Envío Digital
Central American University - UCA  
  Number 118 | Mayo 1991



Bankers and Masses Square Off: Economic Overhaul, Social Breakdown?

Envío team

Only a year after being elected, Violeta Chamorro's government is losing the confidence of Nicaragua's main political and social actors, rich as well as poor.

The poor are particularly discontented. The economic and social agreements that the government signed with organized labor in October 1990 in a negotiated process known as concertation seem by now a dead letter. With the just announced adjustment plan, many on both sides feel freed from any lingering commitment to stick to the agreement's conditions, while each side blames the other for the failure.

For the increasingly impoverished majority, the rhetoric of concertation is no substitute for reality. They accuse the government of signing and not complying, of proclaiming reconciliation yet promoting conflict, of pretending to work for political stability while implementing anti-worker measures, of insisting that complaints be filed peacefully while ignoring all demands for negotiation and responding only to pressure and threats of violence. For them, concertation should be abandoned because it limits their ability to defend themselves. They view it only as evidence that certain Sandinista tendencies and leaders have "caved in to the bourgeois government."

FSLN and government leaders with a long-term perspective, on the other hand, argue that there’s still room for compliance on some issues. They also believe that the concertation forum should continue as a permanent communication link among the involved parties so the consensus reached on interpreting and executing the accords won’t be lost. They see a patriotic national effort by all as the only reasonable and viable alternative to pull the country out of its economic nosedive.

There are discontented rich as well, who are found in the rightwing business association COSEP and among the backers of Vice President Virgilio Godoy. While they do not deny the country's dangerous instability, they bitterly complain that the Sandinistas are still running the show, imposing their own political interests on the government. COSEP warns that these infringements and the government's weakness have turned the country into a time bomb. They also accuse the executive branch of having abandoned its original program by appointing a Cabinet full of technocrats under the baton of the President's son-in-law, Antonio Lacayo. "Nepotism is in power and the people are still waiting for UNO's campaign promises to be fulfilled." COSEP's Federation of Nicaraguan Cattle Ranchers (FAGANIC) demanded in its annual meeting last month that President Chamorro turn over power to Vice President Godoy since, as one participant charged, the President "only knows how to laugh and hold her arms out." What is needed, FAGANIC concluded, is "another February 25, because the struggle hasn't ended."

Viewing this panorama one year after UNO's electoral triumph, some analysts fear a "Lebanonized" Nicaragua—paralyzed by anarchic or criminal violence independent of any clear ideological or political lines. The lethal combination of easily available weapons and a desperate army of unemployed give potential shape to this apocalyptic scenario.

What are the chances of negotiating national reconciliation between an extreme Right that insists on eradicating Sandinismo and a Left determined to defend the popular gains of the revolutionary years? Will the price of rapprochement between the FSLN leadership and the executive branch be the distancing of each from its base? Even without social or bureaucratic insensitivity to the enormous problems, what economic program could close this gaping wound and bring about a healing social peace? Are there any points of compatibility between such diverse interpretations of the concertation agreements or even of the rules of the game and forms of struggle in this "new democracy"?

Points of convergence

Although UNO's divisions and the chaotic debate inside the FSLN have opened up both major political forces to fragmentation, some fracture lines in fact crosscut various social and economic forces. Following them leads to points of convergence from very different angles.

Enrique Bermúdez. With the murder of former top contra commander Enrique Bermúdez on February 16, the extreme Right closed ranks. They directly accused the FSLN and labeled the government an accomplice, prisoner of the Sandinista security forces and thus unable to guarantee citizens' safety. Intensifying their charge that the police are neither professional nor impartial, they again pushed for a full restructuring of the police and urged Virgilio Godoy to do the same with the judicial branch. They demanded the heads of "conciliators" like Minister of the Presidency Antonio Lacayo if the perpetrators are not captured.

In the days before his death, Bermúdez had been gathering signatures petitioning the government to recognize him as the only voice of the demobilized contras, and at least Vice President Godoy saw him as their most representative leader. Behind this, many glimpsed the embryo of a new political party, which would eventually encompass ultra-right figures like Managua Mayor Arnoldo Alemán. "It should be called the Republican Party," said one ex-Somocista backer of the idea, "so the US government will understand our option clearly." This activity earned Bermúdez the wrath of other former contra leaders who had accepted government positions and were promoting reconciliation.

The death of the former National Guard colonel set back Sandinista efforts to improve political communication with the contras' peasant rank and file based on shared needs in the countryside. It also gave new impetus to the extreme Right's efforts to use the demobilized contras as shock troops against both the Sandinistas and the government.

The FSLN National Directorate joined the government in condemning the killing and, like the extreme Right, called for an exhaustive investigation to identify the authors of the crime. The Sandinista bench in the National Assembly, however, drew the line at standing to commemorate Bermúdez.

Need for Stability. The week of the electoral anniversary, the army and police launched joint operations to clean out bands of criminals threatening the northern part of the country. Their fears heightened by Bermúdez's death, leaders of the "Civic Association of the Resistance," as the former contras call their new organization, denounced this as a camouflaged campaign to repress them. While the police charged that the armed bands roaming this zone and the country in general were made up of former Resistance members, the latter claimed they were ex-Sandinista soldiers. The fact is that crime has escalated all over the country, and its main motivating force is desperation and hunger, not ideology.

The cooler heads on both the right and the left agree that the taproot of unrest is the economic crisis and that national stability depends on stabilizing the countryside and increasing production.

Rural Lands. Landless peasants, returning refugees and demobilized soldiers and contras have banded together to demand land and credits, even acting in coordination to take over land. At the other extreme, large landowners have complained about the rural instability. Those repatriating from Miami, favored by the first government resolutions to return lands expropriated by the Sandinista government, joined their cry, demanding that the peasants settled on "their" lands respect Managua's orders. Both peasants and big landowners blame the government, but the former insist that their rights, acquired by virtue of years of work, be respected while the latter insist that the government use the police to establish the "rule of law."

Rural Jobs and Credit. Thousands of former contras are still waiting for the government to make good on its promise to provide them with land and tools. Their unrest was joined by that of 30,000 farm workers left jobless at the end of the harvests due to severely restricted credits for starting work on the next agricultural cycle. Both peasants and larger producers demanded that the government free up financing for agriculture to avoid not only a collapse of production this year but also a rural uprising. Such an uprising could even be joined by agricultural laborers who are employed but whose wages barely buy 42% of a 20-product basic market basket.

The consensus among farmers, large and small, Sandinista and anti-Sandinista, was fused by the absence of a credit policy at the very moment that bank financing was required for the new planting. The government's obsessive credit restrictions threatened to get in the way of generating the food and foreign currency that sustain the whole country. Not only was credit cut to levels virtually unknown in the past 25 years, but the government also forced producers to pay off prior bank loans without exception, disregarding the age-old practice of pardoning or rolling over debts when bad weather or other unavoidable factors yielded significant losses. Trying to impress the International Monetary Fund (IMF) with its fiscal "discipline," the government even refused to finance the banks' deficits.

Urban Pressures. The crisis in the countryside has fueled migration to the capital, multiplying the tin and cardboard shacks against which Mayor Alemán has declared war. But there is no work in Managua either; unemployment has broken records. Some economists calculate that open and hidden unemployment had reached 50% of the economically active population by the anniversary of UNO's victory; the construction sector alone is suffering 90% unemployment. While workers from small and medium industry were making common cause with their bosses to demand preferential bank financing, the government exacerbated the recession in production by permitting the free import of products against which the weak Nicaraguan industry cannot compete. Tensions were also growing between the government and the workers organized in the National Workers' Front (FNT), the Sandinista union umbrella, regarding the percentage of enterprises that the government offered to sell to workers within a plan of "negotiated privatization."

Despite the drop in customs tariffs, merchants complained too. Together with consumers, they rebelled against the onerous new taxes decreed by the government as part of its fixation on satisfying the IMF's requirement that the fiscal deficit be eliminated. Managua's Federation of Small Merchants encouraged its members, who include stall owners in the sprawling eastern market, to withhold their taxes as a response to Mayor Alemán's threats to throw them out. The mayor, too, it seems, has been bit by the mania to generate new income, ignoring the fact that the economic crisis has considerably affected the sales volume of all merchants.

Finally, while many parents moaned about the increased costs of enrollment and uniforms as they readied their children for the opening of the new school year, the poorest families decided not to send their children to school at all—they need even the littlest ones out on the street selling or begging to survive.

Rebellion of the masses

There was no end to criticism of the concertation accords, but, with the exception of the extreme Rright, hardly anyone noticed that this also logically extended to the politics underlying the Transition Protocol signed a year ago by the outgoing and incoming governments. Although the protocol had guaranteed a peaceful institutional transition, it could not take on the social transition; it could not keep class struggle within a civic framework while the economic situation was widening social polarization. The signers' political moderation found no ally in the immoderate extreme Right or in the devastating economic crisis, itself made even worse by an unfavorable international situation. The mushrooming of demands from all these social sectors was more than the government, the FSLN and even the unions could handle.

A declaration of independence

Nicaragua's political, economic and social crisis is interwoven with and has fueled a growth of social movements. As immediate hopes for the concertation evaporated, a new option, in evidence since the FSLN's electoral defeat, took form. Symbolized by the tendency of some sectors within the Sandinista popular organizations, this option was to seek autonomous forms of political struggle. They not only abandoned the illusion of finding any social sensitivity in the government of "pragmatic moderates," but also questioned why they should remain under the thumb of any political "establishment," Sandinista included.

These sectors did not renounce their Sandinista membership, but declared their independence from subordination to political lines imposed from above. The grassroots organizations enjoyed their new political space and flaunted their militancy even when this contradicted the "constructive" opposition strategy chosen by the FSLN leadership. The economic crisis and search from the opposition for new characteristics of struggle increased the turbulence within the party; directly defending the organized grassroots sectors' specific and immediate needs did not always coincide with the Sandinista leadership's larger and longer-term strategy. National Directorate member Bayardo Arce summed up the FSLN's dilemma well when he said, "Sandinismo is affected whether we turn our back on the grassroots sectors or take the lead in demands we know are condemned to failure."

The loss of faith sparked by the electoral defeat grew with the party leadership's reluctance, or even refusal, to forcefully and openly confront the government. Even though the US Embassy and the ultra-Right went on insisting that the social movements were following Machiavellian orders from the FSLN National Directorate, that was hardly the case. The rebellion of the masses was in part precisely against the party's old heavy-handed leadership styles, though not necessarily against Sandinismo per se, to which all professed loyalty as a symbol of national dignity.

What kind of opposition?

The base was also attempting to find its own level as opposition and get a fix on the new government's center of gravity. It did not take long for many to decide that the government only got reasonable when it was forced to by tactics such as land takeovers and work stoppages. "The famous 'Social-Economic Concertation,'" sneered one Sandinista, "appears to be a sophisticated game of kisses and hugs at the top and billy clubs at the base, not a national formula for the country's stability. Neither workers nor their leaders and unions will be silent in the name of concertation. Nor will we be hostage to political parties and their tactical cozying up to the 'pragmatic' sector of the government."

For some at the base and even some Sandinista intellectuals, the party and union leadership erred in backing the concertation effort. They accuse the government of hawking stability only as a pretext to contain popular demands, thus turning concertation into a trap for the Left and not a generalized truce in which each sector contributes what it can to overcome the country's economic and social crisis. They point to such examples of government behavior as returning lands to their old owners, ignoring the workers' rights stipulated in the accords, or, in one of the worst cases to date, violently dismantling squatters' humble shacks in Managua's rubble-strewn earthquake zone.

Debates inside the party

Within the FSLN, this turmoil kept turning the party's attention away from the crucial effort to define new short and medium-term goals. The economic crisis was producing tensions not only between those who insisted on directly confronting the government and others who limited themselves to denouncing it, but also between employed and unemployed Sandinistas and between those benefited by the distribution of goods before April 25 and those who got nothing from the "piñata."

The new openness within the party at first translated less into a debate about principles than into an opportunity for representatives of the mass organizations to announce their differences with some segments of the leadership. The Sandinista Youth, for example, demanded 20% of the delegates' seats for the first party congress in July and a radical housecleaning of FSLN leadership. The National Employees Union (UNE) demanded a "clear and firm" FSLN position regarding the government's lack of commitment to concertation, which, for them, was an insult to the workers. One CST leader accused the party of "blocking the masses" and said he had to "get used to the idea that the FSLN is not a workers' party." The women's organization AMNLAE prepared its national assembly to find its "own identity," since, according to some of its members, FSLN leaders had never understood the role of a women's organization. Others criticized the Sandinista bench in the National Assembly for losing touch with the masses and doing nothing to respond to specific popular demands.

Riddled with impatience and even editorial jabs between Sandinista publications themselves, this kind of infighting detracted from the search for a genuinely new focus that would permit the mass movements to find a political and party echo in a reorganized Sandinismo. FSLN leaders insisted that the issues be depersonalized, "to develop a frank, fraternal and high-level debate among comrades—one that is respectful, without ridicule or epithets."

Health supplies or death

The problem went deeper than decorum, however. Just how deep was symbolized by the hospital strike in late January. Although the government dubbed it a "political" strike with destabilizing goals, the fact is that neither the FSLN nor FETSALUD, the strongest of the health unions, could contain the work stoppage or the occupying of hospitals promoted by spontaneously formed strike committees. Those committees represented the demands of 32,000 health workers and staff, from doctors to orderlies.

The strikers insisted from the outset that they were not only protesting the pitiful salary level of the health sector in general (one administrator said that half the employees in her hospital earned under $50 a month), but also publicizing the government's refusal to provide even minimal supplies to hospitals and health centers. At the end of February, some 20 strikers began a hunger strike. One of them, an elderly surgery nurse named Aminta Méndez Chinchilla, said through tears in an interview 15 days into the hunger strike, "The people come to the hospital seeking life and they find death. We don't even have soap to wash them with."

The health minister steadfastly maintained that the budget could not be increased, to which the angry strikers shot back that the government did not use the same yardstick to measure other budgets, such as banking, where the average salary was twice that of health workers. They also hammered at the huge dollar salaries enjoyed by ministers and National Assembly representatives, which outrage workers and the population in general.

The government, which acknowledged the specific demands as just, acted as though throwing information at it could solve the problem. According to Antonio Lacayo, "The solution is dialogue. The FNT needs to know the country's objective conditions and the government's real possibilities of satisfying their demands, so that, by sharing that information, they, as reasonable individuals, will make the best decisions."

But why should workers have to be more concerned with the national deficit than with their own? "One thing is stability for the people," said a top UNE leader, "and another is stability for the bourgeoisie."

FSLN on a dilemma's horns

To cooler FSLN heads, the situation seemed unsalvageable. They understood the government's financial constraints and the need to control public spending to halt inflation, both bottom-line structural factors. But they could hardly turn their back on the health workers' fight.

The FSLN leaders remained loyal to the transition and concertation agreements, and to the strategy defined in the FSLN assembly last July stressing legal, civic forms of struggle. Although they shared the government's goal of stability and of joining forces to climb out of the economic disaster, how long could the FSLN go on shouldering the cost of the government's limitations and incoherent policies, which constantly led the bureaucracy to defiant and destabilizing behavior, in turn provoking legitimate defensive responses by those affected?

The executive branch turned to the FSLN to pull its chestnuts out of the fire every time that it failed to live up to the agreed-upon rules of the game, whether through inertia, bureaucratic incoherence or structural economic limitations. Where should the line be drawn between promoting the consolidation of a constitutional framework that is in the people's historic interest and defending the government's own stability? By mediating between the masses and the government, or between the masses and the IMF, the FSLN found itself only asking the people, who have already sacrificed too much, to lay their heads on the sacrificial altar yet again.

The growth and development of popular consciousness as well as that of civil society in general is a challenge of historic proportions for the FSLN. This challenge is to turn well-founded unrest and potential violence into a source of civic power and a political alternative. Will they find the necessary unity, strength and humility to assimilate the flowering of the grassroots movement and forge it into an alternative to the acute economic crisis affecting hundreds of thousands of Nicaraguan families?

The answer cannot be postponed until the FSLN Congress. The richness of the issues and the intensity of the grassroots activity—synonym for democratization in the FSLN—have already guaranteed that the Congress cannot be a mere rubber stamping of documents and electing of authorities. One year after its electoral defeat, the FSLN is demonstrably fighting to reconcile its aim of being a responsible opposition party with its need to regain the consensus of the poor and rebellious masses.

The bankers' rebellion

The government believes it can resolve the crisis with dollars, whether loans, official donations or private investment. It dreamed up the concertation process precisely to attract these coveted dollars. Social peace could not be the fruit of future development; it had to be the bait to hook the bankers now.

The government wanted to present itself internationally as a government of democratic consensus, characterized by a patriotic understanding not only between itself and the FSLN as the main opposition party, but also between itself, business and the unions, as certified by the concertation accords. In this scheme, foreign aid would arrive to bolster the domestic political effort by all sectors, assuring Nicaragua's economic reactivation in 1991.

Friendly governments play hardball

During Lacayo's visit to Washington in early February, as well as in a presidential junket to Germany and Japan immediately afterward, the government redoubled its efforts to pull together the $350 million that Nicaragua needs to cancel its arrears with the World Bank and the Inter-American Development Bank, thus becoming eligible for new loans. But that money was only the first condition for eligibility. The government also had to pass muster with the IMF. Once the latter certified the "profound and global" character of its new economic program, a committee from it and the World Bank would give a green light to new loans. In the concertation negotiations, the Chamorro government only asked for "social consensus" regarding the need to implement a generic adjustment program based on a free-market system oriented toward exports, with strong credit restrictions and devaluations.

With only this "consensus" and these generalities, the dollars did not appear. In the United States, Minister Lacayo pressed the US government to be more flexible in disbursing the $200 million offered for 1991. That amount represented less than two-thirds of what was approved for 1990 and never totally released. Washington, in turn, insisted that Nicaragua withdraw its legal suit in the World Court, to which the government apparently agreed; Lacayo later announced that the US would provide another $200 million in aid in 1992. Some suspected, however, that Washington, while dangling these small bilateral offers, was simultaneously pressuring the IMF and World Bank to impose a radical adjustment plan that would undermine the FSLN-government understanding and provoke new tensions within the FSLN, thus hastening the end of its unacceptable influence.

Germany and Japan were unwilling to bail the government out of its tight spot without a nod from the US and the IMF. In Germany, Chancellor Kohl emphasized his interest in strengthening ties with "the new democratic Nicaragua," but conditioned any substantial aid on implementation of the IMF stabilization recipe and on "regularizing" Nicaragua's foreign debt. Of the $35 million approved, then frozen, by West Germany during the Sandinista government, Kohl released only $17 million—as support for agricultural projects, not as cash for the debt arrears payment. The rest remained subject to the results of the IMF negotiations.

Japan offered $7 million in emergency assistance and postponed any decision regarding larger amounts until the international conference scheduled for late March in Washington, where the restructuring of Nicaragua's foreign debt would be discussed. The Japanese insisted on the same conditions as Kohl for future aid, and only following coordination with other donors.

The first shoe drops

Both the Nicaraguan people and the IMF waited and watched. What would the government's specific plan be to control hyperinflation and avoid a production collapse? At the end of February, Nicaragua's Central Bank president first mentioned a structural adjustment plan. Although Cabinet members went out of their way to avoid any reference to the kind of "shock" measures that had convulsed all of Latin America, they did speak of "strong initial actions," stressing that "inaction or gradualism [as agreed to in the concertation accords] would translate into greater deterioration of the situation."

The government celebrated its first anniversary with its concertation on a downhill slide, questioned by both grassroots sectors and rightwing business interests. There was not the slightest consensus around the economic plan’s objectives. The time had come for the government to be accountable to the bankers and the FSLN to be accountable to the people. Both even tried to forge a new democratic accord with IMF participation. But Nicaragua was still dreaming the impossible dream. It was "shocked" awake by the details of the adjustment package announced on March 3.

Why now?

Just as in 1988, during the Sandinista government, the new government's capacity to administer the economy was being threatened. The economy had become dollarized, forcing the poorest into a barter system, and was structured such that speculation was more profitable than production. Unlike 1988, however, the government had neither social hegemony nor an organized base; it could not point to war or a US economic blockade as the major culprits in the crisis; it could not even offer guarantees of indispensable foreign aid.

Having raised grassroots expectations by promising to eradicate inflation in 100 days and institute a new currency freely convertible into dollars at 1:1, the government had to admit by the end of last year that inflation was higher than in 1989 and that the agricultural harvest was being lost.

In other Latin American countries, economic measures like those announced by the Chamorro government have triggered social explosions of exceptionally violent proportions. In Nicaragua, where few houses do not conceal a weapon, unemployment is about 50% and there are highly organized and militant working class and social movements and an FSLN whose ability to either lead or contain massive social discontent has been weakened, a virtual insurrection would not have been unimaginable.

In many respects, the political moment chosen to implement the measures was less than terrific. The extreme Right was again threatening to rise up against the "Lacayo-Sandinista" government after Bermúdez's unsolved murder, and the measures threatened to prolong the already long and dramatic public health workers' strike.

The government has to have concluded that its honeymoon was over, that it was moving into a marriage of mere convenience with the population. In addition to the worsening economic situation and the violent contradiction regarding credits, daily denunciations of illicit deals being made by government officials under the cover of their positions cooled the romance. It even came out in the press that a foreign government cooperating with Nicaragua had expressed concern about these irregularities in state resource management.

On the other hand, the government had gained the upper hand over the right wing of the UNO coalition. It had assured its power both in the executive and the legislative branches, neutralizing and co-opting mayors, National Assembly representatives and former contra leaders previously identified with Godoy and COSEP. Reaffirming its loyalty to the understanding established with the FSLN in the Transition Protocol, the government may have perceived that there would be no better moment vis-à-vis its political rivals to unveil its oft-postponed economic stabilization program.

The international moment did not seem particularly propitious either. Another meeting between foreign ministers from the European Community and Central America, called San José VII, was scheduled for mid-March in Managua and the government was worried that an image of chaos and government ineptitude might greet them.

But a much more important meeting was scheduled for late March in Washington, to which the Nicaraguan government was expected to bring not just words, but deeds. The participants were the 20-odd donor countries and international financial organizations that had last met with Nicaragua in Paris in December 1990. They held in their hands the power to authorize enough donations (or loans) to pay Nicaragua's World Bank and IDB arrears. They had made clear in Paris that they first had to be convinced that the Nicaraguan government was committed to cleaning up the economy and liquidating hyperinflation by violently contracting credits and money in circulation, even if that worsened the recession and threw thousands more into unemployment. In the final analysis, the government preferred to go to battle with the people rather than continue battling the bankers' terms. It opted for the shock measures, risking a rupture of the concertation, both politically and economically.

The other shoe finally drops

The government cut itself loose from its previous "gradualist" approach. Regarding the amount of the devaluation, the international bankers wanted radical surgery, not once-a-week devaluations of 5-10% (of which there had already been 66). The centerpiece of the measures was thus a 400% devaluation of the córdoba oro, which the government had defended tooth and nail at 1:1 parity with the dollar for over nine months. This new currency had been in limited circulation for months; now, at 5:1, it would finally replace the old córdobas, which would be pulled out of circulation by the end of April. For the duration, they were pegged at 25,000,000:1. (The UNO government inherited them exactly a year earlier at under 60,000:1.)

The devaluation shook the country, decapitalizing everyone who did not have their money in long-term savings accounts—or in dollars. On Monday, March 4, the stunned population awoke to tripled, quadrupled or even quintupled prices, while the average wage increase—which took up to a week to be disbursed—was well under 300%. Factories, cooperatives and universities all contemplated suspending operations to cope with their overnight liquidity crisis.

Only the big agroexporters who had not yet been paid for their recent harvests—rice, coffee and, mainly, cotton growers—were happy with the plan, as were the cattle ranchers. Not so the small and medium-sized producers who supply the domestic market.

But there was no immediate social explosion as there had been in Venezuela and Argentina. What factors contributed to the generally peaceful response to the measures, beyond the fact that they won some sectors back over to the government while others decided to accumulate forces now and enter into battle later?

The government's new clothes

No one argues that any economic plan can succeed without the commitment of all sectors. To get support, Lacayo preceded the announcement of the adjustment measures with an intense round of "consultations." He personally met with the main political, business and union forces to layout the package—omitting, however, key figures such as the size of the devaluation. His strategy was to divide the opposition and conquer the image of total consensus, minimizing beforehand any adverse reactions from political parties and other organizations. It was imperative that his announcement indicate that these forces, particularly the FSLN and its unions, had neither objected nor presented alternatives, but that their suggestions had been incorporated and they had given their support.

But a government with damaged credibility cannot guarantee trust in an economic plan, so the next problem was the President's image of weakness. The post-electoral explanation that the government's strength was precisely Violeta Chamorro's image of weakness has not been repeated for some time. It no longer convinces anyone, least of all Vice President Godoy and the US State Department, who privately accuse her of administrative ineptitude and of being captive to her Sandinista adversaries. The US media has largely picked up the chant.

The government had to project a new image. This also fell to Antonio Lacayo, who from the moment the adjustment plan was announced became a sort of "prime minister." Using power delegated by the President, he personally explained and defended the plan, monopolizing the mass media to buttress the image of a new government determination to forge ahead.

Nicaragua has never seen the likes of the government's two-week-long propaganda offensive, which was aimed more at creating support for the plan among the population than explaining the measures. In addition to trying to talk away inflationary psychology, which was critical, it also hoped to ideologically smother any attempt at rebellion by the unions. The slick imagery equaled Madison Avenue's finest: "this isn't the time to get better, but to not get worse" and "prices will drop once the inflationary mentality is beaten." The most frequently repeated image was likening the newly issued currency to a reservoir of clean water that would become contaminated if the government was forced to add any money not backed by foreign exchange or increased production. The inescapable message was that the workers would bear the onus of creating an epidemic of economic dysentery if it "dirtied" this nice fresh water with salary demands.

Lacayo projected an image of authority, strength, credibility and popularity, all wrapped into one. The extreme Right dubbed this new display of power "aberrant strongmanship." But Lacayo didn’t waver; he steamed ahead like the only helmsman on the sea. His eye on the far shore, he took the country's rudder and demanded subordination and a vote of confidence from everyone. He made it clear that his own future was riding on the success of this voyage, declaring emphatically that the program could not fail, because if it does, "this government goes." Many people, remembering that if Lacayo goes the alternative is Godoy, resigned themselves and hove to. Others, most immediately the health workers, did not.

Ten days into the plan, with the health strike as strong as before and other signs of social mutiny beginning to break out, Lacayo stunned the far Right by proclaiming in a March 13 communiqué that his government was "revolutionary," admitting for the first time that Nicaragua had been the victim of a "war of aggression." He said that what had come before was a "political revolution" and now we were in an "economic revolution," which was part of an "comprehensive revolution," in turn part of a "new model" by which Nicaragua would serve as an "example to people in the Third World struggling for their liberation." The new vocabulary obviously aimed to strike the sensitive chords of the Sandinista base.

The government played a different tune to "strike" those Sandinistas who rejected the official discourse. To both demonstrate its determination and mollify the extreme Right, the government ordered anti-riot police to forcibly remove strikers who had occupied the main customs warehouses. Under Lacayo's direct supervision, special military units were also dispatched to protect the airport for the arrival of the foreign ministers for the San José VII meeting. The government left no doubt that violence would be the response to workers who could not distinguish between the right to strike and the illegal takeover of public buildings.

The FSLN and the unions

But commitment from the Sandinista party and its labor sector required lessening the plan's effect on salaries, and that was not part of the package. Once the plan was announced, the government did everything possible to avoid having to negotiate it.

The FSLN National Directorate, after consulting with leadership and rank and file members, fell short of condemning the plan. In a communiqué, the Directorate stressed that it was not a Sandinista plan and demanded the inclusion of 14 basic adjustments to spread the social cost more equitably. The Sandinista bench, on the other hand, approved with near unanimity a National Assembly resolution supporting the measures with some recommendations; only Damaso Vargas—a Sandinista Workers Confederation (CST) leader—abstained.

The FNT reaction was more immediate and unequivocal. A few hours after the announcement, FNT leaders rejected the plan and demanded a 600% salary adjustment to recover the "confiscated" salaries. They threatened to unleash a general strike if a revised plan was not negotiated. Although the FNT union federations acknowledged the need for an adjustment plan in the concertation accords, they had extracted the agreement that it be gradual; they thus rejected the application of shock measures, insisting that the government was obliged to distribute the social costs more evenly.

State workers received the measures calmly at first, except customs workers and those in the health and finance ministries, all of whom were in various stages of protest for higher wages and other demands even before the announcement. In the countryside, the Farm Workers' Association (ATC) said nothing, preferring to improve its position to press home its demand for financing and the legalization of lands and enterprises in the hands of cooperatives. UNAG critically supported the plan, also pushing for it to be accompanied by improved initiatives to reactivate agricultural production.

In reality, the Sandinista leadership's reaction was closer to grassroots sentiment than that of the FNT. People were still absorbing the plan and were not yet ready to oppose something that replaced the old, unmanageable model and might stop hyperinflation. The economic crisis—symbolized by the old córdobas, which were losing value at a rate of some 50,000 to a dollar per day—was provoking desperation. The government was trying to solve that crisis, and many thought it should be given a chance before simply opposing it. This feeling was common even among those hardest hit by the measures; the only alternative in sight was strikes and struggle, which the precariously poor feared after so many years of war and instability. The government asked the unions for this "chance" in the form of a two-month truce and many supported the idea. The best test of Lacayo's plan would be whether prices, controlled by supply and demand, would normalize.

Negotiate first, truce second

Not all social sectors, however, could be convinced of the need for the truce. For the Sandinista unions, the priority was upping real salaries. For the unemployed as well as for the informal sector, which in times of high unemployment or low wages absorbs some 60% of the economically active population, it was to increase employment levels and avoid business closures.

Furthermore, the government's recourse to repression immediately hardened the positions of all Sandinistas, thus threatening not only the plan but political stability as well. It also gave another cause to the militant health workers, who, after weeks of still providing emergency services, had now occupied and closed several hospitals and were demanding FSLN and FNT support. The spearhead of the health protest was the group of doctors, nurses and other workers who had launched the hunger strike. Attempts by FSLN, FNT and even FETSALUD leaders to get them to call it off failed. The FSLN leadership was in no position to side against the health workers, who found themselves saddled with the enormous responsibility of holding the line against the adjustment.

Lacayo was left with no choice: the plan required consensus to be politically viable and internationally presentable. If he did not reach some agreement with the health workers, the FNT would not accept the truce; and without the FNT there would be no consensus. With the hunger strike entering its 25th day, the government finally caved in, fearing that the probable death of Aminta Chinchilla—who had become a symbol of the hunger strikers' determination—would detonate an explosion, possibly even during the San José VII meeting. Two hours before the inauguration of that conference, the government signed an accord, and, with it, stopped insisting on the fiction that prices would fall. It was only two weeks into the plan, and the government, for the first time, mentioned "a necessary sacrifice" in its discourse.

The accord signed in the pre-dawn hours of March 18 between the FNT and the government, in which the FSLN acted as a virtual mediator, won a salary adjustment for the health and education sectors, and freed up state enterprises and autonomous state entities to negotiate salaries with the unions according to the profitability of each institution. The government also reiterated its commitment to guarantee legal land ownership to those benefited by the Sandinista agrarian and urban reforms. For its part, the FNT reduced its initial salary demand from 600% to 425%.

The tenuous truce

With that, the FNT gave the government until May 22 to eliminate hyperinflation. It "joined the national effort to stabilize the Nicaraguan economy in the shortest time possible" and reiterated its commitment to "guarantee the uninterrupted functioning of productive and service activities."

It could not be denied that, under pressure, the government had done its part to reach an agreement, but the process had been the same as during last year's May and July strikes. Government negotiators, headed by Lacayo, had shown no sign of flexibility at first; the FNT had to keep the pressure on right up to the last minute. Once the government eased up, it found the FNT also flexible, although the FSLN again had to intervene to push both sides to a reasonable accord.

But mistrust immediately reared its head again. Given that the accord dealt mainly with the health workers and did not take up labor grievances as a whole, particularly in state enterprises, new work stoppages threatened to spread as workers began to feel the drop in their salaries' real purchasing power. Some sectors, without opposing the accord, made clear that they had their own accounts to settle with the government if budget and salary adjustments were not approved.

Although the government stressed that any adjustment higher than the contemplated ceiling endangered the economic plan, the bank workers insisted that they were not covered by the FNT accord. University students and professors, realizing that the budget cuts would lead to a reduction of scholarships and professors' salaries, already under $300 a month, also began to mobilize.

The backlash

The extreme Left accused the FSLN and FNT of neutralizing the pressure of the masses and of having misunderstood the potential for struggle of all workers demanding wage increases—particularly those of the public sector. Some within the FNT accused the FSLN of siding more with "stability" than with the striking workers. The Sandinista leadership, however, seemed to have decided that the rhythm of the state workers, the spearhead of previous strikes, was getting too far ahead of the rest of the popular movement, and that even if they had enough reserve of overall resentment to move into a general strike, the correlation of political and social forces showed that this would not be the wisest time to do so.

The ultra-Right accused the FSLN of launching the FNT against the plan, adding that the accords were the government's third general capitulation to the FSLN (the first two being the May and July strike settlements). Representatives of the Communist Party—a member of the UNO coalition—held that the accords betrayed the people’s interests. The government again accused the FSLN and FNT of bad faith and some officials, unhappy because they had been unable to fire the troublesome strikers, began to do so arbitrarily on their own. Pro-government unions, which had given the Lacayo Plan a blank check, bitterly protested having again been excluded from the negotiations, further discrediting them with their own bases.

COSEP, which had approved the adjustment plan, lashed out against the FNT agreement, mainly for having ratified the rights acquired by the beneficiaries of the Sandinista agrarian and urban reforms. Gilberto Cuadra, COSEP president and steel-willed defender of the principle of returning all "stolen" properties, said, "It’s unquestionable that the government authorities did their best, but they were almost forced to commit economic and political hara kiri." A much more reasonable assessment is that they saved the country from such a noble suicide, since the agreement avoided an escalating social explosion.

For some within the FSLN, the crucial thing was to not give the government an excuse to blame the Sandinistas for the plan's possible failure. It had to be tested, and if it worsened the recession without containing inflation, the government would have to take responsibility for an end to the truce. The FSLN had to show that it was not preventing the government from governing, as the Right claimed, but also had to make clear to its own most radicalized base that this was not some joint FSLN-government plan whose failure would later have to also be jointly shouldered. An arduous task, without question.

The FSLN could hardly ask the unions to be passive at the very moment the government was determining their salary levels, and even less when they sat down to negotiate them. The truce was a political necessity for both sides, and the March 18 accord deprived the government of any pretext to continue blaming anyone else should its plan fail. At the same time, union pressure was shown to be necessary to guarantee that the whole weight of the adjustment plan not fall on the shoulders of the poor.

In the final analysis, it became clear that the plan's economic viability depends on its political viability, on expanding the truce. Mistrust of it and of the government, a product of the labor confrontations, meant that the population still bought dollars with their new córdobas, which began to create new inflationary pressures. That calls into question the government's premise in the propaganda campaign that hyperinflation is almost exclusively the product of monetary emissions. The government minimized other serious structural distortions as well, such as the fact that Nicaragua, even with the lowest salaries in Central America, had the region's highest industrial and agricultural production costs.

Social movement, political strategy

With the adjustment measures, the FNT, like the FSLN, had found itself between a rock and a hard place: it either looked like it was sabotaging an anti-inflationary plan that all of society was demanding, or had to give the government a blank check to reduce inflation by cutting salaries. The fact that people are tired of labor and economic instability worked to the government's advantage, particularly since the workers reacted before giving the measures enough time to weigh their real impact. They might have gained more support had they argued for a viable alternative rather than just reacting negatively.

That was precisely what made the struggle of already-striking sectors so important. Supporting them meant not signing a blank check or being saboteurs. It allowed the FNT to ask for some cushion in the plan, which might absorb the reaction of workers and other poor strata that, although wanting an end to hyperinflation, did not want it at any price.

On the other hand, neither the FSLN nor the FNT were willing to take positions that would cause more fissures within the workers' movement, between the city and countryside, between employed and unemployed, between the formal and informal sectors or between those workers ready to do battle and others, sick of so much conflict, who wanted not only an economic truce but also a political and social one.

Various conflicts were still hanging fire. A general call went out to workers to keep a watchful eye over the faithful fulfillment of the accords and, in pending bilateral negotiations, to be flexible and use the March 18 accords as a framework. But, in practice, each side interpreted that framework in its own interest. The government insisted that, by signing, the FNT had backed the government plan. The FNT claimed that, by signing, the government had committed itself to make adjustments that would assure the plan's fulfillment and labor stability without a disproportionate sacrifice for the popular sectors.

Depending on the government's ability to respond to the demands of the various sectors, escalating strikes are predictable. The two-month truce accepted by the FNT does not cover important sectors of workers. If, on the one hand, the accord created a benchmark, its price was to leave workers in private and state enterprises, as well as the university sector, with less negotiating strength. The government perhaps saw that sectoral struggles would be easier to handle or repress for two months, but they will tend to multiply or become generalized once that period ends unless the government makes more concessions beforehand.

The real destabilizers

This could be the last chance not only for the government but also for the international financial community. Daniel Ortega warned that the FSLN would oppose the plan or any search for resources if they were used to return to "neo-Somocismo or implant neoliberalism or neocapitalism in Nicaragua," but he supported the plan based on an analysis that a national solution required forging alliances. At the negotiating table with the international bankers, the government could thus show the card of "stability and consensus" in the plan's execution. In exchange, the World Bank and the US would have to see Nicaragua as "a trustworthy credit subject" that merited resources and investments.

The problem is that for this whole time the Bush Administration has not hidden its unhappiness with the Nicaraguan situation, particularly the presence of Sandinistas in the army and the marginalizing of certain UNO parties and politicians from government. Nor can the US have liked Lacayo's use of the word "aggression" to explain Nicaragua's economic crisis. This US unrest is not independent of the delays in disbursing already approved aid or of US Ambassador Harry Shlaudemann's declaration that he does not know what "exceptional" treatment consists of regarding the credit facilities requested by the government and demanded by the FSLN.

In the negotiations with the international banks in Washington at the end of March, a new chapter to this crisis was written [see economic analysis in this issue]. The government could lose its sovereignty to the US and World Bank requirements, and the FSLN, which agreed to send Sergio Ramírez as part of the delegation's National Assembly contingent, could erode its prestige with the increasingly explosive and autonomous social movement even further.

Is it inevitable that social and economic manifestations predominate in a period of political and party ebb? And if the crisis is more social than political, can the grassroots organizations reverse traditional relations with their party, relegating leaders, accustomed to command, to a rearguard role? If the party could neither fully support the measures nor openly condemn them, what did its leadership role consist of? Can only an uncompromising confrontational posture be called revolutionary because any political compromising smells of a top-level deal?

A new world: New popular alternatives

An unprecedented episode thus entered, with turbulence and complexity, into the history of Latin America: a radical stabilization program that was not followed by a social uprising. The maturity of the workers and their leaders prevented it by dragging important concessions out of the government, but all within a relatively peaceful climate. Nonetheless, it was clear that the grassroots movement's potential explosiveness makes it ever more necessary for the Sandinista party and union movement to articulate a new strategy of struggle that encompasses both immediate demands and national and popular solutions to the overall crisis.

It is precisely the contradiction with international capital that has made the solution and the definition of an alternative so difficult. Can a popular, anti-liberal strategy inside one country dovetail with the national strategy of consensus required to counterbalance the international bankers? How much must the workers and grassroots sectors sacrifice their interests to get foreign resources and benefit economic stabilization?

The Nicaraguan revolutionary movement is not caught up in this confusion alone. A large part of the Latin American Left is grappling with the same questions and strategic anxieties, particularly those facing the need to formulate national strategies that address the realities of the international capitalist scene. Without having yet settled accounts with its past, the Left is now being required to make creative and futuristic pronouncements about a world that has changed enormously in a very short period of time.

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