A Hundred Days into the New Government, There are a Hundred Questions

Everything was preamble before March 21, the day a lawsuit was opened against former President Alemán. All factors of power in the country are tapped. How well will they pass the test?

Nitlápan-Envío team

On April 10, the government of Enrique Bolaños completed its 100th day, a time period that has become politically fashionable to evaluate. Albeit a relatively arbitrary period, it assumes at least two things: that the new President will have defined the general lines of his or her administration and that the honeymoon period the electorate usually allows newly elected governments will have begun to sour. Neither seems to be the case in Nicaragua.
Judge Gertrudis Arias’ unexpected and unprecedented decision on March 21 to accuse former President Arnoldo Alemán of acts of corruption in the Channel 6 case (see the sidebar in this article for details on this latest corruption scandal, involving the state television channel)—not to mention its unpredictable outcome—creates a whole new before-and-after watershed that has nothing to do with the first hundred days. The setting is burdened with so many uncertainties that the most meaningful definitions are still to come. Nonetheless, bowing to tradition, we will set the stage for what is ahead of us by evaluating what is behind. We will have to base it more on questions than on answers, posing the most obvious ones and letting our readers draw their own conclusions.

Bread and circus

The Alemán backers who oppose Bolaños refer to what is taking place as "bread and circus." They picked up this metaphor from Alemán himself on April 1, when he learned he had been charged in court. At that time, he alluded to the new government by saying: "It has to comply with what it offered about generating jobs. Frustrated by being unable to make these changes, it is exclusively and singly dedicating itself to offering a circus. In the style of the Romans, who entertained the people with bread and circus, and unable to provide the bread by generating employment, they are styling themselves as a circus, as jesters, to sully many innocent people."
We accept both halves of the metaphor, despite Alemán’s mangling of it. What the pro-Alemán opposition calls a "circus"—Bolaños’ fight against corruption—has so far only begun to plumb the depths. It claims that, lacking the "bread"—and the country’s continuing economic stagnation is unarguably evident—the President is turning to spectacle to distract the population and feed the media’s sensationalist inclinations.
The opposition siding with the FSLN, which is also jeopardized by this circus and will be even more negatively affected if it continues but is in no position to discredit it before public opinion, is criticizing Bolaños for what he is not doing: for not providing the bread. They are also criticizing him, although in private, for what he is thinking of doing: as a prominent representative of the business Right, he has come to power with the North’s blessing to break up what is left of Nicaragua’s social, union and grassroots movements with the strategic goal of restructuring the country under the dictatorship of capital.
In between these two opposition bands, varied sectors understand that there has been too little time to provide much bread given the degree of Nicaragua’s economic prostration, much less appreciate the little that has been provided. They are becoming convinced that Alemán needs to be dealt with to stabilize the country and that a comprehensive, more long-term struggle against corruption is indispensable to democratize the country and establish clear rules so that more bread can be produced and better distributed.
Meanwhile the international community, on which the weak Nicaraguan economy depends so much, is unanimously backing Bolaños and demanding all the circus he can muster so it can begin to provide the bread in more secure circumstances. How much anti-corruption circus is Bolaños willing to get caught up in? And how much bread will the hardly new economic model on which the President of this self-proclaimed "new" era is wagering really bring to Nicaragua?

"Son of Piñata"
came as a surprise

The model Bolaños is banking on has already come up against more limits than his team strategists had foreseen. Neither the President nor any of his Cabinet ministers had imagined what was awaiting their discovery when they took office and started putting their respective inherited houses in order. The International Monetary Fund had not imagined it either: the Alemán government spent its budget—and more—with utter abandon during the 2001 electoral year. Harking back to the state goods that the outgoing Sandinista government made off with after losing the elections in 1990, an international source called the repeat performance by Alemán and his gang a "little piñata."
But it wasn’t so little. Reliable sources report that the Supreme Electoral Council, for example, exceeded its already substantial budget for last year’s elections by 50%. The Emergency Social Investment Fund, the darling of the World Bank that the same sources say has already turned into a "monster," freely squandered resources to implement irrationally expensive "works of progress" to be unveiled in the PLC campaign showcase. All this wild spending generated a fiscal deficit similar to that of the eighties, which were war years. "The problem," commented one diplomatic source, "is that this deficit had been starting to grow even before, because when the post-Mitch donations started dwindling in 2000, spending didn’t."
Thus, with an already huge fiscal deficit, the Alemán government broke records for waste and misuse of funds in 2001 through the inertia of squandering in motion. They figured that if they won the elections, the party would continue, and if they lost, well, spend while the spending is good. If the size of the money spill was unpredicted, the adjustment was more than predictable. Drastic cuts in the public budget will be indispensable in the adjustment program that Nicaragua has set in motion with the IMF even before its formal signing in July. Where will such slashes be made and what will their political cost be?

State macrocephaly

The legacy of the 2001 piñatita is such that the adjustment must be even stricter than initially anticipated due to the inescapable need to order the economy. It will not be as drastic as it could have been, on the other hand, because the US government and other bilateral donors will work out how to cushion it somewhat as another expression of their unanimous backing of Bolaños. But it will be very strict. It already is. All ministries have gotten the word that they have to cut their budgets by 15%, except health and education, which only have to hit 5%.
In addition to the habitual practices of waste and ostentation, one of the most noteworthy expressions of the 2001 piñatita was the indiscriminate hiring of Liberal-leaning personnel in some ministries, as a form of pre-electoral patronage. In one ministry alone, 150 people were hired between 2000 and 2001, with no rational criteria. In general, Nicaragua’s ministries suffer from macrocephaly—an enlarged head. As one worried donor put it, "Nicaragua is a very small economy administered by a very large government, which we donors are financing."
Dealing with the piñatita and reducing the size of this head is a challenge for the new government, which made "more employment" its central promise during the campaign. The adjustment is now forcing it to put a higher priority on identifying the "pockets of inefficiency" in each ministry and state institution, which will translate into unemployment for hundreds of supernumeraries.
What political cost will this unemployment have among angry Liberal sympathizers, who have already given it a strictly political spin? More importantly, what political cost will it have in society as a whole, which for the most part is starving for fixed employment and a sure salary?

Is growth possible?

Nicaragua’s economy is too open and too vulnerable. Any change can send it reeling. A simple variation in interest rates in the banks in Miami can trigger serious capital flight. Production was not reactivated during the Alemán government and the pact initiated a de-institutionalization process that provided a breeding ground for corruption, all of which affected the weak economy even more.

The signs of stagnation are evident. The coffee crisis has not been resolved and now another year of drought is being forecast with the return of El Niño (if he ever left). The fiscal and trade deficits are unsustainable. The remaining state companies have either fallen into debt or into bankruptcy. State assets that have not yet been privatized and are as emblematic as the Olof Palme Convention Center have been bankrupted by the state-party confusion that characterized the Alemán government and are now up for sale. The cuts in public investment projects required by the IMF will trigger more unemployment, with no short-term alternative in sight. And the benefits that could grow out of the Central American Free Trade Agreement with the United States, formally inaugurated on March 24 in San Salvador, will not have any immediately visible effects, even with the best of negotiations.

All this evidence has kicked the pins out from under the government’s initial optimism. The government team’s growth projection for this year has been revised downward to only 1.5%, which will mean negative per capita growth in the first year of the "new era." What bread will the government be able to offer in coming months to halt the slide toward disappointment and impatience that could take hold of the population?

Putting a stop to poverty?

If the new global winds have incorporated the "fight against corruption" as a condition of international aid to the countries of the South, these same winds have for the past three years been bearing another condition: the "fight against poverty." According to the international agencies, the poverty reduction strategy presented during the Alemán government is one of the best formulated they have seen, but there is many a slip twixt cup and lip, and many valid questions between formulation and implementation.

If this document is one of the best, it still leaves much to be desired. Regarding the formulation, it must be said that, while the assessment is good, the proposals do not go to the core of the problem. In fact, the document is more a list of projects, some of which were even already underway, than it is a strategy. In addition, there was not enough public participation in the design of the strategy and many of the proposals and suggestions that were offered during the consultations were never incorporated.

What happens to the
poorest of the poor?

With respect to implementation, one concrete part of the strategy already being implemented is the provision of monthly 500-córdoba bonds to 10,000 rural families in zones of extreme poverty on the condition that they send their children to school and to health centers. Apart from contradictorily rewarding people for doing something they should understand as in their own interest, this policy generates dependence and sparks even more inequity. Giving bonds to pre-selected families in extreme poverty creates tensions in the communities since everyone is poor in the areas where this program is being applied.

President Bolaños has said that poverty is "Nicaragua’s main enemy" and is "the war we must win first, even though we must come out victorious in many other battles as well, one of which is corruption." But will the new government’s business vision confuse social justice with paternalism and handouts, as it always tends to do? Will it settle, in the best technocratic style, for the excellent formulation of the strategy or will the new government’s model truly take into account the needs of the poorest of Nicaragua’s poor, no fewer than 40% of the country’s entire population?

The unpayable domestic debt

The Bolaños administration has made its debut squished between the despicable piñatita of 2001 and a genuinely unpayable domestic debt, which has now hit US$1.3 billion. Nicaragua’s foreign debt can now be considered more "payable" than its domestic one, which has no HIPC initiative or pardon or reduction or Club of Paris or anywhere else to turn. This inherited debt is unquestionably the greatest burden dragging on Bolaños’ economic plan.

Its origin is divided almost equally between the scandalous bank closures of a few years ago and the gay abandon with which indemnification bonds were issued, mainly by the Chamorro government, but also by its successor, to those whose properties were confiscated during the Sandinista revolution. Among those benefited by such bonds was Enrique Bolaños himself. The Sandinistas had returned the bulk of his many holdings even before the 1990 elections, and the Chamorro government compensated him—and others like him—for properties that could not be returned without creating political instability. This year, the government must begin to pay the banks for those bonds and in two more years it will have to pay 20% of the bond value (US$ 762 million) to their current holders. Where does it expect to get such amounts? And since Bolaños’ base largely consists of bankers and confiscated landowners, how will his government resolve the tensions created by paying late or less or not at all? International cooperation has quite rightly dug in its heels at the idea of financing the government for short-term relief from the weight of this immense domestic debt.

More jobs or less corruption?

Bolaños’ office has ordered the polling firm Borges y Asociados to do periodic opinion polls to measure the population’s feelings about high-impact themes appearing in the media. In the latest such survey, conducted in February, those polled said they agreed with the new government’s fight to eradicate the corruption inherited from the Alemán government, but it is not their first demand. For most people surveyed the priority is that the new government create the new jobs it promised.

All polls have been hammering at this nail for years. In this latest poll, 39.7% put jobs in first place, followed by 18.6% who put fighting corruption first. This indicator encourages Alemán supporters to recommend that Bolaños quit tangling with Alemán because it is destabilizing and makes the new government unpopular with certain Liberal sectors. In contrast, some of Nicaragua’s most important big business representatives—the Pellas family, which is the Toyota distributor, among many other things, the Teráns, who represent Kodak, etc., are very enthusiastic about the new business climate with "one of their own" in office. They are predicting that some 12 companies, both national and international, could set up operations this year, generating at least 7,000 jobs, although this makes barely a dent in the country’s unemployment situation.
Some of the government’s investments to generate new jobs are linked to the perceptions and decisions of the multilateral agencies and bilateral donors about the effectiveness of the fight against corruption. And indeed, many investors have put a priority on strengthening the judicial system. Other investors, however, such as those in the free trade zones, do not respond to that logic. And things are going well for the new government in maquiladora investments, although even those sweatshop assembly plants do not generate enough jobs to soak up the enormous existing employment.

How long will people wait before Bolaños’ popularity starts to erode? Civil society leaders are insisting that the new government needs grassroots pressure "in the streets" if it really wants to confront Alemán and put a halt to corruption. Are Nicaraguans who are dying for more jobs, better wages and more opportunities likely to mobilize in significant numbers for an intangible, albeit intimately linked, cause such as corruption? And if such mobilizations are organized and headed by FSLN leaders, will they have any draw?

How much have we been permeated by corruption?

The institutionalized corruption of the past five years has not just affected the state apparatus. It also infected the practices of private enterprise early on and has now spread to all strata of society. We find ourselves increasingly surrounding by vices such as swindles, bribes, non-compliance, laziness, indifference, sloppiness, contraband, lying, back-stabbing and petty theft in all aspects of life. Bad examples spread faster than good ones in such an environment, following the example of a rotten fish: though the head always begins to smell first, it is not long before it reeks all the way to its tail.

Tax evasion is a deep-rooted form of corruption in the private economy, more by omission than by commission. And that has not been all to the bad in recent years, since tax money not paid into the public treasury was, lamentably, more likely to circulate at the service of the community and less likely to end up in the pockets of corrupt government officials. On top of cutting public spending, however, the adjustment program is now requiring increased tax collection, not with new taxes but with new contributors.

More contributors?

The IMF believes that professionals such as lawyers or doctors are paying far less in taxes than they should for earnings obtained in their legal offices and private medical practices. It is estimated that if some seventy-five thousand economic agents are paying their taxes, an equal number are evading their responsibilities to do so. It also thinks that, in addition to the powerful networks that keep the contraband merchandise flowing and pay no taxes, which should be stopped, there are too many unjustified exonerations for too many people. "After 10 years in which the IDB and World Bank have invested so much in institutionalizing the General Tax Division," lamented a donor, exemplifying a situation also found elsewhere, "we have discovered that not only are there no controls in that institution, but that even DGI secretaries have tax exemptions."
What will be the political cost of getting tough on tax collection and expanding the contributor base by going after new sectors? If paying taxes largely depends on confidence in a state’s tax institution, will one sign of the "new era" be that people recover their trust in the DGI, even after the fresh and still unpunished corruption scandals linked to Byron Jerez, who directed both it and its massive check scam?

Yesterday’s corruption
or the earlier model?

Channel 6 represents the first corruption case to which President Bolaños has become deeply committed. Estimated to involve only around US$1.5 million, it is thus only the finest, almost symbolic thread to be freed from the incredible tangle of corruption institutionalized by Alemán. It was also simple, because all the prints at the crime scene were fresh and all evidence was at hand—so much so that one of those implicated withdrew the last check to be diverted ($200,000) only a day before Bolaños took the oath of office.
A good part of the population is behind Bolaños’ determined action in this case, but an even larger part would back him more if he would undertake to unravel the remaining big corruption snarl with the same determination. This other one started with the Sandinista piñata in 1990 and continued with the Chamorro government’s dismantling and selling off of the sizable public sector accumulated in the eighties, largely to her own functionaries and to FSLN leaders. Both time and skill have erased the prints and other incriminating evidence of this much more "professionally" woven tangle. Nonetheless, its results are still being felt today, particularly in the Interbank case. Is there any chance, even any desire, to get all the way to the bottom of that scandalous bankruptcy—and what is now being called its "second" sacking, allegedly engaged in by the unsupervised liquidating committee? After uncovering the Channel 6 fraud, President Bolaños declared that Nicaragua has "real mafias of corrupt people" that are capable of anything, including killing him. What are the chances of going after both mafias at once and emerging unharmed?

To the bottom of
Interbank or how far?

After the eight people institutionally responsible for the collapse of Interbank in August 2000 were given a definitive stay of prosecution last year, a showy and much publicized detention order—including a reward—was recently issued against the Centeno brothers, the former bank’s main borrowers, for their "rice husk" scam. And now, alongside the uncovering of the Channel 6 case, the Interbank case was reopened when an arrest order was issued against the eight people most visibly responsible for the bankruptcy, among them the Centenos, who are still on the run. So far only the bank’s former general manager has been jailed.
The chain of bank failures that started with Interbank has cost the state over US$300 million, of which nearly 70% represents the losses caused by Interbank itself thanks to the Centenos’ defaulted loans to their multifaceted agro-business consortium CONAGRO. Together, the bank and the consortium formed the center of the business activity of Sandinista capital acquired in the piñata of the early nineties.
According to Bank Superintendent Noel Sacasa, "Interbank is by far the most scandalous of all the bank failure cases because it involved a massive swindle, very ably disguised with a number of sophisticated tricks that are hard to explain without widespread complicity inside the bank right up to high levels. What appeared a well-managed portfolio, with very complete and orderly files, was really made up of 80% unrecoverable loans granted to individuals or businesses linked to the Centeno group. New things are still being found two years later." The most scandalous part is that no one was tried, sentenced or punished during that period, and now, after only being able to recover some 5% of the Interbank portfolio, the state is having to pay no less than US$200 million to bail out this bankruptcy. It is obvious that if Bolaños is serious about his self-proclaimed "zero tolerance" policy, an act of corruption of this magnitude cannot go unpunished.
If the national community has forgotten the Alemán-Ortega pact and its terrible effects, the international community, which cut or froze funds to Nicaragua because of it, remembers it well. Their rejection of the pact has led the international agencies to insist that impunity must not win out in the Interbank case. If the government decides to dig all the way to the bottom of this fraudulent bankruptcy, it will surely get to members of the FSLN’s inner circle. How far can, will or should Bolaños go in this case? And what space will he concede in his model, based on clear capitalist rules, to the FSLN, which revealed its own particular "rules" in the Interbank fraud?

With what institutions?

The fight against corruption is a task for all state institutions and the whole of society. The institutions most directly responsible for dealing with it—those of the judicial branch and the Office of Comptroller General—are themselves infected by the corruption and only respond to the two parties to the pact. The comptroller’s office has such a small budget that it cannot do all of the investigations that it should. Meanwhile, the attorney general’s office, which should be independent, is also tainted by the pact and therefore doing nothing either.
The uncovering, investigation, advances and results of the Channel 6 case were thanks to the economic investigations department of the National Police and the Office of Prosecutor for Justice. The professional role played by two people—Gertrudis Arias, an unbribable substitute judge, and Alberto Novoa, a tenacious lawyer named by the prosecutor’s office as the prosecuting attorney—was also fundamental.

Even before the elections, Bolaños had highlighted the role that the prosecutor’s office would have in the anti-corruption struggle during his term in office. With the illness of Oscar Herdocia, appointed by Bolaños to head the prosecutor’s office, the lead role in the Channel 6 case fell to his deputy, Francisco Fiallos, who stepped into it with determination.

Fiallos can be expected to apply this determination to both "bands" as he was one of the first dissident government officials the Sandinistas had to cope with in the eighties. He now says that he decided to resign from his diplomatic post at that time because "I understood that the FSLN was a politically organized criminal group." Will he go on thinking that? It is obvious that the prosecutor’s office will continue to head up the anti-corruption battle in the government’s name. How will the rest of the judicial system institutions, so tainted by partisan politics, political pacts and purchased justice, try to boycott this newer and more independent member?

How far with the FSLN?

President Bolaños met for the first time with Daniel Ortega on February 14, an ironic date for those long-time enemies. According to both leaders, the two-hour meeting was aimed at reaching "an agreement" for Nicaragua. Bolaños denied that any "deal, secret pact or renewal of the pact" was involved and stated that "we both want to see a peaceful and calm Nicaragua." Ortega said he could not make any comments on what kind of "opposition" the FSLN will provide to the Bolaños government, which has barely begun its term. He did, however, declare that "the least costly for the country would be for us to reach an understanding and not allow ourselves to reach a confrontational level."
To what degree and for what purpose does Bolaños need the FSLN? He seems to need the votes of the Sandinista legislators in the National Assembly to counter Alemán, but what he really needs is a different FSLN, a more modern and democratic party without links to the "mafias of corrupt people" to which Bolaños has referred.

How much Sandinismo?

Can a man who has been so anti-Sandinista clearly perceive this need and this potential difference? Sandinismo is an irrefutable reality in Nicaragua, a factor of power, which is why Nicaragua needs the FSLN. Is a change in the party possible as long as it is headed by Ortega? Will this be the "mission" that the National Convergence has taken upon itself by continuing the alliance with Ortega? Will that alliance be broken by taking positions that would force a fight against corruption understood as a comprehensive problem?
When the confrontation between Bolaños and Alemán over Channel 6 broke, Ortega’s calculated ambiguities were another indication that he and his followers still find it safer to continue negotiating with Alemán than expose themselves to the risks of facing alone the possible dangers represented by Bolaños. It must never be forgotten, however, that today’s national tension is largely due to the position of power that the cornered Alemán occupies in the National Assembly thanks to the un-elected seat he negotiated for himself through the pact.

How far with Alemán?

The Channel 6 case triggered the first exchange of fire between the executive branch presided by Bolaños and the legislative branch presided by Alemán. Is the rupture permanent? The fear of appearing before any court stripped of his immunity paralyzed Alemán, despite the weakness of Nicaragua’s judicial branch and the majority weight he has in the Supreme Court, the Appeals Court, the Offices of Comptroller and of Attorney General and in so many other institutional spaces. While that weight could have allowed him to rig deals to be declared innocent and walk free, he decided to entrench himself in the Liberal parliamentary bench, made up of legislators hand-picked by him precisely to guard his back should such a case as this arise.

One only needs to read the pro-Alemán newspapers or listen to the few radio stations that back the former President to get an idea of the serious nature of the crossfire between the executive and legislative branches or how real the hatching conflict between Bolaños and Alemán really is. The Alemán side is the "anti-imperialist" warrior criticizing US interference in Nicaragua, and the "anti-globalization" warrior dueling against the IMF for dominating the Nicaraguan economy, while Bolaños is bitterly criticized for having "betrayed" the Liberals... It’s a discourse that could have come straight out of Ortega’s mouth.

How far with the PLC?

Bolaños still needs the Liberal Bench’s votes to push through many bills that are essential to his model, and one of its members has warned that Alemán will see to it that every bill Bolaños wants passed will get blocked. Will the PLC commit suicide with Alemán? Will the Liberal bench keep suffering defections, and if so why? Just as Bolaños needs another, more modern and democratic FSLN, he also needs another PLC with the same characteristics, and that is also more respectful of the rules of his capitalist model and renounces its ties with the "mafias of corrupt people" decried by Bolaños. Is such a PLC possible under Arnoldo Alemán’s leadership? Or is the only alternative to reconstruct Liberalism with the national figures who are extricating themselves from Alemán and his cohorts and the seventy thousand Liberals around the country who joined the Friends of Bolaños Group during the electoral campaign and have now organized an NGO called Friends of the Nation?
With the Bolaños-Alemán confrontation now in the open, the country’s governability level is dropping and the situation will become unsustainable if Alemán remains as National Assembly president and digs in further there to avoid being tried. Will Bolaños negotiate with the PLC—and vice versa—to get Alemán out of the Assembly presidency, which would be a first step toward greater stability? What would Bolaños have to give the PLC in return? And what would it have to give him to halt the avalanche of corruption investigations that will predictably follow the Channel 6 case and are sure to involve Alemán as well?

Social upheaval?

Some Alemán backers are putting their money on creating focal points of potentially violent tension to force Bolaños to cut a deal. And there are Ortega followers who have the same idea, to force him to negotiate with both "bands." Then there are those who, seeing the depth of the country’s already acute economic crisis, warn that this political conflict could end up turning Nicaragua into another Argentina, albeit an infinitely poorer one incapable of weathering such upheaval. Can scenes of violence and street riots be predicted at a future stage in the conflict? To what extent is the population, so tired of the war and chaos from which it reaps only further grief, likely to get caught up in this scenario? And whose call would they be most likely to follow? Isn’t it more realistic to think that instead of becoming like Argentina, we will end up looking more like Africa?
Since fighting corruption is obviously a lot easier than fighting the corrupt, the situation could get worse instead of better. It is also obvious that if the crisis reaches such a point that the government loses control, so far not on the cards, Bolaños would be in the strongest position because he has the army’s institutional support and the international agencies, the United States and traditional large Nicaraguan capital in his corner.

A long haul?

There is a lot to suggest that all this will drag out. Alemán, his arrogance and stubbornness pushed to the extreme, is claiming that they only want to try him because "they are afraid of my charisma and don’t want me to run as a presidential candidate in 2006," as he has long since announced his decision to do. Then there is Daniel Ortega, his cynicism pushed to the extreme of donning an ill-fitting attitude of moral authority, who is proposing to head demonstrations against corruption. After the lid was lifted on the rotten Channel 6 stewpot, these two actors, both of whom still control a lot of power, are only too aware that there are still a lot more pots in the kitchen. This means that the instability could last a long time, and they are preparing for it. Are the rest of us ready for this prolonged war between the kings of the mountain?