Envío Digital
Central American University - UCA  
  Number 219 | Octubre 1999



So Poor, So Indebted, So Vulnerable

The debt “pardon” has indebted us; the adjustment applied to us is not adjusting our maladjustments; and the Liberal government that is administering the debt write-off and the adjustment program is aggravating the country's structural problems more every day. All these crises are cyclical, and they are all making us increasingly vulnerable.

Nitlápan-Envío team

With a year now passed since hurricane Mitch tore through Central America leaving its wake of devastation, ample parts of Nicaragua and the rest of the region are re-experiencing the tragedy. Successive rain-laden tropical storms have hit the region, as they often do during this tail end of the six-month rainy season. Only a few years ago, any Nicaraguan peasant would have called it “a good winter,” but now, though the storms were nowhere near the magnitude of Mitch, they were enough to overflow rivers, inundate towns, cut off entire areas and affect tens of thousands of people...again.

The tragedy was to be expected. It hit the same population and the same map as Mitch—a territory deforested and left to its fate, with virtually no planning accompanying its population migrations and resettlements and with new and worsening land problems piling on top of old unresolved ones. A territory destroyed by war, clear-cutting and natural disasters, and never rebuilt. Each heavy rainy season, like last year and this, is enough to bring new disasters with it. Rural people, who always worried more about drought and prayed for good and abundant rain, are now becoming terrified of it.

The new downpours caused destruction in extensive areas of the country, mainly those affected last year by Mitch. In some places, the damage was even greater than when the hurricane passed. Many of the bridges installed after Mitch collapsed and the superficially repaired roads and highways were partly or totally washed away once more. Thousands of people again had to be evacuated to temporary shelters. It is estimated that a hundred thousand people were affected to varying degrees, many of them already victims of Mitch and all of them victims from way back. Like last year the government's first evaluations minimized the damage to agriculture, while the Nicaraguan Union of Farmers and Ranchers (UNG) calculated that 35% of the corn, bean and rice crops were lost in the inundated zones. Even before this damage, a major plague of rats displaced by last year's hurricane had destroyed crops in many of these same areas. The damage done by these copious end-of-century rains—which for much of Nicaragua's superstitiously religious population trumpet the end of the world itself—has forced us to remember all the objective structural problems, not to mention the subjective structural ones, exacerbated by Mitch then left unresolved. Among the latter is the psychological impact that statistics never reflect: desperation, helplessness, fear, intra-family violence... It all comes around again and again, in cycles: the natural disasters, the poverty, the indebtedness, the corruption... When, how and with whose help will we ever manage to break out of these cycles?

A scandalous disinformation campaign

Arnoldo Alemán's government has designed a costly and ubiquitous propaganda campaign to convince the population that the cycle of unpayable debts burdening the Nicaraguan economy was effectively broken on September 16.

The campaign is out of all proportion to reality, since what truly happened on that not very proud date is only the first step in a very dubious distinction: Nicaragua was simply ushered into the waiting room of the insolvent, bankrupt HIPC family. (HIPC stands for Highly Indebted Poor Countries). The International Monetary Fund (IMF) technically refers to it as reaching the HIPC Initiative's decision point. We now have three more years of stringent adjustment measures to go—maybe less, given our record of poverty, according to Central Bank president Noel Ramírez—before we get to the “culmination point.” Then and only then—and only if all goes well—will we see some (not all) of Nicaragua's creditors write off 80% (not all) of our debt to them.

The government had been building a false sense of suspense for months over whether Nicaragua would even be included in the HIPC Initiative when in fact it was a foregone conclusion. The only issue was how soon, and admittedly, Nicaragua's entry has been speeded up. It was not so much accelerated by the Liberal government's good or bad administration, however, as by the devastating and internationally publicized Mitch disaster. As one person put it, “The Posoltega tragedy was the key that opened the club's door to us.”
On the 16th, when the government officially announced Nicaragua's inclusion, it pulled out all stops, grandly claiming that Nicaragua had attained its “second independence.” It officially gave everyone the afternoon off and called for a Mass to show our gratitude. The vicar of the Managua archdioceses, Eddy Montenegro, joined in the government delusion-mongering when he stated in his homily that “we aren't celebrating being poor, but rather that we have found the vaccine against the ills of poverty.”
The mass in the new cathedral was followed by a fiesta in front of the old one to celebrate the “culmination of the process of pardoning the foreign debt,” to directly quote the decree. To fill the plaza, the government hired the musical group Macolla, gave away sandwiches and soft drinks and hung up a huge red (for Liberal) piñata with a dollar sign on it. Everybody thought that thousands of pesos would shower down when it was broken but, ironically, all that fell out were a few candies, unintentionally symbolizing the hype characterizing the government's triumphal celebration—and even the HIPC Initiative itself.

It is hard to find the tone that does justice to how irresponsible this whole image game is. Every single word of that phrase from the decree, for example, is an outright lie to the Nicaraguan public. Furthermore, the campaign's real objective is to draw attention away from the profoundly serious cyclical problems that could be actually be leading Nicaragua to an abyss.

A few candies: Pardoned so you can pay

The HIPC is the club of the 41 poorest and most indebted countries on the planet (those two characteristics do not always coincide, as in the case of Haiti, unquestionably one of the poorest but not one of the deepest in debt and thus not among the 41). The HIPC Initiative came into being in 1996 as a joint World Bank-IMF proposal. The idea emerged once these two international financial institutions satisfied themselves that some countries simply cannot pay their foreign debt, despite all the adjustment programs applied to them, because their structural limitations run too deep. This admission inexorably led to the conclusion that the only solution is to pardon a large part of their debt so they can go on paying the rest.

The HIPC, then, should not be understood as an initiative to forgive the debt, but rather to see that it is paid in more realistic and workable conditions. It would be naïve to think it is anything else since, in the world of international finance, all debts must be honored to avoid setting any negative precedents that would alter the premises on which the system functions. One demonstration of this is that the World Bank and the IMF have publicly pledged to create some sort of fund to help the countries admitted into the initiative cover the percentage of the debts that creditor countries are not prepared to actually write off. While the details of how the fund will work are not yet firmed up, there is also talk of using it to help pay the “unpardonable” multilateral debts. In Nicaragua's case, the World Bank was the first to contribute to this fund. In the end, it all seems to be a sort of “double-entry” concept to avoid the appearance of a write-off.

Getting the debts covered one way or another was not, however, the only motivation that led the international financial institutions to invent the HIPC. Another was to avoid admitting that their own structural adjustment policies are a failure. The most these institutions are willing to recognize is that the programs they have been so enthusiastically promoting for years in the poorest countries of the South show few results without at least some debt relief. For both these reasons, and for the actual program that resulted from them, the initiative has already come under strong criticism from the world's most prestigious NGOs and from the church-spearheaded worldwide movement called Jubilee 2000. That pressure is forcing adjustments to the original program that were on the agenda for discussion in the World Bank-IMF assembly held in Washington at the end of September.

Second independence?

The HIPC is a Calvary with many stations. Its design includes two three-year stages, with progress evaluated each year. The only reward Nicaragua gets for reaching the first stage—the famous decision point of September 16—is the rescheduling of its pending debt-payment calendar. It then must fulfill a series of conditions over the next three years—or less if Noel Ramírez, the town crier for this “second independence,” is right—before attaining the “culmination point.”
Once Nicaragua gets to that point, 80% of its debt with the Paris Club countries contracted before October 30, 1998, will be pardoned. The Paris Club is the diametric opposite of the HIPC, in that its members are the wealthiest countries in the world, but not all of Nicaragua's debt is with them and not all of the debt with them will be pardoned. To make this point more concretely, 80% of the Paris Club's portion of our US$6.27 billion foreign debt at the end of 1998 is just under $1.2 billion; that is, less than 20% of the total. This falls hugely short of “pardoning the foreign debt,” as the government would have us believe.
One can only wonder what Nicaragua attained its “second independence” from on September 16, given that the HIPC does not pardon its debt with all creditors, that those included will not write off the whole debt, and that not a single cent was actually pardoned on that date. It is also very hard to figure out how the “new social and economic era” whose celebration the government decreed will differ from the “old” one.

Way too little, and maybe too late

In a conversation with envío, economist Néstor Avendaño, negotiator of Nicaragua's foreign debt during the Chamorro government, described “a notable lack of professional seriousness or an excess of ignorance in the public and official handling of Nicaragua's foreign debt issue.” He started with this example: “Before the Central American countries met with the Consultative Group in Stockholm in May, Central Bank authorities confused it with the Paris Club, saying that Mitch's most positive contribution would be the condoning of 80% of the foreign debt by the Consultative Group.”
While that was an innocent mistake, Avendaño's next example is not. “Now [the government] is trying to make the population believe that 80% of our whole debt, nearly $5.5 billion, will be pardoned. That message is an economic fallacy. It is also false to magnify the famous HIPC initiative. Applied the way it is now, Nicaragua will go on being a poor and highly indebted country. Of Nicaragua's total debt, 30% is multilateral, which always has to be paid if a country wants to continue receiving loans. But even if all the other creditors reached the political decision to write off the remaining 70%, Nicaragua still wouldn't stop being a poor and highly indebted country. In Nicaragua's case at least, the HIPC Initiative as it now stands is far from sufficient. But which officials, which ministers are willing to admit this?”

An inherited burden?

Avendaño questions not only the official triumphalism around this issue, but also the excessive politicization that accompanies it. “The debt issue has been excessively politicized by the current government,” he says. “One constantly hears the President and his government officials claim that this is an ‘inherited’ problem—even in Stockholm they called it ‘a burden inherited from the Sandinistas.’ They don't even mention Violeta Chamorro's government, forgetting that the world pardoned nearly seven billion dollars of Nicaragua’s foreign debt during her term, much more than will be pardoned in the HIPC. Not only that, but 40% of today’s debt was contracted after the Sandinista government left office, including the entire 30% with the multilateral lending institutions. It is important for Nicaragua’s population to realize that the new debt is starting to be as much of a burden as the old one, and that the lamentations about the ‘inherited debt’ are unjustified.

“Furthermore, much of the newer debt is made up of loans on very soft terms—15 years to pay, interest rates as low as 0% or 0.5% per year and a three-year grace period. This concessionary debt is not subject to reduction either. Where would we get the audacity to ask for the reduction of a loan provided under such favorable conditions? The international community must know that its efforts to reduce our ‘old debt’ could be nullified by new indebtedness. And we, the national community, must realize that Stockholm meant more debt, not more donations.”

Knocking on all doors

The relative pardon offered by the HIPC is neither a generous act nor does it come free. However poor and insolvent the debtor country is, it has to learn a hard lesson. To get the write-off, Nicaragua must fill two prerequisites. The first is to convince all its other bilateral creditors to give it the same deal as the Paris Club countries. Among this group are various Latin American, European and Asian countries, which were owed a total of nearly US$1.52 billion by the end of 1998. Nicaragua must now knock on their doors and ask them to write off 80%. s hard as that is, the real rub is that it must also promise to start making payments on the remaining 20%. Most of these debts haven't been on Nicaragua's priority list and thus have not been serviced. Now, by entering the HIPC, Nicaragua will have to renegotiate them and, more importantly, start paying them. In most cases, it hasn't even initiated the renegotiations yet.

That still leaves Nicaragua its US$2.68 billion multilateral debt with the World Bank, the Inter-American Development Bank (IDB) and the Central American Bank for Economic Integration (CBEI), which cannot be pardoned through the HIPC or any other initiative. Even the possibility of renegotiating it, for example to reduce the interest rate or extend the payment period or some other mechanism to ease the burden, will not be so much as considered until after another six years of structural adjustment.

No pardon without penitence

As Avendaño stresses from experience, “The multilateral debt is tough to negotiate or reduce. I recall two messages from [IMF director] Michel Camdessus when he visited the Central American region after Mitch. Visiting a poor family whose house had been inundated in Tipitapa, he said, ‘We will support you in your efforts to reduce the debt.’ When he got to Honduras he said, ‘Hondurans, don't get obsessed by the debt, get obsessed about rebuilding Honduras.’ Why such different speeches? It's simple: Honduras’ main creditors are the IDB and the World Bank, the IMF’s two financial arms in Latin America. He didn't offer to help resolve the debt problem in Honduras because 60% of it is multilateral and such a move would affect their financial interests. In Nicaragua's case, 60% of the debt is bilateral—owed to another government—which is why Camdessus could say he was going to help us reduce it. The strategy to reduce Honduras’ debt thus has to be very different from the one to reduce Nicaragua’s. This different nature of our debts is why we can't join together in a single strategy, although both countries are poor and very indebted.”
The second condition imposed on Nicaragua is the most important: comply with the structural adjustment. Economic adjustment is a necessary measure, even if that is hard to admit for those who simplistically see the World Bank-IMF agreement known as the Enhanced Structural Adjustment Facility (ESAF) as the cause of all Nicaragua's problems. No economy, whether family, local or national, can survive long without adjusting its expenses to its income. Unless it does, it falls further and further in debt. And if that goes on for long, the indebtedness leads to bankruptcy, as has been happening in Nicaragua, which developed major gaps between expenditures and income starting in the 1980s, followed by outrageously mounting inflation and foreign debt. Some kind of adjustment is needed to correct those distortions if the country is ever to develop.
Nicaragua began to apply structural adjustment policies in 1988, during the Sandinista government, and continued applying them after 1990 with the Chamorro government. The first 3-year ESAF agreement was signed with the IMF in 1994, but the Chamorro government did not meet all the established targets before it left office at the beginning of 1997. As a result, Nicaragua moved into what was called a “shadow program,” in which it had to continue applying the adjustment measures but did not receive the annual financial disbursements that were the quid pro quo of those measures for the final year. The success of the shadow program would determine whether Nicaragua would be given the chance to negotiate another ESAF. The Alemán government did succeed, signing a new agreement in March 1998 that would take it to the year 2000. The IMF recognized that Nicaragua has now “satisfactorily” fulfilled the first year of the new ESAF conditions, which was up in March of this year. Meanwhile, it has been under consideration for the HIPC Initiative.

Reduce spending to balance income

The adjustment program is designed to reduce the two major imbalances: domestic and foreign. Resolving the domestic imbalance requires reducing the public deficit and resolving the foreign one requires reducing the trade deficit. Balancing the two requires reducing spending and increasing income.

On the public spending side, defense and public security costs have been slashed considerably since 1990. The two fell from representing 14% of the Gross Domestic Product (GDP) in 1990 to just over 2% in 1998, and the government has announced more cuts for the year 2000. While it was necessary to reduce the huge army that had defended the country from the US-financed “contras” in the 1980s once the peace agreements were signed, the speed and magnitude of the reduction increased unemployment drastically. Furthermore, the failure to accompany the demobilization of both soldiers and their opponents by adequate measures for reinserting so many thousands of veterans into the country's economic life has resulted in very serious problems.

Social spending has also been dropping since 1994. There have been particularly strong cuts in health spending, which appear even more serious when the declining public health budget over this decade is contrasted with the population increase over the same period. Meanwhile public housing construction has been completely abandoned, with less than 0.5% of the GDP earmarked to this area between 1992 and 1995 despite the population growth.

Who pays for these successes?

On the income side, the number and amount of taxes has increased noticeably and tax collection has become much more effective. The easiest taxes to collect are indirect ones such as sales taxes, but they are regressive in that they disproportionately affect salaried workers and consumers. Since the poorest part of the population tends to spend all its income on consumption needs, it pays the point-of-sale General Sales Tax (IGV) on virtually all income it receives. Other groups that can save, which are in the minority, are spared taxes on the portion of their income that they invest or put in savings rather than spend.

Fuel taxes, which the government continually and arbitrarily raises, are felt throughout the economy since they affect all other prices. Those, plus high taxes on liquor, soft drinks and cigarettes, and the regular IGV, which is 15% across the board on virtually everything else, are the “indirect” taxes charged to consumers, and have the greatest overall weight in the national tax coffers. Import duties run a distant second and income tax is way behind them. The 1% property tax makes an insignificant contribution to state income, and even combined with personal or business income tax provides only about a fifth of what the government collects through the IGV (called VT, or value-added tax, in many other countries).

The various budget cuts, this heavy indirect tax burden on the country—which the Economic Commission on Latin America claims is the weightiest and most inequitable in Latin America—plus donations from abroad have helped close the public sector gap, in compliance with ESAF. Nicaragua's poor majorities together with the international community are thus clearly the ones who have paid the price for this government “success.” The poor are paying through the increasingly eroded purchasing power of their wages, the increasingly heavy regressive tax yoke around their necks and the increasingly expensive yet ever less efficient basic public services. The international community is paying through the continual flow of resources coming from the savings made in their own economies.

An unjust adjustment that doesn't adjust anything

The government can't flaunt many successes in the goal of reducing the gap between exports and imports, also referred to as the external imbalance. That gap has been expanding continually and now represents over 38% of the GDP. Despite the fact that exports have been falling since 1990, imports keep rising, which means that the country has not stopped consuming far more than it can pay for.

One quasi-dogma of the adjustment policies is that closing the internal imbalance will also lead to a reduction in the external one. This isn't happening in Nicaragua, however, because, despite being labeled structural, the adjustments are not geared to directly transforming the economic structure. The belief—perhaps wishful thinking is a better word—is that the market's invisible hand will begin making the other changes needed in the economic structure once relative prices—that is, interest rates, the exchange rate and the inflation rate—have been affected. But that isn't happening in Nicaragua either. After all the dust raised by the “second independence” had settled, people slowly began to realize that despite the pardon we will still be indebted and despite the adjustment we will still be maladjusted.

A pardon that falls short

According to the debt rescheduling, Nicaragua will end up with a $4.92 billion debt even after the pardon offered by the HIPC. According to the IMF's own projection, that debt will increase to nearly $5.91 billion within six years, almost the same amount that it was before the pardon. But this is not the worst news; worse still is that the debt service payments—interest and amortization of the principal—will rise dramatically starting in 2002, when the structural adjustment ends.
Nicaragua paid $332 million in debt service in 1998 and will pay $333 million in 1999. Starting in 2002 and for the following seven years, it will pay an average of $387 million annually.
What independence? The cycle will continue. To complicate things still further, the country will have fewer donations and loans by then with which to make its debt payments. Nicaragua received an annual average of $122 million in donations and loans between 1991 and 1997 to help with its debt payments, which in the same period averaged about double that: $210 million a year. To be clear, this international aid was not directly earmarked for debt payments, but by covering other necessary expenditures, it freed up state resources for that purpose.

It also must be taken into account that the IMF's concessionary loans of $43 million a year will end in 2001 if Nicaragua fulfills the adjustment goals. If not, they will end even earlier.

The numerator and the denominator

Both the IMF officials and the government's spokespeople for the wonders of the HIPC would say that these loan and donation amounts are not so important. The important thing to them is the relationship between the debt and its service on the one hand, and the amount of exports on the other. The World Bank and the IMF consider that a country has a “sustainable” foreign debt level when its current debt level divided by the amount of its exports is under 200%, and when the debt service divided by the amount of exports is less than 20%.
By that yardstick, Nicaragua's debt level is nowhere near sustainable: its indicators are 631% and 40%, respectively, which was precisely why we were included in the HIPC. According to the IMF's projections, Nicaragua will not be able to achieve “adequate” indicators for at least 10 years, even with the debt pardon included, and then only if the export growth projections hold true. But they haven't been holding true for years, which is the weak side of the adjustment. Furthermore, it is realistic to project that the export shortfall will continue, perpetuating the huge trade imbalance, until the country's productive structures are genuinely adjusted and many other structural limitations are overcome. As long as all these limitations remain, they will prevent Nicaragua from becoming a nation with a real project, a vision of where it wants to go and a map of how to get there. Right now, it has neither.

As Avendaño points out, “The debt problem isn't only the numerator; it is also the denominator. If in classifying a country as indebted you are supposed to divide the total debt balance by the value of its goods and services exports, those exports, the denominator, are obviously part of the debt problem too. Oftentimes, when Nicaragua's debt is being analyzed, the only thing anyone seems concerned about is reducing the numerator, not raising the denominator. It is very simplistic of the government to keep asking the international community to reduce the debt more when the economic policies aren't aimed at strengthening the country's export efforts. In Nicaragua, only six products—coffee, beef, seafood, bananas, sesame and sugar—account for 55% of total export volume, and an even greater percentage of its value. How can a country with such a limited export base resolve its debt problem just by reducing its balance?”

Without domestic savings

The structural reasons for Nicaragua's imbalances are many and they are not being dealt with. Not only is the adjustment not adjusting these multiple imbalances, the current Liberal government's “administration” of the adjustment is exacerbating them.

One of these structural problems is a shortage of domestic savings. If the external gap persists even with the internal gap closing, it means that national savings are not covering the volume of investments being made. One can observe an increase in investment, but what kinds of investments are they and where? How much is in Managua and how much, if any, in the departments? Are they in productive infrastructure? Tourism? Services? Are all the new hotels, restaurants, gas stations and commercial malls of every size and quality really the investments Nicaragua needs to achieve development? Is money laundering involved in some of them? If the answers to these questions are worrying in themselves, it is just as worrying from the economic point of view to know that these investments, whatever one may think of them, are being made with outside resources rather than national savings.
There is no way to have sufficient domestic savings if not enough sectors of the population can save, and they can't because the majority of the population has no choice but to spend all of its scant income just to survive. Half of all Nicaraguans have under a dollar on which to get through each day that dawns. How are they supposed to save anything?
If all Nicaraguans equitably received the per-capita income that corresponds to them in accord with what the country produces, every Nicaraguan would receive only $450 a year. (By contrast, per-capita income in Costa Rica and Panama is over $3,000 a year, and even in Honduras it is $820). That $450 would put them all just a hair above the poverty line defined by the World Bank. But Nicaragua has a serious double-edged problem—unequal distribution of the wealth on the one hand and an extremely limited generation of wealth to be distributed on the other. As long as that holds true, it has no way out. The way out is a luxury reserved for the handful of wealthy Nicaraguans.

Very dependent and very young

Another structural problem is the notable dependence on the exterior. The country's main export lines are still its traditional unprocessed agricultural crops, permanently vulnerable to the international price fluctuations. Yet to produce them, Nicaragua needs imported inputs, the prices of which are fixed outside the country, and tend only to go up. Closing the gap in the trade balance given this reality, which is outside national hands, would require the firm and sustained political will to connect all the currently dispersed productive sectors. There is at present no proper linkage between agricultural and industrial production, nor are agriculture and industry linked up to services. This means that the value added—the amount of labor contributed to the final product—is very limited. The Sandinista government understood this and attempted to create processing linkages, but the war and the economic crisis rendered the effort futile.

Another of the basic structural limitations, if not the most basic one, is Nicaragua's population growth—still one of the highest in Latin America—combined with the population's extreme youth, with 45% under 15 years of age. Such a large number of children and adolescents represents a potential wealth, a strategic reserve, but also a weakness, since it burdens the economy with a population that is either totally dependent or, at best, has not yet acquired its full productive capacity. Aggravating this limitation is the rising cost and/or dropping quality of the public health and education services, which impedes or conditions the development of this young population's capacities and is thus mortgaging the nation's future.

No market and virtually no state

All debates about development place a lot of emphasis on the important role played by two classic institutions in any country: the market and the state. Nicaragua lacks both. The governing sector has historically treated the state as its personal treasure chest. Neither previous modernizing efforts nor today's proclaimed “retooling” of the state from outside have varied this trend. In fact, it has gotten a real shot in the arm in this global era dominated by a culture in which easy money is valued over public service and in which failure is shameful but immorality is not.

The Nicaraguan state currently appears to be run by a clique that thinks nothing of using public resources for its private businesses and public spaces as a screen behind which to privately control the market. That is not the way to reconstruct either a free market or a democratic state.

The state has been shrunk; it suffers constant institutional crises; it is subjected to continuous changes in the rules of the game and the officials that oversee them; and it has very limited capacity to execute programs and projects. All this was shown during the Hurricane Mitch emergency, and demonstrated again this month when it was revealed that, in such a critical year, the Ministry of Health had only executed 8.6% of its programmed annual investments as of September.

Nicaragua doesn't really have a market either, and what there is lacks freedom, transparency and efficiency. In a country whose only solution is articulated agroindustrial development, it is alarming that nearly 50% of basic grain producers consume all they produce, produce only to barely survive and do not participate in the market for these products. Nor do they participate in the financial market, since no one offers them credit or any way to create their own savings. No one is even offering them any technical assistance. It was also alarming to learn during October that as part of a capricious Cabinet reshuffle the President is combining the Agricultural and Forestry Ministry (MG-FOR)—itself a recent fusion of those two categories—and the centralizing and already massive Ministry of Promotion, Industry and Commerce.

Four survival strategies

Neither the institutions nor the nominal market and state are at the service of the majorities, which makes it hard to imagine how the latter can confront the poverty that the former are supposed to be willing and able to eradicate. So what do those majorities do? They get along the best they can using all the ingenuity at their disposal. Most of them are forced into one of four arduous, risky, painful and dangerous survival strategies: underemployment, crime, emigration and deforestation.
Underemployment, otherwise known as informal employment, at least ensures that a large number of families have something to eat every day. For some years now, the informal sector has shown itself more dynamic than formal employment, but while this dynamism guarantees simple survival for many people, it does not develop the country. It in fact intensifies economic instability, inhibits the generation of savings and does not even develop personal capacities.

The fact that certain sectors are turning to crime for the solution is reducing public safety both in the cities and in the countryside, thus making investments in the outlying areas of the country increasingly less attractive. The government is now responding, however. A military operation dubbed the Plan of Permanent Security in the Countryside got underway on October 1 in the northern and central areas of the country. It involves 1,500 army and 700 police personnel, and is scheduled to last six months. The aim is to fight 44 bands of some 200 armed bandits that are active in those areas—in 1994 there were reported to be 418 bands, with over 3,000 armed members. President Alemán inaugurated the operation in La Dalia, Matagalpa, expressing his desire that “in the shortest time possible” the rural bands will be “reduced and if possible extinguished.” In the past five years these bands have committed 653 murders and 586 kidnappings against the civilian population.

Emigration is becoming the most massive survival strategy. As one person said in a meeting on rural development, “If you can't change the country, change countries.” The dollar remittances that so many emigrants send periodically to their families resolve innumerable problems in the households they had to leave behind, and mean that hard currency is entering the country and circulating to a certain degree. These remittances, however, mainly come in to guarantee survival and some occasional luxury purchase, rather than being invested in production or deposited in savings. In addition, the country is losing human capital: young enterprising people willing to venture out in search of opportunities.
The lack of financing and technology in the rural areas forces many producers to see deforesting the mountains as about the only way to acquire capital. Small and even medium-sized producers sell the farms they already have and push further into the virgin forestlands of the agricultural frontier, clear-cutting a plot to farm. Others put themselves at the service of powerful lumber dealers who are doing away with the natural resources in a much more irrational fashion. With this disappearance of the forests, the future disappears too. The most visible costs of this shortsighted survival strategy are an environment increasingly vulnerable to natural disasters and the loss of the country's principal comparative advantage: its natural resources.

The clouds hanging over us

These structural limitations, which feed the cycle of impoverishment, are joined in the overwhelming downward spiral by the daily events—the concrete expressions of these and other structural problems and of the lack of political will to deal with them—that are part and parcel of this period.

The country's institutionality is not solidifying. What does exist is weak and is being subjected to endless illegal and arbitrary actions without sparking any reaction—except for the continual but ineffectual denunciations of the administration that appear in the media on a daily basis. There is little resistance to this avalanche of abuse since the opposition seems unable to organize itself to channel the indignation or to offer concrete initiatives.
This month the judiciary was the focus of such a dangerous situation. No sooner had this branch of state begun to organize itself, professionalize and modernize than President Alemán openly influenced the election of the Supreme Court's new leadership. It was a serious setback to the long journey the justice system must make if it is to guarantee its own independence and the country's judicial security.

The President's declarations “anointing” his candidates constituted open political meddling. That, however, was the least of it. To ensure that he would get what he wanted, Alemán also ordered the Liberal parliamentary majority to reform the new Organizational Law of the Judicial Branch, modifying the quorum for electing the board of justices. Not only the act, but also the impunity with which it was announced and executed, spotlighted the trend yet again: the undermining of institutions and the concentration of all power in the hands of the executive office.

Who can put a stop to the corruption?

The governing clique is currently most interested in annulling the influence of the Office of Comptroller General (CGR), an institution that has proven the importance of the autonomy it struggled for and acquired during the Chamorro administration thanks to constitutional reforms pushed through by the opposition. This institution, which is vitally important in ensuring a transparent state and market, is still in its infancy. With little more than four years under its belt, however, it still decided to fight belligerently against corruption. This combination of factors has meant that its work—zealously excessive, risky and carried out with every kind of limitation imaginable—suffers from obvious weaknesses. None of them, however, justifies the extremely costly campaign orchestrated by President Alemán and his Constitutionalist Liberal Party (PLC) to defame and harass the comptroller general and his deputy. This campaign has not let up despite the fact that, as part of the pact between the PLC and the FSLN, their institution will be converted into a tame collegial institution at the service of political interests.

New chapters in the ongoing CGR saga

This month the country also witnessed the unfolding of new chapters of a story that has been repeating itself periodically since Alemán took office. First Comptroller General Agustín Jarquín issued a resolution holding the head of the Ministry of Environment and Natural Resources (MREN) responsible for reducing the Supreme Court's fine on the Korean lumber company Solcarsa for its irrational deforestation in the Bosawás Biological Reserve. President Alemán immediately undermined the resolution's importance in a public act, throwing his full weight behind the accused. “I here and now give my full backing to the minister's actions,” bellowed the President. “Don't let yourself be intimidated!” With that kind of support, the minister announced that he would seek legal protection from the comptroller's “ill-disposed” resolution. And there it will end.

Then on October 6, the CGR resolved that the state water utility was criminally liable for using state resources to construct five wells on two new haciendas of the President's family, though the corporation representing the family did pay a certain amount for the work in response to media pressure over the scandal in February. The wells were originally designed to carry drinking water to some ninety thousand peasants in several districts. The company's director declared that the CGR resolution was “garbage.”
After an investigation, the CGR also initiated a legal process against the state electricity company's directors for making installations on the same haciendas following procedures that violate the Constitution. Both this and the other CGR resolution involve the President himself. Twenty-four hours after this second action, the General Division of Income showed up at the CGR offices with the aim of charging it a million córdobas for a supposed irregularity in the retention of income tax paid by its workers. The measure was another obvious expression of the “fiscal terrorism” that the government applies against anyone who opposes it.

An earlier CGR resolution in which the CGR declared the privatization of the state-owned Bank of Industry and Commerce (BNIC) null is suffering a similar fate. It is a very confusing case, in which both sellers and buyers—business partners and cronies of the President, of course—seem muddled and the state appears to have earned nothing from the sale. Those implicated have done their best to create difficulties that will impede the case being cleared up. High government officials and former BNIC functionaries ran for legal cover from the CGR and the bank's new owners refused to let the CGR in to do its audits. New evidence revealed that Donald Spencer, a member of the President's inner circle, led the bank into bankruptcy before its privatization by providing loans to a select group of stockholders that were never recovered. President Alemán minimized the seriousness of both the scandal and the CGR resolution, and announced that the World Bank will do the audit.

Events such as this just keep on happening. The comptroller's office investigates problems and issues resolutions. But it all dies right there. No one is dismissed, no one is judged, no one is fined. The other institutions do not even try to function independently or belligerently: they cower, evade and ignore the process. The population is becoming increasingly convinced that no institution is of any use at all, not even the comptroller's office. The latter may be an enclave of honest work, but its work will not go beyond testimonial denunciation as long as it has no linkages with the other institutions. The Attorney General, who answers directly to President Alemán, has only let the resolutions of 9 audits pass through the judicial system—out of 463 that the comptroller's office has done since it began functioning autonomously in April 1996.

In a surprising revelation, alternate Supreme Court Judge Julio César Arias charged on September 27, with detailed evidence, that top-level officials had tried to bribe him to find against Agustín Jarquín in the lawsuit President Alemán has been pursuing for two months following an administrative error committed by Jarquín's institution. Alemán hopes to wear the comptroller down, get him sent to prison and finally have grounds to dismiss him from his post. Arias' courageous and risky denunciation is unprecedented in the history of the judicial branch, where pressure and bribes are traditional. Shortly before Arias made his accusation, Alemán, confidant that the sentence would go his way, declared that the comptroller “is fried.” Once the denunciation had been made public, Alemán brushed it off as “a good set-up.”

Weak and weakened business

Private enterprise also survives any way it can and often keeps a low profile, too. Caught between the pincer of official corruption on one side and that of fiscal terrorism on the other, the economic agents remain paralyzed or end up becoming accomplices. The government corruption involves weaving networks of unfair competition in the market and has links to certain sectors of private enterprise, while the presidency uses discretionary taxes as a weapon to force its opponents to submit to its will. To protect their interests, many business people prefer to “cut deals” with the government beyond the reach of laws and institutions. This behavior strengthens the lack of institutionality, which a government like this one is only too anxious to maintain.
Manuel Ignacio Lacayo, a powerful businessman who has been a victim of fiscal terrorism for his criticisms of government policies, describes how this form of economic repression, which has put its stamp on the Nicaraguan adjustment plan, works: “Fiscal terrorism consists of using instruments such as the payment or nonpayment of taxes for political ends. It also includes the psychological tension the government creates by delaying the delivery or release of products in customs. Or seeing to it that customs does not recognize or accept your purchase invoices. It consists of applying the law by quibbling over commas to delay your projects indefinitely or for a given period. All these hobbles are covered by a supposed legality and are applied arbitrarily, to favor the economic group linked to the government and punish the others.”

An opposition annulled

The FSLN, with its proven history of commitment, social sensibility and organizational capacity, has folded up its opposition banners. The highest FSLN structures and many mid-level ones are accomplices to the anti-institutional avalanche, the corruption and the extra-legal deals that dominate the market, and represent yet another form of corruption. Meanwhile, a significant number of grassroots Sandinistas—who were never educated by the revolution to respect institutionality or be aware of the laws—either remain imprisoned by the myth of a glorious past, have dispersed to concentrate on personal survival, or are pursuing alternative political options without clear leadership and fearful of the various forms of reprisal with which the red and black party punishes its dissidents today.

Only a few days after the government's all-out celebration of Nicaragua's inclusion in the HIPC, it was revealed—and never officially denied or confirmed—that the document the government had presented to the World Bank and the IMF to justify its request for inclusion had been returned. These institutions considered that the sections in which the government put forward its plans and achievements with respect to governability, transparency and poverty eradication were structured very weakly.

The government justified its pact with the FSLN in the name of good governance. But immediately after the pact was formally concluded in August, friction and tensions began to appear between FSLN and government negotiators, suggesting more problems ahead. In the view of one Sandinista spokesperson for the pact, the disagreements over the PLC-FSLN agreement are happening because “it is very complicated to translate a political agreement into laws.” There are already serious delays in drafting the reforms to the Electoral Law and the Constitution that are supposed to come out of the pact, and the effort is shot through with new tensions. One Sandinista who is fed up with his party's attitude believes that the explanation for the delays and the post-pact tensions lies elsewhere. “This was not a gentlemen's agreement,” he says, “but a mafioso pact, and it is well known that in such agreements each side looks for ways not to fulfill its part of the bargain, to surprise the other side, to flip it around.”
Such a pact does not guarantee governability, much less good governance. The anti-institutional avalanche does not guarantee transparency, and without transparent use of resources and orderly and secure institutions, it will prove impossible to eradicate poverty or even deal effectively with the cycle of natural disasters. These tasks require consensus and a harmonizing of goals. They require democracy, because without it, Nicaragua will grow ever poorer, more indebted and more vulnerable.

No signs of equity

The same day that the HIPC opened its doors to us, President Alemán declared that “today in Nicaragua it's time to stop referring so much to rich and poor.” But one can't speak too often about it, because both the quantity of poor people and the quality of their lives are truly shocking. The majority of boys and girls are malnourished, subjected to violence in their own homes, without education, without health care, getting hooked on drugs, lacking any work culture, living in the streets, feeling like failures from the moment they begin to think. Is the goal really to eradicate poverty? Isn't it more urgent to eradicate the wealth that has created so many poor?
Pitting development against equity at this point in history is meaningless, when so many experiences show that there can be no genuine development without equity, and that equity is even an indispensable condition of development. The Nicaraguan government shows no signs to indicate so much as a tendency towards the country's equitable development.

May some good sense rain down on us

Given the absence of a state and a market, Nicaraguan civil society, still so weak and dispersed, has a huge task before it: to develop and strengthen inter-institutional linkages and coordination that will permit the resolution of problems while at the same time creating new consciousness among people, at the very least in the local sphere. This requires dialogues to reconcile information, objectives and methods. It is not just a matter of creating organization, as could have been the paradigm in former times, but also of creating a culture of debate and a spirit of trust that facilities a flow of information and cooperation among the individuals and social groups in each locale.
Nicaragua has been officially designated as very poor, but its leaders have impoverished it. It is underdeveloped and it is inequitable. All of this is combined with an extreme vulnerability, as the chain of tropical storms in September and October, which brought copious rain to those still wet from Mitch, demonstrated. It is terrible to think that thousands of Mitch's victims were still homeless when these new rains hit the country, thanks to an almost sinful indolence.

But it is downright unbelievable that not even the Civil Defense Law had been approved before the rains came, even though this legal instrument for creating the institutional conditions to prevent and deal with disasters has been gathering dust on the National Assembly shelf for years. The priorities of both the government and the Sandinista “opposition” seem to lie elsewhere: in financial laws, privatizations, legal reforms to the electoral process, perversion of the institutions, campaigns to hold posts in the municipal elections, events, trips, parties and a whole image-creating publicity campaign.

All these legislative activities, Cabinet changes, proposals, fights, declarations and the like seem to respond to other priorities, to the realignment of the emerging new economic powers in their dispute with the old ones. Since the process is dragging out, the forecast is for more cloudy skies and new storms. If only some good sense would rain down on Nicaragua.

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