How Solid is the Tripod Supporting Bolaños’ Economic Strategy?

The Bolaños government’s economic development strategy is based on three “magical” acronyms—HIPC, CAFTA and NDP. Beyond even the questionable solidity of this tripod, how firm is the political floor beneath them?

Nitlápan-Envío team

The latest series of political tensions, which at their peak sparked dramatic speculation about the “abyss” to which the two political caudillos were dragging the country, came to an abrupt end on April 14, after a two-hour late-night conversation between President Enrique Bolaños and FSLN general secretary Daniel Ortega. A smiling Bolaños emerged the next morning as if a weight had been lifted from his shoulders. “The country has awakened more peacefully today,“ he announced. The statement suggests some confusion between himself and the country, whose staggering burden is no lighter as a result of the deal.

In this new negotiation, the FSLN recovered its influence with the Bolaños government and Ortega reaffirmed his leadership, while Bolaños once again revealed his vulnerability and the shaky ground his government is treading. This rapprochement was the first break with the US strategy to isolate Ortega and the FSLN, which Bolaños adopted following Secretary of State Colin Powell’s visit in November 2003. The PLC, mired in internal struggles, was left totally out of the game. All this must have strongly suggested to former President Alemán—who is at least for now serving his 20-year-sentence in prison—that his punishment could continue for some time.

As with Guadamuz

The Ortega and Alemán bands were themselves in talks up to the very moment that Bolaños and Ortega sat down for their nocturnal session. Spokes-people for each side employed a wealth of ways to suggest, leak or confirm just how wide-reaching those talks were. One of the main issues was how to get rid of Bolaños, including the possibility of stripping him of his immunity so he could stand trial for electoral crimes, in Sandinista Judge Juana Méndez’s court, of course. As if to highlight the possibility, Judge Méndez herself was busily announcing her “imminent sentence” on that case, insinuating that it could be very damaging for the President and other high officials, surely including presidential pretender Eduardo Montealegre. A variant on the theme was the idea of shortening Bolaños’ presidential term, and/or impeaching him and replacing him with Vice President Rizo. Then there were a number of other well-worn standbys: combining the November 2004 municipal elections with the 2006 general elections and the perennial favorite of getting Arnoldo Alemán out of prison.
Hours before his meeting with Ortega on April 14, which involved the now customary “mediation” of Managua Mayor Herty Lewites, Bolaños participated in another meeting, this one with the country’s main agricultural business leaders “We are under threat from the decision that could be made by this pair of…, well, I’ll leave you to fill in the word. But beware of what these two might choose to do. They aren’t going to make Enrique Bolaños give up just like that! Enrique Bolaños will never sign his resignation from the presidency. They aren’t going to dominate me so easily. They’ll have to do to me what they—although who knows who? —did to Guadamuz. That’s the only way. I hope you decide who you’re going to side with.” A few days earlier in this express trip to the abyss, ambassadors and representatives of the international community had reiterated for the nth time that they were unconditionally “siding with” Enrique Bolaños.

Bolaños backpedals

How much of the extremist discussion with the PLC about getting rid of Bolaños and bringing Alemán back was pure Ortega play-acting? Almost all of it. He is fully aware that a plan of this nature would totally isolate Nicaragua, earning it the condemnation of the much-needed international community. Furthermore, he has no interest in seeing Alemán out of prison just yet or having the FSLN pay the political price for it at this juncture.

Ortega’s real objective was to get the President to back off his judicial career bill. The FSLN’s current political strategy is centered on its power in the judicial branch and the bill is aimed at least in part at seriously reducing that power. Given the support for the bill from both Bolaños’ Blue and White legislative bench and the pro-Alemán Liberal bench, the FSLN lacks the votes to defeat it. Hence Ortega’s feigned interest in publicly detailing an FSLN-PLC plan to strip Bolaños of his immunity: if he can’t kill the bill legislatively, he can always get Bolaños to shelve it by threatening his conviction for the electoral crimes the PLC committed during his presidential campaign. In these times of the much-proclaimed “rule of law,” judicial intimidation gives the FSLN extraordinary power.

If only to buy time, Bolaños backed off. Following the pacifying talk with Ortega, he declared that he intended to promote approval of a judicial career law supported by everyone, Sandinistas included. This is the President’s first step away from the extreme anti-Sandinista strategy outlined for him by the US government. For his part, Ortega declared that shortening the presidential term, stripping Bolaños of his immunity and postponing the municipal elections were no longer on the FSLN agenda.

Bolaños and Ortega confirmed that they had also agreed to change the National Assembly board, which has not functioned normally since January, when US ambassador Barbara Moore “facilitated” its selection with the exclusion of any Sandinista representation even though the FSLN holds 38 of the Assembly’s 92 seats. Ortega and Bolaños pledged to surmount the crisis in the legislative body so it could dig into a backlog of nearly 60 social and economic bills, some of them extremely important for the executive in light of its international commitments.

Almost a month after this extremely fragile and passing “governability” agreement, however, the Assembly is still not functioning normally. In fact, the only immediate move was Judge Méndez’s announcement that she would delay the sentencing of the electoral crimes case because she needed to continue studying the file. This file will remain in Ortega’s hands to make sure Bolaños lives up to his part of the bargain.

The sensitive cases

In the theatrical PLC-FSLN negotiations, the latter once again showed its ability and its political—not to mention economic— power, which includes control over judges responsible for “sensitive cases.” Ortega has several in his grip: the Alemán cases and the electoral crimes case that has Bolaños and over a dozen other Liberal leaders and top government officials so edgy. He also controls the case of Byron Jerez, Alemán’s partner in crime, who is today virtually free, presumably following some deal with the FSLN inner circle.

While PLC leaders and legislators angrily repudiated the understanding reached between Bolaños and Ortega, that’s as far as it went. Arnoldo Alemán’s obstinate determination to get out of prison and recover the presidency in 2006, whether personally or through his wife or some other docile and utterly trustworthy ally, allows the FSLN to engage his supporters repeatedly. In the irony of ironies, they are so anxious to get their leader back that they are even willing to get in bed with Ortega, so certain are they that only Alemán’s leadership can resolve their party’s crisis.

Alemán should ask forgiveness

And that crisis has become scandalous. René Herrera, the PLC’s most Machiavellian figure, insists that it is the fruit of a contradiction between the party’s “leadership”—still attributed to Alemán—and its “management.” As long as Alemán maintains his iron grip on the party from his internment, the conflicts over party management, which he has not clearly ceded to anyone else, are politically and emotionally ripping the party apart and even eroding Liberalism in its wider sense. According to Herrera, the party is currently being run in a “dispersed, contradictory, uncertain and confused manner, which impedes implementation of the leadership’s decisions.”
Herrera has never hesitated to insist that Alemán must be set free, and openly confesses that he is working to that end, which he is sure will happen. He claims that Alemán is the only one who can solve the PLC crisis. How? “By distancing himself,” says Herrera; “by retooling the party’s management and leadership, admitting he was wrong and asking the nation’s forgiveness. Arnoldo is only thinking about how to get out, but they’re not going to let him out right now. Alemán doesn’t want to deal with the fact that he’s not going to go free right away, and if he doesn’t admit that, he’ll keep on making mistakes. Meanwhile, the PLC is sinking. It has no decision-making capacity because nobody’s assuming the role and making decisions. There’s a frightening immobility and dispiritedness in the party.”
It goes almost without saying that keeping the PLC and Liberalism divided, dispirited and trapped in their own paralysis—which has been going on for some months now—is a key piece of the FSLN’s political strategy at this stage. If jailer Ortega doesn’t open the door to Alemán’s prison, and if Alemán keeps trying to bargain with Ortega for the key, the PLC’s crisis will only get worse.

Like Sheherazade

The “theater of crisis” again revealed just how fragile Enrique Bolaños’ government is. Conservative politician and analyst Emilio Álvarez Montalván used a magnificent metaphor to describe the situation: “Enrique’s government seems to me like Sheherazade in ‘A Thousand and One Nights,’ as he has to invent a story every night if he wants to wake up alive the next day.”
Is it fair to predict that Bolaños will have to keep on governing in this state of fragility for the rest of his term, struggling with the paradox of having tremendous international support but increasingly deteriorated internal backing, obliged to “invent a story” every day? It’s not too farfetched to assume that the Grand Liberal Union (GUL)—a party hatched semi-stillborn in the presidential offices and otherwise known as Liberalism without Arnoldo—will suffer a severe defeat in Novem-ber’s municipal elections, further weakening Bolaños, its “honorary president.”
And in the economic terrain? The national economy has fared a bit better so far in 2004 than in 2003, but the difference is barely perceptible. Will the demand for jobs to improve the horrendous living standard of the majority of the people find a response in 2005? That was, after all, Bolaños’ main election promise. Will Bolaños’ own National Development Plan (NDP), or Nicaragua’s entry into the Highly Indebted Poor Countries (HIPC) initiative, or the Central American Free Trade Agreement (CAFTA)—assuming it is signed—provide any noticeable economic improvements for this same population majority? Will Bolaños have to keep playing Sheherazade, ending his administration with national reprobation and international applause? Or will his strategic gamble pay off in time, with genuine economic advances compensating for his political fragility?

IMF not optimistic

According to previous projections made by the Nicaraguan government and the IMF in the framework of the current fiscal adjustment, the country’s economy was supposed to grow to between 3.5% and 4% annually in 2004, 2005 and 2006; in other words until the end of Bolaños’ term.

The last IMF document on Nicaragua, issued on January 28, 2004, contains the following statement: “Revised real GDP growth targets are feasible with sustained prudent macroeconomic policies and institutional reforms.” It also states that the “near-term growth projections have been trimmed somewhat, reflecting recent trends over the medium term.” These IMF projections extend to 2008, a year beyond Bolaños’ term.
In projecting a maximum possible growth of 3.7% for 2004 and a similar percentage for 2005, the IMF recognizes its own lack of optimism. It does not consider that growth of over 4% can be sustained before 2006. But even these are just projections, calculations, estimates, and the IMF’s calculations on Nicaragua have turned out to be unrealistic and unattainable on several previous occasions.

With respect to poverty, the IMF document says: “Less than half of the [Poverty Reduction Strategy’s] monitorable goals were met during the second year of implementation.” No such realistic moderation bordering on pessimism is ever heard in the government’s voluntarist speeches, which include an inescapable quota of social insensitivity when repeating that “we aren’t doing so bad” or “we’re doing well,” and continually appealing to faith in God and in Bolaños’ word.

Celebrating poverty?

The Bolaños government is strategically gambling on an economy supported by a tripod whose three legs are the HIPC, the NDP and CAFTA, those magic acronyms to which official propaganda links the country’s future development.
In January, the government celebrated Nicaragua’s entry into HIPC, a mechanism set up by the international aid agencies to reduce the unpayable foreign debt of the 43 most highly indebted and poorest countries on the planet (hence the acronym).
The government presented this undeniable macroeconomic accomplishment—following years of structural adjustment in which Nicaraguans have been forced to make immense and obvious sacrifices—as a pledge to future national development. But there are no concrete signs that the resources freed up by writing off of a substantial part of our foreign debt have been rerouted to projects aimed at benefiting the poorest segment of the Nicaraguan population, as the government announced. There is, however, strong suspicion that part of these resources have instead gone to pay the government’s domestic debt with the national banks.

In May, we witnessed another “celebration” of our poverty. The US government admitted Nicaragua to its even more select club for the miserable but governable, thus meriting donations from the “Millennium Account,” President Bush’s one-off US$1 billion initiative to which 16 countries were elected. Nicaragua, Bolivia and Honduras were the only three from Latin America.

To get into this club and stay there for the five years over which the disbursements will be made, the countries must not only demonstrate their extreme poverty but also score consistently good grades in “governance,” “market opening” and other conditions established by the United States.

Congratulating Bolaños for having been admitted, Ambassador Moore commented with great satisfaction, “I believe that President Bush conceived this new aid scheme with President Bolaños and his government in mind, given the direction in which he is taking Nicaragua.”

CAFTA:
Only what we already had

The Central America Free Trade Agreement (CAFTA) with the United States represents another fundamental wager on Nicaragua’s economic direction. The region’s governments are investing resources and energy in lobbying US congressional representatives to approve the signing of the agreement—baptized by the Nicaraguan government as the “bridge to progress”—before the US electoral campaign heats up even more.

The Bolaños government is fond of reiterating CAFTA’s most notable achievement: it guarantees our products access to the US market, which is the largest in the world. What it does not explain is that many of these concessions were already contained in the Caribbean Basin Initiative (CBI), launched by President Reagan in the eighties as a commercial counterpart to his military strategy to contain leftist movements in Central America and the Caribbean.
Those concessions were made to foster international investment in the region, trusting that this would generate economic growth that would trickle down and serve as a counterweight to popular insurrections encouraged by the overthrow of Somoza in Nicaragua. Neither the idea nor the motive—nor its level of success—differed much from Kennedy’s Alliance for Progress in the sixties, following the overthrow of Batista in Cuba.

What we gave away
in exchange

A simplification of the CAFTA agreement is that it permanently establishes exactly what we already had in the soon to disappear CBI: access to the North for our textile and electronics products and everything else produced in the maquilas. In exchange for this permanence, we have opened up our markets far more to the North’s agricultural products.

Our rural future is a lot to give away for a market access that made no dent in solving our structural problems in the 14 years we had it—although the CBI concessions were probably quite profitable for individual business-people who don’t want to see them disappear. Nobody—even CAFTA’s defenders—entertains the slightest doubt that what we gave away will gravely affect Central America’s rural economy. The “optimistic” supposition of our government officials, however, is that foreign maquila investors, already attracted by the cheap labor force and zero taxes offered by the region, will curb unemployment by setting up even more sweatshops now that they are guaranteed permanent access to the US market.

The targets we won’t meet

In the end, though, CAFTA is an “act of surrender”: Central America’s elites and the governments representing them are reduced to trusting foreign investment to do what they could not: pull our economies out of the morass, out of the region’s universally low growth rates.

The UN’s Economic Commission on Latin America and the Caribbean (ECLAC) has calculated that the economic growth rate in Nicaragua and the other Central American countries could increase by 1% once CAFTA goes into effect. Although that may seem very little, it would be represent a considerable advance (some 25%) on where we are now, but no one dares to believe fully in even that modest calculation, not to mention how much of the benefits even of that 1% would stay in the country, since it is all duty-free economic activity.

In its report on Nicaragua, the IMF states that only an annual growth of 5% would allow Nicaragua to hit the social targets agreed to in the 2000 Millennium Summit: a 50% reduction of extreme poverty, illiteracy, infant mortality, malnutrition, etc., etc., by 2015. The IMF yardstick for “extreme poverty” in Nicaragua is an individual who earns only a dollar a day, or less than $6 a day in the case of a six-person family. Since 2001, and especially the Bolaños government’s first two years of 2002 and 2003, Nicaragua’s per-capita income has not only failed to grow, it has actually fallen, in part because the country’s economy has grown more slowly than its birth rate, which is currently 2.8% a year, down from over 3%.
If CAFTA really brings a 1% increase in economic growth, perhaps, just perhaps, a real effort could be made to attain these targets.

A lot of losers and
many maquilas

Even if CAFTA did provide a 1% growth in the national economy, that doesn’t necessarily imply growth in each Nicaraguan’s personal economy. There will be a lot of losers with CAFTA, because many rural sectors don’t have the capacity to produce and successfully compete with the agricultural products that will flood in from the United States.

All of CAFTA’s promoters admit this and are perfectly aware that most of the losers will be peasant producers of basic grains. The most serious aspect is that Nicaragua is making no plans or even thinking how to finance social compensation and new opportunities for rural producers who go under as a result of the unequal foreign competition.

On the one side, they are trusting in the negotiated measures to postpone the negative effect on the rural economy. In relation to maize, for example, CAFTA establishes that US corn exporters will have very small quotas for the first 20 years. They thus calculate that the impact on such a basic product will be stretched over a long enough period for the country to absorb it.

On the other side, pro-CAFTA Central American government officials and international agencies have extremely optimistic expectations about the number of jobs that the agreement will generate in the region, guided as always by shortsighted thinking. In some documents they go so far as to forecast the annual creation of 200,000 to 250,000 jobs in the region during CAFTA’s first five years, mainly in the free trade zones and maquilas.

Our poverty is being reduced
by migration and remittances

Those offering the most optimistic analysis of the region once CAFTA is initiated know that today’s migratory outflow, rather than drying up, will actually keep increasing. They also know that the inflow of family remittances will increase as a result. In fact, they’re counting on it. Migrants and the money they send home are indispensable.
A recent study in El Salvador verified once again that a full half of the touted “poverty reduction” achieved during the nineties was the result of remittances sent home by emigrants, beating out both international aid programs and exports. While Nicaraguan remittances have still not quite reached the importance they have in El Salvador, they stabilize our economy, offering some purchasing power to huge numbers of poor families and making it possible for them to survive under such difficult circumstances. Despite that, they don’t get much mention in official speeches. Why does the Nicaraguan government not celebrate this money earned by the poor, which exceeds the donations from any “millennium account”? What would our country do without the $800 million in remittances sent home every year according to the Inter-American Development Bank, or if it only received half that amount? The situation would become impossible for the government to manage.

We aren’t prepared

Furthermore, the implementation of CAFTA assumes, in fact requires, serious infrastructure and institutional changes. For example, the region’s entire customs and ports system needs to be transformed. In this aspect and many others, Nicaragua lags behind its Central American neighbors, who themselves aren’t exactly on the cutting edge.

It is rightly proposed that CAFTA will erase regional land borders for customs purposes, leaving only two: between Guatemala and Mexico to the north and Costa Rica and Panama to the south. So what will happen to the sizable amount of import and export duties Nicaragua now collects? ECLAC has already calculated that Nicaragua could lose up to 0.5% of its gross domestic product by closing down the customs offices at its borders. Such a loss would be felt.

The government is making a major lobbying effort to get CAFTA signed, yet Nicaragua’s highway and customs infrastructure and tax and duty structure are obviously not ready, to say nothing of the social compensation plan required for the losers in this treaty.

Nor is the country ready to train and increase the technical level of those rural and urban productive sectors that could in fact make use of the new opportunities CAFTA offers, such as free access to the US market for Central American fruits and vegetables. Nicaragua’s production is very low compared to Costa Rica and Guatemala. How can a significant number of farmers receive the right technological support to produce and export fruits and vegetables? Nothing has been planned. The state should be working with private sector producer associations and civil society organizations to exploit these potentials, putting together technology transfer plans. But so far Nicaragua has no institutional framework for this and seemingly no will to create one.

Is the NDP changing course?

The government’s other magical acronym is NDP, the National Development Plan. President Bolaños constantly travels to different departments and municipalities to talk about the NDP’s investment program, designed in Managua for each particular area. He doesn’t go to dialogue with the forces working in the departments or even to seek their agreement for what is going to be done. His motive is quite simply to inform them what’s going to happen.

Nonetheless, the municipal governments have been pressuring the central government and it seems to be paying off. The central government has finally joined local governments and civil society organizations in the efforts they have made in recent months to inject some “soul” into the NDP.

This shift grew out of initiatives already in place in many municipalities—for example the municipal development commissions, which have experience formulating local development plans. These commissions have permitted an opening to departmental development plans. It is a tiny ray of hope, because one of the most serious holes in the NDP is the prioritizing of certain zones and sectors, while excluding a large part of the country—specifically the most impoverished zones and those lacking development “potential” in the view of the plan’s central government designers. But these designers are now finding to their surprise that entire departments have succeeded in formulating development plans, harmonizing the demands of all their municipalities, without exception.

This discovery has forced the central government to change some of its game rules, and to promise that as of next year it will jointly decide on the annual development projects with the municipalities and departments. Initial negotiations are already underway and it remains to be seen how far this effort will get and how the promises will be concretized. Any real progress in this direction would substantially improve the NDP, turning it into a truly strategic leg of the tripod, if only because it is more closely adjusted to the country’s needs and realities.

An interesting contradiction

Will a better balance be reached between the central government’s public investment priorities and those being proposed by the municipalities and departments? Could the development plan end up as a genuine national plan rather than the product of reflection by a group of government technical experts supported by international institutions?
When presenting the plan in some departments, government officials have publicly admitted previous and current contradictions with the World Bank regarding the NDP: The World Bank formulated the country’s Poverty Reduction Strategy three years ago, while the NDP was formulated barely a year ago. When asked how the two things mesh, government officials merely admit that the World Bank designed the former and stress that the NDP is a “national design,” a concept they defend with conviction.

It’s an interesting response, but not an answer to the question. In fact, the IMF and World Bank use their poverty reduction strategy as the reference for resource allocation in their own documents, while the government, not surprisingly, uses the NDP. Can anything positive come out of this interesting contradiction?

A ray of hope in the local arena

With an authentic negotiation process involving all the municipalities, the country could take a more independent, consensual and concerted stance. Furthermore, going directly through the local forces could bypass all the contaminated negotiations, under-the–table deals, pacts and crises involving Bolaños and the FSLN and PLC elites.

All discussions of the departmental and municipal development plans that have begun to effect a change in the NDP’s course have included the pre-candidates for November’s municipal elections from all parties, all of whom have had to commit themselves to the plans. This is just one example of the importance and the benefits of holding separate municipal elections in Nicaragua and suggests the harmful rollback that would have occurred had they been combined with the presidential elections, as both Bolaños and the FSLN suggested at different moments.

It can be observed in all of the central government’s NDP presentations, that, despite the extreme political polarization at the national level, it is relatively easy for those on opposite sides of the fence in the municipalities and departments to negotiate, reach agreements and make joint proposals that are of interest and benefit to their people. What cannot be achieved at the national level is more easily worked through at the local level.

Amid so much confusion and hopelessness resulting from the social paralysis generated and generalized by the bad example the leadership class has set, there is still some hope—albeit fragile—that the emergence of local, municipal and departmental power and identity could lead to the formulation and implementation of a more equitable development project. It would be no small thing.

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