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Central American University - UCA  
  Number 124 | Noviembre 1991



US Aid: Not Even a Cheap Lunch

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Two interlinked events in September demonstrated in no uncertain terms the political price the Chamorro government has had to pay for US assistance in launching its neoliberal economic plan—a model the Bush Administration wholeheartedly supports. The first was the definitive withdrawal of Nicaragua's World Court case against the United States; the second was the payment of Nicaragua's arrears with the international lending agencies. The sad part is that, while the nation may consider the price too high, there is little indication that the government does.

No Fence-Straddling Allowed

Given the framework of Nicaragua's Constitution and the strength of Sandinista organizations at all levels, Violeta Chamorro's government has had a hard time translating its ideological affinity with the Bush Administration into political measures. From the start, rightwing business interests in the Superior Council of Private Enterprise (COSEP), the newspaper La Prensa, the extremist parties in the UNO coalition and, more recently, the whole UNO bench in the National Assembly pressured her government to put the Sandinistas in their place. With indirect and sometimes even direct support from the US Embassy in Managua, those sectors have leaned most strongly on Minister of the Presidency Antonio Lacayo, Chamorro's son-in-law and trusted chief adviser. They believed that the FSLN was so weakened by its electoral defeat that its persistent warnings of a violent popular reaction if the revolution's basic gains were rolled back should be exposed as pure bluff.

At first, Lacayo and his team did, in fact, try several times to face off with the Sandinistas in the streets, especially over the government's imposition of drastic economic adjustment measures. But the effort was too costly; the unions and other popular sectors forced the government to back down and negotiate. Lacayo has since tried to avoid further massive street mobilizations. But so has the FSLN; given society's generalized exhaustion, the Sandinistas must use this tactic judiciously or risk political erosion.

The neoliberal economic scheme promoted by the US and Nicaraguan governments is contrary to popular interests, but after a year in the opposition, Sandinismo—at least at the party level—seemed resigned to its inevitability. The FSLN could not oppose the government's overall monetary stabilization goal or its efforts to get foreign resources. It limited itself to demanding that more of the budget be assigned to social spending. To guarantee an effective basis for popular power, it also insisted on workers' rights to the rural and urban properties provided by the revolutionary government and to part or full ownership of the state enterprises now being privatized. The Sandinista base threatened to respond with strikes if these social, budgetary or technical variants were not written into the stabilization plan.

The government needed Sandinista compliance to implement its economic plan. The threat of instability, costly for the government and for the country's image with potential investors, led it to propose a tripartite concertation forum, in which negotiations would ideally lead to a social pact. In other countries this means establishing the rules of the economic game between government, business and labor—in which the latter is usually designated to be the main loser before the game even begins. In Nicaragua, it essentially implies establishing rules between the government and Sandinismo. This unprecedented form of concertation has made the United States and Nicaragua's own far Right very cranky.

The US government could hardly be expected to share President Chamorro's reconciliation policy or Lacayo's determination to negotiate an agreement with the FSLN and its labor movement. It is Lacayo who faces the contradiction; he’s the one trying to promote a US-financed neoliberal economic scheme within a political scheme that requires an understanding with the Sandinistas and popular interests in general.

Perhaps Lacayo hoped that, in time, the US, like the Sandinistas, would become more conciliatory and cut his government some political space. He may have expected that, as the implementation of the stabilization program went forward and the structural adjustment plan was announced in September, the US might start applying less stick and more carrot, or at least stop attacking on all fronts at once. He may even have speculated that the United States might recognize that it, too, could benefit from both the Sandinista Army's demonstrations of loyalty to the government and tacit Sandinista support for the government's economic program—at least to the degree that it would stop the major strikes characteristic of previous months.

If so, it was a short-lived pipedream. The US government, unlike the Sandinistas, showed no signs of moderation. In only slightly veiled fashion, it accused Chamorro's governing team of lacking the courage to set the stabilization plan in motion with required speed. Nor did the US Embassy hide its unhappiness with the government's decision, in the second concertation round in August 1991, to recognize the workers' right to 25% of the shares of privatized state enterprises. In the minds of both the US Agency for International Development (AID) and COSEP, the notion of "worker shareholders" just confused the property debate even more and would discourage foreign investment in Nicaragua.

US Economic Blackmail Means Never Saying "We're Quits"

No one is unaware that the United States and Nicaragua's far Rright are "worried" about Sandinista military officers remaining in command of the armed forces. But at least so far, the Chamorro government has stood its ground on this issue. It is one in which the government fears opposing the Sandinistas more than opposing the US. But since the current constitutional, political and military framework favored the Sandinistas too much in the economic dispute, the US could not let that dispute run its natural course without interfering. It decided to step in and establish its own rules.

The Chamorro government's tactical contradictions with the White House had already come to light, albeit in somewhat confusing fashion, via the blunt way it pressured her administration during the first year. AID disbursements and official Washington efforts to pull together the funds Nicaragua needed to pay its international debt arrears were abruptly interrupted more than once. AID, which has its own personnel in almost all Nicaraguan government agencies, insisted that the reasons were purely technical—Chamorro's economic team had gotten "behind" in formulating and implementing its economic stabilization plan and presenting projects and legislation. Without these elements, AID insisted, the disbursements could not be used effectively. It was a nice way of saying "no tough measures, no aid."

This US notion of "international cooperation" is nothing new to Latin Americans. Ideally, it should mean cooperating within a government's own development policy in areas of mutual benefit; but to the US, it means forcing the recipient government to do the cooperating by conditioning aid on the implementation of political or economic policies in line with US views.

This posed something of a dilemma for the Chamorro government: it had to accept either the US conditions or the Sandinistas' conditions, knowing that a confrontation with either would lead the country into chaos. The government's technocratic neoliberal instincts swung the balance towards the US, as did its sheer survival instinct. The US was in no mood to accept a truce or be patient in favor of the country's stability.

To assure disbursement of the 1990-91 Economic Support Funds approved by the US Congress, Chamorro's economic team had to agree to specific economic reforms implemented according to specified timetables. An official report from Congress' General Accounting Office (GAO) in May 1991 revealed the exact terms of US inflexibility. Of the first $300 million donation approved, the largest single budget line was $118 million for "economic stabilization and recovery." According to the GAO report, disbursements would be made in $20-$50 million increments, following receipt of "satisfactory evidence" that specific preconditions had been met. For example, a January 1991 amendment determined that $20 million "to accommodate the Nicaraguan government's urgent need for funds to finance programs that encourage the voluntary separation of employees from the public sector" would be disbursed in four equal installments—the first upon receipt of a written commitment to reduce public sector employees by 15,000 over a six-month period, and the remaining ones each time evidence was received that 2,500 employees had actually left. A calendar was similarly imposed for the privatization of state enterprises, conditioning the aid disbursement to the dismantling of state trading agencies and the concession of licenses to private banks.

This economic blackmail went hand in hand with political pressure. AID funds were channeled directly to municipalities and nongovernmental entities that are not only anti-Sandinista but anti-Lacayo. Under a category called "Democratic Initiatives," AID funneled $235,000 to the far right radio station Radio Corporación. Its main contribution to democracy is to express open sympathy for both the demands and actions of the "recontras" and rake the Chamorro government over the coals for its "wishy-washy" treatment of the Sandinistas.

Under the same category, $700,000 was budgeted to "provide support, technical assistance and training to Nicaragua's free trade unions through a cooperative agreement with the American Institute for Free Labor Development." AIFLD, an AFL-CIO affiliate with old established links to the CIA, estimated that the project would result in "(1) an increase in membership of at least 50% in the Confederation of Labor Unity [CUS] and three other independent trade unions that make up an umbrella group of labor confederations and (2) the creation of 25 new unions in urban and rural sectors." And how did AIFLD plan to accomplish that impressive growth? According to the GAO report, the project included "plans for conducting assessment and feasibility studies to identify programs needed to recruit and retain new members from the ranks of Sandinista unions." Most of the "free" trade unions mentioned in the umbrella group are linked to parties in the governing UNO coalition, and the CUS itself has received AIFLD financing since its creation. By the time of the report, only $319,050 had been disbursed to AIFLD. AID, showing no favoritism, was unhappy with AIFLD's "inadequate" reporting and "deficiencies" in its early implementation of the project, so turned down its November 1990 request for an additional $258,000. The problem may have been that CUS's membership has actually declined over the past year.

Despite the Chamorro government's concession to a US timetable, the Bush administration and Nicaragua's extreme Right did not get everything they wanted. Neither the UNO bench in the National Assembly nor COSEP in the concertation forum were able to force the government to apply a more orthodox, anti-Sandinista and pro-US slant to its economic program. This was intolerable to the United States, which was determined to exact its pound of flesh.

The World Court Case: A Pound of Sovereignty

In his customary casual tone, Foreign Minister Enrique Dreyfus announced on September 17 that, five days earlier, the Nicaraguan government had officially "discontinued" Nicaragua's suit against the United States in the World Court. The case had been in limbo since the court's historic June 1986 decision in Nicaragua's favor. What remained was to verify the amount of indemnification that the United States was to pay for its illegal war and negotiate payment with the US government. By 1986 Nicaragua had carefully calculated direct and indirect damages at $12.2 billion. In the two ensuing years of war, that amount grew to $17 billion.

Even though the United States blatantly ignored the entire court proceedings at The Hague, the file remained technically open. It was a political irritant to the Bush administration, which is proclaiming itself the great defender of international law and particularly upholds Kuwait's right to indemnification for damages during Iraq's occupation of that country.

For months prior to Dreyfus' announcement, the US media reported that Washington was conditioning new aid requests for the Chamorro government on withdrawal of the case and that this issue was also "interfering" with the disbursement of approved funds. By April 1991, Washington had only released $287 million of the $541 million promised.

US government officials publicly denied any link between the World Court case and US economic cooperation. But in private conversations and interviews, they did not deny that the Managua government had been made to see the incompatibility between good relations and the still-active case. "It's very difficult to justify turning over funds to a government that has a suit against you," said one State Department official.

For many Nicaraguans, particularly but not only Sandinistas, it was an important issue of nationalist principle. The Chamorro government, however, did not hesitate on principled grounds, nor is there evidence that it even used the issue as a negotiating card. It simply preferred to avoid an unnecessarily messy fight while there were more important points on the negotiating agenda. The executive chose to pick her own best moments, preparing people gently—like removing a band-aid slowly so the patient feels less pain, rather than ripping it off all at once.

Days before President Chamorro's April 1991 visit to Washington, she requested that the National Assembly repeal Law 92, which, among other things, required domestic consultation before entering into any bilateral indemnification negotiations with the United States. Nicaraguans were not the only ones to react to that first tug on the band-aid. It also produced a cry of pain from organizations that base their work on respect for international law. "Even if withdrawing the suit will improve relations between the United States and Nicaragua," commented human rights defender Americas Watch, "we deplore the loss of esteem that this represents for international law, especially at a time in which the Bush Administration is trying to build a new world order on these principles."

Dreyfus' surprising announcement five months later that Nicaragua had formally pulled the suit was a final reminder to all that US patience and flexibility is very limited, as is the Chamorro government's sense of sovereignty and dignity. It was also a reminder that, if her government's monetary and fiscal policies cannot escape Washington's meddling, neither can its foreign policy.

Despite protests to the contrary, the Chamorro government itself, by its timing, underscored the link between US financing and the decision to abandon the suit. The announcement came barely 24 hours before the government went again to the United States to receive its next installment of AID financing and the coveted certification from the World Bank and International Development Bank (IDB)—in both of which US influence is well known—that Nicaragua now has a "clean slate" for receiving new loans. Dreyfus did not sound at all convincing when he argued that the timing was "pure coincidence."

According to his official explanation, the withdrawal of the case responded to a problem "of conscience," since Nicaragua had received hundreds of millions of dollars from the United States, including help in canceling the old debt with the World Bank and IDB. (Counting disbursed and as-yet undisbursed donations, plus the $75 million US contribution to Nicaragua's arrears with these lending agencies, the United States has cancelled its war debt to Nicaragua at a rate of about four cents on the dollar.)

The Sandinistas and many other Nicaraguans saw this excuse as humiliating proof that the government had caved in to US blackmail, when it could have won support for a nationalist stance by using the public debate provided for in Law 92. While La Prensa heralded the decision as the beginning of an "era of friendship and cooperation" with the United States, Barricada wrote in an editorial that "Foreign Minister Dreyfus has left us feeling servile by excusing the North Americans for having never accepted the jurisdiction of an international court. The decision at The Hague was never a party issue or revenge against the United States; it was a question of nationhood, of dignity. Furthermore, the suit won by Nicaragua constitutes a historic victory for all small nations that turn to international law to make claims against the abuse of the powerful. This government had no right to dispose of our political patrimony and that of other nations in this manner. It is a national shame."

The Chamorro government clearly did not see it that way. It viewed the exchange simply as the political price a small nation must pay to receive US help for its economic plan. More specifically, it was just the last step in over a year of efforts to cancel the $320 million arrears with the World Bank and IDB and thus become eligible for new bilateral and multilateral loans. (The Sandinista government had been paying on Nicaragua's debt with those agencies until the US imposed its economic embargo in 1985.) To get the bilateral funds it needed to pay the arrears, the government had engaged in lengthy negotiations, where it was finally forced to impose drastic stabilization measures. But in September it all paid off. With the World Court case cancelled and the stabilization measures in place, the US helped pull in the last funds needed to payoff the back debt. With that, Nicaragua got the formal "green light" from the International Monetary Fund (IMF) required by the US and other wealthy countries in the Paris Club for future loan considerations.

Although Nicaragua received a number of bilateral donations to cancel its arrears, a total of $193 million came in the form of "bridge loans," on the condition that they be paid back the moment the Chamorro government receives its first new loans from those agencies. The government is loudly applauding the new flow of resources, but this aid will not end the people's sacrifice; approximately 60% of these funds are committed to repaying the bridge loans and the remainder is tied to the obligatory implementation of a structural adjustment program. Minister of Foreign Cooperation Erwin Kruger announced that Nicaraguans must now "tighten their belts," as if there were any notches left. Government inattention to social needs over its first year and a half combined with the devastating drought that has affected extensive rural areas of the country has already forced many peasants to eat roots and herbs just to survive.

In his speech to the 46th United Nations General Assembly on September 12, Dreyfus succinctly characterized just how bad off Nicaragua is. "Our gross domestic product is at the level it was at the beginning of the 1950s; annual per-capita income is on the order of $480; open unemployment is estimated at more than 40%; the $12 billion foreign debt is the highest in the world in per capita terms; and serious deterioration has been registered in the productive sectors and in social conditions." There is no reason for the poor to share the government's official joy at having received the blessing of AID and the international lending agencies for bringing its accounts up to date. (According to Erwin Krüger, Nicaragua's foreign debt is now down to $11 billion, and negotiations are underway with 11 countries to reduce it further. Its bilateral debt with the western countries in the Paris Club totals $1 billion and with the Soviet Union, Nicaragua's main creditor, $3 billion.)

A few days after the withdrawal of the World Court case, the US Embassy in Managua announced with great fanfare that the US was pardoning Nicaragua's non-commercial bilateral debt—$259.5 million of leftover loans to the Somoza regime. Although this decision is part of the Bush Enterprise for the Americas to reward governments that adopt "correct" budgetary policies (Honduras' old debt was also forgiven), most Nicaraguans saw it as nothing more than a small compensation for Nicaragua's "pardon" of the much larger US war debt.

The "Brave New World" Order

Given the increasing demands of the multilateral lending agencies and the US government for financial "discipline," Latin American governments cannot aspire to formulate their economic policies independently. Technically speaking, then, the pressures and conditions imposed on the Nicaraguan government are not so different from those applied to other governments as part of the new financial orthodoxy and Bush's Enterprise for the Americas.

Even within Latin America's increasingly uniform neoliberal context, however, US pressures and conditions on Nicaragua have a special dimension given the Sandinistas' political weight. It would have been a logical tactic for the US to be more flexible and concede the funds urgently needed to bolster the Chamorro government, thus providing a counterweight to Sandinismo. But it was illusory for the government to expect the US to give it special treatment, similar to what Poland and Egypt are receiving with respect to their debts. It was illusory to think that the US would promote short-term productive investments rather than simply provide new loans so as to payoff old ones. There are no exceptions. Nicaragua is now on the well-worn path of conditions imposed by the multilateral lending agencies, in which we can expect new budget cuts and new measures with a negative social impact.

It was also illusory for government technocrats to expect the US to stop promoting the extremist politicians who encourage confrontation. The Chamorro government is supposed to submit not only to the economic conditions of the international financial community but also to the political conditions of Nicaragua's anti-Sandinista hard-liners. The new structural adjustment is expected to be political as well as economic. To the degree that the government is forced to continue caving in, new conflicts will arise between it and the Sandinistas. Perhaps this is the larger objective of the inflexible US strategy, even if the cost is the country's political instability, to say nothing of the daily conflicts of thousands of Nicaraguans already going hungry.

The FSLN will not be able to remain passive; it will have to use its quota of real power to insist on fulfillment of the concertation accords and democratization of the economy. (Still pending are the final resolution of the property issue and implementation of the now-recognized right of workers to own part of the privatized state businesses.) Economic administration by consensus in general and these accords in particular are--as the nation's very stability would seem to be--totally contrary to the US and IMF conception of "reactivation," which is based on incentives to private accumulation and the state's abandonment of its social role.

The Sandinistas' insistence, and to a lesser degree that of the government, on finding formulas for consensus on economic policy takes the sharp edges off of the current ideological debate. This lack of clarity benefits the executive branch, which is inadvertently presented to the people as the "good guys" with whom the Sandinistas can negotiate, in contrast to the "bad guys" in the National Assembly and COSEP. This image momentarily leaves aside the government's dependent character, its disinclination to oppose the demands of international capital.

If a popular economic policy alternative has not yet been clearly articulated, the withdrawal of the World Court suit helped draw out not only the class differences, but also political differences relating to nationalism and dignity. The government's prostration to US hegemony revealed the real nature of Nicaragua's "new democracy" and the new right's unwillingness to present the United States with a nationalist alternative. The US has once again debased Nicaragua's nationalist fiber. This fiber must be at the core of any popular alternative.

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