Envío Digital
Central American University - UCA  
  Number 160 | Noviembre 1994



Time for Transparency

Drawing up the budget, evaluating external aid, renegotiating the debt and an five-year economic program – they are four initiatives, four opportunities to test to see if there is will for consensus and transparency.

Nitlápan-Envío team

We in Nicaragua are used to living with constant confrontation. The political parties, and their various factions and fractions, are at permanent verbal war, each aiming to destroy the positions of the others. Once in a while the most radical ones score a direct hit. In the countryside, though the violence is less intense than during the war, the ghost of that decade still makes reconciliation among Nicaraguans difficult. The imported Cold War polarization obviously often served as a banner for one side or the other, but those banners had an array of ideological tones. And because few who carried them had very defined theoretical positions, personal aspirations and disputes were always in the background.

Where To? and How to Get There?

The disputes consume the parties' time and energies. They take place primarily on the government's battleground, but also in other social arenas. The media, in particular, has taken on the task of spreading to the point of deforming the image of a profoundly divided society. Everything, from a bloody confrontation in the countryside or a bomb against some monument to the inflammatory radio commentaries, contributes to the image of a country in which everybody is against everybody else.

This in turn reinforces the international image of an unsafe and not very attractive country for tourists or investors. Donor countries and bilateral cooperation agencies have growing doubts about the efficacy of the generous aid they have provided Nicaragua for years. But most have not yet formulated the possibility of substantially cutting that aid. They fear that doing so would spark greater scarcity and, in turn, even more generalized and uncontrollable social chaos.

This feeling of being unable to go backward without causing more disturbances and not knowing where forward is or how to get there also seems to be shared by most Nicaraguans. Any observer can perceive it in the activities of the political class or in the incendiary journalism of the media.

Crime and Corruption

The economic plane does not offer a much better picture than the political one with respect to giving an image of social cohesion and a shared search for the path to development. The Chamorro administration, protected by constitutional law, sticks to its tradition of secretiveness. The sectors with capital look for the fastest and least risky ways to get rich. The few sectors with some organizational ability to defend their particular interests coffee growers or truck, bus and taxi drivers, for example do so with more or less success.

But the great majority of small and medium rural and urban producers are just trying to survive. They may lack investment capital or the know how to adequately get their product to the domestic or foreign market, and suffer high unemployment, but they are the ones contributing most to the country's scant production of wealth.

Other, more traditionally activist sectors of society students, workers and white collar employees have fallen into serious anomie, battered by unemployment or the hovering threat of it. Few feel represented in the rivalries of the political class, and fewer still expect much from the future or the government. Neoliberal ideologues cynically counsel them to "expect nothing from the government, take charge of yourselves," and, indeed, no one listens to the people, though many profess to speak in their names.

Will Nicaragua perish, caught between the crime of those below and the corruption of those on top? Both rural and urban crime appears as the grassroots counterpart of the corruption that is affecting the well off classes linked to the government's nepotistic circles. National and foreign entrepreneurs, characterized by this corruption and a greed that is destroying the environment, have been left to their ambitions by a government that has renounced its main function protecting the interests of all from the interests of a few. This, added to individual violence, could put the last nail in the coffin of a society that is not managing to establish the basis of a social contract to make itself viable as a nation.

National Schizophrenia

As 1994 comes to an end, the pre electoral dynamic is still the main concern of the political class. It seems relatively indifferent to the fact that the economy is still prostrated, that the social and political conflicts are chasing each other around in an endless spiral, and that our opportunities to reach consensus and make use of the new foreign resources are being squandered.

There is a kind of schizophrenia that is damaging to the entire nation. On one side are the pre electoral dynamics, with the accompanying alliances, pacts, rapprochements and regroupings of parties and political groups. The potential adversaries of presidential aspirant and minister of the presidency Antonio Lacayo are being reminded of how costly it could be to put obstacles in the way of his presidential aspirations. For some time now, this dynamic has included the state banking system, which is requiring enormous arrears payments from clients who happen also to be big businessmen.

On the other side are all the other producers, united and clamoring to be given real support to move the country forward. The lack of credit, increased cost of inputs and rural insecurity make their efforts to produce harder. The big farmers and medium sized growers are the most hard hit by this triad of problems.

Between mid October and February of next year, a joint army police operation in the country's northern coffee growing zones will guarantee the coffee harvest. Some 1,600 soldiers and about 400 police will patrol roads and protect growers and their homes and plantations. According to the army, over 1,000 armed men roam these areas with criminal objectives, of which less than half are former members of the Nicaraguan Resistance.

Given all these major contradictions, foreign donors are starting to show signs of fatigue. They see Nicaragua as a bottomless pit and cannot see their aid contributing to any economic health. Civil society seems fragmented and largely exhausted. The population is increasingly anguished by the lack of jobs, low wages, risk of crime and violence, and, above all, by the lack of realistic hopes that would give them the boost to keep going. Nicaragua is moving at half speed and in opposing directions.

No Winners

Is there no hope then? Perhaps elements to overcome this drama can emerge from its own depths. There is more and more awareness that there are no winners in the current game. Whoever wins the 1996 elections will pay the price then of what is not done today to depolarize and reactivate the country. No benefit can come from a bankrupt and divided house. This realization could lead a sufficient number of people to begin thinking differently now, and to pull the teetering country back from the brink.

Would that the utopia of the most radical neoliberals were true, that the free play of each one of the individual forces led to the maximum advantage of all. Would that what we see daily in the Managua intersections when the electricity is cut and the signals stop functioning for four hours did not happen. Does each driver know how to act responsibly, letting others through in a fair fashion? Or do the intersections become a gridlocked battleground because they are all only thinking of themselves? If neoliberalism is so confident of its own proposals, why charge taxes to keep the signals functioning instead of letting the individual energies of drivers act freely at the intersections?
Not everyone is so ingenuous. Many are convinced that the social game needs established rules that are respected, if not by choice then by force, and that the normally diverging interests that arise among the various social groups need to be made coherent. Many also think this would not hobble individual incentive, that the main goal would be to give the majorities the confidence necessary in a sufficiently stable environment to be able to channel their creative energies. The worst that could happen is that the voraciousness of some would be corralled. Those who think this way should take advantage of all possible space that helps strengthen the foundation of social consensus and the structures, wherever they are found, that contribute to this.

Something Must Be Done

Despite all the difficulties, it is a favorable moment. Major opportunities exist, which could not have existed in the past and should not be allowed to get away now. Despite the negative national image painted daily in the media, a feeling that "something must be done" exists in all social and political sectors. Even those who have the economic means to send their children to study abroad remember that Nicaragua is their homeland and that the cradle of their parents should be the one of their grandchildren. The rest, the great majority who cannot go anywhere, unless to Costa Rica as stoop laborers or to the United States as car washers, hope against all hope that the situation will get better. But they alone do not have the ability to change the economic situation that is drowning them.

The private bankers themselves unquestionably the country's most well off sector consider that the overall situation does not offer safe conditions to support national productive investment. Their microeconomic logic leads them to prefer financial investments abroad. They are perfectly in their right in this, but why, then, should they or anyone else expect small producers, small merchants, professionals, white collar employees, all those who are barely scraping buy, to shake off their passive attitude and act as if the economy were flourishing?

No One Believes in the Córdoba

The private bankers pull in more dollars than córdobas from the public, because the sectors who put their financial savings into national accounts believe that the value of US currency is more stable and more than just a means of making commercial transactions abroad. If the prudence of the bankers keeps them from converting these dollar savings into córdobas to loan out as productive credits, why should less well off economic sectors be expected to invest and work without fear?
The country's monetary authorities show that they have no confidence in the national currency by taking parity with the dollar as a price index for loans they provide to the financial system. Why should anyone expect the public in general to have any faith in córdobas when those who print them have none?
This is the gist of the monetary policy with which the government is strangling the country. Admittedly, the hyperinflation spiral has been controlled, but only because little money is in circulation; its root causes have not disappeared. The international lending agencies' monetary advisers implicitly admit this when they warn that making Nicaragua's monetary policy less recessive would immediately trigger it again, sacrificing the stabilization Nicaragua has achieved at such high cost in the past few years.

Both the advisers and the government fear that if they expand córdoba credits to businesses and consumers, the recipients will protect the purchasing power of this brief excess of capital by purchasing scarce dollars with it. This would push up the exchange rate and, by extension, inflation. Since the dollar is also a production input and a yardstick by which independent agents measure their price expectations, the state's hard currency reserves would soon run out, leaving nothing to back the local currency. That's when hyperinflation takes over.

For the monetarists, then, our dilemma is clear. We either drown in a tidal wave of hyperinflation, or strangle in stagnation.

Reform the Institutions

The neoliberal economists are right about one thing: the market rules us (though it would be more appropriate to say markets). If we want our economy to function, it will not be by escaping the market, but by improving it.

Economic agents make their decisions based on the signals the market sends them. And in today's Nicaragua, those signals encourage no one. If we must wait until the private sector, made up of thousands upon thousands of individual agents, moves on its own and as a single body toward a better economic situation, we could wait until Judgment Day. The message this private sector sends itself objectively hinders it from undertaking the actions that would change the signals.

Is this vicious circle interminable, then? No, because human societies have created institutions precisely to get out of it. A government is the most visible head of this body of institutions. The problem is that institutions are not created overnight. They are inherited from the past, with all their strengths and weaknesses, and reflect both the advances and distortions society has accumulated over its history.

Secretiveness Must End

Moments obviously come in which institutions must be changed, or at least adapted to the new circumstances. The time has come in Nicaragua to change the Constitution, one of a country's main institutions. National Assembly president Luis Humberto Guzmán recently noted that political violence has been less of a brake on foreign investment, and private investment in general, than the excessive discretion the country's weak institutions enjoy. The nepotism and corruption in them makes it harder to develop the regulatory capacity that Nicaraguan society needs in the framework of a market economy.

Even though most of the constitutional reforms under discussion are necessary to open society's underpinnings to examination, they are not an end in themselves. They are an unexpected opportunity that goes well beyond the current preoccupation to prevent a return of dynastic rule by imposing constraints on who can run for President. They should serve as an occasion to begin establishing new rules for the management of economic policy, one of society's key instruments for advancing.

It is amply demonstrated that no government can do without an active economic policy, and even less so in Nicaragua's accelerated transformation process right now. It is also demonstrated that this government lacks the capacity to implement a different economic policy alone, and that the secretiveness characterizing it up to this point broken briefly when the IMF agreement was signed in April no longer functions.

It doesn't matter that this secretiveness may have been imposed to hide the technocrats' incapacity; that had to come out sooner or later in the international forums. It doesn't matter if it was to cover up nepotism and corruption, or was simply a result of inexperience in employing mechanisms to stimulate society's participation and openness in public affairs. What does matter is that this government style has reached its limits. The entire nation is demanding openness and the institutions that make up the state are willing to reform to achieve it.

Perhaps that is because there is no longer anything to steal, or because it has become clear that actively building mechanisms of consensus about the main economic policy issues is key right now. For whatever reason, there are signs of a growing conviction that the affairs of all are the responsibility of all and all should have input into managing them.

At least four key initiatives are underway to begin putting in practice the new rules of societal functioning:
* the drafting of and debate over the 1995 national budget;
* an evaluation and possible reorientation of foreign cooperation;
* renegotiation of the foreign debt;
* the construction of a realistic five year economic program shared by all social sectors.

The 1995 Budget

The first budget skirmishes began even before the draft was sent to the National Assembly. In the first round, each state institution must prepare its own budget and send it to the Ministry of Finances. That is the chance each has to request an increase. The ministry then reconciles them all and sends the Assembly an overall budget. Since budget increases depend on conditions imposed by the monetary policy, a larger increase for some translates into a smaller one for others.

It is still too early to compare and evaluate the different spending lines, but it is important to abandon the idea that the public budget is like a household budget; that is, a private affair that gives that household an indication of its spending ceiling based on predicted family income. The Ministry of Finances is another ball game. It is responsible for drawing up a budget that will ultimately affect the whole country, not just the state institutions that directly depend on it. This is what makes it an "economic" budget, not just a fiscal one, and is why it should be worked out with all economic sectors. If not, it will be less realistic and have less support.

What to Request?

The National Assembly must study and approve the budget, making modifications where necessary. But as even happens in more developed countries, budget execution depends on the country's concrete economic situation at the time, not when the budget was approved. The required margin for maneuver opens the door to arbitrariness, which can only be limited by programming the budget as realistically as possible. As a preventive measure against this arbitrariness, the Assembly should require a substantiation of income projections, not just a simple programming of non justified income, as has been customary in past years. This logically means a fight, since the executive will not willingly narrow its maneuvering room.

The current fight between the government and the coffee growers expresses well the economic authorities' dilemma. On the one hand, they proclaim "less state," and on the other seek additional income sources. But the growers are in a dilemma too. They want the government to repair access roads and protect the coffee harvest from armed bandits, but do not want to pay the windfall profit tax the government is imposing. They argue that the government refused to be flexible about reprogramming their loans when coffee prices were at rock bottom a few years ago, so see no reason to get the government off the hook now. While they have a point, direct taxes are progressive, since they redistribute income from areas where it is most concentrated export activities to the nation as a whole.

Unless we accept this, we will fall into the same hypocrisy that prevailed in the tricky use of figures by a top Central Bank official recently. Referring to the export upswing, he called it a great national achievement that will improve the trade balance by the end of the year. But that is highly debatable. Given the income concentration associated with export activities, this upswing will only mean improvement for the national economy if some is redistributed as income to the sectors that consume national products rather than imported ones, or is turned into productive investment. If that does not happen through private initiative, it is socially preferable and economically necessary for the government to tax the export income to finance fixed investments or the development of human capital.

Evaluating Foreign Cooperation

The budget debate is not the only time the executive should guarantee coherence among the different aspects of its economic policy and an open discussion with the economic sectors. Evaluating and reorienting foreign cooperation is another opportunity. An analysis of the effectiveness of the abundant foreign aid received in recent years shows that things are not going too well.

Foreign donors are showing signs of exhaustion from seeing the meager political and economic results of this "country of Sisyphus," which never seems to get its rock to the top of the hill. Foreign aid has unfortunately become indispensable for Nicaragua's economy to function at all. On average, effective foreign cooperation has represented 35% of the Gross Domestic Product (GDP) in the past four years.

For geo economic reasons having to do with the "new" world order, overall aid is tending to drop, but the country shows no signs of weaning itself. According to projections resulting from the Enhanced Structural Adjustment Facility (ESAF) agreement, the total amount of aid will drop an average 4% annually between 1994 and 1997. The reduction of the cash component of that aid is even more dramatic: an estimated 11% yearly for the same period.

It is a grim picture, because the price stabilization achieved in 1991 has been largely maintained through the contribution of international cooperation. Even at that, holding that stability in 1993 meant using US$100 million in reserves. Admittedly, part of the problem was the US aid freeze, but the other part was the drop in foreign resources.

The tendency is even clearer if we compare two per capita indicators. In 1992 the cash portion of foreign aid to Nicaragua was $101 per person while the foreign debt payment was $25 per person. In 1993 it was $34 and $47, respectively, and this year it's neck and neck: we pay $57 for every $57 we receive.

The country has no time to lose. It must act on various fronts at once, making truly extraordinary efforts to maintain existing foreign cooperation levels while it reactivates the economy and gradually begins to lessen its dependency on this aid. Swedish aid officials debated this dramatic situation in Nicaragua on September 27, based on a study commissioned by the Secretariat for the Analysis of Swedish Development Assistance.

Two Swedish professors, Jaime Behar and Mats Lundahl, together with adviser Rob Vos, emphasized the fact that "cooperation is concentrated on resolving Nicaragua's biggest problem, its foreign debt, because the current policy has kept this country in a vicious circle of stagnation." Basic consensus emerged in the forum regarding an interrelated series of key problems: the debt, foreign cooperation and economic reactivation. These problems should be taken up by all social and political sectors to find minimum points of convergence that can resolve the political and economic impasse that is sinking the country.

The Debt Burden

Both short term policy and an efficient use of foreign aid clash with the excessively burdensome foreign debt service. As long as Nicaragua must meet the service payments agreed to with the lending agencies in April 1994, when the ESAF was signed, it simply cannot become economically viable. A national effort must be made to get the international community to acknowledge this inescapable fact.

The expected new loans for 1994 96 exactly equal the debt service that must be paid to the multilateral banks. Even though these new resources will carry softer terms than the previous ones, the government cannot back up what it tries to argue on this issue for the five reasons presented below.

First, it was correct in 1991 to get Nicaragua back on the multilateral lending agencies' list of creditworthy countries, and guarantee normal relations with oil exporting countries like Mexico and Venezuela. But the "pay so we can borrow" strategy was insufficient. Nicaragua must simultaneously show creditors that it is setting out on an economic path that will improve its debt/GDP ratio in a reasonable length of time and later reduce the debt in absolute terms without a constant need for new loans and new conditions.

Second, the same fatigue afflicting foreign donors is hitting those who provide facilities for paying and restructuring the debt. Generally speaking, most of Nicaragua's donor countries are also its creditors, so a debt renegotiation strategy will have little more success than one to get new foreign donations if not backed by a clear and convincing economic program whose effectiveness is assured by national consensus and active support.

Third, the secretiveness characterizing the government's economic actions including those regarding the foreign debt renegotiation is not just a lack of communication skills. It is a deplorable defect that has affected the government's credibility abroad. The government has shown itself incapable of carrying out a national economic program in the context of Nicaragua's polarized society and unwilling to reduce this polarization through open debate about the major economic problems and a common search for solutions.

Fourth, even the effectiveness of the newer "pay to borrow on softer terms" strategy has its limits. For example, between 1994 and 1996 we will supposedly pay out $445 million to the multilateral banks and receive an equivalent amount in new loans through the ESAF framework, but only half of that debt service goes to amortize the principal. Because we are getting deeper in debt just to pay interest, our total debt amount will grow instead of shrinking.

And, finally, to deflate its self satisfaction a bit, the government should recall that, in signing the ESAF agreement, it agreed to a 1994 96 debt service program with the international community that is higher than the Central Bank's original 1994 payment projection by an amount equal to 20% of our estimated exports. Meanwhile, the government is trying to reduce debts it is not even paying on, such as the one with Russia or the former East Germany. These efforts are not unimportant, but they should not be separated from an overall strategy whose linchpin is to get the wealthy Paris Club countries to cancel most of Nicaragua's debt to them.

Achieving this presupposes an overall argument of economic diplomacy that goes well beyond the now stale plea for "exceptional" treatment. It should include creative proposals to swap the debt for development and environmental sustainability. Is the government capable of developing that diplomacy and proposing it with originality?

A Five Year Program?

The current short term service is not the only way the foreign debt overburdens our prostrate economy. It also discourages foreign and domestic private investment, and in two ways. First, the debt's excessive drain on available cash means that businesses already operating in Nicaragua cannot get payment facilities or prefinancing for international suppliers and warehousers, indispensable for the fluid operation of international trade. Second, forewarned business investors see future service as a serious profit risk for the same reasons.

This should make the government much more cautious about the optimistic plans for economic growth it is drafting for the next few years. This is the drama of all technocratic economic programming, and is repeated in all inefficient public administrations: offices are dedicated to drawing up pretty but totally voluntarist and unreal plans on paper. The requirements of the countries' central banks and finance ministries, bound to maintain a recessive and restrictive short term economic policy, make the pretty plans incompatible with medium term growth requirements. If everything is possible in the medium run but nothing is possible in the short run, nothing will ever be done and the medium run will just beckon from an always receding horizon.

Another reason why technocratic plans never get off the drawing board is that they do not start from a clear conception of who the concrete economic agents making up the private sector really are. The limitations and expectations of these agents are not taken into account, much less are the agents themselves brought into the conception stage of planning.

In an adequately guided market economy, openness in conceptualizing economic plans and programs and consultation with the bulk of the actors in development are necessary to guarantee that the plans function. This is even more indispensable when one is talking about promoting structural changes in production and marketing, as is happening in Nicaragua today.

How Many Oxen Teams?

The minister responsible for the agricultural sector, for example, is charged with drafting a reactivation proposal for it. The Sandinista government's technological developmentalist model, based on mechanization and overuse of agrochemicals, was a patent failure except for sparking growing ecological awareness and contributing to the implementation of real prices in the structural adjustment framework. With that failure, even Ministry of Agriculture officials grasp the importance of small and medium farmers in sectoral production and in the country's overall economy.

So far so good, but they know nothing about the logic of these small growers, about how they make their decisions and the nature of their investment needs. This ignorance makes it impossible for them to translate these production goals into concrete figures. The goals thus never get past being pious desires. Who, for example, knows how to measure the number of supplementary oxen teams are needed to reactive the peasant economy, or how much time they would need to do it and at what cost? The government technocrats certainly don't, which is one reason why they should turn off their computers and go get to know the private economic agents.

Openness is pivotal to begin building a new economic decision making style, one backed by the private economic agents and responsive to their expectations. Achieving this does not imply creating new administrative apparatuses but improving the existing ones. At the least, it assumes creating a small, agile and independent "economic forecasting council" made up of high level technicians who enjoy the trust of the politicians without eating out of their hands, and who are capable of filling the four deep holes that get in the way of economic decision making.

The Four Holes

The first hole is the almost cultural separation between technicians and politicians, which cannot be filled by simply subordinating one to the other.

The second is the mistrust among Cabinet ministers, partly an inheritance of the feudalism that characterized the government in the 1980s, which cannot be overcome simply by bargaining influence at the Cabinet level.

The third is the rivalry among the branches of the state. While healthy as long as it is handled constructively, it can become a hindrance if it turns into war, or becomes a source of immobility and corruption. or even if the debate over differences does not clarify their real technical content or quantitative implications for the various sectors of society.

The fourth is the deaf ear that economic authorities turn to the economic sectors and the lack of open feedback. Such give and take would guarantee everyone's participation and offset the influence peddling of the strongest oligopolies, which already have more ability to affect the course of economic policy than the technically and institutionally weak government does.

To guide economic decision making toward a greater convergence between private rationales and those of the public sector, more is needed than just the willingness of some well intentioned individuals. Something more is also needed to improve the latter's ability to foresee the results of their actions and anticipate the behavior of private actors toward always uncertain international factors such as prices, aid, foreign investment and the like. That "something else" is the willingness of all those involved and the creation of adequate spaces in the existing institutions for that give and take to occur.

The constitutional reforms could improve the balance between the branches of the state and open up the rules of the game between them. That would strengthen mechanisms of consensus in economic decision making. But the time frame in which such reforms will become effective is too long. Their positive impact on economic policy and on the private sector's expectations will not come tomorrow or the day after. For that reason, political society should begin to study, comprehend and set in motion other mechanisms that perhaps neither tradition nor the Constitution foresees, but that the country needs, and now.

Deciding on this route assumes that the political forces will set aside the personalist styles that characterize them. The executive branch should cease being a platform that functions on behalf of presidential minister Antonio Lacayo's political interests. The FSLN should resolve its internal divisions, and turn its attention to the 350,000 who registered for the party elections as its base, to those who are not interested in politicking with the executive or in the accusations by which some try to attribute responsibility for the divisions on others.

It is time for openness in Nicaragua. Despite the crisis, there is a lot of pent up energy that is just waiting for a believable signal. The ability to unite such dispersed vigor was what turned the FSLN from a handful of heroic and isolated patriots into a political force of national dimensions. Only by reopening its doors to people's concerns and participation will the FSLN be able to identify and define its agenda openly.

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