A Loaded Social Agenda and A Hemmed-in Government

With the oil bill growing, CAFTA on hold and the IMF watching the country’s every move, our mounting social problems have no escape valve. How much maneuvering room does the government have? Its response is to retreat into itself in an insensitive style that leaves it more isolated every day.

Nitlápan-Envío team

Social conflicts intensified last month, leaving most of Nicaragua’s population increasingly frustrated. There aren’t enough resources, institutional capacity or political will to provide solutions to these conflicts in the near future and there’s little maneuvering room to increase any of these three essential ingredients, in part because the international lending agencies have the government hemmed in and in part because the government itself is taking virtually no responsibility.

CAFTA, the hoped-for lifeboat, is dead in the water for now

The Central American Free Trade Agreement with the United States (CAFTA) was signed in the Washington headquarters of the Organization of American States on May 28 in a low-profile symbolic act without any celebration. Neither the Central American Presidents nor President Bush were there; in their place were Central America’s economic ministers and US trade representative Robert Zoellick. The sparse ceremony was chosen because everyone knows the trade agreement won’t be passed in the current current session of the US congress as planned and thus will not go into effect with the ringing in of 2005.

Everything has been postponed, dashing initial expectations. The most optimistic scenario is that the agreement will go through after the elections, but that depends on whether Bush wins in November and the Republicans hang onto their majority in both the House and Senate.

Not five hours after the signing in the OAS, Democratic candidate John Kerry said that if elected he will not sign CAFTA before revising it, above all its labor and environmental sections. If the Democrats win, or Bush wins but the Republicans’ congressional majority shrinks, the free trade agreement will most likely not go into effect until 2006.

The Central American governments are relying on the agreement to revive the regional economy, which has grown very slowly—less than 3% annually—virtually since the start of the new millennium. In Nicaragua, Guatemala and Honduras, per-capita income has actually declined during that same period. The region’s political and business leadership is gambling on CAFTA as its last resort.

The “official” explanation for Central America’s disappointing economic performance is the adverse international context: acute deterioration in the terms of exchange together with the drastic drop in the price of coffee, the region’s emblematic product, and the slow economic recovery of the United States, Central America’s main trading partner. The Central American Monetary Council, which is the region’s main financial agency, has calculated that the region’s countries lost as much as US$6 billion in the past three years due to the drop in international prices for its main export products.

At the start of 2004, there was confidence that things would finally improve, fundamentally for two reasons: CAFTA would attract more investments to the region and the plunge in coffee prices had been halted. No one forecasted what would happen to another critical price: that of oil.

Predictions go up in smoke

When at the end of 2003 the Nicaraguan government made its economic growth forecast for this year, it calculated that the country’s per-capita Gross Domestic Product (GDP) would grow for the first time since 2001, the year Bolaños took office. The price of oil was factored in at the time at $27 per barrel, but by June the price had already reached $40, a record level in the nation’s history. If the price stays that high, Nicaragua will have to spend some $150 million more than planned to purchase the crude on which the country’s energy generation depends almost entirely. And that’s no small amount; it’s a quarter of all national export income.

An increased oil bill and the lack of the anticipated investments paint a grim picture of the economic horizon. Casting about in search of solace, many analyst agree that these prices can’t be maintained; given the impact of such a huge hike on the developed economies, the United States and Europe will force the OPEC countries to increase production to lower the prices.
Yet again, the determining factors of national life are beyond our control, and thus reinforce the resignation that has characterized our history, which takes the form of insensitivity in those who govern and increasingly irritated fatalism among the governed. As a good example of the former, President Enrique Bolaños’ approach to calming people down in the face of the rise in fuel and by extension virtually all other prices was to shrug it off with the comment, “I’m no magician who can solve this problem.”

Yesterday’s enemies
should be friends today?

During the Third European Union-Latin America summit in Guadalajara, Mexico, President Bolaños and the other Central American Presidents—who have talked about declaring an “oil emergency” in the region—requested special treatment from Mexico with more favorable petroleum prices. The initiative fell flat. According to Bolaños, Nicaragua gets 50% of its oil from Venezuela but has not yet asked it for a favorable response to its plight. He also said he is studying the possibility of requesting assistance from Libya.

Daniel Ortega didn’t pass up the opportunity to make an ironic comment on the situation: “Cuba could help Nicaragua. Given the circumstances, I could talk to Fidel and I’m sure that they would take a little of the oil they receive and send it to us. But with the Nicaraguan government’s current attitude, added to the blockade and the campaign of war against Cuba… Who are Enrique’s great friends? President Bush. So let Bush come and resolve this problem.” Bolaños’ parroting of Bush’s anti-Chávez rhetoric cannot have curried him any more favor with Venezuela’s President than he has with Cuba’s or Libya’s for a similar reason.

World fear

Most analysts also agree that the current oil crisis is not due primarily to either scarcity or withheld supply, or even to the excess demand resulting partly from the increasing development of India and China, although their immense populations are indeed beginning to put tremendous pressure on the demand for oil. The US is increasing the demand as well, by hoarding oil from all the producing countries rather than touch its own strategic reserves.

The real thrust of the current crisis is somewhat new. Saudi Arabia produces 25% of the world’s oil, one of every four barrels. The Saudis not only produce a huge amount, but are capable of producing far more when the market is depressed. They are constantly upgrading their facilities, which allows them to regulate the market. The possibility of terrorist attacks on those installations, now guarded by more than 30,000 men at an enormous cost, leaves people around the world shuddering at the thought of the global chaos that would ensue. The attack on those facilities in late May and the serious political crisis facing the authoritarian Saudi monarchy suggest that such fears are not unrealistic, since the powerful Saudi opposition feeds the Al Qaeda network of Osama Bin Laden, who has always questioned his government’s supply of crude to the West. This fear may well be fueling the oil price rise.

To complicate things even further, Iraq is the country with the second largest reserves. To attract allies, President Bush perversely fabricated an optimistic expectation of an Iraq at peace, in which the United States, controlling these reserves, would lower world prices for crude. Today, the chaos in Iraq growing out of an illegal and unjust war has convinced allies and adversaries alike that it will be a long time indeed before Iraq is producing normally at full capacity.

An irritating attitude toward
exploding social issues

It is in this international context that the national crisis is developing and that Nicaragua’s loaded social agenda must fight for space. The agenda includes the public universities’ perennial demand for 6% of the budget and the several-year-old demand by hungry and jobless coffee workers in the North for land so they can grow crops merely to survive. Then there are the more recent pressing issues, which include the threat of a public transport strike in response to the fuel price hike and the minimum wage negotiations at a moment in which consumer prices are spiking in pace with the fuel prices. A thousand and one pressures are being exerted on an already revised 2004 budget that hasn’t even been definitively approved yet
The government has taken an inflexible stance toward two of the most serious crises that blew up in May: the university demand for 6% of the budget and the union demand for a substantial increase in the minimum wage, which is breaking down traditional business resistance.

The arrogant, disciplinary, top-down way President Bolaños and his most visible high-level officials refer in the media to these demands and those demanding them is extremely irritating. Their uncommunicative posture, as if they were looking down on reality from a great height, as sure that they have no part in any solution as they are that they have nothing to lose, only aggravates the problems even more. Furthermore, the insensitivity with which they repeatedly justify their own huge and sometimes multiple salaries—which while legal are immoral in such a poor country—on the grounds of their high IQs has left the government isolated in its tinsel tower.

The missing millions

There is content as well as attitudinal style behind this inflexibility. If the government has isolated itself, it is in part because it has little maneuvering room between the International Monetary Fund’s conditions and the coun-try’s domestic debt. Because the government doesn’t view humility as a political virtue, it chooses not to admit that it has been hemmed in, but it is reflected in the budget.

This month, Violeta Delgado, Néstor Avendaño and Adolfo Acevedo, who are responsible for economic issues in the Civil Coordinator, an umbrella for some 300 organizations of progressive Nicaraguan civil society, went to Washington to denounce the government for keeping two sets of books. The budget bill Bolaños submitted for National Assembly approval late last year showed 1.154 billion córdobas (nearly US$73 million) less in projected tax income than the budget agreed to with the IMF only slightly later. The three representatives met with Nicaragua desk officials in the IMF, the World Bank and the Inter-American Development Bank.

The Coordinator also demonstrated that over half of the resources freed up by the foreign debt write-off within the Highly Indebted Poor Countries (HIPC) initiative have not been redirected to poverty reduction projects as mandated by the G7 countries. Both that amount and the unbudgeted tax income have instead been used to make payments on the illicit, if not illegal, domestic debt with Nicaragua’s private banks.

Neither the government nor the IMF denies the major discrepancy denounced by the Coordinator. Initially claiming that it was because the two budgets were drafted at different times, they later said that all this money was earmarked to “increase the international reserves held in the Central Bank.” If we assume that answer is true, the next question is why we’re letting such a huge financial investment sit idle in the Central Bank vaults when the country has so many urgent needs. That question they chose not to answer.

Delgado, Avendaño and Acevedo criticized the three financial organizations for saying that they support institutionality then undermining it by backing the government up in this illegality, which is also a form of corruption in that it is a non-transparent handling of public resources. On their return, the three civil society delegates listed the agencies’ recognition of the truth of their charge as an achievement, together with their agreement to meet with members of the Coordinator on their next visits to Managua to expand their vision of the national situation.

Reforms to the financial system

The multilateral lending agencies could cut the government some slack, but to understand the logic of why they aren’t, we have to go back a few years.

As critiques of the IMF and World Bank structural adjustment model promoted or imposed in third world countries mounted in the mid-nineties, the two agencies responded defensively. They claimed that their “package” wasn’t working because it was incomplete, that it needed a framework of institutional reforms that would buttress the set of economic reforms already underway.

In their view, this new framework involved three different types of reforms, which is what they are now promoting in Nicaragua. In the first set, they put reforms related to the financial system, which included increasing the international reserves held in the Central Banks.

That is because the financial crises in the South in that same period demonstrated that the economies of those countries could collapse unless they had enough accumulated reserves to absorb such crises. The IMF and the World Bank thus now argue that beefing up its hard currency reserves is an essential condition for long-term stability in each country. Seen from this angle, the Bolaños government’s fudging of figures and redirecting of the difference in amounts is simply to fulfill one of the requisites of this second generation of reforms. The World Bank is currently investing major effort all over Central America to ensure that banking legislation is in place that will make a collapse of the financial systems in these countries very unlikely.

This assumes such strict control that when the transport sector starts demanding that the government drop 20 cents of its oil tax or the students demand that the 6% be calculated in a way that would exceed the amount already budgeted, Bolaños simply refuses. Any budget variation would violate the hand-tying fiscal and financial commitment that he has assumed without so much as a public squawk.

Social security, judicial
and electoral Reforms

A second set of reforms includes social security, which in Nicaragua will soon have serious repercussions. According to the approved design, contributors who are over 43 years old will stay in the public pension system with the current rules, while those who are younger will be passed to a new system in which their contributions will be in the hands of private administrators (read investors).

Treasury Minister Eduardo Montiel has already recognized that the public system will not be self-sustainable once all those under 43 are no longer paying into it; state spending will have to increase to cover the deficit. The government, burdened by this new amount, is negotiating to postpone implementation of the new system, scheduled for August 2004, but the private banks already have pension administrators chomping at the bit to begin investing the sizable sum of money from the workers’ contributions.

Still pending are reforms to the judicial and electoral systems aimed at creating an institutional-judicial structure appropriate for investment and the market economy. It is here that the government finds itself up against the impenetrable political reality of institutions trapped by the pact between the two political party bosses, Liberal Arnoldo Alemán and Sandinista Daniel Ortega. Any change or policy reform, be it the election of posts, modifications to the electoral law, passage of the judicial career law or appointments anywhere except inside the executive branch, is hostage to the desires of these two caudillos who control the country’s institution-ality and to the political tug-of-war between them and Bolaños’ far weaker political band. And any conflict on the loaded social agenda that isn’t skewered by the inability to make budget modifications or reallocations must grapple with the shortsighted interests of the two bands in the pact and the third one that answers to the lending agencies.

Reforms to make
growth more equitable

The third set of reforms being promoted by the World Bank and IMF is aimed at achieving more equitable growth. Guillermo Perry, the World Bank’s economic chief for Latin America and the Caribbean, came to Managua at the end of May to present the results of an investigation into Latin America’s social inequality. The conclusion of the study, which is serving as the basis for this group of reforms, is that the more inequality there is in a country, the greater the growth required to eliminate poverty. In other words, it costs less to reduce poverty for countries that have lower levels of inequality.

Latin America is the region with the greatest income inequality on the planet. And even on this exceedingly unequal continent, Nicaragua and the other Central American countries, with the exception of Costa Rica, all have above-average inequality.

The multilateral institutions are proposing two ways to reduce inequality in Latin America: help the poor gain access to education and to the market.

The research in countries all over the world shows that the population’s access to quality education is one thing that can really make a difference, but in this area, Nicaragua is in serious trouble. A recent study demonstrates that the quality of Nicaragua’s public education is pitiful and that it doesn’t matter which schools children go to because no one learns anything in any of them. Solving this, even in the best of conditions and with the firmest of commitments, however, will take a generation or two.

In the nearer future but along the same lines, one proposal for a way to have a direct and effective impact on economic growth is to transfer income to extremely poor families so they can send their children to school. La Dalia, Matagalpa, is one of the places in Nicaragua where this program is the most developed and it has shown positive results.

The second proposed way to reduce inequality—access by the poor to the market—is politically more conflictive and is barely being considered in Nicaragua. Such access means, among other things, giving varied and sustained support to the businesses of small rural producers and the innumerable market women of the cities, making credit available to them and providing property titles in the urban settlements. It even means agrarian reform, although the multilaterals wouldn’t call it by that name.

Is there the political will
and the technical savvy?

The bottom-line problem for both the government and the country is how, with such limited room for maneuver, to respond adequately to a social agenda that has been postponed for such a long time and is so overloaded today. All studies, both national and international, agree that if Nicaragua is to achieve more rapid economic growth, it must distribute its wealth better. But the limited resources to promote this improved distribution, the deficient institutional capacities to achieve it and the dearth of political will even to undertake the task have tied the government’s hands.

An “unbearable lightness” in this government’s “being” leads to the fear that even if there were the resources, there might not be the capacity to promote access by the poor to the markets. Would it know what to do? Would it have the “savvy” that this social science implies?

Albert Einstein very wisely defined that such knowledge is the result of a dual process: systematic analysis and intuitive understanding of the evidence from reality. The dominant technocracies in the world and in our own government have forgotten this equation. They resolve everything with a series of cold statistics prepared in comfortable offices, which they then show off with glitzy PowerPoint in dull presentations in the conference rooms of luxury hotels to convince and win over others, who remain unconvinced and certainly not won over.

It is hard to imagine that in the two and a half years remaining to the Bolaños government it will have enough strength to undertake the institutional reforms that the country’s economic development requires but that have been so difficult thus far due to the outside constraints and its own insular style. The world’s economic instability and the recurring national instability make it difficult to foresee such an ambitious program of reforms and any bonanza for Nicaragua in the next couple of years.

A little light in the tunnel

In the midst of this seemingly irresolv-able contradiction, those of us who oppose cold technocracy and heatedly favor helping the poor cease being poor by giving them opportunities are unexpectedly finding that we have a point of agreement with the multilateral institutions today. We have been arguing for some time that social inequality impedes growth, and they are now doing the same.

Only a decade ago this concept was not even contemplated in these powerful institutions. They simply pushed the free market dogma and attributed our country’s problems exclusively to state protectionism and fiscal indiscipline. Up until then, denouncing social injustice, clamoring against inequality, fighting against it, was tantamount to being a communist and thus being dogged by the militaries and paramilitaries. How many people were killed for this reason during the eight-year administration of the recently deceased Ronald Reagan? How high is the mountain of tortured and murdered bodies in Latin America, even in Nicaragua alone, for holding such views and acting accordingly?

With the irreversible disappearance of the bipolar world, we can think, speak and act more frankly today. Will we? What is clear is that if the gap—not just of extreme poverty but also of extreme wealth—is not reduced in Nicaragua we will continue to have nothing other than more of the same.

And on the political side?

With the country still lacking clear and minimally accepted rules of the game, the political—and economic—class is engaging in ruthless power struggles that already go well beyond November’s municipal elections. The jockeying for position for the presidential elections in 2006 is already intense.

Without Ortega, a debacle?On the FSLN side, Daniel Ortega threw his hat in the ring—yet again—on May 18 with a “royal we”: “With the candidacy of Daniel Ortega (sic), the Sandinista Front has been rebuilding itself from the bottom up… What we have accumulated through Daniel’s candidacies cannot be tossed aside, because it would mean a debacle.”

Hand in hand with this arrogance is a “scorched earth” policy toward any challenger. Ortega and his wife Rosario Murrillo, backed up by their media, launched broadsides against Managua mayor Herty Lewites (also a Sandinista) in which Murillo accused him of a lack of ethics in a long and biting diatribe and Ortega backed her up in his own, more measured declarations. The unethical behavior they attribute to Lewites is nothing worse than his versatility in alliances and his non-confrontational style, precisely the essence of the FSLN’s “tercerista” current from which the Ortega brothers arose in the late seventies. Their real fear is the mayor’s popularity, and thus the challenge he represents to Ortega’s obfuscation.

The GUL transmutesThe most notable development on the anti-Sandinista side is that the pro-Bolaños Liberals threw in the towel on their government born and bred project to create a Liberal party without Alemán, which in its brief and never legally registered time on earth was called the Grand Liberal Union (GUL). In its place, they created another project, the Alliance for the Republic (APRE), made up of various groupings of independent Liberals, what’s left of the age-old Conservative Party, the National Unity Movement (MUN) founded by retired Army General Joaquín Cuadra in 2001 and other sectors. In honor of its varied membership, its flag is made of up three vertical bands: red for the Liberals, green for the Conservatives and the blue of the national flag. It presents itself as the final coming of the “third force” that will break the monopoly of the caudillos. Like the GUL, this new transmutation is enjoying President Bolaños’ full and active support.

The FSLN applauded the new alliance in the name of “pluralism,” but the real reason for its delight is that the division of the country’s anti-Sandinista forces into two options obviously favors it at the ballot box. And thanks to the FSLN’s control of the judicial branch, that division can be guaranteed throughout this pre-election period by keeping Alemán behind bars. Nothing could feed Ortega’s messianic tendencies more.

If the division lasts beyond the municipal elections, we can expect extraordinary pressure from the US Embassy to fuse the anti-Sandinistas into a single political offering. By that time, a PLC unable to finance itself with its chief extortionist in prison and its former treasure chest—the government—now in Bolaños’ hands will be more inclined to negotiate some kind of agreement with the APRE.

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