The Interbank Bankruptcy Opens a Pandora’s Box
What is being laundered in Nicaragua… money, coffee, banks, businesses, institutions, personalities? The very disquieting revelations emerging in the scandalous Interbank bankruptcy case are dirtying the country’s future.
A good many people believe that, at this time in history, when the avalanche of globalization is sweeping away the very idea of nations, Nicaragua has yet to have even become a nation. Is it even a country? Or is it just a place? And is this place in the process of being built or of being torn apart? The scandalous events revealed month after month are rapidly pulling down what little was in place, leaving a dangerous vacuum where the destiny of the majority of the population could end up being limited to mere survival while tolerating virtually everything the remaining small minority chooses to do.
The financial scandal surrounding Interbank, a commercial bank based on Sandinista capital, is the latest major sign of this danger, made even more evident because it is set against the somber backdrop of the exclusionary bipartisan pact and the implementation of an electoral fraud. Every day we learn more about the intentions and actions of this minority that flaunts its power with total impunity. Every day more hidden links become known and help reveal just how widespread the contamination is. For the moment, the revelations trigger lassitude and impotent tolerance. For how long?
The crumbling of the pyramidInterbank is not an insignificant financial institution. Although it started out small in August 1992, its growth was spectacular and its familiar symbol, a gold and black pyramid, is now seen in cities all over the country. By the time the Superintendence of Banks (SIB) intervened it over a month ago, Interbank had amassed the second largest volume of savings deposits in the country. According to SIB statistics, as of March 2000, Interbank had over 60,000 depositors and a total savings deposit balance of more than 2.5 billion córdobas.
According to the SIB, the bank’s problems were first detected in March, the month exporters began to pay for the coffee harvest. Banks are legally obliged to deposit a percentage of their loan portfolio (which at 16-20% is high in Nicaragua) in the Central Bank’s legal reserve, and when Interbank started defaulting on this requisite, it awakened the suspicions of the SIB, which began to nose around. The most immediate and visible problems were excessive loans to AGRESAMI, an agricultural enterprise that is part of a consortium called CONAGRA, also based on Sandinista capital, and the withdrawal of deposits by some state institutions. It was quickly discovered, however, that the loans to AGRESAMI and other CONAGRA businesses had vastly exceeded the legal limit, thus violating banking norms. It was further discovered that AGRESAMI had issued checks against its accounts in other banks as collateral, but that instead of cashing them, as would have been logical, Interbank had filed them in a safe deposit box. These debts, only apparently cancelled, totaled $11 million.
This is the murky origin of Interbank’s lack of liquidity. It is not clear why the SIB did not intervene at that point, but simply began monitoring the massive irregularities that violated several legal dispositions controlling the national financial system.
What’s political To really understand the crisis it is useful to retrace several of the disquieting revelations and contradictions that have become public since the SIB finally did intervene on August 7. The first and one of the most basic questions is whether the problem was a real banking crisis or a conspiracy to exaggerate a not unresolvable problem for political motives. Then, accepting that this was both a real and huge financial crisis, what had more weight in the SIB’s intervention: President Alemán’s political desire to stop the FSLN’s electoral climb by weakening its economic base and rekindling mistrust of its financial competence, or a technical determination to stop the bank’s irregular financial management? There are no black and white answers, but the questions are not fantasy.
and what’s financial?
There is evidence to sustain the political plot theory. After all, the President of the Republic himself publicly announced the bank’s intervention, and with the smug satisfaction of someone thirsting for political blood. The banking superintendent only spoke later, to try to calm the financial panic that President Alemán had so irresponsibly unleashed. In fact, the President’s lack of prudence constitutes another piece of evidence in itself: the Banco del Café had been intervened several months earlier and public opinion was barely aware of it.
If the intervention was not financially groundless, it was certainly politicized beyond all reason, as a look at the Supreme Electoral Council (CSE) calendar bears out. This fourth branch of state had been working for days to prepare its argument for preventing Conservative Pedro Solórzano from running for mayor of Managua. This inhibition was not the first of the CSE’s maneuvers to orchestrate a fraud but was certainly one of the crudest to date. The FSLN magistrates in the CSE wanted to abstain from such an arbitrary decision so they would not have to bear the political cost, but the Liberals, not wanting to bear it alone, decided that the inhibition had to be by unanimous vote. In the current Caligula-esque political climate, intervening the bank so publicly can easily be interpreted as a form of political arm-twisting.
Abysmal banking practicesIf these three pieces of evidence sustain the political interpretation, there is also ample evidence for the financial one; in fact, the two are not mutually exclusive. The sheer scale of Interbank’s mismanagement had led it to technical bankruptcy and the intervention could not be postponed. And on today’s stage, such serious banking problems beg to be manipulated politically.
Interbank’s fraudulent activities are there for all to see. Although banking norms state that a bank may not loan more than 30% of its patrimonial capital to a single business group, Interbank loaned the CONAGRA consortium—which is now suddenly calling itself CONSAGRO—US$52 million, exceeding stockholders’ capital investment ($20 million) by over 250%. Legally, CONAGRA’s loans should not have passed the $6 million mark. Worse yet, much of this money was in short-term loans, which, for a variety of reasons possibly including some not yet revealed, the consortium was unable to repay by the deadline.
Alongside Interbank’s accumulating financial problems, tensions were accumulating between the two political parties that had negotiated their ungentlemanly pact. When the lid blew off the crisis, everything mixed together. Presented with a genuine financial problem that had no easy solution, President Alemán opted to throw financial prudence to the wind and politicize the crisis. FSLN political boss Daniel Ortega, feeling both CONAGRA and Interbank—two pillars of the party elite’s economic power—threatened, reacted in kind. A week after Interbank was intervened, when it was learned that Banco de Finanzas (BDF), the other Sandinista bank, also had some involvement in the CONAGRA mess, Ortega announced that the Superintendence of Banks planned to intervene it as well. Since the BDF happens to be where the Army of Nicaragua keeps a sizable chunk of its own pension funds, Ortega’s public alert was a calculated maneuver of the sort a US pop psychologist once labeled "let’s you and him fight."
The army invades pact turfThe army was thus drawn onto the stage of the crisis as an actor with clout. The intervention of the BDF was abruptly called off after an unscheduled encounter between army chief Javier Carrión and President Alemán in which General Carrión, apparently mincing few words, delivered an ultimatum. These two men then held an emergency meeting with the economic and security cabinets. The army’s balancing act neutralized the warring PLC and FSLN, at least for the moment. Not only was the BDF spared intervention, but it was decided to form a board to smooth out the terms of the SIB-led intervention of Interbank, one of whose members would be Samuel Santos, a Managua mayor under the Sandinista government in the eighties and now an Interbank board member.
Naturally, the army’s $8 million pension fund played no small part in its interest in preventing a run on the BDF similar to the one that Alemán’s announcement had triggered on Interbank. Intelligent enough not to put all its eggs in one basket, however, the army is reported to have another $12 million in US financial institutions, because it considers them more stable and reliable.
The army publicly interpreted its leadership role based on the destabilizing potential that the crisis was creating. Carrión said the army’s intervention was necessary because the crisis was already affecting "national security." The media openly stated that the country had come close to a coup, and Alemán himself provided some basis for this view in his references to Ortega’s provocative declarations: "The viper attacked immediately! Daniel wanted to throw me to the army."
Carrión denied that his intention had been to intimidate, and stated that he was only carrying out the army’s constitutional mission of guaranteeing national security at a very delicate moment. Whatever Carrión’s intention, President Alemán suspended a trip to the Dominican Republic and immediately curtailed all further sneering references to the Interbank crisis.
If Interbank was on the brink of financial bankruptcy, President Alemán and his Liberal government were on the brink of political bankruptcy during those tense days. It was the first time the army had publicly moved onto the pact’s turf to introduce some of its own "ground rules" and demonstrate its autonomy from both the pact and the parties to it. It was a risky decision. Was it a correct one?
The CONAGRA empireThe second major question growing out of the Interbank crisis, which will probably remain unanswered for some time, is the precise origin of the fortune belonging to CONAGRA’s official owners, the four Centeno Roque brothers. CONAGRA is today the most powerful consortium in Nicaragua’s agrarian sector. According to Ministry of Economy data, AGRESAMI, one of CONAGRA’s affiliate companies, exported over 400,000 quintals of coffee in 1999, 40% of the country’s total coffee exports for that year, and has the largest and most modern processing operation in the vast northern coffee-growing region. CONAGRA also has other valuable assets: sesame husking and exporting companies in the northwest, the Javier Guerra sugar refinery, shrimp operations, and cattle activities that include the high-tech, high-investment and questionably profitable Cañas Gordas genetic engineering center in Rivas. The consortium’s recent history of continuous and copious investments demonstrates a seemingly limitless voracity.
Until the Interbank scandal began to break, the media only cautiously and quietly mentioned the irrepressible rise of the Centeno brothers’ star— except for sports commentators, who sang their praises loudly and frequently. CONAGRA finances the baseball team of the North, which was the National League champion in 1999 thanks to CONAGRA’s willingness to attract the best players, including imported ones, with the highest salaries. Alongside its accumulating economic power, the consortium has worked to build a positive social image by supporting humanitarian projects, including some of the Catholic Church’s charity projects. But if the Centenos were previously mentioned only in such arenas as sports and charity, they are now openly talked about in connection with one of the greatest financial and economic scandals in the nation’s history. This shift from low-profile economic activity to public exhibition has opened an economy-size Pandora’s box for the nation as well as for the Centeno brothers themselves.
As information began to be revealed, public opinion was treated to a rags-to-riches story rivaling those on which the "American Dream" is built. Born in Quilalí and weaned on burro milk, the Centeno children made their living shining shoes and helping their family sell firewood, make clay bricks and roof tiles and cultivate a tiny plot of coffee. Working with dedication "until the wee hours of the night," they ended up somehow amassing an economic empire that has stunned Nicaraguans learning about it in detail for the first time.
From the very first day, the newspaper El Nuevo Diario began insinuating that the Centenos’ capital was linked to money laundering operations and to the capital of Humberto Ortega, former head of the army, brother of FSLN secretary general Daniel Ortega and the party’s chief strategist. Retired General Ortega responded by suing the newspaper’s director and one of its journalists for libel.
Also from day one, Cardinal Obando expressed "admiration" for the Centeno brothers’ hard work, calling them "exemplary." The Centenos flaunted the Cardinal’s backing as proof of their respectability and referred to it as the family’s spiritual sustenance in the face of "all the lies." In meetings with the government, they always asked that Monsignor Eddy Montenegro, the Cardinal’s vicar, be present as his representative.
In a setting already asphyxiating and confusing enough, this Pandora’s box was full of new and disquieting revelations. The declarations of the different defendants in the multiple lawsuits filed in equally multiple courtrooms are keeping the box on permanent display. Perhaps no one will ever be able to close it and maybe no one should want to; it might finally be time to come to terms with its murky contents.
CONAGRA’s rural supportIn only a few years, the Centenos, CONAGRA and AGRESAMI have consolidated an extensive rural social base in coffee and other agricultural areas that were left without credit or support with the closure of the National Development Bank and the neglect of two successive governments. With the Alemán government’s pompous promise to turn Nicaragua into "Central America’s granary" turning out to be another empty promise, the consortium pre-financed harvests, paying small growers and even some big ones the best market prices. AGRESAMI thus became a secure and consistent credit source for over ten thousand small and medium producers, which allowed it to create stockpiling networks that have made the consortium into the major export company that it is today.
In significant rural areas, the Centenos are seen as a beneficial economic group that has filled the shoes of the dismantled state banking system and the indifferent private one. The Sandinista-leaning National Union of Farmers and Ranchers (UNAG), and more explicitly the sector linked to its president, Daniel Núñez, came forward as the Centenos’ most solid ally when Interbank was intervened. UNAG even organized a demonstration of three thousand rural producers from the North in the first days of the crisis. They came to Managua and protested in front of the Central Bank, where they carried the Centeno brothers on their shoulders, applauding them and acclaiming them as the only support for thousands of rural producers.
One explanation for this show of support is that UNAG’s own attempt to set itself up as an alternative credit provider to small and medium agricultural producers failed. Its chain of peasant supply outlets called ECODEPA went bankrupt, as did its Banco del Campo. UNAG was left with only CARUNA, a relatively small financing operation that services a small number of producers.
This sector of UNAG shares an anti-oligarchic discourse with the Centenos. Both try to explain Interbank’s crisis as just one more maneuver by the traditional oligarchy because it resents the homegrown bourgeoisie making money and chalking up economic successes. They argue that, with the exception of the revolutionary parenthesis of the eighties, this traditional oligarchy has always dominated the production and export of coffee and in fact agricultural exports in general, and is unwilling to tolerate any competition from emerging groups. This also echoes the discourse "on behalf of the poor" maintained by certain Sandinista leaders who are among these very same capitalist newcomers.
Taking aim at the ATP businessesThe Centenos’ "coins" have another side, however. By giving credits and receiving not only future harvests but also properties as collateral, AGRESAMI has ably taken advantage of—even stirred up—crises that have allowed it to embargo and gain control of very valuable farms in Matagalpa and Jinotega belonging to the Area of Workers’ Property (APT). According to estimates from the Sandinista Farm Workers’ Association (ATC), 17,000 acres of excellent coffee land from 60 farms have "fallen into" AGRESAMI’s hands through this method.
The still unresolved legal ownership of the APT enterprises—all of them leased to the workers by the state with an option to buy—leaves the worker-"owners" without the titles that would make them eligible for bank financing. They are caught in a vicious circle: they could buy the farms if they could get the long-term credits needed to make them produce, but they can’t get the credits because they do not yet own the farms. Enter AGRESAMI, which is more than willing to accept the right-to-buy leases signed over to it.
AGRESAMI finances the APT operations receiving the farm leases as collateral. If a farm fails or is made to fail, AGRESAMI forecloses and absorbs the property. And failure is never far away. Even without the recent history of droughts followed by flooding, it is not an easy, cheap or quick leap to go from being farmhands on state enterprises, as they were in the eighties, to being stockholder-workers in the nineties. The leaders who control the FSLN today stopped having utopian or revolutionary ideas a long time ago; in their minds, investing in businesses belonging to workers is a waste of time and money. They never believed in the APT project and quickly discovered that these valuable businesses could help plump up and consolidate the original accumulation based on the "piñata," that infamous personal appropriation of the people’s wealth by quick-thinking and acting members of the outgoing Sandinista government in 1990.
Heading up the agrarian AGRESAMI has even sued several Sandinista directors of APT agricultural enterprises and had them jailed. This has created a tense relationship with the ATC, which negotiated hard with the Chamorro government to benefit at least some of its members with the state companies being privatized in the early nineties. Does this AGRESAMI procedure not bear the ideological stamp of the Sandinista revolution’s great agroindustrial projects, in which rural producers were always seen and treated as beneficiaries and never as subjects of development?
The conflict between AGRESAMI and the APT companies is one of the still shadowy revelations. The FSLN party elite’s interest in the APT properties is well known and few doubt that the pact involves some deal on the issue, but AGRESAMI’s policy reveals more about this dark side of the FSLN in the nineties. Peasants who benefited from the agrarian reform of the eighties and farm workers who benefited from the APT project in the nineties succinctly sum up what is happening: via the Centenos, the Sandinistas are taking back the lands they gave us once upon a time.
The Superintendence of Banks is still deliberating what to do with Interbank—whether to return it to its current stockholders, put it up for bid and sell it or liquidate it. In the meantime, the tension among the worker-owners of the APT farms that the Centenos put up as collateral to Interbank for its own debts is growing apace. If the decision is to liquidate Interbank, these properties will be auctioned off. It should not be forgotten that another voracious economic group is hoarding properties these days as well: the emerging group riding the coattails of President Alemán and his own land-grabbing consortium called GENINSA.
Following up on El Nuevo Diario’s lead, one of the most disquieting possibilities surrounding the Centeno capital and how it came to exist is that drug operations could very well be using the purchase of agrarian properties in Nicaragua as a way to launder money. With or without that twist, however, the Centenos appear to have been serving as an instrument of agrarian counter-reform and of the reconstitution of the old landed estates.
CONAGRA’S Other essential questions revolve around the question of why CONAGRA is bankrupt. The inability of a group of businesses from the consortium to meet their financial obligations with Interbank has two possible explanations. One is the unexpected loss of millions of dollars due to speculative maneuvering of international coffee prices, which plummeted given excess world supply from this year’s harvest together with an already gigantic inventory accumulation. The other is the aggressive, madcap policy of buying up agricultural properties, which apparently threw the consortium into such a liquidity crisis that it had to maneuver with Interbank to buy time to recover.
It escaped no one’s notice that AGRESAMI was able to pay the thousands of coffee producers whose crop it bought a higher price than the other stockpiling companies were offering. Might it have been opting for the strategy of reducing its short-term earnings to pull in a larger market and more clients—or maybe even votes in the upcoming elections? Or was it calculating that the price of coffee was going to improve? If the latter, it had to eat enormous losses given the abundance of Nicaragua’s own harvest and the high futures prices it had offered, since the price calculation was a miss.
On the face of it, the Centenos’ financial strategy seems to have been to use millions in short-term credits to buy up harvests or grab new properties and make investments that would show earnings only in the long run. It does not seem a very wise strategy for such apparent financial wizards, and is an unconscionable one for any bank to massively violate banking laws and jeopardize its very existence for. There is clearly far more than meets the eye in this case.
Meanwhile, thousands of other farmers all over the country have been unable to meet their financial obligations as well, although for other reasons. Among its other effects, then, the Interbank-CONAGRA scandal put the larger rural crisis and the worrying issue of the agrarian debts at the center of the debate.
The rural crisis is no jokeThe rural crisis is real. The lack of bank financing to small producers is real, as are the endless indebtedness and the falling prices of agricultural products. The crisis is so real, so serious and so extended that it permits the political actors linked to Interbank‘s crisis no end of excuses to speak and act in the name of others as well as on behalf of their own interests.
President Alemán, who has always rejected the idea of pardoning debts (other than the country’s foreign debt, of course), promised that he would order BANIC, which is still partly a state bank, to suspend foreclosure of its debtors. BANIC has the most important credit portfolio of coffee producers in the country and the capital of Alemán’s own economic group is concentrated there. Alemán called on the private banks to follow suit and announced that the ineffective and virtually failed Rural Credit Fund would be provided an extraordinary budget line of US$20 million.
From the opposition side of the field, Daniel Ortega again unfurled his banner of pardoning the agricultural producers’ debts, drawing precise parallels between this and the write-off of Nicaragua’s foreign debt. The FSLN submitted three bills to the National Assembly to pardon or restructure the debts of small and medium farmers, merchants and manufacturers and to create a new development banking system.
Restructuring agrarian debts would throw a lifesaver to CONAGRA by making it possible to repay its loans over the long term. It is obvious that electoral interests and new third parties to the pact are lurking behind these moratorium proposals. It should be remembered that UNAG has been waving another banner for years: more financing for producers. Asking for credit at the same time as asking for debt cancellation is equivalent to asking for a subsidy. No bank will finance those who demand that their debts be written off.
Sinking the captain… On August 25, Daniel Ortega took advantage of the presence of Chilean Social Christian legislators, who had come to observe the FSLN’s strange alliance with Agustín Jarquín, to announce that 7 of Nicaragua’s 13 banks were facing the same problem as Interbank. In this second inning of "hardball" between the government and the FSLN, Ortega said the government had picked on Interbank "because it feels that it already lost the elections." Of the 7 banks with problems, he only named BANIC, stating that "it should be closed."
or the ship?
Days later, Alemán sent the National Assembly a bill to privatize the 49% of BANIC stocks that are still in state hands. From another flank, the international community was pressuring the government to publicly release the World Bank report on the murky privatization of the other 51% of the stocks in January 1999.
Because the FSLN has a representative in the Superintendence of Banks, it has privileged and financial information. There is a real basis for Ortega’s statement about the other banks on the verge of bankruptcy. His reason for mentioning them, however, was not a pedagogical reflection on the national economy’s fragile foundations. It was rather to pitch another political "bomb" over the plate when the pact’s opposing team was up to bat. "To try to sink the captain [Alemán], Ortega is scuttling the ship [Nicaragua]," retorted BANIC’s manager, adding, "the country won’t be able to withstand another couple of panics like the one caused by the Interbank case."
While it cannot be said that all the seven other banks are in as much trouble as Interbank, they do all have serious problems. The fact is that the number of banks in Nicaragua has little if anything to do with the size of the market in this "place" that the country has become.
So many small banks have been created mainly to attract savings that will provide credit access to the businesses belonging to their stockholders and their cronies. It is akin to the reason so many small parties keep sprouting up. Some banks barely fill the legal minimum requisite for the capital that the bank itself must supply. This puts them in a very weak situation, since such small banks are not financially viable and have limited prospects of becoming so.
Disturbances in the street and On the same occasion that Ortega spoke of the other banks, he warned that in only a few days thousands of indebted peasants would be marching on the capital to demand financing and changes in economic policy. The FSLN structures followed up this second hardball pitch from the Sandinista team by announcing that they would paralyze the country, block highways and surround the Central Bank, the National Assembly and the presidential offices until their demands were met.
moratoria in the parliament?
The moment chosen for this show of strength was paradoxical. Rural producers seek financing when the agricultural cycle is beginning, not halfway through it, and much less when it coincides in such a calculated manner with the problems in Interbank. It was evident that, as on many other occasions, a small group of people was maneuvering to manipulate what is a real and serious problem for many people. The announcement of a "mob scene" caused the government some nervous moments, as was the intent, but on the announced day nothing happened either in Managua or in the countryside. The issue of agrarian debt moratoria and write-offs went to the National Assembly, where the pact functions in a much more controlled and effective manner.
Ortega has declared that the FSLN does not live off Interbank and BDF "but off the commitment of its militants." Nonetheless, the threat of a "riot" in the streets and a "judicial riot"—the moratorium bills—in parliament will continue to alternate as pressure mechanisms because the FSLN’s power elite needs to save Interbank at any cost, and to do that it needs time. Time is vital in a crisis of this sort, which is why they will use any and all resources imaginable, public and hidden, in the streets and in the parliament, to twist their rival’s arm in a pact that is anything but gentlemanly.
The shell gameWeeks into the Interbank scandal, the SIB uncovered more evidence of wrongdoing. The fact that it had not been detected before speaks to the SIB’s ineptitude. AGRESAMI’s loans were not just backed by millions of dollars worth of checks written to accounts with no funds. They were also backed by pledge bonds with a face value of US$19 million issued to AGRESAMI by various General Deposit Warehouses linked to the consortium. The bonds, endorsed over to Interbank and other national and international banks, also turned out not to be backed by the real goods.
For some years now, the SIB has been supervising not only banks but also these General Deposit Warehouses, where the country’s export companies hold merchandise and products, basically coffee and sugar, for export. Because coffee is stored there before loading on ships, or waiting for better prices, it can serve as collateral for obtaining short-term credits. The warehouses issue pledge bonds—financial instruments that certify the quantity and quality of the products stored there—which banks will accept as collateral from the company owning them.
When investigating the bonds that CONAGRA had signed over to Interbank, SIB inspectors discovered to their stupefaction that the SEMAR warehouses, which AGRESAMI itself was in charge of guarding, were storing over 400,000 sacks of rice and coffee husks instead of the sugar and coffee beans that CONAGRA had declared. SEMAR is a business with Sandinista capital and its owner is a BDF stockholder.
SEMAR accused the Centeno brothers of fraud, blaming them for sneaking refuse into the warehouse instead of coffee. The Centenos in turn accused SEMAR of fraud, blaming it for replacing their sacks of coffee with the husks. It was learned that this fraudulent "shell game" had been practiced for years in various warehouses. False checks, false deposits… next it would be discovered that there had been false shipments. Very wormy things have been slithering out of this particular Pandora’s box.
It’s no kid’s game...What will be Interbank’s fate? Technically speaking, with losses estimated at some $40-50 million and capital at only $23 million, it is bankrupt and logically should be liquidated. This was the position of Nicaragua’s Association of Private Banks, currently presided over by the manager of the Banco de América Central (BAC), which belongs to the powerful oligarchic Pellas group.
The multilateral lending institutions—World Bank, International Monetary Fund and Inter-American Development Bank—are on the oligarchy’s side. These institutions view the government’s handling of the crisis as thoroughly inappropriate, though they avoid saying so in their careful diplomatic declarations. They are worried not only about the handling, but also about the crisis itself, because the financial system’s regulations were contaminated not only by political infighting but also by the SIB’s demonstrated lack of ability to act and act quickly.
FSLN stockholders would have a tough time injecting enough capital into Interbank to resuscitate it. They can, however, exert all kinds of political pressure to keep it breathing. For the FSLN, avoiding liquidation is vital. The party leadership built its economic base around CONAGRA, Interbank and the BDF. In the bat of an eyelid, President Alemán provoked a run on Interbank, turning a major liquidity problem into a crisis from which it may never recover, while CONAGRA is in precarious financial, economic and judicial shape and its public image has taken a major dive. In other words, with election time fast approaching, two of the FSLN leadership’s three economic pillars are tottering. With the economic game of one of the two groups in the pact now out in the open, anything can be expected. "This is no kid’s game," said one analyst. It could also be that absolutely nothing happens, which would indicate the degree to which corruption has already succeeded in contaminating all the foundations of this place called Nicaragua.
Looked at from a longer perspective, the worst effect of the crisis is the national financial system’s loss of credibility. The damage is both structural and institutional. Not since private banking was reintroduced in 1991 and the Superintendence of Banks created in the same year has such an inherently fragile financial system taken such a perturbing beating. Although the Banco de Europa y Centroamérica (BECA), Banco del Campo and Banco Sur all went bankrupt previously, none of the three were anywhere near as big as Interbank.
Even more important than size is the politicization of this current case. In the three previous cases, the Superintendence of Banks acted in strict accordance with technical criteria, which helped provide solidity to the country’s banking regulations and its financial institutionality, and the bankrupt banks were quickly absorbed by other banks. This time, to the contrary, the SIB’s professionalism is being questioned and Interbank is too big and has too much political support and too few assets for any potential buyer to want to absorb it, or for it to willingly accept being absorbed.
Capital flightThe size of the political crisis is reflected in the fact that for the first time since 1990 there was talk of a coup d’état to restore order, which was fortunately short-lived. The size of the financial crisis is reflected in the fact that for the first time since the turbulent 1980s it has been acknowledged that there has been capital flight. According to the SIB, the crisis triggered the shift of more than $10 million to foreign banks.
Central Bank president Noel Ramírez, spokesperson for the Liberal government’s "macroeconomic success," tried to minimize the scope of the crisis. He claimed that there had been no capital flight, and that the problems were only "accounting" ones, in that the money had moved out of Interbank and into other banks within Nicaragua. He argued that the system still had the same amount of money it did before the crisis.
But that is not an accurate description of the crisis. The flight of deposits from Interbank in the first two weeks amounted to some $65 million, approximately $15 million of which Interbank covered. The Central Bank had to take $50 million out of the public coffers to guarantee the remainder of the panic withdrawals. Of the latter amount, other banks in Nicaragua only attracted $40 million; another $10 million fled abroad. In addition, the amount that the Central Bank provided to support Interbank clients who wanted to withdraw their savings had to be replaced by increasing the already high legal reserves and issuing bonds and obliging the banks to purchase them.
The capital flight together with the increased legal reserves requirement and forced sale of Central Bank bonds to commercial banks to provide the funds needed to respond to the depositors’ run on Interbank will further increase credit restrictions and dry up more of the economy’s liquidity. This, in turn, will further reduce this year’s expected economic growth, making an already critical situation even worse. Deputy Superintendent of Banks Alfonso Llanes, a more sincere official than Ramírez, provided this information, but none of the government’s economic spokespeople have acknowledged these highly predictable consequences.
The only beneficiaries of the crisis are the banks to which former Interbank depositors switched their funds, and a banking Who’s Who can give a pretty good idea of which ones they are. Traditional oligarchic capital is grouped around the BAC and Banexpo and Liberal capital around BANIC. Medium-sized independent capitalists lean toward Banpro, Bamer, Pribanco, Bancentro, Banco del Café and Calley Dagnall. It is possible that, once some of the politicization of the crisis dies down, the multilateral organizations will "ask for the head" of some banks in this proliferation, forcing a restructuring of the whole system.
It was a crisis waiting to happenThe first results of the crisis are dramatic. The government’s much-vaunted economic figures have already taken a dive. The SIB’s technical capacity and autonomy to regulate the system have been undermined, as this institution has been identified with the misdirected policy of a government that has put the entire state at the service of its irresponsible governing party. Banking Superintendent Noel Sacasa’s image is utterly tarnished; he was even obliged to publicly express his regret for having attended one of the meetings President Alemán called to find a "political solution" to a technical crisis aggravated by Alemán’s own tendency to put his foot in his mouth politically. The multilateral organizations are paying a very high price for their silence and "prudence" in the face of so many excesses before this crisis.
The multilateral financial institutions view this crisis as a catastrophe. Perhaps they ought to recognize that since they could foresee it, they should have forestalled it. While it is true that these institutions have been urging technical and administrative autonomy for the Superintendence for some time now, they have tolerated the PLC-FSLN pact in silence. They either did not want to or perhaps did not know how to exert pressure in the right way to free the reform to the Superintendence Law and the naming of the new superintendent from that contaminated and contaminating pact. At the time that the law was reformed and the new superintendent appointed, outgoing Superintendent Navarro Deshon was already forecasting the kind of problems that have now burst into the open.
¿Quo vadis, HIPC?The Interbank crisis blew just before the IMF was to evaluate Nicaragua’s economic performance yet again to decide whether it should be allowed into the Highly Indebted Poor Countries (HIPC) Initiative. The banking crisis put this entry at risk anew.
Two positions emerged around the problem. The multilateral organizations and the United States, while recognizing the government’s irresponsible handling of the crisis, supported the idea of not delaying Nicaragua’s entry any longer. They want to keep the fragile macroeconomic balances from unraveling even more in the unstable electoral period and to make entry into HIPC a new incentive for the government to behave reasonably around fiscal issues and respect the balances achieved. They believe that the situation is getting utterly out of hand and that without Nicaragua’s prompt access to the initiative, its macroeconomic stability will remain at risk and all the effort of the past ten years of adjustment could be lost.
The European bilateral donors have a different view. They think that the government is so irresponsible that it would be better to wait for the municipal election results before rewarding it with such an important incentive as Nicaragua’s entry into the HIPC.
We deserve the pardon nowThe crisis is thus forcing another round of debate about international cooperation’s role in Nicaragua. Independent of the electoral results or any changes or rectifications the government may make in the short run, Nicaragua has already more than won the right to be part of this initiative. And though the initiative in itself is totally insufficient to ensure a swing toward economic development and fails to express the just relations between North and South to which we aspire, it does represent an important breathing space for an economy weighted down by such an unjust and insupportable yoke.
Nicaragua has been under the International Monetary Fund’s wing and applying its severe policies for nine years now. To wait until 2001, or even until 2002 so that a new government can negotiate the entry into HIPC, would be absurd and unjust. Nicaragua’s $6 billion debt and the high annual service we have to pay on it is not the exclusive responsibility of either the country or the Sandinista government, as President Alemán obsessively insists. It is, however, intimately related to the United States government’s responsibility for insistently financing and directing a war here for 10 years.
Nicaragua’s entire foreign debt should have been pardoned many years ago. Within or outside of the HIPC, international cooperation has enough resources to pressure the government of Nicaragua to exercise transparency and other forms of good governance. Whether or not Nicaragua is allowed into the initiative, it will continue to depend on international cooperation for a long time to come and the roughly $500 million that international cooperation provides Nicaragua annually in loans and donations is an effective means for pressuring this or any other government. Meanwhile, perhaps donors should start their quest by achieving some level of consensus among themselves.
The nature of the pactThe Interbank crisis has revealed major frailties in the country’s institutionality and economy. It has also revealed the true nature of the FSLN-PLC pact. It is increasingly evident that the political bosses and elite circles of both parties only agreed on one thing: to fight over Nicaragua as if it were an economic and political pie, excluding any other contender by any means necessary. Beyond this agreement on exclusion, everything else is and will be a fight to the death, and any pressure, threat, blackmail, dirty trick, betrayal, swindle, irresponsibility or violence is and will be permitted to decide it. If that were not the case, the Interbank case would never have developed in the way it did.
That’s how the pact works—like gangs that get into rock fights in the streets without a thought for the roofs or windows of the houses there, the heads of passersby or the windshields of passing vehicles. The pact’s consequences have reached a scale unimagined at the beginning, unleashing a high-intensity war between the country’s economic and political powers. It is not at all clear when "peace" will come.
The pact has not just excluded any political alternative not tolerated by the two bands, a decision that in itself generates instability and violence. It has also turned regulation of the economy into the political bargaining chips of two caudillos actively and urgently dedicated to consolidating and expanding the capital—whether clean or dirty—of their respective economic groups.
It’s just a placeThe crisis has revealed how deeply and how extensively the pact has damaged the country. It was not enough to divide all political and government-controlled institutions between the two parties. They also divvied up the institutions that control the economy. "Demolishing the country" was the title El Nuevo Diario gave its article covering Daniel Ortega’s provocative declarations about the seven banks threatened with bankruptcy. The two parties to the pact appear perfectly willing to demolish the country so that it ends up as just a place, when they should properly be working to build a nation.
How are we supposed to change things in this place? All institutional alternatives have been blocked by a pact that is now busily preparing an electoral fraud. All that remains are the paths of active resistance, of the persistence of memory and thought, of civic organization, and of using all that to oppose with our own ethical power from below those who would hoard power. The only way to remain hopeful is to start thinking about the longer-term.