Nicaragua

Economic Reform: Taking It to the Streets

Envío team

Ten years after the anti-Somocista insurrections of 1978, Nicaragua has begun what could become an economic insurrection with a truly grassroots quality.

Economic readjustments are normally made by governments against workers—freezing salaries, raising prices and cutting back social services. In Nicaragua the working class has paid such a high price for defending its country and maintaining economic life in the face of prolonged aggression that it has begun to identify the national economy as "its own," despite the hard times. It is within this assumption of political and ideological awareness—a fundamental result of the revolutionary process of national liberation—that a new economic program could begin to acquire the characteristics of an economic insurrection. Instead of being a "package" imposed on working people, the program appears to have a guerrilla style, and to be managed by the people themselves.

With a dialectic similar to that of the 1978 political insurrections, people are now starting to make giant leaps of understanding in the economic field. They are discovering the great obstacles that need to be overcome and the tasks that must be undertaken to recover from the economic crisis.

Just in the first month of the new program there were three distinct phases to this discovery process:
1) Week one: Monetary reform, currency changeover and public mobilization against speculation in the markets.
2) Weeks two and three: Institutional reform and public awareness of the need for widespread public action to confront inflationary expectations.
3) Week four: Mobilization for efficient production.

The Nicaraguan economic crisis is more acute than the crises that have disrupted the Mexican, Brazilian and Argentine economies during the eighties. The adjustment policies in those countries have had little success, and at the time of implementing them they did not confront the constellation of problems Nicaragua faces. Here, the challenge is how to carry out the drastic measures necessary to avoid the collapse of the monetary system in the middle of a war, while also completely restructuring he ministries of state, without additional external resources and now with the full political and diplomatic commitment to quickly negotiate a cease-fire with the counterrevolutionaries. The only response to a challenge of such magnitude is a grassroots economic insurrection.

Faced with such enormous objective limitations, the only economic strategy possible is to use the new political space to respond with a popular movement, thus imitating the tactics employed in 1978 to confront the dictatorship. But mobilizing people against an economic enemy is more difficult than the struggle against Somocismo. It is a matter of confronting the forces that act against the grassroots project and, even more complex, struggling against "the enemy within."

A bold and unorthodox package

Unreal prices and inflation

Phase 1: The old córdoba stops here

A mass movement against speculation

If it was so beneficial, why wasn’t it done earlier?

Phase 2: Belt-tightening

Government "compaction"

An austere and agile state

Public understanding grows

Integrated social control

“We've reactivated the network of grassroots inspectors to work against speculators and are implementing a series of social control measures. We've been making efforts to obtain products. We've contracted to buy 5 tons of rice and a truckload of maize from a producer in Jalapa, Rufo Amador. Also through the owner of the expendio [local store supplying rationed basic goods] we’re buying beans and bananas in other parts of the country."

Responding to public pressure, MICOIN Minister Ramón Cabrales indicated that the public should replace his ministry and that Sandinista Defense Committees in the grassroots neighborhoods can act like the workers who are responsible for the factory commissaries. “For example, they can negotiate with someone who has a truck for hire and use it to seek products to improve supplies to the expendio in the neighborhood.”

For its part, the National Union of Farmers and Cattle Ranchers (UNAG) has begun to mobilize its members—small and medium private producers—in a national effort to open peasant’s stores in all towns so producers could sell directly to the public and thus eliminate speculation. UNAG president Daniel Núñez described other necessary elements for social control to function over production:

“In Nicaragua there’s free trade in basic grains. As such, the owner of an expendio is perfectly able to go and buy the production from a peasant. It’s a method of social control against speculation. At times I think we’re attacking the ants and letting the elephants go by. Officials of the National Perishable Products Company, who have never had discussions with the wife of an onion grower and know nothing about onions, come imposing prices that have nothing to do with reality.”

It would obviously be impossible to use policy measures to control all competitive production of basic grains, vegetables and other products. But the public has been discovering that there are social control mechanisms to eliminate inefficiencies and injustices in the distribution channels.

The major problem, as Núñez says, is with the "elephants" of the market—that small number of businesses that have controlling shares of sectors of the Nicaraguan economy.

At the end of the second week of the measures, a new concept of social control had been defined, clarified and taken up in a more pragmatic and broad manner by the people than by the leaders themselves. Their mobilization against retail merchants also took on the speculation that exists behind the closed doors of the productive enterprises and even began developing control over all the production and distribution channels, not just the final link in the chain.

The Secretary General of the Farmworkers’ Association (ATC), Edgardo García, explained clearly this new sense of social control:

“The first task of the unions is to resist the bribery of employers, who tell them their salaries will improve if they sell the products to the merchant. To make this task widespread, it’s fundamental to understand that things have to go through secure channels for them as workers. Some real work has to be done to contain the speculators, not letting products slip out of the warehouse or work center and get to them.”

The possibility exists for a joint effort of workers and administrators to right the economy, as can be appreciated in the views of Hugo Veliz, director of a textile enterprise: “Some businesses allege that rising prices are a way of making inflation a social cost. They consciously adapt that price mechanism to compensate for inefficiency. I think that the state can't be too considerate with these administrators. They should be removed. In summary, I believe it's necessary to be tough not only with the speculators but also with those who don't fulfill their responsibility to produce at lower costs in order to offer better prices.”

Speculation linked to inertial inflation

Behind the process of discovering of a more integral form of social control along the entire chain of production and distribution was a confrontation with a whole style of economic administration. In such situations the logic was to some degree contaminated by the dynamic of inertial inflation, where agents increased their price calculating that if they didn’t they would perish at the hands of the other agents in the chain.

Faced with the new measures, producers will be tempted by “inflationary expectations” to raise their prices to recover the subsidies lost with the unifying of the exchange rates, merchants will be tempted to raise their prices to be able to buy the goods that will be more expensive every time they come from the productive sector, and consumers, having to pay the price merchants ask, will be tempted to demand higher salaries from their employers, who will thus be tempted to pass the new costs on to the merchant and the consumer. Within this spiral of inertial inflation, nobody wants to lose, all think the other will fall into temptation first and all defend what is theirs. In the end all lose because production drops with each round of the spiral.

Inertial inflation is always a reflection of the class struggle. In Nicaragua it also reflects US military aggression against the people, one of the principal objectives of which is to cripple the economy and open deep divisions within the society in order to destabilize the revolutionary government.

The institutional reforms are intended to attack the style of economic administration based on inertial inflation. Its principal goal is to economically unify Nicaraguan society in the face of the US aims. The people took up ethic announced by Daniel Ortega to launch the governmental belt-tightening. As a settler from La Herrera neighborhood said, repeating the President’s idea, “Everybody has to be measured with the same ruler.”

A Barricada editorial of March 10 put in sharp relief what the President had called “a qualitative readjustment of government” and the need for the government to set the standard with a new administrative style that targeted inflation.

The artificially inflated setting of costs—and thus of prices—by companies, the irrational use of credit and imports and profiteering from the tangle of exchange rates all reflect a period, or a style of doing things given a concrete situation. It would be worrying if the private entrepreneur, the state administrator or the union leader didn’t realize that for the monetary reform to be effective in correcting the economy's distortions, a real change in approach is needed.

The state must set the standard

Nothing is more difficult—even though the objective conditions of the political economy offer better conditions now—than transforming consciousness and getting people to abandon habits and attitudes they have acquired as managers. The government compaction thus has a sine qua non requirement: the state plus the men and women who are its front line must provide leadership in new behavior.

No company can continue to be profitable in any way other than increasing production or reducing costs.... That is the challenge implicit in the execution of the government compaction and it’s not out of line to point out that along with good will there should also be stringent controls to guarantee discipline.

The Nicaraguan state must set the standard and has been doing so in its actions during the first weeks of the new program. Nonetheless, while the war goes on, the power to stop inflation rests not in the government’s hands but in the people’s. It is because of this that the beginnings of a leap in the public’s economic consciousness has been so crucial. The success of the government's new economic program depends in great measure on its dissemination and consolidation among the bulk of the Nicaraguan people.

Phase 3: More production, more taxes

The great danger in applying such unorthodox economic shock therapy is the possibility that the measures may produce a production recession, that after cutting liquidity so drastically, it may not be possible to reintroduce what the productive sector needs to restart its work. It should be noted that the paralysis caused by the monetary reform was preceded by months of productive stagnation resulting from the December vacations, the petroleum crisis (and in turn the energy crisis), and the resultant closing down of factories in December, January, and February.

The danger of a recession is a by-product of a drop in demand. There are indications of such a drop because people simply don’t have enough money to buy the products at the high prices that result from the proportion of imported materials needed to produce them. The 320% increase in the price of medicines brought a marked drop in pharmacy sales, especially as it coincided with the time when all families had to buy supplies for their children at the beginning of the school year.

In any competitive economic sector, it is necessary to increase efficiency when demand falls so as to sell for less than the competition. When a few big businesses control more than 60% of a market, on the other hand, a situation of oligopoly power exists, and such a group of businesses can manipulate the market instead of responding to its demands. There is thus a danger that these measures, instead of encouraging production by lowering demand, may just lead to a cut in production in the non-competitive sectors. There is concern, for example, that chicken production might fall because a high proportion of urban consumption comes from only a few producers. At current prices, eggs are not being sold and chickens are left in the markets.

The government had barely launched phase two when it set out on the third and decisive phase of implementing its new program: the battle to increase the availability of basic goods in the short term. The problem with the third phase is that there was no unanimity about how to begin. The changing of the country's money had paralyzed the economy, so the producers were demanding liquidity. According to them, the next step should be to immediately begin a program of releasing credits, thus enabling production.

According to the financial sector, which had been bled for years by the productive sector’s inefficiency, such liquidity would only cause more inflation and what was needed was the application of strict limits on liquidity so that producers would be required to sell their inventory immediately to get it. For the financial sector, the only way to increase production was a recession, which would force economic restructuring and greater efficiency in production.

This analysis, which would deal with the productive sector's inefficiency in one hard blow, was hotly debated in the months leading up to the monetary reform, as were the reasons for the economic recession since 1984. At its core, the financial sector's recipe was, “Accept a recession in order to put the country's finances on a sound footing and reestablish fundamental equilibrium.” But doing this required either maintaining the key prices set by the government at the time of the monetary reform, or devaluing the currency more, at the same rhythm as the erosion produced in the new price and salary scheme.

By the beginning of April, there were already theoretical discussions about whether the financial sector could have maintained the key prices scheme by pacifying the demands of the productive sector for higher prices with a large and rapid injection of capital. It had been decided to stanch the credit flow and give way in the price scheme, under threat from the first days of the new economic package.

Any economic readjustment of such a profound nature was bound to provoke a period of price instability and then a period while the market settled. In our case, price instability was worse than normal because the state went back to discussions and administrative price fixing with the productive sector—most importantly with the few very large rice and sugar producers and the big dairies in the Pacific.

For Comandante Leticia Herrera, then head of the national Sandinista Defense Committees and responsible for their mobilization to maintain the prices fixed by the government, it was frustrating that the government itself was now beginning to negotiate those prices with the producers. “A single body is needed,” she said, “to define and regulate prices, because people really lose confidence when people shoot off in different directions.”

It is obvious that no one could control prices in the competitive produce or basic grain sectors. The oligopolies presented the real problem, which was how to apply the controls necessary to force them to become more efficient.

But before analyzing the problem of the productive sector and the price scheme, it’s necessary to review the failed attempt of the rightwing political parties and unions to break the salary scheme in the face of the revolution's commitment to the working class.

Salaries and worker consciousness

Workers enthusiastically supported the measures, with the exception of some groups that had higher salaries than others because they worked in areas that serviced the wealthier classes. Among them were waiters, with their obligatory 10% tips, who earned more in two hours than some other workers earned in an entire month. Or the workers in car repair shops where, because of hyperinflation, car owners had grown used to paying whatever they were asked. Construction workers also got much higher salaries than workers in other industries because of the pressures of military construction and long-term investment projects, which were much higher than this sector’s human and material costs. The groups where there was the most conflict were the “labor aristocracy,” who lived off the inflation that was suffocating the rest of Nicaragua's workers, and who fell into the trap of defending their privileges, encouraged by the opposition political parties and their unions. These groups' protests fell on the deaf ears of a wider working class, which not only supported the measures but rejected the pro-US policies and opportunism of these opposition groups more than ever.

Although the measures included a hefty wage increase of some 400%, they eliminated a whole series of incentives that had been growing during 1986 and 1987 and averaged 90% more than the basic wage in the productive sector and 40% in the non-productive sector. Table I shows that although the effective rise in base wages in the productive sector was less than 400%, this was a great relief for the working class. Bearing in mind the total wage, including incentives, the effective rise for workers was only about 200%.



Although the wages of the productive sector are still higher than those of the non-productive sector, the table shows that in the new economic package, the improvements in non-productive wages were actually greater than productive sector wages.

As can be seen, the wage scale, which previously had a range of eight times between the bottom wage and the top one, was liberalized in favor of the higher range. There is now a difference of 15.1 times between the top and bottom wages.

Raising wages was necessary not only in human terms, but also in economic terms. The distortion in the balance between wages in the formal sector and prices meant a permanent temptation for workers to move to the informal sector, a temptation particularly strong for professionals. Workers at the top end of the scale who left the formal sector began selling their services at inflated prices to that same formal sector, but now as free agents in their informal mini-establishments. It was to avoid that dangerous phenomenon that the differential in wages and salaries was increased.

According to the projections, the new average urban salary of 2,562 córdobas (level 16) will buy the basic basket of goods, which includes some 46 products. Additionally, it is calculated that there are an average of 2.2 workers per family, which means that those in the middle ranges have enough income to consume much more than the basic basket of goods.

But those same calculations indicate that the maximum basic wage for a worker (level 9) will only buy about 60% of the basic basket. Table II shows the serious subsistence problems and there is likely to be no solution to the crisis for several years.



Although all the political polls—as well as the inability of the contras or the rightwing political parties to establish a political base—indicate that the Nicaraguan people believe that the revolution is the only road for Nicaragua, the economic crisis demanded an improvement in the wage-price relationship. Workers pressured for and won the retention of their incentives and extras, although only in the productive area. With that step, the income of workers and technicians in the productive sphere were increased some 30%. At the same time, the labor minister announced that “all substantial movements in prices will be accompanied by a movement in wages. Workers should be confident that adjustments will be made when they are necessary.”

Two days before the labor minister's statement, 500 representatives from the Sandinista mass organizations signed a document titled “Pronouncement of the Fundamental Forces of the Revolution: Defense and the Economy Are a Single Concept for Survival.”

That document sets out the main feature of today's situation: the most fundamental revolutionary social forces are once again concentrating their attention not only on the military-political struggle but also on a new mobilization that integrates defense and the economy. The document confidently states:

“The concentration of large economic problems does not frighten us; we are certain that we can resolve them, no matter how tense the situation becomes.

“In today's situation, without renouncing what is possible, workers’ economic demands are deferred, and the economy becomes survival to fulfill the tasks of military defense, because military and economic defense are one single concept.”

Table III shows that the purchasing power of wages rose substantially with February's measures. But it also shows that the 113% inflation in the cost of the basic market basket seriously reduced this purchasing power the following month. (Increases of 205% in grains, 18% in meat, 8% in dairy products and eggs, 146% in perishables, 73% in cereals, 78% in household goods and 209% in clothing, gave an average inflation of 113% in the minimum market basket during the first month after the monetary reform.) By March 23, the perceptible improvements for workers had been eroded, leaving the real purchasing power of wages even lower than in December 1987. After the first month, any effect of the magic wand had disappeared .



The effect on wages has come less from speculation (well controlled by the popular movement) than from production shortages and the business forces that pressed for higher prices.

Prices and business pressures

The reaction of the Chamber of Commerce and UPANIC, the large cattle growers' association, both organized in COSEP, was to wait. Their politics led them to make absurd economic statements, like saying that the monetary reforms decapitalized them, or that the measures constituted a “checkmate on producers, a step which will end up decapitalizing us.” "

In spite of compensatory salary rises, any big devaluation or monetary reform that eliminates liquidity is a measure that weakens the working class’ economic power, reducing the value of its work, and increasing the value of the capital of the employers, whoever they may be. In an editorial, Barricada responded soberly to COSEP’s statements: “If the monetary reform has any political intention, it is to strengthen the mixed economy in this country.”

After repeating that the measures would do nothing to halt inflation, Dr. Manuel Callejas, head of UPANIC, prescribed what the politicized business sector saw as the only effective medicine for the Nicaraguan economy: “We've said it several times; the solution is for the state to return everything to private hands so the country can improve, because we have produced better than they can..”

Although the private sector’s efficiency might be potentially better than the state sector, in reality it has been far below that of the peasants and small producers and, even more crucial, it has been much worse than other private producers in Central America. “The benefits and the marvels of free enterprise have been nothing more than rhetoric. They haven’t predicated their statements on the example of their own experience,” Roberto Larios, Barricada analyst, said of Nicaraguan entrepreneurs. Precisely because of its inefficiency, the business sector moaned about the new economic measures because they require more efficiency and require that the companies live without the state subsidies of which they are so critical.

The reality is that immediately after the measures, businesspeople, especially those from the highly concentrated parts of the economy, went running to the government asking for handouts. According to Barricada of February 26, one of the cattle associations asked for $4.54 per pound of beef on the hoof in response to the $1.45 offer from the Agrarian Reform Ministry (MIDINRA)—even when the international price is only $0.85 and Honduran ranchers find it profitable to export at that price. At the end of the negotiations, the price paid to the rancher for a pound of beef was fixed at 22.50 córdobas, or $2.25. The price set for exports is only 9.09 córdobas, or $0.91. In this situation, there’s no incentive to export, yet exports are one of the principal aims of the measures. In the last six years, according to MIDINRA’s statistics, meat exports have fallen 49%, while the sales of meat within the country have risen by 89%.

While the state pays 10 córdobas per dollar for exported meat, it pays 22.50 c6rdobas per dollar for meat to the domestic market. That means that instead of officially devaluing the currency, a subsidiary has been given to the producer, undermining the key exchange rate that was supposed to act to improve the distortions in relative prices. This means that the state export operation, which has contractual obligations to sell 15 million pounds of beef to countries such as Canada, is demanding more subsidies to balance the losses incurred by not selling those 15 million pounds in the domestic market.

What happened with the cattle ranchers happened with the rest of the producer associations from the heavily concentrated areas of the economy. According to Barricada, the dairy farmers of the Pacific basin wanted 25 córdobas per liter of milk, when MIDINRA was offering them 10 based on the average production cost of the peasants in Matagalpa (8.50 per liter) and the big producers of the Pacific (12 per liter). In the end, the price was set at 13.85 córdobas per liter.

No industry demonstrates the paradoxes of the Nicaraguan economy more clearly than milk, where the peasant forms of production are much more efficient, rational and appropriate for the country's situation than are those of the big concentrated producers of the Pacific who depend on imports. In fact, the modernization of dairy production means that the people will be able to consume less and less milk, as the international recession obliges Nicaragua to devalue its currency more and charge producers more for their imports. In this context, the most technologically advanced forms of production become the most regressive in social and economic terms.

On March 10, with 150 tons of rice stored in the warehouses of the 50 big rice producers and a major shortage of rice in the country's markets, Mario Hanon, president of the National Association of Rice Producers, demanded “realistic prices,” asking MIDINRA for 10 córdobas per pound, even though the rice in the warehouses had cost those 50 producers only 3,500 old córdobas (3.5 new) a pound to produce. The next day, the new price of 6 córdobas per pound was announced, giving the growers profits of more than 70%.

The rice sector’s inefficiency can be judged by the international rice price. Nicaragua would be able to import rice for US$0.14 per pound, or 1.4 córdobas per pound. The central problem is the exaggerated and inefficient use of imported inputs by the big rice producers. They are now using airplanes for virtually all their work. Planting, fertilizing and insecticide applications are all done from planes. They used to use planes much less and were more careful in their use of agricultural chemicals. The imported component of rice production costs was 42% in 1982 and is now 64%. When it’s much cheaper to import than to produce domestically, the problem isn’t the free market but paternalism toward big producers. The implicit exchange rate being offered to the rice producers is actually 42.3 córdobas to the dollar.

For their part, the peasants who produce rice without irrigation do it for 30% lower costs per hundredweight than the high-tech rice producers. The best way to discipline an oligopoly is to expose it to the competition of domestic producers who are much more numerous but much less powerful, and less interested than the big producers in reaping extraordinary profits.

In the same way, the over-technification and inefficiency of the sugar sector has meant that the state has caved in to the producers, accepting an implicit exchange rate of 50 córdobas to the dollar, as compared with the official 10 to 1 rate, thus provoking more inflation.

One of the strongest tensions between the financial and productive sectors is over the use of technology. The financial sector wants to reduce dependency on excessive agro-chemicals and reduce the credit flow to the productive sector by some 30% during 1988 in order to rationalize production. The sorghum growers were one of the few highly-concentrated groups who, after reviewing their technological needs, admitted that the state hadn’t exaggerated its official calculations of imported inputs for that category.

In agroexports, the coffee growers who use fewer imports accepted the new prices without protest, with the exception of the most politicized groups, who tried to blame the government for weather problems and problems caused by the war. Unlike the coffee growers, the cotton growers, whose technology level makes them extremely dependent on imports, are having to move to exporting sesame seeds, now that the production costs per quintal of cotton are about $150, while the value of cotton on the world market is only $64.

Peasants and small producers

The peasants have been dealt a hard blow by the economic measures. Like the working class, peasants own their own labor power but not capital, which can increase in value in a currency devaluation. Unlike the workers, they didn’t get a big rise in their wages because the reform took place as the coffee and cotton harvests were finishing, and before planting began. The prices of all household goods, and even more so of productive inputs, rose just when the peasants had nothing in their barns to sell. All of UNAG's “Peasant Stores,” just like the peasants themselves, were without liquidity to prepare for the new planting cycle.

Peasants sold their corn for 50,000 old córdobas per quintal in 1987. Now the state's warehouses have a million quintals, worth more than 150 new córdobas per quintal. That means that the revaluing of capital produced by the currency devaluation gave the state a 200% profit, some 100 million new córdobas.

The peasants from the wettest part of the country who have beans to sell faced official buying prices of 450 córdobas per quintal, some 50% less than prices in December last year. The attempt to control bean prices created a black market where there shouldn't be one because the sale of beans by peasants has been defined as free. The black market price went up to 1,500 córdobas per quintal. Obviously, peasants were not selling beans to the state, the supply of beans has fallen and the consumer is paying very high prices for this basic food. Only importing beans can maintain the official price to the consumer, and this will have the disadvantage of discouraging peasant bean producers, especially in the areas of Region V, where the contras operate. It would also increase Nicaragua's dependence in the area of basic foods.

Attempts to administratively control the prices of peasant products may actually damage urban workers' interests rather than benefit them. The consolidation of the worker-peasant alliance depends above all on producing more. That in turn depends on their being to compete in the market against those classes that are much better off. The power of the workers and peasants to compete should increase when the market of the oligopolies is regulated and production is encouraged among the small competitive activities of the peasants and artisans.

Workers, peasants, economic dignity

In Nicaragua, the problem with the concentrations of big producers is not their swollen or unjust profits but their production inefficiency and their continued dependence on state and foreign subsidies. In a country where unions have renewed their negotiating capacity and business income taxes are 70% of profits, it can be said that the battle against wealth has been won. Additionally, the profit taxes are levied much more on the large concentrated companies than on small competitive producers.

The problem, then, is not of profits and accumulation, but of inefficiency in the concentrated sectors, be they public or private. The inefficiency has spread to small producers, peasants and much of the working class. The war has meant that the rebuilding of national political dignity has not been matched by a revolution in the productive culture. In this sense, the revolutionary state, and the FSLN, has to recover the time lost to the war by emphasizing the mechanisms and spirit necessary for the entire society to take up the challenge of creating a culture of production and equality, where those who work eat and those who work more eat more.

The third phase of the economic package became a battle against the inherited logic of subsidy, consumption and inefficiency; an effort to create national economic dignity. Despite such a notable economic mobilization in the first and second phases of implementing the new measures, the workers' economic insurrection now faces a very difficult situation. The enthusiasm and mobilization could disappear because the efforts of the masses to control prices only functioned halfway. As Table III above shows, inflation continued spiraling, reaching 113% in the first five weeks after the monetary reform.

With the February 14 devaluation, which increased the cost of imported inputs by some 3,000%, it was completely impossible to control the inflation rate. According to technical calculations, in an economy where a third of the GDP is dependent on imported goods, the rise in those prices would have to produce inflation of at least 1,000% during 1988. Additionally, inflation in the sectors most dependent upon foreign technology would spread to other sectors that have a smaller imported content.

Why risk disillusioning people by embarking on a mobilization whose aims can never be met? The answer is that there was very little maneuvering room to improve the economy so people had to be mobilized, come what may. And the easiest target was the speculative sector. The fundamental objective of the popular mobilization was to involve the FSLN's activists and all the Nicaraguan people more directly in the management of the economy. The new economic measures were a happening: the dice were thrown, with confidence in the people’s ability to turn risk into success.

Given the failed attempt to control speculation and inflation even in the official prices, the people’s awakening came along with the first signs of disillusionment, a new and ever clearer piousness that their well-being depends more on their own ability to raise production than on anything else. The mobilization for social control in factories carried within it the germ of a growing socialist consciousness that it is workers who are responsible for the administration of the economy.

But there’s not much room to maneuver in the battle to increase production either. Workers, peasants and those in the informal sector have their work cut out. On the one hand, the working class is being asked to strictly discipline the enterprises in the heavily concentrated sectors, both state and private, where the use of illegal imports and high levels of inefficiency generate much more inflation than the producers in the competitive sector. On the other hand, the peasants, the medium-scale agricultural producers and the urban workers in all industries and informal production have to mobilize to occupy a more dominant position, using resources previously committed to the longer-term projects in the state sector.

Worker action

In businesses like Sacos Macen, the state-owned agricultural sacking manufacturer, the administration is working with the staff to control speculation and fill the role played by the speculators. The workers are creating their own repair shops to maintain equipment, repair vehicles and do construction—activities previously contracted out to workers in the informal sector at exorbitant rates. The elimination of this parasitic speculative sector will reduce the costs of production in industry. In the same way there will be a decision to increase exports and use the earnings to import raw materials without recourse to the cross-border traders.

In this and other industries, all these efforts to reduce costs, relocate people and eliminate extra overtime have arisen with a lot of participation from the workers in economic management. The consolidation of the mobilization depends on policies that put the productive sector before the administrative sector—linking salary increases to increases in production.

Peasant action

One of the more effective mechanisms in the second phase of implementing the new measures has been the policy to control intermediaries through growing direct contact between the basic goods outlets in the grassroots neighborhoods, factories and small and medium-scale agricultural producers. Leaders of the CDS and the factory commissaries have increased their efforts to obtain the transport needed to buy direct from the countryside, while UNAG is promoting the establishment of peasant stores throughout the country where producers can sell direct to the public.

In this effort, increased production must be assured together with the elimination of speculation. The buyer who speculates with peasants’ products normally carries products in his truck to sell to the peasants, also at speculative prices. It is preferable for the peasant as for the urban artisan to reduce speculation without also reducing the supply of goods needed for production. This means that the danger of a productive recession does not come from demand in the competitive productive sphere of the peasant and workers in informal manufacturing, as happens in the heavily concentrated sectors, but from the supply side.

The acute shortage of productive inputs for peasants means that the costs of production go up and thus urban consumer prices rise, as would happen with any producer. But it has another, worse effect: peasants no longer send their products to market, reverting instead to a mere subsistence economy.

An important aspect of the state compaction has been a sharpening up of the institutions that service the peasants and the informal productive sector in the cities. Those grassroots productive sectors include more than 60% of the national work force and produce 35% of the GDP. There are economic as well as political reasons for the government to handle this great force better, as US aggression is changing from military to political, with the opposition to the revolution centering its efforts on protests against the government's economic management.

Mobilization of the worker-peasant alliance depends on resources more than slogans. The only space for advance in this sense is found in the creative transformation of investments, which last year represented 20% of Nicaragua's GDP. The great majority of past investment has been dedicated to creating a new, technologically more advanced sector in the Nicaraguan economy. The solution in the current period, decisive for ending the war and overcoming the economic crisis, is to postpone those investments for a long time while dedicating the resources to the simple reproduction of the economy, guaranteeing basic needs and the alliance of the grassroots majority. On February 20, President Daniel Ortega announced the need to “rationalize investments,” because the current level could not produce concrete benefits in the next two years, during which priority must be given to a survival economy.

Nicaragua still does not have a strategy for building a survival economy. Rather, it has experienced a serious economic decline, as much from the war as from an investment plan that didn’t permit the mobilization of the worker-peasant alliance. Survival doesn’t mean ceasing to invest; it means redirecting and transforming those investments that have long lead times before maturity, putting those resources in the hands of peasants and small and medium urban and rural producers. It means a program of grassroots economic mobilization in the short run and an immediate expansion in production by the grassroots sectors. It means a return to carefully maintaining the country’s existing plant and infrastructure and simple reproduction of the economy.

This transformation of investment will require enormous creativity. It means first assuring that bank credits are really directed to the peasants and competitive producers of the city and the countryside. Second, there will have to be guarantees that the new profits the state made from revaluing corn, and above all from revaluing and selling imported inputs during April and May, get channeled in the last third of the year to the grassroots sectors more than to the state or the concentrated oligopoly sectors. Third, there will have to be renegotiations of bilateral investment loans for projects with long maturation times, adjusting them to the crisis the country is living through, and at the same time making good use of the resources made available by the special Central American development projects of the EEC, the UN and the group of Latin American Presidents who met in Acapulco.

In the first month of the new measures, the economic mobilization strengthened military and political mobilizations. It was true, as the revolution’s fundamental forces said in their March 10th pronouncement, that the people's economic insurrection and the defense of the country represent “one single concept for survival.” Nevertheless, material obstacles and government economic policies remain to be resolved in order to sustain that mobilization and get results.

If on the one hand there are clear signs that the country has never been nearer to consolidating a survival economy, on the other there are indications that, in the third and crucial phase of the program, the state lacks the agility and management ability needed to back the grassroots mobilization awakened by the revolution with economic resources.

The first month indicates that the future of the new economic package will depend on the same dynamic of the grassroots process and on the state’s ability to allow itself to be transformed in the process.

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