resolve it: From the National Assembly or in the streets? With laws or strikes? Through dialogue or civil disobedience? The economic "problem" is so severe, the recession so deep, that how to struggle has literally become a life or death issue. "Hunger is a lousy adviser," says the refrain. "Hunger justifies the means," think increasing numbers of hungry people Sandinista and not who are unwilling to die before their time. It is also probably thought by those without work who turn a dangerous corner in their conscience to opt for the violence of drug dealing, swindling or even armed robbery.
The most public expression of this heated debate is the fissure between Sandinista parliamentarians, led by FSLN bench chief Sergio Ramírez, and unionists in the National Workers' Front and some other Sandinista grassroots sectors, with Daniel Ortega at their head. The tension between them was clear during September's transport strike. While the former negotiated to temporarily shelve the tax decree that had sparked the strike, the latter joined the drivers at the barricades and stayed there until the decree was repealed altogether.
At the beginning of November, the Sandinista bench introduced a bill to regulate the privatization process that is already well underway. Its intent was to bring all future privatizations particularly those of public services (water, electricity, communications, etc.) that the IMF is insisting on under some control. This widened the divisions further than ever, not least because of the prominence Sandinista media gave the fight.
The Sandinista parliamentarians alleged that, with no law, the government would continue privatizing unilaterally, without any controls or accountability, as it did with the 60% of the state enterprises that have already passed into private hands. The unionists and others opposing the bill responded that legislating privatization, even if only to regulate, legitimates it. The only legislation they want to see is a bill totally prohibiting the privatization of public services above all health and education, which are already being slowly privatized through various charges of one sort or another.
In this dispute, both the positions and the leaders who hold them have been made abundantly clear. Less clear is what and how many economic and business interests are behind them. In any case, the law and grassroots pressure should not be contradictory. Both are equally necessary in the struggle for democratic openness and for economic democracy.
Fissures in UNOThe divisions in the UNO coalition have also deepened as a result of this rash of dialogues and the more realistic climate born of Washington's warning message. Locating parties on the malleable political spectrum of opposition to both the FSLN and the government is always a bit tricky. The best measure is the degree of intransigence toward the Sandinistas. By that yardstick, the most hostile parties or leaders include Alemán's Constitutionalist Liberal Party, the National Action Party of Duilio Baltodano, Elí Altamirano and his Communist Party, the National Conservative Party to which former contra leader Adolfo Calero belongs, and Alfredo César's Social Democratic Party. Virgilio Godoy's Independent Liberal Party comes in slightly lower on the reactionary scale. At the most flexible end is the UDC and somewhere in between are Miriam Argüello's Conservative National Action and the social democrats of the National Democratic Movement.
Despite the clear message from Messrs. Watson and Maisto, these ultra right parties have not varied their positions. What the Clinton administration did manage to largely deactivate was the discourse in favor of their political military expression: the Northern Front "3 80," commanded by recontra leader "Chacal." The army's military offensive after the 60 day armed truce with Chacal ended contributed to their silence. Chacal took refuge in Honduras, and his satellite groups lost their consistency as armed irregulars and dispersed, at least temporarily.
The ultra right's political front, however, is as confrontational as ever. Having failed to achieve a military rupture before 1990 with the war, or a political one after 1990 with UNO's electoral victory, it is now trying for a judicial legal one. It has trained its heaviest propaganda artillery on the Constitution, currently UNO's main battleground.
Reforms or Constituent AssemblyThe strongest split in Nicaragua is neither ideological nor political; it is economic. The neoliberal project has divided the country firmly between the haves and the have nots. Those who have eat caviar and relax in their jacuzzis, and those who have not beg for change in the streets, eat a tortilla with salt for their one meal a day and die of cholera in increasing numbers. In the dwarfed middle classes, some have hit it lucky, but most are in debt and barely able to make ends meet.
Despite this visible reality, many politicians and some media particularly identified with UNO are trying to convince anyone who will listen that the dividing line is between those who want to reform the Constitution and those who want it completely rewritten. Crazier yet, they even put forward the idea that citizens favor spending millions of dollars to call elections for new National Assembly representatives who would do the rewriting.
The Assembly elected in 1990 has 92 members 39 on the FSLN bench, 1 independent who tends to side with UNO, and originally 52 on the UNO bench, until the break away of the 10 centrists who now negotiate compromise legislation with the FSLN. Given the UDC's more flexible positions, particularly since the new US position was announced, UNO's legislative future looks bleak between now and the 1996 elections; hence its call for constituent elections. It calculates that an all out anti Sandinista campaign would give it the majority it now lacks. UNO has also billed the elections as a kind of plebiscite on Chamorro's administration, and believes that the population's growing scorn for her government's ineptitude will annul its mandate without need for violence.
With such a victory, the new UNO dominated Constituent Assembly would not only rewrite the Magna Carta and pass legislation for the next three years, it would also serve as a transition government. With that power UNO believes it could design the future state. As an example, general consensus favors a constitutional reform to change the name Sandinista Popular Army (the army itself proposes the name General Sandino used for his in the 1920s). But UNO hard liners have a more drastic goal: they want to totally abolish the army.
Mayor Alemán, confident of his populist charisma and his financial support from Somocista exiles and wealthy anti Castro Cubans in Miami, seems the most optimistic about this political long shot. The polls, however, challenge this optimism. Half of public opinion is more or less evenly divided between the FSLN and UNO, while the other half does not even want to hear about political parties.
Nicaraguans do not know the 1987 Constitution very well, despite the Sandinista government's effort to discuss drafts of it in hundreds of open forums and later to disseminate it widely. With the change of government, some began to study it seriously, thinking it the legal bulwark from which to defend grassroots interests. But that hope was quickly dispelled. The Chamorro administration delights in using the Constitution's vaguely worded presidentialist prerogatives to override other, more explicit articles. It feels no need to reform the document, which allows it to virtually govern by decree, and does not mandate sufficient counterweights by the other branches.
What to Reform and How?The Constitution's presidentialist nature is one of two basic issues for reform, perhaps the most basic from an institutional point of view. But the question is how. Is the only alternative a parliamentary system? Latin America's recent history shows the danger of such a formula in countries such as ours, secularly impoverished, permanently controlled by the international lending agencies via the debt and the newer adjustment policies, and buried in an avalanche of "political pluralism." Tiny Nicaragua now has nearly 30 parties, new bottles for the same old wine that is only served at election time. The danger of a presidentialist system is that it could become authoritarian and dictatorial, but a parliamentary system could end up being nothing more than a circus. There are no formulas, just a clear goal: to achieve a democratic system of checks and balances.
From a truly democratic viewpoint, the most basic issue is how to guarantee not only in theory but also in practice the necessary complementarity between representative and participatory democracy. Everyone refers to the former, few to the latter, perhaps because they fear it could become a reality.
And on the Economic Front?While all this frenetic political dialogue was taking place, the government signed a two year economic pre agreement with the International Monetary Fund on October 25. It did so after various meetings with independent economists critical of its administration. The first meeting was frank and promising, the later ones mere formalities.
When Minister of the Presidency Antonio Lacayo announced the signing, he said that the "new" economic policy will be characterized by austerity and rationalized public spending to provide more resources to production. "We are in bad shape," he said, "but are moving slowly and surely toward economic reactivation." After assuring as he had about this year that 1994 will finally see an economic take off, he announced more public sector layoffs. He did not mention figures, but the unions calculate between 4,000 and 6,000 new jobless.
After signing the IMF agreement, the economic Cabinet presented its 1994 budget proposal to the National Assembly. These two documents should reflect major efforts to make the economy viable again, but neither provide any clues that this is happening.
To really negotiate with the IMF, and not just swallow its standard prescription, the government should prepare a creative, realistic proposal. To do so, it must first clarify how it wants to divide the pie and to what end. In addition, its budget must be consistent; it should contain all the elements of a macroeconomic and sectoral policy. It did none of these things.
Three actors have main roles in Nicaragua's economic viability: the government, the private sector and the international lending agencies, followed by other donors. The thesis that the country's essential problem is political or even political cultural is shared by many political sectors and by representatives of the international agencies and cooperating governments. They have good reason to think this, since the political elite have not yet decided to reach agreements, thus contributing in large measure to the economy's non viability.
Political instability is unattractive to foreign investors. Nicaraguan capitalists are not repatriating their capital either, which is more immoral, since the only thing Nicaraguan about them is their passport. On the other side, the militancy of the unions which feel pushed to fight for quotas of political power instead of contributing to the negotiation of overall economic solutions also makes investment unattractive. Like COSEP, the big business umbrella organization, the unions continue to be political institutions that do not represent their members' interests well. The union leaders' limitations are linked to the strongman paternalism characteristics of the country's traditional political culture, which the Sandinista government did little to break.
The Other Side of the CoinThe paralysis, however, cannot be explained away by such subjective political cultural factors; there are also objective economic ones. Investors also do not invest because domestic demand is too contracted and international demand too insecure given Nicaragua's barely diversified export supply. Changing this situation implies technical and commercial support that the government seems incapable of giving.
The unions defend short term solutions because they have no other recourse. They are invited to no economic negotiation table, and the government has offered neither an overall, coherent economic plan that could be debated nor a forum in which to do it.
If the poor expect a miracle, if they are hoping that there will magically be employment once the politicians reach understandings among themselves, it is only because they have no choice. For centuries experience has shown them that their own efforts seldom bear fruit. The traditional political structure and educational system have worked to keep them submissive and without initiative.
These essential problems could not be resolved by fiat of the three political forces even if all agreed on their importance. Since they stem from the economic and social system, solutions have to be systemic and transforming. As long as all those who have something to say and do in this crisis do not take up the task of finding such solutions, the economic system will continue to drift on the shifting winds of political ungovernability
Stubborn MythsTwo stubbornly held myths must be unmasked. The first is that the mere fact of having been elected and having named its officials, means that the government knows how to govern. The political sectors that are fighting today for more power reproach the government for not representing them politically. But none of them have the slightest idea how to run the economy. They intuit that if they managed to get more executive power they would have no choice but to use the existing techno structure, which is why they do not want to govern. They are satisfied not to let anyone else govern either. This gives them posturing room and even economic room. They profit from the crisis.
The second myth has to do with the "private sector." In the neoliberal creed it is posited as being in essential opposition to the government by its very nature. But this opposition is only a practical and methodological definition, covering over very serious realities that should be taken into account. First, the private sector is very broad, and has within it very divergent interest groups. What, for example, do Nicaraguans who do not want to bring their capital back from the foreign banks have in common with impoverished small farmers or artisan manufacturers who are hoping for solutions from above? Second, in Nicaragua, as in the rest of Latin America, government does not represent the interests of all citizens equally.
The main faction of Nicaragua's private sector is made up of rural and urban families with significant economic potential, but without alternatives for investing abroad. They could generate the greater export levels the country requires, and thus finance the imports they would need for this production. They could provide employment to the poor and thus contribute to increasing in sustainable fashion the domestic demand that investors require to make a return on their investment. These families could also supply the national market with products that are today imported or donated. Because of all these characteristics, they could help increase the income level that the government needs to finance social spending and make the public investments that the more lauded fraction of the private sector neither could nor would know how to do itself.
They could move the country forward, but the government has so far refused to take them into account. In fact, it has refused to play any active role in the economy. But the economy needs it to do so, since the gamut of actors within this mythical private sector cannot resolve all the economic problems alone. It is too divided and, thus, too weak. The minority with the means lacks the interest, and the majority with the interest lacks the means.
What Are Governments For?A current of ideas in "modern" economic theory posits that the private sector is made up of individuals and businesses totally capable of predicting everything that the rest of the world, including their own government and the international economy, is going to do. They demonstrate with mathematical formulas and "rational anticipations" how the economic system, given certain conditions, evolves infallibly toward an ideal state which these economic agents, including the government itself, foresaw and followed. Thus, said government has nothing to regulate because everything is self regulatory.
It is an idealistic and deterministic position, which taken to its absurd consequences, renders economic policy unnecessary. We need not debate whether the state is good or not by definition, but it is necessary to argue that reality does not correspond in any way with the abstract suppositions these theorists try to demonstrate. The private sector and the market in Nicaragua, even more than in countries where numerous associations of producers, consumers, employees, etc., intervene in the economy, needs lucid government intervention.
The best practical proof of this is that the international lending agencies regularly send their technical teams to Nicaragua to take the government's place as a macroeconomic management body and make the decisions it should be making. They do so as specialists who know the country only superficially, who know nothing about the real rhythms or concrete mechanisms of its production. In a certain sense they begin to govern. How and why does the national government fail to grasp this task itself?
Investment: Private or Public?This does not mean that the government should take over aspects of the economy that the private sector could attend to better, as its predecessor did. It is perhaps not necessary that all hospitals be public. The numerous doctors who work in some of them for salaries that do not acknowledge the value of their work could manage hospital activity and participate economically in its investment, and thus not necessarily have to stop treating the poorer patients.
Private doctors who charge a sliding fee according to their patients' economic position know this well. It is the government's responsibility to dedicate part of its budget to preventive health which, in essence, is a social activity and has greater impact on the poorest part of the population.
In other economic areas, for example, the country's ecological future comes into play. These are areas in which profits are not immediate, such as the current phase of research and development of a national diesel substitute (see "Biodiesel," this issue).
Nicaragua's home grown private enterprise would be hard put to find the necessary vision of the future in such cases. It lacks the necessary breadth to invest in such research and development. The government must leave to the private sector only what suits it. But the measure of this suitability has to be studied, thought about, discussed. It has to be in touch with concrete reality to be decided correctly.
None of this is written in the economy manuals. It is doubtful, for example, that a private entrepreneur would be very interested in distributing electrical energy in a country in which a third of the houses using this service do not pay for it. On the other hand, it would not be correct to privatize the public investments already made in energy and now in the phase of providing economic returns. It would, however, be good to allow new private investments to extend what already exists.
Privatization Case by CaseIn the final analysis, the important thing is not whether a certain activity is public or private. What is key is to come to an agreement about each potential privatization from an objective and dispassionate economic perspective. Since each case is different, the government has a more important role than to just parcel out its patrimony.
Privatizing the sugar refineries, for example, did not change the oligopolist policy that has always reigned in sugar. During the Sandinista government, the state financed the unprofitable exports, propping up a technological model that benefited only the technocrats who lived off of friendly countries' aid and kept national sugar prices high. In the new "free market" economy, prices are still kept high, but by periodically manipulating sugar imports; now the unprofitable exports are subsidized by workers' salaries. The only thing privatization is accomplishing is to break the unions.
Privatization is a very important element of structural adjustment, and the government's economic role and responsibility in it goes well beyond simply trying to slash budget expenditures. Why shrink the budget until nothing functions instead of reaching agreements about privatizing what does still function?
The Easy Way OutWhat has the Chamorro government done since it has been in power? In 1990 it built its power apparatus and set up its authority. In 1991, through macroeconomic mechanisms negotiated with political parties and producer and labor organizations (and with abundant foreign aid), it managed to establish an economic system that had previously been out of control. After that, it did not know how to use its regulatory capacity to begin governing economically.
At every point, it took the easy way out. It began a privatization program based on the facile dogma that private is better, forgetting that an economic system dominated by the private sector needs more regulatory intervention than a system dominated by the state.
It pushed through the private banking system, without even guaranteeing the necessary controls to make it function on behalf of the private sector. The paradox of paradoxes is that it did not even try to make the state banks, still in the majority, function in favor of the real economy. It required them to behave as if they were private, and, to assure that they would, appointed directors who lacked a national economic vision. Then, after all these crass errors, there are still some in the government who think that the crisis in the banking system today is because not all the banks were privatized.
In 1993 the government tried to do more of the same, but with less success. At the start of the year it tried to patch the system with a devaluation made with no macroeconomic logic, only to nominally cut the budget. It knew full well that, with the crisis in the balance of payments (that is, the import export gap) and the evident perspective of having ever less foreign aid, it was already scraping the bottom of the barrel.
What is the bottom? The government has reached the midpoint in its term without having implemented the structural adjustment that the economy needs or macroeconomic policies that would stimulate the private sector. And now it does not have enough aid to even think of doing it. It lost its chance.
The short run target of the multilateral agencies' criticism is obviously public spending. Nicaragua has cost these agencies dear and we now have a crushing debt with them. But public spending is not really the problem. Admittedly, Nicaragua spends much more that it produces, but cutting public spending is again the easy way out. The best way would be to put the knife to the irresponsible imports demanded by certain social classes and a small part of the private sector. Now that knife is moving against those that wield it. It is no good for the government to cut its spending if it does not know how to transfer its truncated activities to the private sector.
The only thing it accomplished was to shrink the country's overall supply. Less demand, less supply. Those two elements move side by side. In macroeconomy, as Alfred Marshall once said, "both sides of the scissors cut."
The 1994 Budget: Income ColumnAs 1993 draws to an end, next year's budget is again in the National Assembly, just in time for the upcoming meeting with the multilateral lending agencies' technical team. Incredible as it may seem, the government still has no coherent economic program. That is because it has not yet been able to garner agreement on an economic agenda, and because even the government institutions at the helm of economic policy cannot agree among themselves.
In general, the budget implies a serious increase in indirect taxes and a slight cut in direct ones relative to 1993. This will only accentuate the strongly recessive and anti democratic character of Nicaragua's current tax structure.
But the first thing required of the budget, if it aims to serve as a base for the 1994 economic program, is that it be reliable. The one presented to the National Assembly is not. In this regard, two comments about the incomes the state anticipates for the coming year are in order:
* The budget does not refer to any overall macroeconomic framework, which makes the figures rather senseless. As just one example, the budget indicates that petroleum tax income will increase 22%, but does not state whether that calculation is based on increasing economic activity, and thus sales, or just upping the sale price another 22%. Every figure dangles from such loose threads.
* Nor is there reference to the macroeconomic impact the nominal increase of indirect taxes would have, for example, on prices. If the gross domestic product does not grow in the same proportion, it would not be surprising if this new tax structure provoked price increases.
The Spending ColumnComparing the 1994 project with what was executed in 1993 (not with what the National Assembly approved, since the budget was frequently and unilaterally revised afterward), we note the following: 1) a slight increase in operating costs; 2) a marked cut in interest payments on the foreign debt; 3) increased transfers to social security and to the private sector; 4) a marked increase of transfers to the rest of the public sector and of fixed investment in machinery and construction.
All this also merits a few comments:
* The scenario laid out in this part of the budget is not particularly recessive. Despite the increase in indirect taxes in the other column, it could be compatible with a slight economic growth (perhaps 1%), but only if annual inflation does not surpass 4 5%, which would be insufficient to sustain the forecasted tax collection levels. The open question, however, is what the motor forces of growth next year will be. Is there some plan to promote this growth? If so, the budget does not say a word about it.
* The observation above regarding the lack of a coherent macroeconomic framework is also valid here. There is no mention, for example, of the inflation levels that would be compatible with these figures, which renders the cuts and increases fairly invalid. It makes one wonder how the international agencies can be confident of the budget's seriousness.
It is unarguably a healthy policy to try to reduce the fiscal deficit, quite apart from the fact that the financing agencies demand it as a prerequisite to approving the funds necessary to rebuild Nicaragua (and, of course, to pay its foreign debt service). But these agencies have no confidence in the government's budget. Nor do they believe in finance minister Emilio Pereira's ability to make the fiscal adjustment they want as long as the economy does not grow enough to finance its spending levels.
Nor do they care. Their only problem is to see that Nicaragua spend less so it can pay more interest on its debt. They are fully aware that, to do this, Nicaragua's economy should break out of its stagnation and grow. But it is not their responsibility to organize the macroeconomic policy so this growth will begin to happen. That is the government's problem.
It is very probable that, if the course of events does not change, 1994 will be much like 1993 and 1992, only with even worse conditions. The government will continue acting alone, doing more of the same. First it will get approval for a more or less adjusted budget, then sign an accord with the multilateral agencies that will certainly involve fewer foreign resources than in previous years. In exchange, it will continue to privatize with no other logic than the dogma that private is better than public. Finally, it will devalue the córdoba, doing with its exchange policy what the budget's fiscal adjustments could not do, thus mocking the National Assembly yet again.
Governments Should GovernIt is urgent that this irresponsibility not be repeated, that the government accept its role and draw up a genuine macroeconomic policy. Such a policy must simultaneously take into account current fiscal spending, monetary and exchange policies, tax and duty policies, privatization, credit policy and public investment. In such a policy, salary and job perspectives should be negotiated with all representatives of the private sector and the unions, not just the chosen few. It should also negotiate with them the possibilities of supplying goods and services, to harmonize the programs required to stimulate supply.
A policy is urgently needed with which the government can really get down to governing, with consensus and without separating the economic agenda from the political one. A policy in which the different ministries making up the government can begin to pull in the same direction, without losing their specificity, for the good of the nation and for the viability of the government itself if, of course, it wants to go on being the government.
Someone in the government should take responsibility for calling together the different institutions that make it up and urge their specialists to get together and hammer out a coherent policy proposal that is acceptable to the financial agencies. At a minimum they should reach some agreement about the figures necessary to synthesize the different logics (fiscal, monetary, credit, etc.). At this juncture, it is the finance minister, currently Emilio Pereira, who is called upon to be this someone.
It is indispensable that this proposal not wait for the finance agencies to set a date for the meeting, although their participation would undoubtedly be very useful. Everyone knows, they above all, that Nicaragua right now needs a great deal of foreign aid. What is at stake, whether this aid grows or shrinks, is that the government show it has the capacity to make coherent macroeconomic and sectoral policies, to recover the faith of the lenders that the funds they provide will be used rationally. Neither the privileged private sector nor the government have been able to win this confidence, but it is never to late to try... For Nicaragua.
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