Nicaragua
Time for the Horse to Pull the Cart
Now that the political “cart” has been put in order, there is need to attend to the “economic oxen”. Doing this will call for much effort on the part of the administration, the producers and the deputies who represent the people.
Envío team
Hours before the fourth anniversary of that night of February 25 that flipped Nicaragua's history on its head, the Northern Front 3-80, headed by José Angel Talavera ("Chacal"), finally signed an accord with the government. This agreement may finally close off the political-military road of opposition to the Chamorro government.
With this beginning of peace in the north, as well as with the significant relaxation of tensions in the National Assembly, Nicaragua's political landscape seems far less cluttered. But that, in turn, has allowed the complex conflicts of a country suffering prolonged economic paralysis to emerge with greater clarity and urgency.
In this respect, two recent events have been encouraging, even though they alone cannot constitute the institutional alternative the situation requires. One is the National Assembly's incursion into economic terrain, and the other is the formation of the National Emergency Council, which unites all of the country's organized agricultural producers. The Assembly's role is beginning to be combative; it should become more so. The producers' role, as the name of their new organization implies, is to get a satisfactory response to their emergency situation. To do so, they may have to become more combative as well.
The War of the 90s – Same Stage, Different ScriptThe war between the contras and the Sandinista Popular Army (EPS) officially ended with the demobilization and disarming of some 22,000 combatants of the Nicaraguan Resistance (RN) and their civilian rearguard in June 1990. But the government's incoherent plan--and resulting failure-to economically reinsert these former combatants quickly created a breeding ground for the rearmament of thousands of uprooted peasants.
As early as October 1990, 200 rearmed RN members took over several towns and Sandinista farm cooperatives by force. Such groups--soon dubbed recontras--rapidly mush-roomed. Their activities mixed vengeance killings of their former enemies with socioeconomic and/or political demands.
By mid-1991, the recompas made their appearance in the name of Sandinista self-defense. Many of them were also demobilized combatants, but from the EPS, which was slashing its personnel roster by the thousands. Like the recontras, they found no economic space in which to re-enter civilian life.
Armed violence became an everyday problem in the countryside. By mid-1992, the EPS estimated that no less than 21,900 men had taken up arms at various points since October 1990--almost the same number as that of the Resistance fighters who had demobilized two years earlier. This time, however, the figure included a gamut of rearmed forces: recontras (not all of them former contras), recontras (not all of them former members of the army or police), and common highway bandits.
After each new negotiation and new government commitment, the number dropped, then climbed once more when the government only partially kept its promises. The government even tried bying the weapons directly from those who had rearmed, hoping to shrink the available arsenal and provide a minimal economic cushion to those at the bottom. But in a country in which civilian life offers no economic opportunity for the bulk of the peasantry, the plan backfired.
Digging up a buried arms cache, forming a group, carrying out some attention-getting action, then seeking talks with the governments as to sell it old rusty rifles became an attractive business venture in itself. The government ran out of funds and patience before the peasants ran out of weapons.
By late 1992, mounting tensions between UNO and the executive branch had turned several recontra groups into a kind of "armed wing" of the coalition's extreme right. Of those groups, Chacal's Northern Front 3-80 was the best armed--it even had Red Eye missiles--and enjoyed significant financial support from powerful Somocista Nicaraguans and anti-Castro Cubans in Miami. Chacal also consistently voiced the most intransigent political demands. At the top of his list was the dismissal of army chief General Humberto Ortega and presidential minister Antonio Lacayo, which also happened to be the main demand of the UNO politicians.
The violence in the countryside was not simply a vestige of the long war of the 1980s. It has been another war, although on the same stage (the northern countryside) and with the same actors (the peasantry) as protagonists and victims. Its actions were on a smaller scale and more sporadic, and its climate more anarchic and confusing than the war of the 1980s, but it was war.
It had a strong economic component--the rearmed groups of all political stripes almost always asked for land, work and a roof over their heads--and strong political accent in the each side's demands and style. According to EPS date, this war caused 384 deaths--145 of them civilians--and more than 400 wounded in the first nine months of 1993 alone. The EPS, reduced to 15,200 men, dedicated 78% of its troops to dealing with the rearmed groups last year.
Is This the War's Last Act?The various amnesty and disarmament agreements that followed the twin kidnappings of August 1993 largely reduced the conflict to a confrontation between the EPS and Chacal's groups, officially estimated at no more than 500 men. In October, the army issued a final warning that it would pull out all stops if the FN 3-80 did not disarm, an ultimatum the group ignored. The EPS reported the most widespread combats since the change of government in January 1994, in the Quilalí area where Chacal's group has its main social base.
The signing of the peace accord on February 24 was the combined outcome of the army's military operations, pressure from the rightwing sectors for a cease-fire (formally proposed by Cardinal Obando y Bravo and rightwing poet -- La Prensa board member Pablo Antonio Cuadra in early February with suggestions acceptable to the FN 3-80) and the new political depolarization in the country. "We see that there is a bit more political space in Nicaragua now, and that General Humberto Ortega has stopped his boasting," noted Chacal's brother "Esteban" a few days before the signing in Caulatú, Quilalí, explaining that they were postponing their political demands for "when we return to civilian life." On March 2, the day the FN 3-80's first 100 men disarmed, Chacal himself declared than "in Nicaragua there is room for everybody." The disarmament by stages is scheduled to conclude on April 8.
The FN 3-80 received a number of socioeconomic concessions and important security guarantees. FN 3-80 members will be legally covered by an amnesty, and will occupy the top National Police posts in Wiwilí, Quilalí, Murra and El Jícaro, and the sub-chief posts in San José de Bocay, Pantasma, Yalí, San Rafael del Norte, La Concordia, Ciudad Antigua, the city of Jinotega and Ocotal. In these municipalities, they will also have the right to make up half of the total force. The government agreed to open an office in Quilalí to respond to the socioeconomic demands of these newly demobilized, and to prepare a project for the zone's integral development.
Is peace now definitive? The rearmament was politically rooted in the complex and unanticipated transition process framed by the ambiguous Chamorro-FSLN co-government. Today the political realignments have provided a new stage, and both recontras and recompas are seeking space for themselves on it.
But the violence also had roots in the devastating recession produced by the government's neoliberal economic model. Its adverse policies have excluded thousands of small and medium producers and prevented those emerging from the war from re-entering productive life. This economic crisis has not brought better social organization to Nicaragua's cities and rural areas, but greater social decomposition. The multiple gangs of armed robbers have signed no peace agreement; they still hold up civilians along the rural highways and kidnap individuals for ransom, and have no incentive to stop doing so. Only hours after the peace accord was signed, some 80 recontras under the command of "Nortiel" and "Charro" attacked the community of Mulukukú, killing a peasant, kidnapping 12 others and sacking the health center and several businesses. According to the EPS, these two men no longer form part of the FN 3-80, and are common criminals. The army estimates that there are still 4-500 armed bandits in the northern rural zones.
Those who rearmed to drive home their demands for land titles, credits productive opportunities also have no reason to believe that anything has really changed. The rural recession has become so acute that the various producer organizations have stopped referring to it a crisis, hey now call it an "emergency". The best and most sophisticated weapons have neither been sold nor turned in, and the temptation to pull them out of their hiding places to pressure the government for economic improvements could still prove very strong.
Even the peace accord itself did not meet with unanimous approval. The FSLN departmental committee in Jinotega expressed its rejection of the government decision to let FN 3-80 members into the National Police in that area. Recalling that 211 Sandinistas have been murdered by recontras in the department of Jinotega since the change of government, it called the measure "institutional repression of a new stamp".
The National Assembly--A New Majority in ActionTwo months ago "peace" was also signed in Nicaragua's parliament. That agreement created a new majority of some two-thirds of the National Assembly's 92 legislators. The 39-member Sandinista bench is the biggest bloc, and the remainder are the more moderate members of parties once in the UNO coalition. (Those in the "center group," formed two years ago, pulled out of UNO at that time, the others were expelled in January 1994 after they abandoned UNO's call for constituent elections and instead negotiated constitutional reforms with the Sandinista bench in the existing legislature.)
The day the 1994 session of the now "pacified" National Assembly opened, Sandinista bench chief Sergio Ramírez announced that the new majority has already agreed on the agenda priorities. In addition to reforms to the Constitution, the most important legislation to be debated and passed includes the military organization bill, a new labor code, an environmental protection bill and the so-called "final period" legislation, which aims to put a definitive end to the ongoing property controversy.
The Assembly has already begun to debate the draft labor code, leaving the ambitious environmental protection bill and the transcendental property bill to wait their turn a bit longer. The legislation on military organization, drafted by the EPS amid great national expectations, ws ready to submit to the Assembly late last year, but it ran into unexpected-and so far unexplained-delays on its way past the executive office. On the anniversary of President Chamorro's electoral triumph, seh finally stated simply that "the suspicions, mistrust and misunderstandings" between the executive and the army are now " thing of the past."
In addition to this major legislation, the new parliamentary majority is working on other bills, including ones on administrative probity, consumer protection and drugs. It has also begun to move on economic issues, including a tax code, which has already sparked tensions with the executive.
The First Skirmishes Over Economic ControlA major stated goal of the new parliamentary majority is to limit the broad powers that the Constitution gives the executive branch, particularly in economic affairs. This goal, shared-though for different reasons-by the ultra-right parties still in UNO, offered them a dignified excuse to return to their seats in the National Assembly after a year of boycott.
Big questions remain: Will this new peace in the National Assembly be definitive, with lasting political accords? Will the political depolarization help end the economic paralysis= Will the united representatives be able to effectively confront the executive branch? And will any of this have beneficial economic consequences for the majority of the population?
The first skirmish in this unarmed war between the two branches of the state captured the attention of much of the population. In one of its first sessions in January, the Assembly offered a symbol of its determination to move into this sacred economic terrain by unanimously repealing two executive decrees taxing the basic medicine list and all school supplies. Finance minister Emilio Pereira immediately threatened to veto the legislation, alleging that it goes against Central American trade integration treaties and violates the Constitution, which has not yet been reformed and thus does not give the Assembly the faculty to legislate taxes. The President also challenged the law, but neither vetoed nor approved it, creating an impasse. Had it gone through, retail prices of school materials would have dropped 40% just before the start of the new semester.
Sandinista bench representative Dora María Téllez, who chairs the Assembly's Economic Affairs Commission, took advantage of this closely-watched skirmish to call, one again, for open discussion of the controversial tax issue in order to create a national consensus. Taxes, which continue growing in both number and amount, are becoming so unpayable that various merchant and producer associations, including those in the big-business umbrella organization COSEP, are now threatening to declare a "tax strike" and pay nothing. "Every time we ask the government about credits, it tells us it has no money", warned David Robleto, who heads the protesting coffee growers. "If it asks us about the taxes, we'll say we don't have any money either."
A second legislative-executive skirmish also arose over taxes-although in a different sense. In February, the new Assembly majority unanimously ratified the fishing law, which establishes control over licenses to fish in Nicaraguan waters. The law was originally passed in October 1993, but with less legitimacy since UNO was still not participating, and President Chamorro simply sat on it. This time, she vetoed it. In response, the legislators-again unanimously-reversed the veto and decided to promulgate the law.
Until now, the government has unilaterally provided the licenses, and one of the main beneficiaries has been Diego Lacayo, younger brother of Antonio Lacayo, who grabbed up nearly 40 of them to fish the rich waters of the Atlantic Coast. He obtained enormous profits administering the licenses in his favor, but paid not one cent of taxes to the autonomous governments on the coast, and complied with no other commitments. Fishing is one of the few activities that has shown real growth during this government, providing huge earnings to those who control it-mainly a select group of businessmen with close ties to the President. Since there are no regulations, this natural resource has been irrationally pillaged, benefiting only the foreign companies and their national business partners.
Although the final outcome of these first two tangles between the executive and the legislative is not yet clear, the bell for round three has already sounded. On February 25, President Chamorro announced that she would send the Assembly her own proposal for constitutional reforms in March. What are the chances that hers will coincide with those agreed to by consensus between UNO and the FSLN, which center precisely on trimming the executive branch's economic powers?
What the Assembly Can DoWhat can the legislators really do to put the economy on a new and better road, to modify the rigid economic model in which the nation is trapped? And what can other sectors do?
The economic crisis is not simple; all of its elements need to be carefully analyzed. As one example, many middle-class students have had to leave private school because they can no longer afford it, thus putting even more pressure on already overburdened public schools. But this is resolve neither by denouncing neoliberalism nor by invoking competition, the patron saint of neoliberals, to urge new private schools to set up shop. Unless, of course, the government plans to finance the private schools, as happens in developed countries where the state knows that primary education, never profitable in itself, builds the basis for the labor productivity that private enterprise needs.
In such a complex economic landscape, the National Assembly needs sound technical advice to get a better grip on the economic policy's hidden resilience and thus give its proposals more force. It would be very useful, for example, for the Assembly to take up issues that have previously been the exclusive domain of the executive branch, such as negotiation of the foreign debt. The bilateral debt with other governments, for example, clearly requires more political finesse.
The Assembly should also pass laws regulating economic activity, being especially careful about anything to do with privatizing control over natural resources-fishing, mining and forestry. It should give preference to national investors over foreign companies, following the simple logic that the latter would have even less interest than the former in rational, ecologically sound exploitation that would assure reproduction of the renewable resources. It should also create regulations that limit or prevent access by foreign companies to government media for advertising imported products that compete with national production.
The Assembly should also request reliable information on the operations the government intends to privatize, including the earnings it expects to obtain by doing so. In addition, the Assembly should solicit impartial evaluations of the public health and education systems. Neither is functioning optimally, but it is simplistic to declare them inefficient when their budgets have been so drastically reduced. Teachers without books or access to teaching courses and doctors without medicine or equipment cannot be expected to be efficient.
The Horse Needs the Cart
If the end of the rearmed groups is real this time, the countryside should start to recover from its paralyzing insecurity. Then what? "Enough of putting the cart before the horse ," said UNAG president Daniel Núñez in a recent forum on the problems of national private investment.
He's right about the priorities, but political problems are not just debates about ideas. They also represent struggles over quotas of economic power. In unstable economic conditions--and with a "pie" for the production of wealth as small as Nicaragua's is today-it is normal for economic groups to fight with each other. Although burdens inevitably get shifted around on the road, the multiple problems that are currently cluttering the path to even moderate growth should be taken up as dispassionately as possible in the negotiation of an accord between the government and the producers. This will give viability to the "cart" of the political accords.
Political disagreements are born of and feed on inequality. when this inequality. When this inequality passes the acceptable limits of social consensus, the radicalization of the confrontations blocks the economic system.
As the World Bank acknowledged in its 1993 report on world development, accepting the status quo is preferable to a revanchist policy in conflictive post-war situations such as Nicaragua's. For example, the majority of those whose properties were confiscated will have to get used to the idea of the state bonds that the government has decided to use to compensate them, thus isolating those uninterested in national reconciliation. These bonds are a new element that can help depolarize the political environment, which has been so tense for so long.
But this depolarization can only contribute to improving the country's general economic crisis if the agreements of the new political alliance are quickly responded to so the alliance itself does not fall apart in frustration. This requires reaching consensus around an economic program that will motivate the international lending agencies to collaborate. The key economic question today is: who can convoke the much-needed and desired discussion than could forge this consensus? Who will be bold enough to break with the mistrust and end the stand-off?
The Producers' EmergencyThe new agricultural cycle will begin in two months and growers have been checking out their land, their infrastructure and their credit needs for the coming rainy season. Alarmed by what they see, farmers and ranchers in the different associations, from the richest to the poorest, formed the National Emergency Committee on February 24, mainly to demand access to credits.
This initiative is based on the reconciliation already reached between peasants in the National Union of Farmers and Ranchers (UNAG) and those in the former Nicaraguan Resistance. They have now been joined by the volume of big producers organized by productive category, as well as by retired military officers who were given land, and workers who received the state farms that now make up the Area of Workers' Property.
This coming together is another depolarizing opportunity that the government should not pass up. Agriculture sets the economy's rhythms, and meeting its needs is crucial to guiding and promoting economic growth. "Our only banner is production", declared committee representatives, who have already met with the government several times.
Two weeks earlier, on February 8, some 5,000 small, medium and large coffee growers from COSEP and UNAG, and even a number who were former EPS or RN combatants, marched in Managua representing a total of 40,000 growers nationwide. In addition to protesting the government's economic policy in general, they demanded attention to the specific needs of their sector: sufficient credits and a restructuring of their debts, which had accumulated due to the low price of coffee in the past two years. During the march, UNAG president Daniel Núñez charged that only 20% of all agricultural producers in the country have access to credit.
Here, too, it would be a grave mistake to make a simplistic and unilateral analysis, to assume that production will increase in proportion to a bigger and more flexible distribution of credit to all eligible landowners, including the small and medium producers excluded up to now. The problems are multiple and intertwined. They have to resolved at their own pace, but also in order of priority.
Property and Credit: Two Key ProblemsIt is clear to everyone that the property issue, the most acute expression of the country's political polarization, is blocking productive initiatives. The problem is not limited to the effects on a small but wealthy-and noisy-group of those confiscated during the revolution. By braking up cooperatives into private peasant parcels and providing hundreds of thousands of additional acres to the demobilized on both sides, the Chamorro government's agrarian reform-combined with the one carried out in the 1980s-has created a sizable strata of potential small producers. But they have yet to realize their potential because they have no secure land titles that would give them access to bank credit.
Alongside the traditional cattlemen without land are now "cattlemen without cattle", as someone quipped in the firs Peasant Reconciliation Forum, held on February 27. Because they can't get access to working capital, these potential producers of wealth have been selling their breed cows for meat-having long ago sold off their hens. This seriously endangers the national herd, and affects even the big ranchers at the end of the meat chain by creating a scarcity of animals for reproduction and for fattening.
Since they have not been given a chance, these small ranchers are now being forced to sell off their as-yet undeeded land at below-market prices. This does not benefit Nicaragua, since they then swell the ranks of the unemployed, while the rich landowners who buy them out immobilize capital that should be used to produce on lands they already own.
The lack of land titles will take years to resolve, even in the best of conditions. We will all have starved to death if we wait for its resolution before beginning to produce. Conditions have to be created in the meantime that permit the productive apparatus to recapitalize.
Small Producers Aren't a "Social" ProblemThe problem of economic growth is independent of the distribution of the benefits of economic activity. Distribution is an economic problem, not a "social" one. The formula of basing growth on incentives to big capitalists while introducing "compensatory measures" for the poor who are negatively affected by this formula doesn't work. Pure reality, demonstrated many times by history--particularly by the US role in Southeast Asia in the 1950s--indicates that growth is favored by a more equitable distribution of wealth.
Giving many small and medium producers access to land is not a compensatory social measure; if done correctly, it is the creation of a favorable economic context. This context must be created in Nicaragua, because this stratum of producers, freed from the bonds of a market controlled by the state to benefit capitalists, could generate the levels of employment and the supply of and demand for local products that the country's growth requires. But this can only happen if the financial capital from their labor, lost first through hyper-inflation and then through monetary stabilization, is adequately recovered.
Given the existing low international interest rates, a much more revolving fund could be created that is profitable from the perspective of financial intermediation. The National Development Bank (BANADES) should be given a dynamizing role, but without turning in into a simple distributor of subsidies. It could attend the great mass of small and medium producers who don't need huge sums, but do need a quick response from the bank. This fund should not impose conditions on how the loans are used, but definitely on the obligation to repay them. The image that BANADES had in the past decade, when it oriented each sector's activity through credit conditions, must be erase.
The Limits of This Economic "War"What is the executive branch doing in the face of this new militancy by the legislative branch and the emergency faced by the producers? Constrained by the country's narrow maneuvering room, the producers cannot prepare a viable overall economic proposal on their own, but they are at least proposing something. The government, however, unable to incorporate their demands, prefers to repeat that the "culprit" is the International Monetary Fund for imposing such a recessive policy on the country.
But the IMF has not yet imposed anything. We are in the last "normal" year before the 1996 elections, and for some months now the government has been trying to negotiate a three-year accord with the IMF that would guarantee its financial support through 1996.
To make matters worse, if the accord is not signed, the Club of Paris will not meet in June to renegotiate Nicaragua's foreign debt, which weighs so heavily on our economy. Because the country is totally beholden to the signing of that accord, it is living from one day to the next, unable to implement any economic policy.
The government has a pitiful negotiating record with the multilateral agencies. It is not clear how much of this is ineptitude and how much is the neglect of officials on the negotiating commission to defend the country's interests; both are possible. What is clear is that the governments is all alone, and this is its own doing. It has no trust in Nicaragua society and thus cannot present it with alternatives that could elicit consensus.
Nor does the government have the legitimacy to speak in the name of society, because legitimacy is earned with actions that can mobilize the support of the population--from business leaders to housewives and the unemployed. It has not even attempted this for well over two years.
This distrust is nothing new. The Sandinista government invested huge sums of foreign aid to create a sprawling high-teach dairy near Managua "to guarantee milk to the city' children". It had no trust in the private dairy farmers. At that time, the solution was more state; now it's more foreign capital, but the root is the same.
And the IMF Doesn't Trust the GovernmentThe IMF does not really want to approve this three-year aid package, since it has no guarantee that these funds would really support the country's economic recovery, much less its take-off. How can the government give such guarantees if it lacks even the legitimacy necessary to speak in the name of organized producers?
On the other hand, the conditions that the IMF wants to impose on the government--even prior to signing any accord--restrict the government's maneuvering room still more and undercut the little legitimacy it could still have. Whatever legitimacy would be left after that, the government has already undercut on its own, declaring that the IMF is totally to blame. If that is really true, what good is a government?
We are thus all locked in a vicious circle, but it is neither the government nor the lending agencies that suffer. It is the Nicaraguan people.
There Is Some SpaceMichel Camdessus, the director general of the IMF, will visit Nicaragua on March 11, followed by US Assistant Secretary of State for Inter-American Affairs Alexander Watson on March 14. Both top-level visits are undoubtedly related to Nicaragua's critical economic situation and at least that of Camdessus is a final political gesture to find a way past the delay in signing the IMF accord. Even though the magnitude of our economic problems is minimal compared to Venezuela or Brazil, Nicaragua continues to be a case study. It is also the weakest link of Central America, which is about to join NAFTA. It is in no one's interest that Nicaragua become another Chiapas.
It does not benefit the international community to let Nicaragua, or any country as poor as ours, go under. It is preferable to help it out of its dramatic situation than to let it fall into total bankruptcy. Better that it pay even 10% of what it owes the private international banks and creditor governments than pay nothing. If nobody wants a Chiapas in Central America today, no one wants a Somalia either.
This dialectic, based on foreign fears and interest, gives Nicaragua some room to bargain. But it could get even more if it had an accord with the country's own social and political forces. Such an accord would have to include a consensus on production, without which anything else would simply be either skirmishes or good will declarations.
"Neither the Fund nor the World Bank is going to be able to tell us what we have to do", insisted Minister of Finances Emilio Pereira. "They simply indicate to us whether or not what we are doing is consistent with the goal we want to reach". It may be a clever maneuver to deny that there is any imposition of criteria in order to avoid recognizing that we are not negotiating well, but it doesn't stand up to the facts. It is true that the IMF does not impose any fulfillment of prior criteria on governments outright, but it does condition its aid on compliance with those criteria. It has that right. What it does not have is any magic formula about the consistency of a particular economic policy in relation to the goals proposed. It may be right in many things, but it's not right in everything.
The IMF Is Not InfallibleEver since the IMF started proposing and financing structural adjustment plans, numerous evaluations have been made of its activity, not always with favorable results. Although the IMF currently has a monopoly on the "cure" for the evils of underdeveloped economies, this is no guarantee of infallibility. Seldom has the IMF dealt with a country whose infrastructure is as profoundly damaged as Nicaragua's. That creates bargaining room, if the national negotiators can arm themselves well enough to seriously argue with the IMF about the different points of conditionality. Other countries have done it, including neighboring Costa Rica.
The IMF's proposal about "structural affairs" offers sensible elements about rationalizing the tax system. But at the same time it demands the privatization of the health and education systems, which makes no sense in Nicaragua's current context. At bottom, the most serious problem with its proposal is the absolutist logic it uses to demand the reduction, at any cost, of public spending in order to reduce the country's excess of consumption over production. In so doing, it forgets an elemental economic truth: public sector spending is at the same time an integral element of production. A country is not a household or a corner grocery store, which can only spend what it earns plus any loans it can get. A country earns what it spends minus what it imports. Except in the case of an activity that uses 100% imported inputs and labor, which is impossible, the spending of a country is also part of its product.
Many economists believe that reducing public spending results in a savings that is available for the private sector to invest. These same economists also tend to believe that the private sector is, by definition or by nature, more efficient than the public sector. But reality is more complicated; the means should not be confused with the ends. Even supposing that the private sector is generally more efficient, this by no means assures that reduced public spending will translate into a similar increase in private savings, or that this, in turn, will translate into investment.
Why not? First, private investment does not depend solely or even directly on savings. It depends mainly on the stability of conditions and on the private sector's own expectations. Second, the private sector is generally less able to take on investments that provide few immediate benefits but are absolutely necessary for and complementary to the profitability of its capital. Furthermore, when the government acts with certain efficiency in a given terrain, but does not have a legal monopoly, private capital can invest competitively, or in a joint venture, depending on the case.
The Public Always PaysThe bad part is that, any time the property scheme changes, it does so at the public treasury's expense. When a government privatizes, it sells cheaply the profitable assets that have been accumulated with public money. And when it nationalizes, it pays dear for the inefficiencies accumulated by the private sector--again with the public's money.
What is the logic behind this? If any exists, it is none other than the weakness of governments in relation to organized private interests, which has nothing to do with inefficiency. The logic behind the discourse regarding efficiency is even simples: the government has debts and, to pay them, must sell its assets--particularly the most efficient ones, because who would buy inefficient ones? The government thus finds itself in the same unfortunate situation as the peasant who has to sell his cows to eat. This should favor the emergence of a national consciousness in favor of an economic agreement to revitalize the economic horse before the political cart falls apart.
In the arena of Nicaragua's financial policies, the IMF correctly puts the accent on restructuring, recapitalizing and rationalizing the state banking system, and on confirming the National Investment Fund's role as a financial intermediary that can channel resources to smaller financial entities and not lend directly to individuals. The Central Bank should also have a selective rediscount policy that permits it to emphasize productive portfolios over commercial ones.
The most contradictory point of the IMF's conditions is unquestionably the so-called trade opining. If the Nicaraguan economy's main malady is its overwhelming foreign trade deficit (we annually import about US$500 million more than we export), it is unclear why policies that tend to shrink demand would reduce this gap. First of all, reducing demand affects the poor more than the wealthy, and it is the latter that imports the most consumer goods. Second, customs duties are lowered with the trade opening, reducing potential tax income and creating greater import incentives.
This point reveals all the contradictions of the policy being implemented, even without the government signing the IMF agreement. Obviously, for purposes of its own development, the country should be interested in an adjustment model that not only allows it grater and quicker access to foreign capital (which always implies reduced consumption and increased public and private investment), but also reduces the trade deficit, controls unnecessary imports and taxes those that compete with national production.
We All Must Think Of Our FutureThe maneuvering room is narrow, but the wisdom of a well argued proposal with the decided support of a consensus among the majority of producers--those with their eye on the country’s economic future--could have more international acceptance than the current incoherencies. It is time to stop wagering on foreign investment, particularly on maquila plants and short-term, ecologically destructive exploitation of the country's natural resources. The maquila system functions as an enclave and the only thing it leaves in the country are the miserable salaries it is willing to pay.
Foreign investment in conditions of equality with national capital--not with the privileges of a free zone, which distorts market rules--has little reason to come to Nicaragua as long as it can see than Nicaragua's own entrepreneurs are still on a capital strike.
If government spending represents 30% of Nicaragua's gross domestic product, it is not because the government is still too big. It is because the private portion of the GDP is very small. It has not grown proportionate to the shrinking of the public GDP because the road of structural change is costly, slow-going and full of potholes. A great deal of effort by the producers, those who govern and the people's legislative representatives will be needed to harmonize the conditions of these changes, respecting the indications of the international lenders but without betraying national interests and identity.
An economic model in which the government sparks private investment and acts in areas in which the private sector has no interest should not be discarded simply because the Sandinista statist model did not function well.
That failure had deep roots in the technological, productive and market conditions, as well as in productive and financial organization. It had nothing to do with the private or public character of the investment.
A private sector with a technological and entrepreneurial culture as incipient as Nicaragua's cannot do without a strong government, an orchestra-leader state that does not want to play all the instruments but is able to organize and coordinate macroeconomic management in a five-year economic program, one that looks beyond electoral horizons rather than shifting like a weathervane with the political changes that some election bring.
Only this way will Nicaragua private capital lose its legitimate fear of the dual economic and political uncertainty. Only thus will the National Assembly, heads of ministries producers' representatives and independent economist clearly acknowledge the challenge before them. They must all take up this challenge right away, with an emergency program for the agricultural cycle and a clear definition of the rules of the game for the coming years, with decided attention to sectoral problems, and special emphasis on the northern part of the country where the peace that was signed must become definitive.
The international lending agencies, the United Nations, the European Community and the Club of Paris would support an initiative of this sort. But who will step forward to convoke it? With the "political cart" in relative order, it is time to get the "economic horse" moving. The policy of containing overall demand through macro-financial mechanisms has shown its wholesale inadequacy. Neither horse nor cart is willing to pull this load any longer.
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a monthly magazine of analysis on Central America