Envío Digital
Central American University - UCA  
  Number 108 | Julio 1990



The Economy: Help on the Way?

Envío team

“The dollars are here,” declared Central Bank Minister Francisco Mayorga, patting his briefcase as he returned in early June from a special meeting of donor countries in Rome. “Inflation will begin to decrease this month and in September we'll see that the nightmares of inflation and devaluation have ended.” Mayorga also announced that once the economy stabilizes, the government will introduce the "córdoba oro”—a new currency equal to a dollar—into full circulation.

The dollars were not in his briefcase and inflation only increased in June. The nineteenth devaluation in UNO's two months of government brought the official price of a dollar up from 53,800 córdobas at the end of April to 340,000 by the end of June. This directly affects petroleum prices and other imported inputs and thus indirectly affects the prices of all domestic goods. The black market price remained up to 40% ahead of the official price, as those who could afford to buy dollars with their shrinking córdobas did so at any price.

A significant contributor to Nicaragua's hyper-inflationary spiral has become what economists call the “psychological” factor-merchants increase sale prices in anticipation of expected cost increases rather than afterward. That tendency will only be broken by confidence that the currency will remain stable. To build such confidence, Mayorga has announced that the new córdoba oro will be freely convertible to dollars, and has predicted that “the córdoba oro will be able to maintain parity with the US dollar during doña Violeta's entire term in office.” To demonstrate that the new córdoba is as good as its name (oro means gold in Spanish), Nicaragua will have to keep substantial dollar reserves in the Central Bank to back it.

(With hilarious ingenuousness, a young black marketer recently demonstrated his lack of confidence in the new currency. He enthused that the córdoba oro would increase his productivity because he would not have to spend so much time counting great wads of bills. The possibility that it might maintain its parity with the dollar and thus put him out of business had not crossed his mind.)

All that Glitters

The $313 million US aid package earmarks $73 million to back the córdoba oro, but that is not nearly enough, particularly if córdoba oro holders lack confidence in it and decide en masse to convert their new bills to dollars. Thus Nicaraguan government officials headed to Rome hoping to get more cash, not just program credits, from the European countries.

The 1990 budget taken to Rome showed total financial aid needs of $907.5 million, of which $262.7 had already been disbursed. Of the remaining $644.8 million, the UNO government was asking $350 million from the 30 governments expected to attend the donors meeting. (Representatives of the European Community and 27 individual countries, including the United States, Japan and the Soviet Union, as well as 11 international organizations attended the meeting.)

Between the time the proposal was drawn up and the actual trip, the US Congress finally approved the Bush government’s aid package. Thus shortly before departing for Rome, Central Bank Minister Francisco Mayorga, who headed the Nicaraguan government delegation, modestly lowered his expectations by $100 million. But even with the $263 million from the US that does not go directly to pay arrears on international loans, Nicaragua would not quite hit the $900 million mark even if it got commitments for the whole $350 million from the Rome meeting.

Upon his return, Mayorga was triumphant in his comments to the press. He announced that Nicaragua received $120 million, with another $180 million in 1991. While he was vague about the precise amount of hard cash obtained, former Vice President Sergio Ramírez, who represented the FSLN at the Rome conference, commented that there was little liquid foreign exchange. Former Deputy Minister of Foreign Assistance Pedro Antonio Blandón, writing in Barricada, added that “assistance to deal with [the country's] balance of payments, which is what the government was really looking for in order to be able to finance the emergency measures in the coming months, is far below official estimates.”

FSLN Role Constructive

The Rome conference was the second such donors' meeting to deal specifically with Nicaragua. The first was in Stockholm in May 1989. On that occasion, the Sandinista government invited COSEP to accompany the Nicaraguan delegation; this time the UNO government invited the FSLN.

COSEP not only opted not to attend the Stockholm meeting, it sent a letter urging the donor nations not to assist Nicaragua. UNO, on the other hand, knew how to get mileage out of good relations with the FSLN. As a La Prensa editorial commented with ironic magnanimity the day after the delegation's return, “And, why not say it, even the presence of the minority delegate Dr. Ramírez Mercado, with his opposition criticisms, contributed notably to magnifying the image of seriousness and equity that this government enjoys.”

Ramírez supported the social programs contained in the government budget, but explained to the delegates that although the FSLN wanted to contribute to stability, it would not permit the fundamental gains of the revolution to be sacrificed. He also sharply criticized Mayorga's presentation to the conference. Mayorga made no mention of the fact that Nicaragua's economic situation is due largely to the US military and economic war that the country had to confront starting in 1981. While the current government is working within very tight economic constraints for 1990-91, the conditions are infinitely better than those the Sandinista government had to face in recent years.

Foreign Dependency

Nicaragua's economic health in the coming years will depend largely on foreign assistance, although the UNO document estimates that it will only need $581.7 million in outside assistance instead of the $907.5 million it required this year.

According to Ramírez, $70 million of the aid firmed up at the Rome meeting was the result of previous accords between donor countries and the Sandinista government. He listed the “new offers” as coming from Spain ($12 million) and Sweden ($10 million), both generous with the Sandinista government in the past, as well as West Germany (over 50 million marks) and Great Britain ($1 million), neither of whom ever assisted the Sandinista government. In addition, according to La Prensa's listing by country, Venezuela agreed to finance $20 million (20%) of the country’s petroleum needs this year and to negotiate a reduction of $150 million of its outstanding debt. Venezuela cut off its petroleum supply to Nicaragua in 1984 for nonpayment of that debt.

Ironically the Soviet Union, vilified daily in La Prensa for the last 10 years, is contributing more this year for reconstruction of the economy than the United States ($288 million from the USSR to $263 from the US). The Sandinista government assured essential Soviet assistance in oil, agricultural inputs, machinery and equipment during the last months of the election campaign. Following the election, the Soviet Union reaffirmed these previous commitments. It also made good on them faster than the United States—of the aid already disbursed to Nicaragua, almost all of it is from the Soviet Union.

At the Rome conference, a consulting group was formed to help Nicaragua find $300 million to pay its back debts with multilateral lending institutions and “restructure” Nicaragua's economy. The group will be made up of the International Monetary Fund, the Inter-American Development Bank and the World Bank. It is an alternative to Nicaragua's original hope of reconvening the donor countries in November to deal with the arrears question.

UNO desperately wants to clear up its back debts to become eligible again for these multilateral lending agencies’ “soft loans.” The document the government presents to the conference, in fact, announced that “the country has solicited technical cooperation from the IMF for its stabilization program, with the intent of establishing the terms of an adjustment under its supervision before 1990.” It is doubtful that the government will be able to enact further austerity measures and maintain the climate of relative calm the Sandinistas were able to achieve with their 1988-89 measures. IMF programs imposed in Venezuela and Argentina last year caused riots.

Nicaragua’s rightwing sectors, on the other hand, are critical of the government’s inability to impose measures that are austere enough. Gilberto Cuadra, president of the big business association COSEP, has said the state is not shrinking fast enough, the reduction of the army is too slow and the labor policy is too lenient. He warned that the assistance received in Rome should be considered “the last or nearly the last aid that Nicaragua is going to receive.” Nonetheless, while the total assistance Nicaragua will receive this year may be less than the government originally hoped for, it is still far more money than Nicaragua has seen for many years.

Some believe that the country’s macroeconomic indicators will improve significantly in the next year or two. But UNO's push toward privatization and the consequences of the austerity program mean that even if this is true, the gap between the richest and the poorest in the country will increase dramatically as the poor are cut adrift from the basic government programs that assisted them during the last 11 years.

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