New Initiatives in Contadora and the Economy

Envío team

Toward the end of 1985, Nicaragua refused to go any further down the spiral leading to the failure of the Contadora initiative. It demanded that the Contadora Group recognize the United States as the cause of the crisis and as an element of any possible solution. The boldness of the Sandinistas in touching the sore spot that was keeping Contadora in sick bay (see envío No. 54, December 1985) opened up a new international situation in which Nicaragua has again taken the initiative in response to the US aggression. Although the January-February 1986 special issue of envío predicted that international solidarity wouldn’t be able to counteract US policy effectively, a new wave of Latin American solidarity toward Nicaragua has already built up, culminating so far in a confrontation in Washington between eight Latin American countries and the Reagan administration.

In this issue of envío we analyze the basic causes of this new international situation, which is giving room for movement and allowing Nicaragua to confront the challenge of its national problems.

If there’s one constant element in US policy toward Nicaragua, its the continual harassment on all possible fronts. In President Reagan's public presentations, the objective of this harassment is to get the Sandinistas to agree to negotiate; the real objective, which is becoming ever clearer, is the overthrow of the revolutionary government.

In the last four years, the Reagan administration has never stopped trying to choke the revolution and at the same time deprive the Sandinista political philosophy of its legitimacy both inside and outside Nicaragua. All kinds of methods—political, diplomatic and economic, to say nothing of paramilitary—have been used to achieve that end.

At the start of 1986, the balance sheet for the US was not as positive as the Reagan administration would have liked. US policy has been brutal and the revolution is admittedly hurting from the blows it has received, but Reagan's domestic and international propaganda efforts cannot include an image of the revolutionary project as weak, or of its government backing down from its own interests. On the contrary, the strategic military defeat of the counterrevolutionary forces is a clear fact recognized by most of the principal figures in the Central American conflict. Furthermore, in spite of enormous difficulties, Nicaragua is in a position to face creatively and effectively the decisive challenges that will surely come in the open forums planned for discussion of the Constitution in the coming months.

In view of this, President Reagan's decision to ask Congress for $100 million in aid to the counterrevolution (of which $70 million is for military purposes) reaffirms his strategy to harass the Nicaraguan government. Pressure through force has been one of the basic principles of US policy, but the counterrevolution’s obvious weakness shows that it can’t effectively continue to fulfill its role as a military force. Reagan's request is a way to avoid having to recognize defeat in a basic element of his plan.

The world didn’t have to wait long for reactions to the presidential aid request. Virtually no US leader has expressed support for President Reagan. Moreover, since even silence implies a certain acceptance of the military approach rather than that of dialogue, the voices of opposition and criticism have been louder than the President would have preferred.

The repercussions have not only taken the form of declarations. The Latin American initiative called Caraballeda is the igniting of a response that openly confronts and opposes the US position.

Caraballeda: Reopening negotiations

The declaration signed on January 11, 1986, in Caraballeda, Venezuela, by the foreign ministers of the Contadora and Support Groups broke the deep sleep that had enveloped this negotiating process since the mid-December 1985. (At that time, the participating countries agreed to suspend meetings for a period of four months.) The ratification of the Caraballeda document by the Central American countries a few days later on the occasion of Guatemalan President Vinicio Cerezo’s inauguration confirmed the start of a new phase in the difficult search for a negotiated solution.

It is important to emphasize some aspects of this initiative to understand what’s new in its contribution and the perspectives it opens up. Throughout the Contadora negotiations, one of the most important drags on its progress was that the United States was not at the heart of the process. Its absence both as a factor in the crisis and an element of any possible solution was one of the main reasons Nicaragua gave for its opposition to continued discussion of the revised Contadora agreement. Nicaragua couldn’t go on offering concessions when their main beneficiary, the US, not only failed to show a corresponding attitude but stepped up its aggressive policy. If that had continued, the policy objective the US was aiming for through its military aggression would have been achieved and Contadora would have been the political/diplomatic tool used to achieve it.

Nicaragua's refusal to go along with this also implied a declaration of principles concerning the framework within which the negotiating process should proceed. No negotiated solution could be reached if it didn’t start by recognizing the region’s conflictive reality. That reality had recently become more serious, but Contadora hadn’t brought any of the new developments taking place into the discussion.

Furthermore, when talks were suspended, countries such as Colombia and Costa Rica had their own reasons for feeling that conditions were lacking to guarantee even a small step forward in the results of the Contadora negotiations. This pessimistic view had been around for hardly a month when the Caraballeda Declaration came out and was ratified by the Central American countries.

Contadora, in short, had come to a fork in the road: either abandon negotiations or take into account the Nicaraguan thesis, i.e., recognize that the US presence is an essential element of a real solution. Point two of the Caraballeda Declaration picks up this concern: “We recognize that negotiations must take the form of a triangle. Negotiations must involve Washington; it is not enough that the five Central American countries reach agreement among themselves.”

In the final analysis, Caraballeda is a new proposal that not only permits continued negotiations around the revised Contadora agreement, but proposes to begin simultaneous steps on other fronts as well. In a way, it’s a more global plan of action, the progress of which will largely depend on the US attitude. This is a really new and, one might say, daring aspect relative to previous plans.

It entails introducing a thesis that directly confronts the US strategy, which is to always stay on the margin and defend its interests by working through its closest allies: El Salvador, Costa Rica and Honduras. Now, pressured by the Latin American initiative, Washington can’t evade the challenge by rejecting the dialogue position that has greatest international credibility, under pain of losing all legitimacy for its own plan. It must take up its role as a principal figure in the conflict.

The "Latin-Americanizing" of Contadora

Another important aspect of Caraballeda is the Latin American dimension given to the negotiation process. A few months ago it was unthinkable that eight Latin American foreign ministers—four from the Contadora Group and four from the Support Group—would take the initiative to go to Washington to meet with Secretary of State George Shultz. This procedure was a first in the history of continental relations with the North and the proposal was clear. With this action, the Latin American countries are entering into direct confrontation with the US.

The foreign ministers openly tackled the most sensitive point for the Reagan administration: support for the Nicaraguan counterrevolution. They firmly demanded termination of that support as one of the conditions for peace in the region. Shultz's rejection of any such concession was equally categorical. Without exaggerating the consequences of this refusal, some of them are nonetheless especially significant.

The US rejection is a rejection of Latin America. Before now, the Central American conflict was assumed by the rest of the continent to the south to be truly Latin American yet something distant; from this point on a direct conflict exists.

It’s not that Latin America opposes the US in favor of Nicaragua’s interests. Rather the interests of Latin America itself are at stake. It’s a question of Latin America defending its own conception of the relations that should prevail between North and South. In the same way, the so-called East-West dimensions Reagan uses to analyze the problem begin to crumble when this North-South confrontation becomes known in a clear way.

A plan of action on various fronts

Caraballeda is not a programmatic declaration. But even though it still lacks clear ideas about how to translate all that the new proposal entails into a concrete plan, the step taken by the foreign ministers is evidence of a political will and of a conviction that this will can be put into operation. This was shown again when the same foreign ministers met in Punta del Este, Uruguay, on February 28 and March 1 to analyze the Contadora negotiation process. The US rejection had not changed their original proposals.

The Latin American response is contained in their final document, called the “Punta del Este Communiqué.” It reaffirms the Caraballeda Declaration and announces the creation of a Civil Commission of Observation, Prevention and Inspection on the border between Costa Rica and Nicaragua. It reiterates the need for simultaneity in undertaking the proposed actions and reaffirms the termination of support for all irregular forces as an imperative for reestablishing the international rule of law.

Whatever evaluation may be made of Caraballeda within the spectrum of its real possibilities, it’s a positive development. By being realistic about the imperative of US presence in the negotiating process, new territory has opened up. Nicaragua finds a more promising environment in which to defend its interests, and, above all, the possibilities are greater that any agreements that may be reached will have an impact on the region’s serious problems. By proposing the global consideration of different fronts, Caraballeda offers Nicaragua some relief from US pressure and a more just reformulation of the different positions.

The Central American situation remains complex, with no one solution emerging clearly on the horizon. The US capacity to react must not be forgotten, even though US diplomacy has appeared surprised, incapable of controlling Latin American and even Central American initiatives. Two of the Central American countries—Costa Rica and Honduras—have given clear signs of opposing the Reagan proposal to expand military aid to the counterrevolutionaries in Nicaragua.

Honduras, Costa Rica and El Salvador have now gone back to playing their role in favor of the US position in Contadora. Despite having ratified the Caraballeda document in Guatemala, they are again putting forth the US theme of renegotiating the revised 1984 Contadora Agreement, without considering the new Caraballeda proposal for a plan of wide-ranging and simultaneous action.

Why, despite US pressures, do the Central American countries feel the need to take another look at previous proposals and take up positions critical of the US administration? While it would be premature to judge how these tensions will evolve, their attitude can be somewhat explained by the conviction that the counterrevolution has been defeated. This leads Washington to intensify its harassment of Nicaragua; on the contrary, the Central American countries are obliged to examine their coexistence with Nicaragua with political realism.

Many analysts think that the disillusionment of Nicaraguan peasants who previously supported the counterrevolution is so deep that not even the $100 million can revitalize the contra forces. For the same reason, they think that these millions of dollars will be channeled into a plan of aggression ever more intensive in sophisticated armaments and less centered on guerrilla actions on Nicaraguan soil. Logically such a perspective worries not only the Central American governments but all of Latin America.

Honduras remains in an awkward position in the debate about US aid to the contras. Its role as a platform for the distribution of material aid—military and otherwise—obliges it to recognize its ties with the anti-Sandinista forces. The contras are no longer a strong card to be played, but rather an inevitable evil to bear. No one foresees substantial changes in the Honduran attitude; as younger officers gain access to power in the armed forces, they’re not questioning the presence of the contras or of US troops. What is being demanded is better compensation for the role Honduras is playing in the US anti-Nicaraguan strategy.

The reactions have been more significant in the case of Costa Rica. President-elect Oscar Arias has criticized US aid to the counterrevolution and proposed that these funds would be better directed toward social programs in the needy countries of the region. His statements, ratified on various occasions, can be explained by a conviction that the contras are politically dead rather than by any hypothetical surge of nationalism. Consistent with that position, he spoke of the need to expel the armed anti-Sandinista groups from Costa Rican territory.

The President-elect has not been the only Costa Rican moved to present a more realistic view of relations with Nicaragua and propose actions to establish peaceful coexistence. Once the elections were over, outgoing President Monge didn’t want to pass into history without cleaning up his image on the Nicaraguan issue, so he quickened the pace of adopting measures to normalize relations between the two countries. First, a long period of frozen relations thawed with the simultaneous recognition of both countries’ ambassadors; this took place after an exchange of notes by the Presidents in which old border incidents were settled—especially one that took place in Las Crucitas, where two Costa Rican rural guardsmen died. Second, Costa Rica showed itself disposed to negotiate a patrol of the border with Nicaragua, which was taken up by Contadora itself in the first meeting of its vice-ministers in Managua on February 24.

In Guatemala, President Cerezo’s inauguration has not been accompanied by any wavering in that country's position, although it is known that the Christian Democratic International in both Latin America (concretely in Venezuela) and Europe (especially in Italy and West Germany) are flexing their muscles in the region, counting on the Duarte government as another pawn in their game. In fact, Guatemala is maintaining a posture independent from the United States and has not shown any intention of tying itself in with the Central American bloc made up of El Salvador, Honduras and Costa Rica, whose points of view presented to Contadora usually coincide.

President Cerezo confirmed his desire that the meeting of Central American Presidents scheduled for May be held on Guatemalan soil, in Esquipulas. This undercut Honduras' desire to be the site of the meeting, which could have provoked difficulties for Nicaragua and thus jeopardized the success of the meeting. Yet another example of the Guatemalan identity in the regional conflict is its refusal to take part in the maneuvers programmed for the Gulf of Fonseca.

In El Salvador, nothing has happened in the last few months to give any indication of new attitudes on the part of that country toward Nicaragua. President Duarte's recent proposal, which seeks to condition talks between his government and the FMLN-FDR upon parallel talks between the Sandinista government and the counterrevolutionary forces, has had no serious repercussions. Nor does it have any probability of success, since it’s a blatant maneuver in support of the US State Department position, and because Duarte himself has lost his legitimacy both inside and outside of his country.

In spite of US harassment, the region has its own capacity to respond. Its survival instincts don’t necessarily coincide with Washington's interests, which creates a variety of obstacles for the Reagan plan. The emergence of these Central American attitudes extends the horizon and gives hope to the idea that Caraballeda can find solider ground on which to operate than existed a few months ago.

For one thing, the weakness of the Nicaraguan counterrevolution and the consistent firmness of the Salvadoran guerrillas led the Central American countries to begin to pay more attention to the negotiation proposal coming from the Latin American bourgeois democracies than to the US military policy's promises of quick success. Moreover, the new diplomatic space that Nicaragua has won in this hemisphere lets it devote more of its energies to the solution of the national problems produced by the US aggression.

The national project goes
forward in the midst of aggression

The US strategy of harassment seeks to wear down the Sandinistas' legitimacy and leadership capacity. That legitimacy has been won through a project that, while bringing together different interests within a mixed economy, puts top programmatic priority on the logic of the majority and not on the logic of capital. Faced with this harassment, the Nicaraguan government now addresses itself to the development of the Constitution, the conflict with the church hierarchy and the tough challenge of an economy with serious deficits.

The Constitution. This year will be decisive for the birth of the new Constitution. The debate on this national project and its approval will be a test case to measure the Sandinistas’ success in this undertaking. February saw the completion of an important step in this long journey: approval of its first draft by the National Assembly after its formal submission by President Daniel Ortega on February 21.

The majority of the political parties shared in the preparatory work of the Special Constitution Commission and the corresponding sub-commission. The tense climate of debate in which the labor was carried out was a practical demonstration of real pluralism. Maneuvers to torpedo or boycott completion of this phase were tried on various occasions, but without success, and the first draft came out amidst broad consensus.

The next phase consists of public discussion of the constitutional project by means of open town hall meetings, where different sectors of Nicaraguan society will not only come to know the contents of the Constitution in detail, but will have a platform to form opinions and make their own proposals known. Despite the difficulties, the challenge of consensus has been launched and that is the first step toward obtaining a Constitution that will really institutionalize a national project.

The Church-State conflict.The religious aspect of the Nicaraguan people is an organic dimension of their configuration as a civil society. Any project that seeks to shape that society must know how to integrate religious values and beliefs and assure that they have a positive role. It’s not by accident, therefore, that some are interested in setting Christianity against the revolution; by so doing, they could put decisive obstacles in the path of a project that has broad national appeal.

There was no lack of religious argumentation in President Reagan's letter to House Speaker Thomas O'Neill in which he sought to justify his request for military aid to the Nicaraguan counterrevolution,. Reagan stated that the Sandinistas had stepped up their hostilities and intimidation against the Catholic Church and the Protestant evangelical community, and that the mass media had increased their attacks against Cardinal Obando and Pope John Paul II.

The visits to the United States by Cardinal Obando and Bishop Vega of the Juigalpa diocese, where they denounced supposed religious persecution, showed their conscious or unconscious collaboration with President Reagan's campaign. They also showed that the bishops' own purpose is to enter into direct confrontation with the Sandinista revolution and openly withhold their collaboration in the national project.

These are definitely new harassment tactics that touch on quite sensitive points. The government has reacted prudently to these maneuvers by Nicaragua’s Catholic hierarchy, and has not fallen into the trap of responding with polemics or public campaigns. Although such responses would be justified by the seriousness of the events, they could backfire if certain religious authorities took advantage of them to further manipulate people’s religious sentiments.

Rather, the response has come from within the Catholic community itself. On February 14, the Way of the Cross began in Jalapa, with Father Miguel D'Escoto at the head of it, continuing the “evangelical insurrection” that started with his fast in June of last year. There was massive participation, particularly of peasants, in the first days of the procession as it went through the northern zones that have been the of contra action. The pilgrims made the journey on foot from Jalapa to Managua, averaging 25 to 30 kilometers a day. As they passed through the communities, residents spontaneously joined the march. In a significant gesture, and an unusual one for a member of the hierarchy, the bishop of Esteli went out to meet the Way of the Cross, embraced Fr. D'Escoto and joined him in a community prayer. The two religious figures held a private conversation that undoubtedly helped bring their positions closer and heal the wounds of confrontation. Fr. D'Escoto's call for a meeting with other dignitaries, above all Cardinal Obando, went unheard.

The economy. The economic crisis is perhaps the fundamental challenge that the Sandinista revolution has to face in 1986. At the start of last year, the government announced a series of economic measures that gave a new turn to the economic policy in effect until then. Those new policies were meant to put an end to the distortions that were making economic activity increasingly unmanageable. The reality of the war, which has become more intense since 1983, has had a direct impact on the country's economy, putting it out of balance by forcing scarce resources to be spent on defense and seriously affecting the productive capacity of the country.

In putting these measures into effect, the government stated its objectives clearly: insure that defense needs would be taken care of; control financial imbalances related to material production, attack the structure of the informal sector, favoring instead the rural and urban productive sectors; and implement a supply policy that would maintain the living standard of the poor majority. Toward these ends, efficiency and work productivity would be increased and the economy would take on a unified and coherent direction.

Without detailing the various measures put into practice, the results were not the ones hoped for and the overall 1985 results don’t show a very favorable balance. The gross domestic product (GDP) fell by 1.7% from the previous year. Negative growth rates were also experienced in the area of investment, which fell by 17%, and exports, which were reduced in volume by 13.8%. The fiscal deficit was 23.1% of the GDP, reaching 26.5 billion córdobas.

Although the 1985 economic behavior may seem disastrous according to the above figures, it is appropriate to point out that the economy did succeed in reproducing itself at a minimal level (see envío No. 52, October 1985.) The obvious main problems are the lack of private investment and the enormous fiscal deficits.

Production. Production levels not only fell below what was programmed for the year, but in some cases were below 1984 levels. In general, the agricultural sector maintained production (a notable achievement in a war economy). Industrial production, on the other hand, showed a 7.8% drop. Several factors played a part in farming activity's failure to recover expected production levels: climatic problems, lack of transport and spare parts, and specific problems with certain crops—seeds, pests, etc. The most serious results were seen in cotton and sesame, both export products, which fell in absolute terms from the previous year.

The shortage of raw materials and repair parts—a general problem for all sectors of the economy—was particularly acute in industrial manufacturing, as most of the productive infrastructure is of US origin and was therefore hard hit by the US economic embargo. Another important factor in the production decline was the drop in work productivity, resulting from the unstable nature of the labor force and lack of discipline. These in turn can be attributed to the lack of real incentives offered by the salary scale as compared to the high profits available in the service sector.

The foreign trade sector. In this area, too, there is little positive to report. The commercial deficit, already chronic in recent years, reached US$522.8 million, surpassing the previous year's deficit by US$83 million. Since the import level remained practically the same as that of 1984, the deficit increase was due to a drop in the value of exports. Sales of agricultural products fell by US$53.2 million, of which $31.6 million was due to a drop in production. The other $21.6 million represents a lowering of international prices, such that the buying power of Nicaraguan exports fell by 22% in 1985. Another index of the difficult situation caused by these problems in the foreign trade sector is that Nicaragua had to pay out $173.7 million just in service payments on the foreign debt, more than half of the total earned by its exports.

This deterioration in the terms of international trade and the burden of debt service are alone sufficient to explain the 1985 economic results. When we add all the problems of the economic embargo, the war of aggression and the instability produced by the social transformations, we can begin to see the heroic efforts that Nicaraguans must make in order to try to maintain their standard of living.

The poor majority

Although the economic measures were an attempt to protect the income of rural and salaried workers, both sectors were affected negatively. Inflation reached 210% in terms of consumer prices, which meant a 36% drop in the buying power of salaries. All in all, basic consumption registered a drop of 3.6%, which logically had its primary effect on the poor majority.

This is the area where US aggression has exacted its highest political price. It is here where the abovementioned problems of lack of labor discipline emerge, because wage workers must shift into informal activities in the private sector of the economy in order to survive. The lack of labor discipline and the ferocious competition in the informal sector create an environment of economic chaos that undercuts the government’s corrective programs.

Paradoxically, the state companies and the private sector were the ones that came out ahead amidst these changes. The state companies managed to reduce their deficits from previous years, and the private sector in agriculture and industry attained high profit margins, especially in the export area.

The informal sector continued to grow, and the government offices responsible for implementing the economic plan found this to be one of the most difficult issues to resolve. Over half the economically active population is involved in work that’s not under a formal salary structure. The development of the informal sector is undercutting efforts to manage resources rationally and leading to various kinds of unjustifiable speculation, which then affects precisely the economies of the productive sectors.

Political-economic contradictions

The objectives of the 1986 Technical-Economic Plan are the same as those drawn up for 1985. The restructuring of the Nicaraguan economy continues to be the strategic objective and requires a slow process that cannot and should not be turned off course by unfavorable situations. Furthermore, the 1985 experience has helped in the more effective planning of the new measures, despite the fact that it was too short a time to be able to produce the deep readjustments necessary.

People are not naive about the plan’s high goals. When President Ortega met with workers in one of the “Cara al Pueblo” (“Face the People”) meetings, he told them about the scope of the measures and emphasized that “we don’t have the formula to resolve the problems, but we must find ways of confronting them.... We must control this crisis because it’s not within our capabilities to make it disappear.... The measures we’re taking are to confront the crisis, to control it and overcome it, so it doesn’t crush us.” Along the same lines, the secretary of planning and budgets stated on television that the basic problems of the Nicaraguan economy couldn’t be resolved until resources could be channeled to productive tasks instead of defense—in other words, until the war is over.

The estimates of those who take a realistic view of things aren’t very promising, which makes the challenges greater. There’s awareness that this year will be quite difficult. The inflation rate will be high, and in order to fight it, it won’t be enough to establish greater price controls. The root of the problem is that not enough is produced to supply people’s basic consumer needs as well as other sectors of production. For now, that reality is hidden by inflation, but over time the shortfall itself will emerge as the root problem.

How to face the situation? A fundamental problem is that of prioritizing objectives, but this is also very tough to handle. In many cases, economic logic contradicts political logic. In a project such as the Nicaraguan one, the dilemma is decisive: how to move toward the political goals when the exigencies of the economy push in a different direction. To abandon all that has been worked for in the political dimension is to abandon the revolution; failing to have a realistic view of the economy can be a death sentence for the process.

There are many examples of how this dilemma is felt: in terms of economic logic, equal rationing of second-tier goods would jeopardize the poor majority most; political logic leads to a consideration of the interests of all sectors and seeks to arrive at a just distribution.

The real choice Nicaragua faces today is whether to maintain economic movement by supporting the logic of the market or respond to popular demands by much stricter rationing, which is, paradoxically, politically inadequate. The new space that Nicaragua has gained in the international arena allows the postponement of a definitive option and lets Nicaragua try to survive economically while still maintaining the mixed economy model to some extent.

The FSLN has based its political hegemony on a broad consensus of social classes whose interests don’t always go together. The plan of national unity, basic to the Sandinista project, pushes toward an economic logic. Respect for that objective of unity is decisive for the project’s very survival. The economic situation, then, must be handled by continually testing the possibilities, weighing those measures whose political effect will be least negative while at the same time having an impact on the problems to be resolved.

This context must be kept in mind in order to understand the measures and the singular logic that lies behind them. The objective of national unity in principle is at odds with the economic policy, but at the same time, it opens up possibilities of dealing with the crisis in new ways, involving the people's cooperation in the solution. The Sandinista government wouldn’t be able to handle the enormous challenges of 1986 if it couldn’t count on the decided support of a substantial majority of the people in its efforts to control and overcome the crisis.

The economic challenges of 1986

Increase production: Here lies one of the greatest difficulties. It is unthinkable that a substantial increase in production can be attained in the short term. It is, however, one of the basic objectives for the plan’s success. “All the measures taken together must result in a production increase,” stated President Ortega, “because developing our production and raising the economy will give us the tools to totally control the crisis.”

The main causes of the problem don’t show signs of improving in the coming months. One of the strongest limiting factors is the shortage of imported resources. Getting raw materials, supplies, spare parts, etc., requires large amounts of foreign exchange, which won’t be available this year.

The other limiting factor is found in the deterioration of the productive plant, which makes it inefficient and subject to different kinds of breakdowns. The solution again involves the availability of hard cash as the quickest way to get out of the bind, but that’s not a real possibility. Some measures can be taken to make this shortage of imported resources less painful, and there can be a more rational management of the spare-parts business. The rise in coffee prices and the drop in the price of oil are factors that will help the Nicaraguan economy in 1986.

Control the public deficit: The public deficit in 1985 was considerable, and the control of public costs is becoming necessary in order to reorder the economy and contain inflation. This concern was expressed as follows by President Ortega: “We’ve also been taking measures in keeping with the budget for 1986, counting cent by cent so that the difference between our costs and our income won’t be so great.... And in spite of our best efforts, the fiscal deficit is great.”

How to reduce public expenditures? Which sectors should be affected by the cuts? There’s no political will to cut health and education programs significantly, although it’s necessary to prioritize which sectors will receive the benefits. “We’d like to build schools everywhere,” the President said, “but there’s already a big difference in the budget...so we’re going to make some small changes in health and education services in some places. So what conclusion have we reached? If we’re going to build more health centers this year, we’ll build them in rural areas.”

It doesn’t seem that defense costs can be reduced in any major way. In 1985 the government reduced the defense budget as much as possible, and there’s no foreseeable substantial change in the military situation that might permit a loosening up to allow fewer resources to be assigned to this area.

Nicaragua has perhaps followed the path of greatest control and reduction of forecasted resources in its investment policy. The current policy is to stay with small projects, maintaining only the three or four large ones that, if stopped, would result in greater damage. Planned investment will be geared more toward maintaining the capacity already in place in the country than to creating new plants. The country’s economic situation doesn’t allow the launching of wholly new projects at this time.

Qualitative improvement in supply

The question of supply is one where the government’s legitimacy in terms of capacity to get a job done is at stake as far as salaried workers and peasants are concerned. But it’s one of the most complex issues, since it means taking action on both the formal and informal markets. Speculation and the concomitant expansion of the informal market are inevitable when production isn’t sufficient and there are no resources to make up for what’s lacking by importing needed products.

Despite its complexity, the challenge is one of the most pressing to solve. The experience of 1985 was negative and had repercussions in a generalized discontent recognized by President Ortega when he said, "People were irritated and had every right to be." The challenge lies in guaranteeing that the basic products get to urban and rural workers and at a just price. It’s especially imperative in the case of the peasants that there be a leap forward in the supply factor.

The success of the measures depends on people's participation

As the President explained the characteristics of these measures to Nicaraguan workers, he issued this challenge: “If all these measures don’t translate into increased production yield and higher productivity, then they’ll fail; as confident as we are that these measures will reflect greater productivity and efficiency, we’re also certain that they need discipline.”

Worker participation will be an important element in attaining the goals—a participation that isn’t reduced to grudging participation in the productive process but asks for an active approach to carrying out their role in supplying the nation's needs. Logically, this call must be accompanied by measures that encourage the workers to develop their productive capacities better and concretely resolve the basic causes of worker turnover and lack of discipline.

If increased productivity is essential to attain the sought-after goals, the participation asked of people has even broader dimensions. In announcing the plan, the different authorities have insisted on explaining the fundamental reasons for the measures, the desired objectives and the foreseeable sacrifices. It’s not easy to accept a situation in which those called on to cooperate are going to lose in some way.

How well the plan is implemented will be determined by the new context that any package of measures creates. Despite the measures, producers may obtain small profits and cut back on their investment or their production. Confidence in the measures could be shaken by the effect of new military aid to the counterrevolution or by business attitudes about the revolution’s survival possibilities as it faces Reagan's escalated determination to blockade and destroy it. The possible success or failure of the package is definitely based on the ability to create confidence and national meaning around the governmental measures and the ability of crucial sectors of the population to assimilate these measures.

ECONOMIC MEASURES FOR 1986

1. Salary Adjustment (January 1)
Objective: To protect the workers' buying power.
Extent: 80% to 100% increase according to job level.

2. People's Inspector Law Law Creating Consumers' Registry
Objective: To guarantee better distribution of basic products and price controls.

3. Exchange Rate Policy
Objective: To make the different exchange rates more appropriate.

4. Credit Policy
Objective: To bring reason to bear in correcting the financial distortions, particularly in the public sector.

5. Pricing Policy
Objective: To encourage production by guaranteeing a minimal profit margin to the producers.

6. New Official Prices
Objective: To bring prices up to date in relation to the real costs of production.

7. Salary Adjustment
Objective: To protect the workers' standard of living given the new official prices.
Extent: An average increase of 50%.

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