“We need a strategy for transitioning to democracy”

Having held top government and nongovernmental posts over time and served on the board of the American-Nicaraguan Chamber of Commerce, this economist shares his perspectives about Nicaragua’s business sector and about the tensions between the US and Nicaraguan governments

Mario Arana

It was anticipated in early 2016, the year of Nicaragua’s latest presidential elections, that Nicaragua’s relations with the United States might take a turn for the better. An unusual package of US aid totaling US$800 million was being spent on Central America and, although it was mainly for the countries of the Northern Triangle where child migration to the United States had triggered new concern about the region’s stability, there was also interest in supporting our country economically to “more intelligently” influence the new course that would augur more long-term stability here as well.

The closing of Washington’s openness

That possibility tanked only a few months later when Nicaragua’s governing party decided to wrest away from Eduardo Montealegre the third political movement he had put together since 2005. At the time he had breathed new life into the Independent Liberal Party (PLI), making it the fulcrum of an opposition alliance that it was thought could sooner or later become a real alternative to the governing Sandinista National Liberation Front (FSLN). The FSLN seems to have made its move thinking only of its own project’s long-term stability, calculating that consolidating it would require at least the next ten years. However, much more than just that year’s presidential elections was at stake in its decision.

Washington’s reaction surprised even the governing party. In the second half of the year a group of Republican congresspeople, with some bipartisan support, introduced the Nica Act bill into the House of Representatives, arguing that democracy and its institutionality had been systematically violated in Nicaragua. The bill’s sanctions include instructing US representatives to international financing institutions such as the World Bank and Inter-American Development Bank to vote against any loans requested by Nicaragua. Since then, both the original bill and a tougher version have been approved by the House and late last year a still harsher one made it to the Senate, where it has yet to be voted on. It proposes sanctioning individuals for corruption or human rights violations and also includes concerns about national security issues.

In addition to the US Congress, pressures are now also being exerted by the State Department and the Treasury Department’s Office for Foreign Assets Control (OFAC) as an offshoot of Washington’s sanctioning of the PDVSA, Venezuela’s state oil company. They have created greater concern among Nicaragua’s private sector regarding the country’s course and its democratic institutionality.

The FSLN government is banking on the agreement to reform the electoral system it signed in 2016 with the Organization of American States to stave off the threats of US sanctions. That amounts to indirect recognition that the electoral path is the only alternative for avoiding the kind of violent outcomes that are such a large part of our history. That recognition was expressed through the government’s concern about the high abstention levels in the 2016 presidential elections and last year’s municipal elections. The final OAS report on the municipal elections makes clear that the law on political parties, the electoral rolls and both the technical and regulatory aspects of the voting process itself must all be reformed. In conclusion, the report recognized that Nicaragua’s electoral system requires in-depth reforms, but it remains to be seen what improvements the Nicaraguan government will assume.

AMCHAM’s recent election
was a real competition

This was the backdrop to the election of the new board of directors of the American-Nicaraguan Chamber of Commerce (AMCHAM) on January 30, which generated extraordinary expectations in the business community. A previously unseen effervescence characterized the run-up to the elections. AMCHAM has just over 300 members, of whom 230 showed up to vote, compared to only 70 or 90 tops in previous elections. Some analysts say the election triggered more interest than the 2016 presidential elections and certainly more than the 2017 municipal ones. It was transmitted live on Facebook and on at least one TV channel.

The election was truly competitive, with two clearly defined bands. And not only did everyone mobilize, but everyone took sides. The positions of both had been made known in the national media and people knew how to read between the lines to determine what was at stake. My own view is that, above all, this election also revealed the dilemmas, visions, tensions and counterpoised positions existing more broadly in Nicaragua today.

Prior to the election, AMCHAM President Álvaro Rodríguez announced he would seek reelection. In response, María Nelly Rivas, Cargill’s representative in Nicaragua, launched her candidacy. Cargill, the 21st largest US corporation and the most important one in Nicaragua, has a presence in 140 countries dedicated to an array of business activities, especially food production.

What was at play in this election?

AMCHAM’s role is to promote trade and investment between Nicaragua and the United States. Its independence and broad representativity are particularly valuable right now, when—independent of the reality—some key sectors in the United States have branded Nicaragua’s big capital sector and specifically its umbrella organization, the Superior Council of Private Enterprise (COSEP), as “collaborationists” with the Nicaraguan government. Washington perceives the government as anti-democratic and anti-US and anyone who has gone to Washington has been told repeatedly that Nicaragua has no friends right now, only enemies. None of the important actors in our country should ignore an environment like that.

Given such tensions between the governments of Nicaragua and the United States, those who knew the backdrop within AMCHAM considered that the challenges of the moment were fundamentally related to resolving an issue of representation and effectiveness through its elections. I personally feel that the reelection of the incumbent president would have meant a continuation of ambiguous leadership that key Chamber members believed to be showing clear limitations, specifically a disconnect between what was agreed to in the board and what was actually said and done. In the past, AMCHAM had always had a tendency towards an independent, constructively critical voice.

From outside the Chamber, perhaps just as important and worrying was the possible election of a project controlled by the country’s strongest capital, which could result in an excessively obsequious subordination to the government. The aspiration of those opposing that was for AMCHAM’s leadership to be more autonomous and independent of the government, more representative of other important economic groups in the country, to have its own vision about the state of things in the country and what needed to be done. This tension, explicit in some cases and implicit in others, created space for other actors and a possibly greater correlation of forces for everyone in AMCHAM in negotiating with the government.

Hegemony wasn’t the outcome

The end result was a divided vote. The Cargill candidate won the presidency but the board was split down the middle with one side consisting of the strongest capital and the other having a more independent profile, where very important economic groups are also represented. The presidential candidate up for reelection, who had been supported by what is known as “big capital,” didn’t even remain on the board.

I didn’t get re-elected to the board either, probably because at the end of the day I didn’t represent anything other than an independent voice who believes in unity and consensus based on internal democracy in the organizations. I launched my candidacy three days before the election to back the Cargill candidate because I saw her as the best option for AMCHAM and the country in its critical current situation.

The election unleashed unusually tense moments in the private sector, which we still need to address, trusting that we will know how to get past it, even though the Chamber has always been more symbolic than relevant. To repeat, what happened in the election was a snapshot that reflected the trends and feelings at loggerheads in our society as a whole. If this experience has served any positive purpose, it must surely be to have recognized and faced our challenges in a more representative manner.

Paradoxically, even without a clear hegemony in the Chamber, there will surely be a game change in future negotiations and discussions with the government. Given that a lack of hegemony will mean having to hammer out consensus, the axis of the game being delineated could shift, making the private sector’s future more challenging in the short term, but also potentially more secure over the medium and long haul if our organization is more representative of the country’s strong economic groups. In addition, such a new reality could buttress the private sector’s interlocution at necessary moments, both internally and with the United States.

What’s Cargill’s objective?

Everyone is aware of the serious conflict between the US government and the government of Nicaragua. Cargill decided to assume the AMCHAM presidency to head up trade and investment relations between the two countries with more independence and representativity, convinced it can more capably and effectively represent the interests of everyone in the Chamber in the current context. It was important that the foreign capital Cargill represents decided to launch this candidacy, underscoring that unity doesn’t mean we’re all equal. AMCHAM has been perceived in both the United States and Nicaragua as an independent institution and that independence is what both Cargill and a group of us in AMCHAM wanted to preserve.

There’s consensus that the economy that has cost so much to reconstruct shouldn’t be harmed by anyone trying to dictate the democratic transition the country requires, but there’s also awareness that the country needs internal reforms to avoid the threats hanging over it at the moment. That is the real challenge. ANCHAM obviously can’t resolve those threats, because it’s an issue for the country as a whole that must be assumed by everyone. In any event, it’s healthy to recognize that we need a strategy for moving toward democracy, and it’s best if we start “at home,” in AMCHAM.

The US Embassy’s position

The US Embassy in Nicaragua also took a position on the AMCHAM election. It made it known known that having a US company assume its leadership would be positive and expressed satisfaction with the choice of María Nelly Rivas, the Cargill candidate. That opinion naturally influenced the results. I would say that even the Nicaraguan government was in favor of her running, not because Ortega isn’t a friend and ally of the traditional Nicaraguan capital with which he dialogues openly and regularly, but because he considered that contending with the United States would be more effective through this huge corporation.

Ambassador Laura Dogu has continually expressed to us the major worry that US relations with Nicaragua are deteriorating. Like the rest of us, the Embassy knows that a number of sanctions in Congress and in the State Department are hanging over Nicaragua. And she has been very open to anyone willing to listen about her concerns and also her desire to see reforms made that will improve institu¬tionality and foster more democracy as measures to put a lid on the sanctions.

Her concern has to do not only with the country’s internal situation, but also the government’s relationship with Russia, Venezuela and Iran. She’s also worried about the future of the Central American Free Trade Agreement with the United States (CAFTA) and has told us she fears we could be eliminated from it. Some don’t think that is possible, but I’m worried about the stagnation I’m observing in the textile and harness sectors of the free trade zone. I’m also concerned about how the US negotiations with Mexico on NAFTA, next year’s evaluation of the agricultural sector in the CAFTA framework, the case of peanut production, and various other things are going to turn out. Given these concerns, the better our relations are with the United States, the more maneuvering room we’ll have as a country to grapple with our trade and investment agenda. Nicaragua needs to grow a lot more and that won’t happen unless we have good relations with and enjoy the good will of our most important trade and investment partners.

How are the tensions
affecting foreign investment?

Given the tensions between the Ortega administration and the US government, how are US investment and foreign investment in general in Nicaragua doing right now? How are investors reacting to that conflict?

It appears to me that there are three types of foreign investors. Some are virtually indifferent to the conflict. They don’t get it and they don’t care about it; the only thing that matters to them is how to obtain the profits required by the level of risk they’re taking on by coming here, because they assume the risks this country has and therefore expect a good return on their investment. Let’s not forget that Nicaragua is a high-risk country and any investor who comes here puts a premium on insuring that good return. That’s precisely why they come, and of course also why many don’t come. I think this sector’s indifference is probably because those involved are not well informed.

Another sector of investors is indeed worried because they have solid information, and that makes a big difference. They’ve sought out information because they think it’s important to feel the country’s pulse and because they want to influence the course of events.

And finally there are those in the middle who are concerned but optimistically expectant.

AMCHAM’s lobbying
efforts in Washington

Last October AMCHAM decided to hire a private US lobbying group to try to halt approval of the Nicaragua Act in Congress, at least in its latest version. Their task is to express the private sector’s thinking in Nicaragua with a sense of realism, i.e. that generalized sanctions would be extremely damaging for everyone given how much it has already cost the country to return to the per-capita income we had 40 years ago. The private sector doesn’t necessarily disagree with Washington’s assessment, and does recognize that domestic reforms are required, but considers that it’s up to Nicaragua to decide. The hope is that while the lobbying is going on in the United States, the government in Nicaragua will make the necessary reforms. Both the government and the country as a whole has the commitment with the OAS on the table. I don’t know if the government is just trying to buy time with that commitment, but I’m assuming there will be reforms, and I think the agreement with the OAS gives us an opportunity to get them.

The government is surely aware of how delicate the situation is. After voting in the municipal elections on November 5, Ortega indirectly recognized that when he criticized those promoting abstention, arguing that voting is the only way to resolve problems in Nicaragua since the only other path is confrontation. I think he was expressing how dangerous it is that voting has lost importance in Nicaragua, that a majority of people no longer believes in turning out to do soit. I think he’s aware of the problem and the challenge it represents. That’s why I also believe our effectiveness in gaining spaces to reestablish a better balance of power in the country is going to depend on all Nicaraguans, knowing that this government always cedes the least ground possible to remain in power as long as it can, in perpetuity if possible.

The private sector’s
views on the government…

As a country we need a strategy to achieve a change of course. The governing party’s own strategy is clear. Ever since it returned to government it has hoarded more and more power until amassing sufficient economic, political and social power to provide continuation to the regime. This isn’t a positive situation and the view in the private sector is that there need to be more checks and balances, because when power is perpetuated it becomes very hard to avoid its degeneration and corruption. And the polls are now showing corruption as the country’s main problem.

The government and the governing party’s economic group concentrate a great deal of power, largely because they have benefited from the extraordinary flow of oil resources from Venezuela for most of the past ten years, which is something no other group previously had access to. As long as those resources lasted, they gave the government enormous maneuvering room. Without them the accumulation of power it has achieved would never have been possible.

The big question the private sector is asked constantly is why it doesn’t play a more belligerent role toward the government. Given that the political parties have either disappeared or are seriously weakened, some are pushing the private sector to assume a more critical stance. I sincerely think the private sector is going to play a political role in seeking a way to get things back on track in the country, and actually think this is already happening. But in my view it’s not desirable for the private sector to take up this task alone, nor properly its role to do so. Any changes, any retaking of the path to democratic transition, have to come from a much broader social sector, and we’re hoping that will happen. In addition, we need to keep in mind the private sector’s limits, particularly its lack of experience in politics.

,,,and on the political
correlation of forces

The reality is that Nicaraguan society isn’t very mobilized to demand increased democracy. At the end of the day the solution is a question of the correlation of forces. There are currently two active political opposition groups. One is headed by Violeta Granera in the Broad Front for Democracy (FAD), which is the most belligerent and incisive, but has relatively weak structures. The other is the Citizens for Liberty (CxL) party, which mutated out of the PLI. I think it really is in the opposition. It has a structure, and while it has played within the system, criticizes the others and is criticized by them, I think that as the two remaining opposition redoubts in the country, they need to understand that they’ll have to converge down the line, because they have strategically similar interests.

There are also, of course, other political groups, the “zancudo” (mosquito) parties, as we call them in Nicaragua, which are virtually government creations or else have sold out to the government. Then there’s organized civil society, which is divided but always belligerent, and represents impressive cumulative social capital. And finally there are the de facto powers, including the business sector, the Churches and the Army.

Given the situation I’ve described, how might negotiation for a transition take place? It may not even involve a negotiation, but rather an open dialogue. Or perhaps the government itself will make changes in the institutions, putting in new authorities as the old ones finish their terms in their posts. That could open spaces and opportunities for other actors to play a balancing role in the government. Any of those things could happen, but I don’t honestly have a clue how that process might take place; I can’t even imagine it. Nor do I know if the private sector or even the government itself has a clear picture. I tried to put together some terms of reference for a strategy, but I think it’s all up in the air. The Nicaraguan Foundation for Economic and Social Development (FUNIDES) plans to make a proposal with considerations for an electoral reform strategy. We’re thinking about working for private sector initiatives to make a contribution, but it’s difficult to predict what will happen or what path the government will decide to take.

Ortega’s need to know who
his interlocutor is in the US

We need to consider a reality that’s generating uncertainty in the Ortega government and could be distorting and even paralyzing its actions and decisions. The government could argue that it has no need for interlocutors in the United States, but we know that the US, even Washington, doesn’t think with one mind. This is even more visible today, with the change from the Obama administration to the Trump one. There are differences between the House and the Senate, as well as obvious differences within each of them. Then there’s the executive branch itself, which thinks and operates differently than either chamber of Congress.

The State Department has been seriously weakened, with many important posts still open. An undersecretary of state for Latin America was appointed only two weeks ago [as this issue was going to press Secretary of State Tillerson was fired so even that appointment may not last.] Meanwhile what we could call a silent dialogue and set of signals being sent back and forth could facilitate a distention and a slow, even paused, reform process. On the other hand we’ve received direct messages from the United States that signal a sense of urgency with regard to the demand for changes. It is in those mixed, unclear signals that the dilemmas reside.

Ortega is going to be very reluctant to make any moves until he’s clear who he’s dealing with. He’s not yet even clear about the link between the OAS and the US government, because he negotiated his agreement with the OAS regarding electoral reforms during the Obama administration, when it made sense, but there’s no clarity about whether that bet is still good with President Trump in the Oval office. Still, a year later, there are those close to the Ortega government who are arguing that the uncertainty is increasing because there’s still no clear interlocutor in the United States. With so many posts unfilled and so many government officials being fired or resigning, we don’t know how this is all going to play out.

What we do know is that there’s a signed agreement with the OAS. Some in Washington see it as an appropriate vehicle. What we want is a sufficient critical mass in Nicaragua to convert it into an effective one. I believe the OAS needs to be given a chance. The agreement of understanding with it is the only thing the government has on the table, and it wasn’t just a loose agreement; it raised bottom-line issues for the required change in the electoral system. What nobody knows is how close to that bottom line the government will decide to go.

It’s a new stage without
the Venezuelan resources

We also know that the government is entering a new stage with the loss of the Venezuelan resources, having to strip down many of the deals it had been financing with them. We’re now seeing, for example, the nationalizing of the oil debt with Venezuela, a debt we were told was private. We don’t even know how large that now public debt actually is. Will we be able to pay it? With all the public debt we’ve already accumulated, I don’t think we will. The investments made with the Venezuelan resources would have to be very successful for them to serve for repayment of the debt, but not all of them look that promising, so I fear the country will again have to face the challenge of an unpayable amount.

What I see on the horizon is a negotiation between the Venezuelan and Nicaraguan governments to figure out how we’re going to resolve a debt that at any moment could compromise the country’s future. It’s not going to be easy; what was done so irresponsibly with the management of the Venezuelan cooperation is going to cost us very dear. The financial engineering presented by former President Enrique Bolaños for assuming all the benefits Venezuela was giving us was very well known. The form of repayment was structured from the beginning, buying what were called “zero coupons,” in which the country put in the money to redeem the debt and remained with whatever surplus was left. But given that this formula didn’t give the incoming governing party all the money it wanted for its investments and social works, it didn’t accept it.

I think Nicaragua is again going to be like it was some years ago. We’re going to start feeling the pinch of not having those seemingly endless resources, which gave us an image of bonanza for over 10 years.

This February the International Monetary Fund (IMF) came to Nicaragua. It basically told us in a meeting with the government’s economic authorities and the private sector that if we don’t do anything the country will end up with a deficit of 3.5% of the gross domestic product by 2019, and will be back on the path of unsustainable public debt. They told us we need to make reforms to the social security system because those done so far haven’t saved it from insolvency. They also said we need to reduce the tax exonerations.

Tax exonerations, exports
and public investment

My view is that the first thing we need to do is make the tax exonerations and exemptions transparent and do an accounting of them so we know how much each sector and beneficiary receives. And the second thing is to rationalize the exonerations because some still make sense given the desire to promote a particular sector due to the benefits it can contribute. What I don’t agree with is continuing as we are, because basically one exoneration has piled up on top of another and we now have a constellation that reflects political agreements made over many years. I participated in the exonerations for the agricultural sector in 1997, for example. The agreement back then was that they should last five years, but they’re still being enjoyed 20 years later.

This year Nicaragua’s growth is going to be fundamentally sustained by increased public investment, unlike 2017, when it was sustained by exports. But public investment means public debt. Seeing that we’re moving onto a path of worrying indebtedness, I said in front of the IMF, the treasury minister and the private sector representatives in the meeting that if it means falling back into the kind of unsustainable debt that cost us so much to get out from under, I’d rather see us not make investments unless we’re willing to pay more taxes. The weight of the enormous debt we had to deal with in the nineties affected investment and growth for a very long time, only beginning to change in the past eight years or so.

What does the future hold?

I don’t know how everything is going to play out. I get the impression the government is going to try to rationalize the exonerations and increase fiscal income as much as it can to sustain the public spending it plans to do. The end of the Venezuelan resources and those adjustments could also change the political dynamic in the country. A book by Moisés Naim with the very illustrative title The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be basically argues that with the rapid changes, population growth and emergence of a more extensive middle class in today’s world, as well as the information and telecommunications we currently have, no one can hold on to so much government for as long as used to be possible. I think the transition that’s going to take place could be proof of this, because there will have to be changes; there will have to be a transition that establishes basic checks and balances.

We can be part of the solution only in so far as we are well organized. If we are disarticulated and polarized we can do little or nothing. There has to be room for us all in Nicaragua, but we all have to understand that to be able to move forward in a society in transition it’s sometimes necessary to accept that privileges become rights. I think the OAS agreement represents a vehicle to achieve that transition; it’s our best bet right now because it’s the only thing we have on the table.

The power of the US role and
its national security interests

Some say that it isn’t desireable for Nicaragua to be pressured onto the democratic path by US intervention. But we have to be realistic. The United States is our main trade partner. Exports and imports with the United States last year represented more than US$4.8 billion and US investments in Nicaragua have totaled US$1.5 billion just in the last four years. In addition, the United States has the greatest weight in the multilateral bodies that grant Nicaragua loans for public investment: some US$300 million annually. All combined. that represents 38% of our country’s gross domestic product. There’s nothing comparable in our relationship with any other country nor could we replace that relationship with any other.

Other elements also need to be considered to understand the US role in Nicaragua and in the region as a whole. The United States has been at war ever since September 11, 2001. National security is the priority in both its foreign policy and its domestic policy. It’s currently going through a quite tumultuous transition between the Obama administration and the Trump administration, a period in which it has appeared quite chaotic and unpredictable, but it’s now showing a real interest in what’s happening in Latin America for a number of reasons: we’re a source for the production of the drugs affecting the country’s social fabric and organized crime structures control swaths of territory in the subcontinent. Since drug-trafficking, organized crime, money laundering and terrorism all use the same channels and the same practices, the whole package is seen as a risk for US security, and we have it all in Latin America, and also in Nicaragua. The fact that the United States doesn’t have much moral authority to be telling us what to do or not do may be a very valid argument, but we have to accept that the United States can damage us and our responsibility is to protect ourselves from that damage.

For years the current Ortega administration has been selling the United States the idea that Nicaragua will be an unconditional US ally on issues of security, the struggle against terrorism and drug-trafficking, and preventing migrants from passing through Nicaragua to get to the north as long as the US doesn’t mess with us on anything else. That has worked up to now, but isn’t good enough anymore because other interests have come into play: the redefinition of relations with Cuba and Venezuela, and the influence of Russia and China in the region. The Trump administration has taken up Washington’s old habit of acting as if Latin America were its backyard, after the respite of the Obama years. Like it or not, we can’t underestimate the power the United States has in our countries. We have to be realistic, in the full knowledge of what that country is, what we are and where we all stand.

How the world looks today

At the present time, all democracies, including the US one, are in crisis. It’s not that the United States has any business giving us lessons on democracy, but we need to learn lessons on realism. Being realistic at this time means understanding that we’re being threatened, that the US has very concrete instruments that could cause a lot of harm and that we have to come to grips with that and avoid it. The saddest and most regrettable part of this is that these threats and pressures are potential instruments of change, because it seems that in Nicaragua we don’t understand that things should change for good reasons or by fair means. We don’t change anything until we’re forced to.

That’s how I see things today. I’ve spent a good bit of time trying to push in the direction of change, trying to get the country on the road to reopening spaces, shaping a democratic process in which there’s room for us all so we don’t have to continue in the current situation, with someone always playing with loaded dice and only on behalf of one side.

We’ve been there before and we know what it has cost us to climb back out. And it could happen again, costing blood once more. I believe our task is to move more and more people to commit to making the changes we need, mobilizing, discussing, debating, developing a strategy of resistance to this almost absolute power we have before us now, a power totally distorted by Venezuelan resources that no longer exist.

Neither the resistance nor the strategy to deal with what we’re facing will be easy. But these tasks are now our duty. Nicaragua has to get back to intensifying a democratic process in which there’s room for all of us, a model with reasonable balances of power to assure us long-term stability. Achieving this would also be useful for the governing party itself, because it will make us stronger as a nation.

Mario Arana has served as minister of development, industry and commerce; minister of the treasury, and president of the Central Bank during the Alemán and Bolaños administrations. He is currently general manager of the Association of Producers and Exporters of Nicaragua (APEN).

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