Nicaragua
A Survival Economy
Envío team
“Depressed economic conditions in Nicaragua were, of course, due to disastrous economic policies adopted by the Sandinistas and not to any actions by the US.” This assertion was made by the National Security Council (NSC) in a May 18, 1985, memorandum, “Nicaragua Sanctions: Sandinista Responsibility for Their Economic Failures.” In this report on the US economic embargo, the NSC tries to prove this claim, optimistically suggesting that the Nicaraguan economic crisis is at the point of causing a crisis in the Sandinista government and will quickly lead to its overthrow.
The economic crisis in Nicaragua is unquestionably severe, but the country is surmounting in through the consolidation of a “survival economy.” How can this poor, small country survive under the constant harassment of the most powerful country on earth?
Passing observers will notice the shortages of consumer goods in Nicaragua and the deteriorating urban infrastructure. They will hear the people’s complaints about the doubling of prices this year, the lack of basic foodstuffs, the low salaries (often not enough to cover half of the family budget) and the poor transportation, which makes a trip to the market or to work a daily odyssey. Such observers, noticing all this, may arrive at same false conclusions. What in other countries causes massive street demonstrations answered by government repression, in Nicaragua causes only normal, everyday discontent.
Popular uprisings have not occurred in Nicaragua, even when the counterrevolutionaries are able to occupy isolated mountain communities for a few hours. The Reagan administration, in its anti-Sandinista propaganda and its analysis of the current situation in Nicaragua, promotes the image of an impoverished, subjugated and harassed people, on the verge of rising up against the Sandinistas. This image, however, is repeatedly brought into question by the national reality. The internal anti-Sandinista front the Reagan administration wants to create through the economic crisis is prevented from developing by the many legal channels for dissent. Workers’ organizations air their complaints about high prices and low salaries daily, although they do not tend to place the blame for the material shortages on the revolution. Rather than translate into paralysis or violence, discontent is translated into an astute search for effective means of survival.
The opposition parties ridicule the government for the economic hard times, but they are incapable of rallying significant political support from the majority of the country’s social sectors. Why is this? Nicaragua has learned how to survive US aggression and the Nicaragua economy is on the road to survival. In bold strokes, we will present some of the characteristics of this paradoxically simple and complex situation.
The war: The Nicaraguan economy’s principal problemBefore analyzing how Nicaragua has managed to survive, it is worth looking at how the US government has tried to destroy it. Since 1981 the Reagan administration has sought the military overthrow of the Sandinista government. Unable to achieve significant military advances through the counterrevolutionary forces, and lacking the necessary political conditions internationally and domestically for direct intervention, the administration has nonetheless continued to opt for a military solution rather than a political one. As many proponents of the so-called “low intensity war” concept argue, the objective of military activity in Nicaragua has been to make conditions so difficult that the population will rise up against the Sandinistas as they did against Somoza. The concept is problematic on two counts, however. One is that it has the propagandistic effect internationally of minimizing the seriousness of the situation; the Nicaraguan people do not call the war that has shattered their dream of finally improving their lives “low intensity.” The other is that it is presented as if it were an “alternative” to direct intervention by US troops.
Nicaraguan analysts argue, on the other hand, that direct invasions are always preceded by low intensity war, and that Nicaragua is in reality suffering an intervention by stages. The final stage—the overthrow of the revolutionary government, by whatever means necessary—has thus far been frustrated. Given that the destruction caused by the counterrevolution, the commercial embargo and the financial blockade have not had the effect of turning the population against the revolution, the Reagan strategists are preparing the terrain for an eventual direct intervention, when conditions permit. Some of his analysts appear to believe that these conditions are knocking at the door.
To reiterate, this has not been a war of low intensity for Nicaragua. The cost of the war has been enormous. This September, in its case before the World Court at the Hague, Nicaragua asked for compensation from the US for damages totaling US$372 million in direct losses and $1.3 billion in indirect losses, a conservative estimate. The sum of these two figures is approximately equal to total export earning over the last four years.
The NSC, a good soldier in the Reagan administration’s “war of images,” is trying to prove that the deteriorating Nicaraguan economy is exclusively due to the Sandinista government’s mistaken economic policies, a desire to nationalize all goods and services, and the mismanagement of finances. Needles to say, war and destruction have profoundly altered the Nicaraguan economy. In a country where both production and consumption are highly dependent on imports, per capita income fell by 10% between 1983 and 1985. The availability of manufactured products per family is a little more than half of what it was five years ago. The national per capita income, after the 1972 earthquake, the 1979 insurrection, the floods and subsequent drought of 1982, and the US backed contra war, has dropped to what it was 20 years ago. In that same period of time, Nicaragua’s population has doubled.
In light of these complex and interrelated factors, the Nicaragua revolution is confronting dramatic challenges. How will the government distribute goods, in increasingly short supply due to uncontrollable external factors, without affecting either social consensus or its project of national unity? How can it administer shortages and at the same time consolidate a system of political pluralism with periodic elections and effective government? How can it reorganize production from the starting point of a backward, underdeveloped economy, dependent on the exterior, in the midst of a war with a strong component of economic strangulation? How can the government assure that the private sector, which is the predominate owner of the means of production, transportation and commerce, prioritize the interest of the majority and not fall prey to black marketeering and speculation?
Social transformation requires the reorganization of production before it can be strengthened, initially resulting in a reduction in efficiency. It also requires the implementation of creative economic policies in response to the US aggression and the international economic crisis. This challenging and difficult experience has produced unexpected results, and has led to ongoing internal debate than is an essential part of the revolution’s learning process.
Paradoxically, Nicaragua has been able to withstand the present US aggression, which would have devastated another type of economy, in part because of the particular kind of underdevelopment inherited from Somoza. At this critical juncture, Nicaragua is fortunate to be a country based in agriculture, with a relatively small population and an abundance of arable land. Although the basic Nicaraguan diet may not meet prescribed daily requirements, there is always enough to eat. The majority of the country’s food supply is produced on small parcels of land worked by peasant farmers using traditional methods, and has not been affected by the lack of foreign exchange or the war. With this guaranteed basic food supply and a guaranteed supply of oil from the Soviet Union and Mexico, Nicaragua has the bare minimum necessary for survival. It is capable of withstanding the present type of military aggression for an indefinite period of time. Naturally, a direct intervention would be another matter.
The NSC has accumulated experience in destabilizing third world economies, using the same measures it is now applying to Nicaragua: refusing bilateral economic assistance, vetoing multilateral loans, providing increased military assistance to the armed opposition, cutting access to spare parts, etc. However, in contrast to the more diversified, externally dependent and, therefore, more vulnerable economies like that of Chile, brought to its knees by the US during the Allende period (1970-73), Nicaragua has a very simple agroexport economy. It does not have an industrial sector independent of the agricultural sector. Nicaragua’s small industry is primarily agroprocessing and is therefore capable of producing year after year with a bare minimum of foreign exchange. Until now, Nicaragua has been able to attain enough foreign exchange to keep the essential economic structures producing. The aid Nicaragua receives from other countries is no more than “a drop in the bucket,” symbolizing their disapproval of the Reagan administration’s policies. For Nicaragua, however, those drops are enough to keep its resistant, survivalist economy running.
In this survivalist economy all non-essential consumer goods have disappeared, along with whatever incentive they signified. Upkeep and growth of the present economy depends on the gradual transfer of resources from the classes that have lost interest in producing because of the lack of imported consumer goods to the classes that need to produce for basic consumption and survival.
This is the first time, then, that the US is in conflict with a third world country that is not heavily populated, and which does not have a relatively well developed economy. For this reason, it may be the first time that the US is confronting a true “David.”
In a people’s strategies for survivalDavid has many ways of defending himself. For example, the minimum wage in Nicaragua covers only one fourth of the basic family budget, calculated by the Ministry of Labor at 20,000 córdobas per month for a family of six. The government guarantees the family a ration of rice, sugar, oil and soap at a low price. To complete its diet with meat and vegetables, the family plants a small garden or falls back on the network of peasant-farmer relatives it is likely to have. To cover other costs, additional family members will work. At least one of these will work in the informal sector, selling in the street, or in service-oriented jobs such as gardening, waiting tables, etc. From the family’s perspective this sector is non-productive and seriously drains the labor force available for farming or industry.
In the last few months, the government’s policy towards the production and marketing of foodstuffs, as well as the upkeep of agricultural equipment, has changed. The government is abandoning, for the time being, large projects involving huge investments and future development plans. Minister of Agriculture Jaime Wheelock evaluated this restructuring of the economy before the National Assembly of Trade Unions in September: “We are avoiding further disintegration of the economy by containing unnecessary investments and halting the tendency towards reducing production.”
In order to survive, to confront and resolve everyday problems, a new emphasis is being placed on grassroots mobilization and the Sandinista Block Organizations. This mobilization of the entire population on a door-to-door basis has been essential in combating the current dengue epidemic, reactivating preventive medicine and improving hygiene. The public is also being mobilized to carry out new literacy campaigns geared toward revitalizing adult education.
There are innumerable examples of self-defense economics being put into practice in the countryside and in the city. In parts of the country where even the basic consumer goods no longer arrive, people hearken back to old traditions to meet their needs. Peasant farmers are cultivating family gardens and selling the surplus fruits and vegetables to neighbors at a lower-than-market price or giving them away if the harvest is abundant. As a substitute for soap, peasant women use byproducts from trees, ashes and pork fat derivatives. Herbal cures are replacing medicines in short supply. On some farmers, the farmers have developed insecticides that are more effective and selective than the industrially produced ones that are no longer being imported.
In cities, even in the streets of Managua, mule drawn carriages have reappeared. Old bottles are being turned into glasses and fruit drinks are replacing Coca-Cola. In the factories, workers are making spare parts out of scrap metal and railroad cars out of old buses. The people of Nicaragua are peasant farmers and artisans for the most part, knowledgeable in manual skills and accustomed to poverty. They have never relied on modern technology and are demonstrating daily their ability to fortify and adapt to an economy based on resistance.
1979-84: Economic policies favoring the poorIn the last few years, the Nicaraguan people have learned to live with high inflation rates. This is an unfamiliar phenomenon for them. Inflation reached 100% between mid-1983 and mid-1984, and 200% in the past 12 months. This spiraling inflation originates in production deficiencies and import reductions coupled with the growing and generalized social pressure for increased consumption.
Another important cause of inflation is the social “waste” constituted by the necessarily large defense budget. By 1985, defense spending had climbed to half of the national budget. Rather than cutting back social services to cover it, the government’s financial policy until the end of 1984 continued to promote ambitious development projects and growth in health and education. This has led to a fiscal deficit equal to one-fifth of the national product.
Nicaragua no longer receives the generous amounts of foreign aid it received immediately following July 1979. At the same time, the principles of a mixed economy do not allow the government to freely impose higher taxes to generate revenue. Given these limitations, the government has resorted to printing money—inflation—to balance its accounts. In other words, inflation became a kind of defense tax.
Throughout the first five years of the revolution the Nicaraguan government maintained four priorities in its economic policy. The top priority was to insure basic consumption through a system of controlled distribution of essential items at subsidized prices; the marketing of other widely used products was also regulated. Second, inflation was kept in check by means of an austere salary policy and the relative control of expenditures for the importation of consumer goods. In the third place, alignment with the private sector was maintained through a conservative expropriations policy and liberal subsidies on imported inputs. Finally, the government developed a policy of investing in strategic sectors such as energy, agroexport and industry, while reducing economic resources for consumption.
These priorities are difficult to maintain in any market economy, especially during an international recession and in a country subject to US diplomatic, economic and military aggression. They have proved in practice to be incompatible with the Nicaraguan reality.
For the poorest Nicaraguans, the government’s policies were positive. For example, in 1978 a landless agricultural worker in any of Nicaragua’s most isolated areas had to work 26 days to supply a family of 7 with 10 basic goods. In 1984, after seven years of Latin American recession, highly unfavorable changes in Nicaragua’s terms of trade and three years of war, the same agricultural worker had to work 28 days to buy the same basic supplies. No other country on the continent has managed to protect the level of consumption for the poorest families so successfully. While other Latin American countries were experiencing serious reductions in their gross domestic product, the Nicaraguan economy grew significantly until 1984.
Without the multifaceted US aggression, it would have been possible to maintain a healthy private sector, to invest in strategic public sector projects and to expand basic consumption for the majority of the population. Even with the US threat, Nicaragua successfully advanced these three priorities for more than five years. This success, however, came at a high price: a widening trade deficit ($400 million annually), a growing fiscal deficit, spiraling inflation in non-subsidized goods and an increasing scarcity of liquid foreign exchange. Since 1984, foreign exchange has been available only to maintain the bare minimum of economic activity.
The necessary shift in the economic policyThe Reagan administration intended with its embargo to further destabilize Nicaragua’s economy; instead it spurred forward a process of change already initiated by the Sandinista government. Following its victory in the November 1984 elections, the FSLN decided to pay the high cost of the accumulated economic tensions.
These measures are intended to fortify the war-time economy by insuring production levels, reducing the fiscal deficit, and controlling the growth of commercial hoarding, price-gouging and the general expansion of the informal sector. To guarantee production the government has proposed:
- An increase in prices paid for goods as a stimulus for producers, especially in the agricultural sector. This includes giving the producer, as part of the price increase, access to dollars, to be used principally to import new means of production.
- Reducing to a minimum the importation of food and finished goods that can be produced domestically. Vehicles are still being imported, mainly on long-term credit lines from the socialist countries, to alleviate the transportation shortage and as a material incentive for some professionals.
- Halting the expansion of the urban public infrastructure in health, schooling, housing, water and electricity. This expansion had contributed to the undesirable migration from the countryside to the city.
- Rationalizing the use of financial resources, particularly in the productive public sector where the financial system is gaining an increasing control over state enterprises.
- Stimulating small and medium production through increased financial credit. Although the data for the national level is still provisional, in some communities in the Pacific region (not affected by the present drought) there has been rapid growth in economic activity throughout 1985. The new credits permit expanded production at a time when prices are better than ever. For example, between October 1984 and April 1985, the price of a pound of corn rose 400%, while there was a 1,000% increase in the bank credit offered to small producers to buy the necessary inputs to produce corn. With the earnings from the increased production, some communities have been able to move ahead this year with new construction and home improvements, using their own labor and savings. This in turn has created greater demand for construction materials produced domestically.
- Increasing worker productivity through the implementation of a new system of work norms, in which payment is based on finished work. These norms are difficult to apply because of other obstacles to productivity besides labor, such as the unavailability of certain inputs.
All these measures to guarantee and stimulate domestic production would be ineffective in slowing inflation and speculation without a simultaneous restriction of the amount of money in circulation. In order to significantly cut the fiscal deficit, the government’s plan comprises the following measures:
- Eliminating the subsidies on basic foods to persuade agricultural producers to start producing them again rather than buying what they needed at the reduced prices and growing other, more profitable crops, as was happening. It was also necessary to eliminate subsidies to prevent speculators from buying up the products at low prices and reselling them at much higher prices. It is clear, however, that as long as some products continue to be in short supply there will be a parallel market for them, especially if the government continues not to apply strict measures against speculators.
- Cutting back on public investment in all areas not directly related to defense or heath. Expenditures for education have been frozen, after five years of steady growth. In general, the whole state apparatus is gradually being shifted towards greater austerity.
- Devaluing the national currency. This was accompanied by a reduction in the difference between the córdoba cost of a dollar’s worth of exported goods and a dollar’s worth of imported goods. The state thus subsidizes the sale of imported inputs in absolute terms less than before, although the córdoba is still overvalued. This overvaluation relative to the dollar means that there is still a tension forcing prices higher.
- Reducing the overall number of state administrators, transferring others to productive state enterprises and freezing vacant posts.
- Increasing state revenues simultaneously with the reduction in expenditures. In 1985, new fiscal laws have been decreed that should produce 21 billion córdobas in taxes this year—a 40% increase over 1984. More importantly, the new mechanisms are designed to insure effective tax collection. The new law governing income permits the government to tax the abundant profits that some commercial and service sectors have been reaping.
The belt-tightening economic plan for 1985—which will not show quantifiable results in the short term—relies primarily on the public’s anti-imperialist consciousness. In response to the US embargo, President Ortega told the population, “The boycott must serve to push forward the process of rationalizing and reordering the economy. The whole population should mobilize to take an active role in the preservation, rationalization or replacement of the means of production.” If Nicaragua is to weather the present crisis, it will take the understanding and commitment of the people.
An economy in crisis but less and less statistOne current of US opinion, reinforced by the mass media, depicts the war as forcing the Sandinista into an increasingly state controlled economy. This is soundly refuted by the events of 1985. In fact, the efforts to defend the economy in this difficult situation are being carried out with increasingly simple methods, each one requiring less state control and expense.
In response to initiatives put forward by the population, the government is promoting self-sufficiency in basic grains for workers on the state farms, as well as family and communal gardens for the production of vegetables, yucca, bananas, etc. State lands are being massively redistributed to peasant farmers under individual titles. Private commerce in basic grains has been revived in rural areas. This has brought about greater decentralization and, as a result, reduced vulnerability, which is essential to a survival economy.
In the first half of 1985, prices rose abruptly as a result of the government’s decision to reduce subsidies to consumers, raise prices paid to the agricultural producers and reduce public spending. This new policy has affected the population unequally. In the city, the real value of salaries has fallen, despite raises and new commissaries to provide necessary products at official low prices to salaried workers. For this reason and others relating more to cultural patterns, informal commerce remains more attractive than work in the salaried sector. (As incomprehensible as it may be for readers who have never experienced rampant inflation, a woman selling soft drinks in a city park can earn more than the country’s President.) Many professionals and other skilled workers needs to do freelance work one or two days a week to supplement the family income.
In the countryside, the effects of the new economic policies have created an even more dramatic contrast in standards of living. On the one hand, many medium-scale producers are now increasing their income by selling vegetables, fruits and other products. With the extra income, they are buying land, constructing houses and expanding their general consumption level. Commercial drivers and other members of the merchant class are doing the same. On the other hand, landless agricultural workers or peasant farmers still living under various types of indentured servitude, who have nothing to sell at the marketplace, are suffering the full effects of the recent inflation. Official price controls on basic products that are no longer subsidized do not extend beyond the urban centers, and state channels for distributing goods at lower prices are also limited.
Grassroots criticisms radicalize and decentralize the economyThe new economic policies are causing the cost of the war to fall even more heavily on the workers and poor peasant farmers in the short term. In addition to the economic costs, they are also paying with the lives of their sons. These unequal sacrifices are leading to the progressive radicalization of the fundamental classes of the revolution.
In the countryside, peasant farmers are increasingly demanding land from the private and state sector, either for individual ownership or for cooperativization. This has forced the government to change its agrarian reform policy and to accept a greater distribution of lands even at the expense of some large landowners. This will undoubtedly affect the balance of forces within the mixed economy.
For their part, salaried agricultural workers are demanding a guaranteed food supply and improved living conditions. These demands have become one of the central issues in planning the coffee harvest for the 1985-86 season, in part because the migrant workers will not come to pick the coffee if they do not see these basic demands being met.
In the city, the workers see clearly that their take-home pay is not solving the problem of severe scarcity. They have, however, also shown an awareness that, since strikes reduce production, they would only make the situation worse under the current circumstances. Worker discontent is rather manifested as low productivity through individual absenteeism or indifference. At the recent National Trade Union Assembly, which followed months of factory meetings and the direct election of representatives, the union members’ principal demands included a new salary system based on productivity incentives, a reduction of the official prices of products sold in the commissaries, and greater administrative efficiency on the part of the state.
Perhaps the harshest criticism, launched particularly by those without organized channels for dealing with their problems such as unions, is that the government is permitting merchants to reap such high profits—in other words, the lack of controls against commercial speculation. Paradoxically, the majority of those making this criticism have at least one family member working in the informal sector. At the beginning of 1985 there were plans to organize 25,000 inspectors to combat such practice, but this has not happened. The National Assembly has recently approved a new Law of Commercial Regulation and Consumer Protection. The law was opposed by some Conservative Party dissidents who are close to the extra-parliamentary opposition; their argument was a simple defense of the free market principle.
In both the countryside and the city, criticism is also leveled at the lifestyle of government and party officials who have cars, houses and access to normally scarce consumer goods, and are separated from the majority’s standard of living. Another subject of complaints is the excessive bureaucracy existing in state agencies responsible for administering people’s daily needs.
These criticisms must be viewed within the context of the Nicaraguan reality. A Minister does not necessarily live better than a doctor, and a doctor does not necessarily earn more than a market vendor. Furthermore, none of these lifestyles is particularly luxurious by most standards, even in the third world. Nor is the processing of documents any slower in Nicaragua than in other Latin American countries.
These criticisms arise from an attitude born of the revolution itself. Since 1979, the Nicaraguan people have given form to their longstanding desire for equality and have assumed a profound sense of social justice. They have also thrown off the fear of consequences that criticism brought under Somoza, and now speak out easily, whether with enthusiasm or with exasperation. This critical faculty directed at officials who distribute the weekly provisions is also directed at the US government with growing anti-imperialist sentiment.
The pressures and criticisms directed at the government, then, are not based in simple material demands and even less can they be called a rejection of the revolutionary project. In November 1984, based on these everyday complaints, White House analysts were saying that the Sandinista government had lost its popular support. Nevertheless, the FSLN won the elections. Today such criticism represents an effective form of pressure to promote democratization and decentralization of the economy, a pressure that has been intensified with the political polarization and social tensions that are inevitable in times of war.
The government thus finds itself caught between a rock and a hard place. To sustain both production and national unity, it has promised to maintain a mixed economy. As a result, it supports a sector of large private entrepreneurs, with the income and property distribution that this implies. It is also committed to heeding grassroots criticism and to equalizing profits and living standards. It is important to note that the small merchants who are benefiting from inflation and contribute to it are also part of the grassroots. There are more vendors in Managua’s Eastern Market than there are factory workers in all of the capital. The problem clearly does not have an easy solution.
Nicaragua will surviveCan Nicaragua continue to resist the war of attrition? In material terms there is no doubt that it can. In ideological terms, history shows that when a country is submitted to a war imposed from outside, as Nicaragua is today, the deprivations only serve to strengthen the collective will of the people. What remains uncertain is if Nicaragua will be able to continue developing its revolutionary project and still maintain the existing social organization.
US pressure on Nicaragua’s Latin American and European allies to cease financial aid is growing. According to the Reagan administration’s theory, this will force Nicaragua into greater dependency on the Socialist bloc countries in order to guarantee economic survival. Even if this occurs without the aid carrying any political conditions, it will add fuel to the administration’s ideological fire.
On the other hand, popular pressure for a more equitable distribution of the costs of the war and a more egalitarian economy necessarily implies an adaptation of the present relations within the mixed economy. This does not mean abolishing private enterprise, or imposing strict centralized planning. It could, however, translate into greater state control over commerce, a more far-reaching agrarian reform policy in favor of those without any land, and greater worker participation in the management of businesses.
Finally the need to feed the population, halt internal migration, deal with the lack of foreign exchange and the pressing peasant problem all demand a prioritization of the countryside over the city. Logically, this will put even more pressure on the urban standard of living.
This complex and challenging situation is far removed from the revolution’s initial vision of economic development and social transformation, but this does not mean that the Sandinistas have turned their back on that original strategic vision. The contemporary perspective is necessarily different but the long-term aspirations are the same. “We are accustomed to poverty and we are going to share what we have with our brothers,” says a poor peasant farmer who is a Delegate of the Word in the northern region of the country. This phrase could be interpreted by some as an expression of resignation, but it is in fact born of a harsh historical reality in Nicaragua in which poverty has been a school for resistance not resignation. It is also born of sentiments of solidarity and Christian brotherhood. This series of qualities may again demonstrate the teaching of history mentioned above: it is through adversity that people become the masters of their own destiny.
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