Envío Digital
Central American University - UCA  
  Number 145 | Agosto 1993



Central America's Economic and Political Backdrop

In Nicaragua, El Salvador and Guatemala progressive forces are searching for a new economic model. It will also be necessary to seek a new political model.

Nitlápan-Envío team

Editor's note: The following is something of a departure from the usual article that fills this space. In anticipation of the election campaigns that will begin, one by one, in each of Central America's countries in the coming months, we felt it would be useful to recap and contextualize the main dynamic between the contending political blocs in those countries. Even though Nicaragua is not currently scheduled for elections until 1996, it is the country in which this dynamic between the three fundamental blocs is most evident and most evenly counterweighted. It thus serves as a guide for understanding the similar tendency that is emerging in other countries particularly El Salvador and, newly, Guatemala and for calibrating its particular shape. This overview analysis will also help readers to better understand what is essentially at stake in the processes and concepts we frequently report on in these very pages: among others, concertación, national dialogue, social pact, and the search for a national project in general.
Central America is facing the challenge of economic and social reconstruction in a framework of profound global changes. In addition, it is beginning its adaptation to these world changes with a handicap of its own: a decade of sharp political and military conflicts, with incalculable destructive effects, have made conditions in this area of the planet particularly complex.

The task is further complicated because, in order to reconstruct and develop the region's national economies in an increasingly competitive world, the regional integration process must accelerate. And, finally, this new integration and development model, if it is to be viable, must incorporate the aspirations of Central America's impoverished majorities who are today more aware than ever of their rights and possibilities.

Electoral Winds

In this urgent, complex and changing Central American reality, the electoral winds have begun to blow again. The next election round begins in Honduras this December, followed by El Salvador and Costa Rica. It is even possible that the elections in Nicaragua will be moved up to next year. In Guatemala, the new President announced elections for 1995.

In El Salvador and Nicaragua, the principal opposition parties are those that were once the best organized guerrilla movements in the region. El Salvador's FMLN will be participating in elections as a political party for the first time, while in Nicaragua, the FSLN will be participating as an opposition party for the first time. It is even possible that the URNG will participate in Guatemala, if the negotiation process indeed progresses.

Left and right are entering the electoral race with the challenge of guiding their countries and the region along the hard road of democracy and economic reconstruction. Will these political parties lead Central America into a new period of development with social equity? Or will we simply enter another 30 year cycle of economic growth such as the one Central America experienced after World War II, which ended in social upheaval?

Multilateral Banks Define Development

In reality, Central America's political parties have very little space in which to define national or regional development strategy. The path toward reconstruction has already been drawn by the International Monetary Fund and the World Bank, with the full support of the industrialized nations. All the region's countries are applying stabilization and structural adjustment programs designed by these multilateral organizations. These programs promote a national development strategy based exclusively on the export sector, as well as on the deregulation and privatization of the economy.

The same has occurred with the regional integration model. Instead of promoting a regional development strategy and a new kind of unified customshouse among Central American nations, the multilateral organizations have already decided what the priority should be: that the region become a Free Trade Zone.

The IMF and World Bank maintain that this is the only possible road to economic reconstruction. The same is echoed by the new generation of neoliberal technocrats and politicians predominating in Central America's governments.
Are the elections thus reduced to a simple dispute over who can best administer this model designed from outside? Is the left's only alternative to enter the election race under the banner of progressive administration of this same model?

Recent Reactivation: On the Development Road?

The reactivation of the Central American economy in recent years would appear to be evidence that proponents of neoliberal ideology are right. In 1992, the region's economic growth, at 3.8%, reached its highest rate in the past 15 years, despite the drop in international prices for its principal exports. All countries registered growth rates above 4% except Nicaragua, though even it showed positive growth for the first time in eight years, at 0.5%.

Several factors explain this turn around in Central America's economies. A key one has been the reopening of regional trade, which provided an important stimulus for the reactivation of the manufacturing industry, virtually stagnant since the break up of the Central American Common Market at the end of the 1970s. The value of intra regionally marketed exports doubled in the past five years and already represents a fifth of total exports for the countries of the isthmus.

Not only have exports to the regional market increased, but nontraditional exports to the rest of the world have also grown. These have been generated by the rapid expansion of free trade zone (or maquila) enterprises by Taiwanese, South Korean and other foreign investors. These investors were drawn to Central America by its low labor costs and the proximity to the US market, as well as by the generous concessions the region's governments offered. Exports generated by maquila industries already represent a fifth of Central America's total exports.

Another important factor has been the increase in family remittances sent by the thousands of Central Americans who emigrated to the United States in the 1980s. El Salvador, Guatemala and Nicaragua together received a total of more than $1 billion in remittances in 1992: this represents foreign exchange income equal to that obtained from the export of coffee, the region's most important export product for many decades.

Not only has income increased due to family remittances, but there has also been a modest repatriation of capital that had also emigrated due to the acute conflicts of the 1980s. This has been stimulated by the high interest rates offered by the Central American banking system, higher than those currently offered in the United States and Europe.

This increased flow of private capital toward Central America has been accompanied by the resumption of multilateral bank loans to the region's governments. This has been possible because all of the governments have accepted and satisfactorily complied with the conditions established by those banks regarding the implementation of stabilization and structural adjustment programs. In addition, El Salvador and Nicaragua have received an exceptional influx of foreign aid to support the peace and democratization processes taking place in both countries, the two most affected by the armed conflicts of the 1980s.

Growing Trade Deficits

Nevertheless, the recent growth of Central America's economies has also led to the rapid expansion of their trade deficits with the rest of the world. Imports have increased much more rapidly than national production, due to the trade liberalization policies promoted by structural adjustment programs. And these are not productive imports: the most notable aspect of this expansion is that it mainly consists of luxury consumer goods for the highest income sectors, thus producing a boom in commercial, not productive, activity in the region.

In contrast, traditional exports (coffee, bananas, cotton, sugar and beef) have suffered a considerable drop in their apacity to generate profits due to plummeting international prices, as mentioned above. Even bananas, the only traditional export that enjoyed some market stability, is now registering a significant price drop due to the restrictions the European Community imposed on Central American banana imports.

The low international prices have been the primary factor in reducing the value of Central America's traditional exports now a full 18% lower than in the 1970s. It must be noted here that the region's economies still depend largely on their two most important crops historically: coffee and bananas. Both still represent more than 40% of total export value despite diversification efforts undertaken for several decades.

In summary, the foreign trade sector continues to be the Achilles' heel of Central American economic recovery. Current trade liberalization policies have opened the road to a virtual import invasion while the path to export expansion and diversification is much slower and longer.

According to the most recent data available, the value of imports grew 43% between 1985 and 1990, while the value of exports grew only 14% in that same period. This development in foreign trade has resulted in the progressive widening of the region's trade deficit with the rest of the world, which spread from 5.7% of the gross domestic product in 1985 to 7.2% in 1990.

Central America cannot indefinitely sustain this kind of economic reactivation pattern. Until now, exceptional foreign aid and multilateral bank loans have financed the growing trade deficits, but there are already clear signs that the region will no longer receive the relatively high foreign aid levels of recent years. Foreign indebtedness is also reaching its limit, now that Central America's debt service payments represent almost a third of total exports.

Poverty and Environmental Destruction on the Rise

The issue of sustainable economic reactivation is not only the problem of growing trade deficits and the overwhelming weight of the foreign debt, however. This reactivation model is also unsustainable because it is increasing poverty instead of constraining it, and is thus augmenting the enormous social debt accumulated over far too many years.

According to the United Nations, 70% of the region's population now lives in poverty. Real wages continue dropping, social spending has contracted even further, and unemployment levels are higher than ever.
Emigration, the urban informal sector, drug trafficking and crime are the escape valves of this crisis. In several Central American countries (Guatemala, El Salvador and Nicaragua), the number of emigrants who have joined the US job market in the past few years is greater than the population that has joined the local job market in each of these countries. Another solution for the unemployed is to find "a job" in the so called urban informal economy, where, every day, thousands of Central Americans struggle to survive through small commerce and service activities of all kinds. Still others have opted for the other kinds of "private initiatives" left to them by the system: drug trafficking, theft or prostitution. Central America is today an ideal intermediate point for drug traffic between South America and the United States.

In addition, the increase in urban poverty goes hand in hand with the rise in environmental pollution. In poor neighborhoods, garbage piles up and sewage flows freely, contaminating rivers, lakes and lagoons. It is a vicious circle: the drinking water is increasingly contaminated, resulting in more illnesses, which receive less and less attention in hospitals with shrinking budgets, and so on.

Pollution is aggravated by the absence of any regulations on the establishment of industries in Central American cities. Nor is the use of pesticides in agriculture effectively regulated. On top of all this, the region has received some 15 different proposals from the United States in the past three years to serve as a dumping grounds for its toxic wastes and other, ostensibly non toxic, garbage in return, of course, for badly needed foreign exchange.

The advance of poverty affects rural ecology even more, aggravating the region's most serious environmental problem: the rapid deforestation of the tropical forest. Every year, thousands of peasants, in order to survive, migrate to forested areas in search of a plot of land for planting basic grains. An estimated 4,000 square kilometers of forests are destroyed annually just as a result of this migratory farming. In addition, the destruction of forests located on the slopes of the region's volcanoes and mountains either to use the land for farming or the trees for firewood is provoking severe soil erosion which affects more than half of available agricultural land. In other words, to the increase in the region's foreign and social debt, we must add the growth of its ecological debt.

The exclusive nature of the current economic reactivation model promoted by the multilateral banks renders is unable to meet the challenges of sustainable Central American development in the 1990s. Once again, as has historically happened in Central America, economic policies are excluding the majority of the region's social subjects peasants, indigenous peoples, small businesspeople, and urban and rural wage workers. It seems that the lesson of the 1980s is not being taken into account by either the region's governments or the multilateral bank system.

Building the Alternative

During the 1980s, however, a myriad of local grassroots and nongovernmental organizations arose that are fighting for a more democratic development model, as well as research and educational institutions committed to analyzing and promoting policies aimed at addressing poverty and promoting development with equity.

But reaching the goal of transforming the vast poor majorities into the protagonists of development in Central America is a long term endeavor. In order to construct a democratic and sustainable development model, the region's productive base must gradually be expanded and decentralized. And this can only be done if investments are made in the formation of human capital made up of the majority social forces of the isthmus.

Central America's progressive social forces are already doing this, and they are the ones that can change the course of the current development model. They have promoted numerous local and national initiatives oriented toward strengthening grassroots participation in the economy and in environmental preservation, as well as in political life. In the short term, their most urgent task is to make possible the insertion of small and medium agricultural and industrial producers in the region's economic and social development.

The insertion of these players into regional development, however, faces two simultaneous challenges. First, grassroots and nongovernmental organizations lack the methods and resources that would allow them to promote the productive conversion of grassroots economic subjects. Second, they face enormous difficulties in joining forces so as to negotiate national development strategies and the regional integration model with the powerful alliance between the region's big business interests and neoliberal governments and the multilateral organizations and governments of wealthy nations. This is a colossal and urgent challenge.

Inviable Political Models

The search for a new economic and social development model for Central America that could prevail over the current neoliberal model which not a viable alternative for the region must be joined by the search for a new political model. Politics and economics have always been totally intertwined. Today, with the current "globalization" of the world economy, this is even more apparent.

Efforts to design an authentic economic reactivation model are ineffectual unless a new stable and viable political model is also fashioned. Conversely, any pact between political and social forces seeking to promote and consolidate a new political model will be in vain if it is not sustained by a new and more equitable economic structure.

The first years of the 1990s demonstrated that the various socialist models to which Central America's revolutionary forces aspired in the 1970s and 1980s can be discarded whether they be classified as authoritarian or democratic. Neither type is viable in the 1990s.

A return to the model of economic and social political dictatorships predominating in Central America until the Sandinista triumph in 1979 should also be discarded. A return to this kind of dictatorship would rapidly lead to renewed civil wars. Given current levels of economic underdevelopment and anti development, those wars would have neither victors nor vanquished. If the popular forces were to win, they could only apportion poverty; a victory of the bourgeoisie, which pines for its past power, would have similar results. The extent of its economic backwardness eliminates this bourgeoisie as the motor force for any kind of development appropriate to these so very transnational times.

To make a historic caricature, this "victorious" bourgeoisie would be similar to that which took power in Nicaragua in the mid 1800s, after the national war against the US adventurer William Walker. The highest officials of that Conservative government attended to public affairs in the morning and then, to survive, sold cheese curd from their lordly residences in Granada in the afternoons.

Thus, neither the socialist model of Eastern Europe nor the dictatorial model that preceded the Sandinista revolution is viable today. Either would make our countries inviable as nations.

The Experience of Nicaragua

Nicaragua perhaps more clearly than El Salvador and Guatemala, the region's other countries affected by armed conflicts demonstrates the different options that have emerged in the search for a new and viable political model. A fundamental development in Nicaragua has been the emergence of a new social political force out of the conflicts of the 1960s, 70s and 80s, when two projects vied for power: Sandinismo, promoted from the logic of the grassroots majority, and Somocismo, based in the most conservative sector of the business elite.

This third force has existed for decades in Nicaragua, but it is only today that it has shown the possibility of increasing its margin of autonomy from the other two forces that polarize the social conflict. It is the force that Somocistas knew as the "modernizing business sector," symbolized in the 1970s by Pedro Joaquín Chamorro who, contrasting both Somocismo and Sandinismo, sought to promote a model of business democracy. Today, this sector headed, not coincidentally, by his widow, Violeta Barrios de Chamorro is in power.

During the Somocista era, the "Chamorristas" were subordinate to Somoza, and, though they periodically clashed with the dictator, they resolved their conflicts through pacts and deals that allowed Somocismo to continue its hegemony among the Nicaraguan bourgeoisie. When, after Pedro Joaquín's assassination, the Chamorristas sought to break with Somocismo for the first time in their history, they allied with Sandinismo; but the Sandinistas displayed greater strength and capacity, and gained hegemony over this alliance, which led the FSLN to the 1979 triumph and more than 10 years in government.

With all this, the modernizing bourgeoisie, first subordinated to one side and then to the other, never had the chance to develop its own autonomy. With the defeat of the Somocista dictatorship in 1979 and the Sandinista's socialist project in 1990, history's twists and turns have now given it the possibility.

The Need for Alliances

If this modernizing bourgeoisie, today in power, were to develop and consolidate, it could attract a large faction of the urban and rural middle classes, who would see in it a way to avoid the dictatorial exclusion imposed on them by Somocismo, as well as the economic calamity brought them by Sandinismo and the war.

Nevertheless, it is increasingly obvious that, in the Nicaragua of the 1990s, it will not be possible for any one of the three forces that have historically coexisted to rule the country to the exclusion of the other two. For one to be viable, it must make a strategic alliance with one of the others not necessarily in the form of a co government in order to build a lasting national project. This alliance does not necessarily imply eliminating the third, excluded force, but does suggest its progressive decline in the political landscape, until it becomes a dwarfed bonsai tree, an adornment of institutional democracy, but without political, social or economic consequence.

This alliance, being strategic, presupposes agreements on common points respected by both forces one as government, one as opposition and constitutes a new national political framework, a new political model propped up by a new economic model.

The strategic pact between Chamorrismo and either Sandinismo or Somocismo will not be based on the mere will or desire of current government leaders. It will depend on the correlation of existing national and international forces the latter with increasing weight in Nicaragua. It will be determined by the relative strength of Sandinismo and Somocismo in and outside of the country, and their respective ability to guarantee the stability and endurance of that alliance over time. It will also depend on each force's veto power, through social protests, over an eventual accord with its rival, as well as on the strength or weakness Chamorrismo concedes to, perceives in or chooses to perceive in its two possible allies.

Two Models of Democracy

If Chamorrismo were to ally strategically with Somocismo as its minority associate, Nicaragua would be put on the road toward what we could call a model of "restricted democracy," which would curtail the weight and participation of the grassroots forces, closing spaces to them in various ways. In a business alliance of this nature, the possibility cannot be dismissed that Somocismo could return to power, imposing its hegemony over the Chamorristas and leading the country toward an increasingly dictatorial model.

If Chamorrismo were to strategically ally with Sandinismo as a whole, and not simply with certain high level leaders as it is currently doing, Nicaragua would be on the road toward a "progressive democracy," where there would be spaces for the grassroots sectors and their interests. The consolidation of this kind of model would thus imply putting the brakes on the increasing economic and social deterioration, since the retrogression of the past three years is leading the country dangerously close to the socioeconomic structures that characterized Somocismo. Such an alliance would lay the foundations for the eventual return to power of a government with a grassroots project, within the framework of an electoral rotation respected by both sides. Sandinismo would thus regain its hegemony over Chamorrismo, within the framework of political pluralism.

Times Without Definition

Making these hypotheses and this rotation of hegemony possible presupposes laying the groundwork in a national accord among the three key political forces that will be difficult to achieve, given the abyss of differences separating two of them: Somocismo and Sandinismo. In order to build a stable alliance, one of the two must be pruned to a bonsai.

Since this has not yet been accomplished, nor will be easy to accomplish, important topics of national policy the most critical of which is the property issue are still under discussion. The massive return of properties confiscated from Somocistas would give them the economic strength to begin "dwarfing" Sandinismo. If the reverse were to occur, if the property scheme inherited from the revolution is preserved, it will be Sandinismo that initiates the shrinking of Somocismo. Policies regarding these important national issues which also include constitutional reforms and the army, among others remain undefined, because Chamorrismo has still not defined its alliance.

To speed up this alliance and initiate the decline of its adversary, Somocismo insists that Nicaragua's problems are political. It aims, through institutional reforms in the army, legislature, supreme court, electoral branch, etc., to close spaces available to Sandinismo to the greatest extent possible. Sandinismo, for its part, maintains that Nicaragua's fundamental problem is economic and seeks, through either reforming or transforming the neoliberal program, to lay the foundations that would permit the strengthening of the grassroots sectors and the reduction or elimination of spaces through which Somocismo could recover its economic power.

The new political model is as yet undefined, as is the economic model that would constitute a real alternative to neoliberalism. Also undefined is Clinton administration policy toward Nicaragua's deep seated dilemmas. These are times without definition.

How Much Sovereignty?

The options are still open as to whether Nicaragua will move toward a progressive or a restricted democracy. If the former happens, the revolution that initially intended to move toward socialism would be consolidated as a democratic revolution. If it is the latter, on the other hand, the possibility arises of a new Somocista dictatorship, which would consolidate a counterrevolution.

Between the two models, the degree of Nicaragua's independence or sovereignty as a nation is also at stake. The Chamorristas' good relationship with or near total dependence on the international financial institutions that are today designing the neoliberal model imposed on Nicaragua, thus interfering with national sovereignty, make it clear that a Chamorrista Somocista alliance would make the country even more dependent, converting it into a neo colony. A Chamorrista Sandinista alliance, in contrast, would give the country greater leeway for autonomous and creative negotiations with these powerful institutions and with the forces that control the workings of the international economy.

If the 1990 elections were a choice between a model leading toward socialism and the return to a capitalist model, the next elections unless a stable accord is reached between two of the three political forces by then will be a choice between two kinds of democracy: restricted or progressive.

An economic model that is truly an alternative to neoliberalism could probably only be proposed after the strategic alliance is consolidated and the political stage set. In the case of a restricted democracy, of course, no new progressive alternative economic model would arise, at least not from the government. But if the progressive alliance wins out, it is much more likely that such a model will be developed.

El Salvador and Guatemala: the Same Forked Road?

What is happening in the Nicaragua of the 1990s is closely related to the underlying conflicts in the other two countries of the area recently or currently racked by armed struggles. It is also tied to the confines imposed on the region's political forces by the new economic reality, conditioning the conception and implementation of an economic alternative.

El Salvador's current pre electoral situation is not significantly different than Nicaragua's. That country also has three key political forces: ARENA (parallel to Somocismo), the FMLN (parallel to the FSLN) and the Christian Democrats (parallel to Chamorrismo). With the war and with President Duarte, the Christian Democrats could not pull free of ARENA, but under the new circumstances they are more autonomous, though they also need to form alliances. As in Nicaragua, no one of the three Salvadoran forces can govern the country alone; each would need to build a stable alliance to set the country on the road toward a democratic model, which, again, will either be restricted or progressive. If the former, the peace accords will have achieved nothing more than military dismantling the FMLN and reducing it through legal means to a political bonsai. If the latter, the accords will be strengthened, and there will be forward motion in making the progressive spirit contained in the letter of those agreements a reality.

It is difficult to imagine ARENA, with its enormous economic and political importance in post war Salvadoran society, being significantly weakened in the short term, let alone reduced to a bonsai. In any case, the Salvadoran economy and its future political model will be profoundly shaped by the correlation of forces that comes out of the March 1994 elections.

The recent and unexpected changes in Guatemala have now also opened the possibility in that country still at war that a third stabilizing force could arise out of so many years' bipolarity. Might this new force be led by the new and unique President of the Republic, Ramiro de León Carpio? The changes are too fresh and too precarious yet to even treat this seedling third force as a factor that must be considered. Only time will tell whether it will grow to full size, be stunted as a bonsai, or even be pulled out by its roots while still a sapling.

Each nation, obviously, has its own characteristics, rhythms and history. Nevertheless, the tendency in these three Central American countries is that their key political forces the traditional right, the searching left and this "third force" are moving toward the same dilemma, in which the latter, without being the real center, stations itself there in order to ally with one of the other two and thus take advantage of the opportunities history has opened to it.

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