Envío Digital
Central American University - UCA  
  Number 120 | Julio 1991



AID/FISE: Solving the Unemployment Problem?

Envío team

The Emergency Social Investment Fund (FISE) has been celebrated in the pro-government press as the solution to Nicaragua's unemployment problems. While Minister of the Presidency Antonio Lacayo promised it would generate some 8,000 new jobs in March alone, official statistics from the US Agency for International Development (AID) show less than one fourth that number by the end of April. Both UNO and FSLN mayors heavily criticize the program, as do the construction workers' unions—the vast majority of whose affiliates are unemployed—and even the workers employed on the projects.

All Central American and many other Latin American governments have started similar programs to mitigate the effects of economic "shock" plans like the adjustment measures announced in Nicaragua on March 3. AID, which provided FISE's first funding, has played a fundamental role in shaping the organization, its decisions and priorities.

The birth of FISE

All sectors participating in the concertation negotiations last October ratified the need for a public investment program that would create jobs and rehabilitate the country's infrastructure. FISE already existed as a special project within the Nicaraguan Institute for Municipal Development (INIFOM) and, late last year, became an independent entity at the request, said INIFOM minister Dr. Santiago Rivas, of "donor countries"—in other words, AID. It is now overseen directly by the Ministry of the Presidency.

FISE's first working capital is a $10 million donation from AID. This money is specifically directed towards small-scale municipal projects with a "social impact." Its primary goal, however, is to generate jobs, given Nicaragua's official 45% unemployment rate. AID has promised another $10 million for a similar program, and the International Development Bank (IDB) has slated $4 million for a pilot program with different priorities, but that also includes similar projects for road and building repairs.

While some municipal projects were approved as early as October of last year, AID did not turn over even the first $1.5 million until January. UNO mayor Luís Manuel Gallo, of Nagarote, reports that his office was promised funding to line a dirt drainage ditch in early November, then in December, then in late January. He had still not received the funds as of late May, by which time the seasonal rains had already begun.

Why the delay? FISE director Carlos Noguera blames initial delays on AID's reticence to approve funds for poorly designed projects. Now that some 400 proposals have been presented, however, everyone agrees that this is no longer a general problem. AID itself claims the hold-up was due to the lack of organization, documentation and experience on the part of the Nicaraguan organizations.

Julio Villanueva, former assistant executive director of INIFOM, reports that one reason was that Antonio Lacayo rejected AID's first administrative proposal. This delayed the release of funds almost four months, and "at one point even endangered their release altogether," according to Villanueva. The proposal, he said, was to create an independent organization directly administered by AID, with no government participation.

According to Rivas, only half of the $6 million in AID funds already committed to projects throughout the country has been disbursed to date. He said the $10 million would be spent in six months.

The approval process

In order to get a clear picture of the kinks in the system, it is important to get a sense of who the players are at each step of the way. Theoretically, projects go through the following process from design to implementation: Local municipal offices design projects and send them to the regional INIFOM office for review. INIFOM either sends them on to FISE in Managua or back to the municipality for reworking. Once FISE receives the proposals, they are subjected to another technical review by CISCONCO, a Nicaraguan engineering consulting firm hired by AID. FISE and AID then jointly reject or approve each project. Those approved are prioritized and given final adjustments or cost revisions.

The contract for each accepted project is put up for bid to private local contractors whose technical eligibility has previously been approved. These contractors must also post a bond to qualify for a project, which limits eligibility to only fairly well-to-do contractors. Contractors who are selected must go to Managua to sign the contract with FISE and to receive each installment of the funds, which come in two-week intervals. The contractor directly hires the necessary workers, but, according to FISE engineer Humberto Aranda, the project is supervised in the field by CISCONCO and AID, and indirectly by INIFOM and FISE. León's INIFOM delegate, Fernando Mayorga, says that "some parameters have changed because AID has been very demanding in its numerous requirements for the implementation of projects. For this reason there is double supervision."

Projects must satisfy several key criteria to qualify for funding, but no two people interviewed from FISE and INIFOM mentioned the same standards. For example, Mayorga said that at least 40% of a project's funding must go to workers' pay; Aranda, who works on project design in FISE, said 35%; and Noguera, 30%. Noguera also said the project must be presented by the mayor's office, resolve an economic or social infrastructure problem and have no adverse environmental effects. Aranda emphasized that 90% of the workers must be from the area, and the project may only use local materials. All said that the contractor must be from the private sector.

Mayors sidelined

Officially, the job generation program is presented as a municipal project. In describing FISE's formation, Rivas said, "The central government decided that those who could oversee and administer these funds most efficiently and were in closest contact with the population were the municipal mayors' offices." Yet funding for the projects never even passes through their hands.

Once a proposal is written, the mayors' offices have virtually no further role in the project. Mayors from both UNO and the FSLN have called the system bureaucratic, centralized and inefficient. Reflecting their unanimous view, Nagarote mayor Gallo said that the process violates municipal autonomy, "in the sense that the municipality and the mayors are not taken into account. They consider the mayor inoperative or incompetent." In his opinion, the municipalities could have opened special accounts for the funding, which would then be supervised by FISE.

Some mayors also complain that 40 to 50 people come by asking for work every day, urged on by government-sponsored radio or television ads announcing municipal construction projects to generate employment. Yet the private contractors, not the mayors, do the hiring, and with rarely more than one project, if any, per municipality (with the exception of Managua), those positions are filled quickly.

Noguera defended this process, saying, "We believe that greater efficiency is achieved by reactivating private contractors, because the goal is to generate employment. What could often happen, if this money were to pass through the municipal offices, is that they would hire people who are already working " He did not explain why the mayors were more likely to hire people already working than private contractors were. Noguera lauded the quality of work done so far and the speed with which projects are being finished. He said the mayors come out ahead because they present the project, local contractors start to develop as part of the construction industry and the project generates employment. "In addition," he added, "these are the mechanisms established by international donors as appropriate for this project's implementation."

A representative from a Sandinista mayor's office criticized the amount of money being spent in duplicating functions. Instead of streamlining aid and working with municipal offices that need to improve their technical capacity, the government has set up a parallel bureaucracy. In addition, the mayors point out that they could save money on projects, for example by directly employing master carpenters instead of larger private companies. Master carpenters rarely qualify for FISE contracts because they can’t afford the bond required to be eligible for bidding, but are then subcontracted by the private contractor.

Who gets aid?

According to FISE's official figures, the 32 projects currently underway nationally will use up almost a third of the first $10 million. Some 40 additional projects currently in the bidding process will use another $4.5 million. With some 400 project proposals in their files, there is no way to satisfy everyone's needs, even with AID's second $10 million. So once projects meet the basic eligibility requirements, how are they prioritized?

According to FISE director Noguera, regions were prioritized based on "a map of poverty in the country that indicates the regions in which the population's basic conditions are deteriorated and unacceptable." Rivas, on the other hand, says INIFOM plays a key role in setting FISE's priorities, identifying "those municipalities in which social problems might arise in the short term," such as "places where the population—like repatriates from the resistance or demobilized members of the military—is returning rapidly." Rivas also claims "no political criteria" is used. INIFOM regional delegate Mayorga, in turn, reports that the first projects funded are those that generate the most jobs, which is why so many projects have to do with laying paving stones. Those relating to health and education, he says, are also prioritized.

While Noguera claims that projects are prioritized by need, FISE's regional order of priorities contradicts the findings in a detailed document introducing FISE and its project proposals, written by the Nicaraguan President's office and the United Nations Development Program in collaboration with the Ministries of Health, Labor and Economy and Development, the Pan-American Health Organization and other nongovernmental organizations. That document classifies 32 municipalities based on infant mortality and the school height/age census. As the document explains, "The height/age index of school children reveals the nutritional history of a specific geographic zone and is considered an indirect indicator of its development level." This classification resulted in the prioritizing of Pacific and Central municipalities in the following order by region: VI (Matagalpa, Jinotega), IV (Grenada, Rivas), V (Boaco, Chontales), I (Estelí), II (León, Chinandega), and, finally, III (Managua). This differs substantially from FISE's actual funding priorities, specifically regarding regions III and IV. Noguera said 30-35% of the AID money would go to Managua; 10-15% to regions VI and V; 10% to region I; and somewhat less to regions II and IV. (While some projects on the Atlantic Coast will be funded through this program, AID has approved an additional $5.4 million specifically for the coast.)

Many complain that Managua is receiving even more than 35%. According to FISE documents, Managua has 12 projects currently underway, which use 55% of the funds for the first 32 projects nationwide. This infuriates other mayors, who are lucky to get funding for one project. As one mayor said, "It's true that Managua has problems, but this is structural. The important thing is to stop migration to Managua and get people to stay in the countryside where they can produce."

The small, remote municipalities with the least resources have not, so far, been the primary beneficiaries of this program. Mayorga points out that only one of the first four projects approved in Region II is in a poor community. Noguera admits that the poorest municipalities are least capable of designing and developing satisfactory project proposals. He reports that FISE has opened a new project promotion department specifically to help these municipal offices.

Some critics accuse FISE of using purely political criteria to prioritize projects. Some mayors who belong to the pro-Godoy Save Democracy Movement claim they are discriminated against, while others claim that its members are favored. Some Sandinistas assert that municipalities with FSLN mayors are selectively ignored.

Of the first 32 projects approved nationwide, more than half are in municipalities run by members of the Save Democracy Movement, including Managua's mayor, Arnoldo Alemán. Some, such as in Region V, the stage for last November's "uprising" led by rightwing mayors, appear to have been targeted to ease tensions between the Movement and the more moderate central government. While 23% of Pacific and Central municipalities are Sandinista, only 5 Sandinista mayors benefited from the first 32 projects: they received only 15.6% of the projects and 12.4% of the funds. A rough count of the next 40 or so projects appears to even out the scoreboard; of all the municipalities benefiting, some 30% are headed by Sandinista mayors.

In Alemán's Managua, however, Villanueva reports that all of the projects designed by the mayor's office are located in neighborhoods that voted for UNO. This, he claims, was AID's doing. The first proposal for city projects presented by the mayor's office, which he says took two weeks to design, was largely rejected on technical grounds; one day later, it had already been redesigned to specifications.

Solving unemployment?

Perhaps the program's greatest failing has been its inability to make a dent in the unemployment problem. Noguera claims that almost 6,000 "person-months" of work were generated by the beginning of May, and predicted twice that many new jobs by the end of the month. That means, however, that only 2,000 new jobs were created, lasting 3 months each. This figure more or less coincides with the figure of 1,800 reported by AID.

But Noguera also implied that some 6,000 new jobs would be created in May alone, which is very unlikely. What may be true is that 2,000 new jobs, also lasting 3 months each, were created in May. The use of the term "person-months"—especially inaccurately—makes the scope of the projects sound much more significant than it really is.

A quick look at Managua projects shows that its biggest, a drainage system near Parque El Carmen, which is slated to last four months and absorb almost $350,000—the largest budget of any project so far—employs only 69 people. According to the site manager, the project initially had 85 workers, but several left and he decided it wasn’t necessary to replace them. Guillermo Hernández, subcontractor on a project in Batahola Norte, claims that project employs 80 people, but the workers say that there have never been more than 25 there on any one day. For 40 new projects to generate the 6,000 new jobs asserted by Noguera, they would have to employ an average of 150 workers each.

In addition, not all workers employed on these projects were previously unemployed. A significant number—all of the skilled workers interviewed—are assigned to a number of projects at the same time, not all of them even FISE projects. Several live in other municipalities, outside Managua. All complained about the salaries; unskilled workers make a base salary of US$12 per week, and, including bonuses for specific tasks, the most anyone had taken home in the previous week was US$24.

The country's largest carpenters' union reports that of some 15,000 members in Managua, only 1,000 are employed by FISE projects. The vast majority of its members are unemployed. Eduardo Aburto of the Union of Carpenters, Masons, Ironworkers and Allied Workers criticizes contractors for sacrificing workers' pay to win bids, instead of sacrificing profits. He also claims that while 35% of each project's budget is supposed to go to salaries, the subcontractor takes a significant portion of that. He said the union has met directly with an AID representative to pressure for better wages and working conditions; to save money, he says, contractors do not even provide water at the work site.

A long look at short-term solutions

AID's municipal employment program is a very short-term approach to a long-term problem. Not only do the few jobs generated last an average of just three months, but the projects themselves generally do not address the population's most important or on-going needs. Of the first 32 projects, 25 involve paving streets or sidewalks, 5 relate to rain drainage systems, 1 to a bridge and 1 to repairs on a school.

Noguera used this choice of projects to further criticize the mayors, even though they are more likely than FISE's Managua office to know what a community needs. He said, "A common phenomenon is that a mayor will say he wants to repair his park, but that isn't the most important project for his community. Maybe it's potable water, or a sewer system, or repairing the health center or school." According to Rivas, the problem appears to be related to the program's structure. He said, "In some cases, [the municipalities] designed projects such as potable water systems, so then we had to do a water analysis and maybe the lab didn't have the reactive. So it was simply easier to design a paving project, which is the most common kind of project proposal we receive."

Frances Stewart, in the book Adjustment with a Human Face, writes that an effective public works program must 1) target low-income households; 2) pay well enough to contribute to short-term income maintenance; 3) contribute to vulnerable groups' medium-term capacity to meet their basic needs, such as through job training and opportunities; 4) dedicate a high portion of costs directly to wages; and 5) promote public works that are worthwhile social or productive investments. The $4 million IDB pilot project comes closer to this description. Funding will be directed not only to road and building repairs, but also to nutritional programs for mothers and children, occupational training and the construction of new buildings related to social infrastructure—health centers, schools and childcare centers.

Programs similar to FISE in other countries have been criticized for trying to change the popular conception of poverty. First, poverty is presented simply as the "social cost" of recent economic adjustment measures instead of as an historic structural problem related to development. Second, jobs, housing, education and health care—the first programs cut under structural adjustment programs—become the responsibility of charitable organizations instead of a basic right the government should guarantee. Economist Elsa Lily Caballero writes, "Compensation measures... are a way of politically legitimizing the party in government. Starting from the assumption that the social cost of the adjustment is necessary, the government uses these measures to try to reestablish the image of the state as benefactor, which, out of its good will in the midst of the crisis and the adjustment still makes a space in which to focus attention on the population's basic needs."

As long as emergency programs like FISE are designed to respond only to immediate needs, they will not challenge structural poverty. Long-term change will come only by attacking the cause, not the effects, of poverty. Programs like Chile's Minimum Employment Program (PEM) begun under Pinochet's rule, in which an unemployed worker received a small salary from a municipally managed project in exchange for a day's labor to benefit the community, actually increased long-term inequalities by providing significantly more benefits to employers than to the workers themselves.

AID takes control

Nicaragua's FISE is not just AID, but AID has played an important role in structuring the organization. It was AID that demanded FISE's removal from INIFOM. Currently under the leadership of a government-appointed minister, INIFOM will soon be administered as originally planned by a 40-member board of directors made up of the 17 mayors representing each departmental capital, one additional municipal mayor selected from each of those departments and six people named by the President. That board will elect the new INIFOM director. Critics say AID wanted more financial control than this board would allow, and less debate.

It was also an AID requirement that the funding not pass through the municipal offices but go directly to contractors from a central office in Managua. AID has a representative working full-time in the FISE office, prioritizes the projects for funding; and, according to FISE employees, directly supervises projects in the field. The regional priorities set by the team detailing FISE's projects last year have been discarded, or at least ignored. Noguera said he was "not authorized" to reveal the amount of funding AID had released so far, and Rivas said "AID might not like it" if he shared specific information about the projects. In contrast, FISE's Aranda asserted that its accounting is "open to the public."

Says Villanueva, the first agreement with AID, which Lacayo rejected, "would have been more honest, because while the current one says that the government makes the decisions, basically it's AID's specialists who approve the release of the grant money." It is unclear what role AID will play with future donations channeled through FISE for other projects.

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