Today in Nicaragua decapitalization is one of the most significant and worrisome economic problems. A large number of businesses, both agricultural and industrial, are being decapitalized, that is, stripped down and run broke.
Introduction:The Nicaraguan government, from its inception, has been described as pragmatic rather than ideological. Pragmatic is the word used to describe their economic plan and conception of a mixed economy for Nicaragua. During the last two years, the government has looked for ways to combine a state sector and a productive private sector, and thus meet the economic needs of the country.
Part of the private sector has worked well with the government and remains supportive of their policies. Yet an important part of the private sector has stood in constant opposition to government policies despite the government’s efforts to provide positive investment conditions. This past year, the government completely financed the production of cotton, and still many private owners did not plant.
Many in the business sector are seeking political power which is equal to their economic power. The private sector still owns 60% of the economy and up to 80% in some areas of agricultural and industrial production. Also there are those who are still looking for unbridled profit-making. They thus form an economy that is being shaped to favor the vast majority.
During the last several months, many large property owners have been stripping their businesses, neglecting their lands, avoiding investment, and banking profits outside the country –in a word- decapitalization. Nicaragua faces many pressing economic problems such as foreign debt, lack of foreign exchange and rising oil prices. In this period of grave economic difficulties, decapitalization constitutes one of the most significant and troublesome phenomena in Nicaragua. While it is difficult to estimate the extent of decapitalization, extra-official sources estimate that 80 million dollars have been taken from the country in the past year.
What is Decapitalization?As the name indicates, decapitalization is a mechanism by which capital is lost. It is the opposite of the accumulation of capital.
A business or a country is being decapitalized when, for different reasons, it is losing its foreign exchange or capital reserves. When we speak of the decapitalization of a business, we speak of the loss of part of its productive capital. It is this capital that guarantees the continuation of production.
Decapitalization is not a new phenomenon. Aspects of decapitalization such as capital flight formed an essential part of the economy under Somoza. During Somoza’s last years, business sectors took huge sums of money out of the country. When the present government took power, only 3 million dollars remained in the Central Bank.
Today Nicaragua is working to rebuild its economy. A major part of Nicaragua’s economy depends upon the foreign exchange earned from exports. Thus decapitalization presents a serious danger to the reconstruction of the economy.
II. Forms of Decapitalization.There are an endless number of ways to decapitalize a business. Some are obvious, while others are more cunning and difficult to prove. Here we will point out some of the most common forms in which decapitalization appears.
a) Failure to cultivate the land, without justification.
b) Reduction of the productive capacity of factories, without justification.
c) Taking machinery for production from the country.
d) Irresponsible reduction of the number of cattle head.
e) Failure to reinvest the profits that a business is generating.
f) Overpricing items on the invoice whose actual purchase price was much lower and selling products at a higher price than that recorded in the invoice. The difference in dollars remains outside the books, making detection difficult.
g) Failure to present to the Nicaraguan Central Bank payment received in foreign currency.
III. Examples of DecapitalizationIn Nicaragua there are innumerable concrete examples of decapitalization. In the last two weeks, the newspapers have published a series of cases presented by the Association of Agricultural Workers and the Sandinista Workers Central. Here we will present a few examples which outline some general characteristics of the problem.
a) On July 2, 1981, in Boaco, southern province of Nicaragua, the ATC denounced the decapitalization of 9 large coffee and cattle farms covering 16,000 manzanas of land (note: one manzana equals 1.7 acres). One of these farms, San Pedro has 500 manzanas of which 54 are used for coffee cultivation. This year the farm has not been weeded and insecticides have not been used. Thus due to neglect, a great part of the coffee crop has already been lost. In the same farm, 30 manzanas are used for sugar production. Six manzanas of sugar cane have already been last due to neglect. This farm belongs to Zelmira de Gonzalez who left the country after the triumph, appointing his nephew as administrator. In another of Zelmira’s farms, the number of cattle head have been reduced from 450 to 105.
b) On June 24, Nicaraguan newspapers reported the decapitalization of the Namasli Farm. The owner, Alfonso Ramos, has abandoned 450 manzanas of coffee. Traditionally, 200 employees worked this land. Today all but 40 have been fired. Ramos has completely neglected the upkeep of the farm, stripping it of much of the agricultural machinery. Ramos has brought some of this machinery to Honduras. Ramos is being financed by the bank for this agricultural cycle. This means that he is receiving significant sums of money in order to carry out production on his farm.
Legal Aspects of DecapitalizationThe present law 330 against decapitalization was passed in March of 1980. This law has proved to be ineffective. It does not cover some of the most common forms of decapitalization, and the implementation procedure is cumbersome and complicated. Furthermore, the existing law demands a kind of proof that is almost impossible to provide. For example, in the case of Alfonso Ramos, anyone can go to his farm and see the result of decapitalization. Yet according to the present law, it is necessary to prove that he has taken fixed or circulating company assets out of the country. This is extremely difficult to prove.
Thus, the present law has been unable to prevent decapitalization. A new law is now under study in the Ministry of Justice. Dr. Fernando Cedeño, ATC labor director, states:
“This reform should be based upon the experiences and contributions of the workers who feel most immediately the effect of decapitalization that has caused unemployment and that constitutes an attack against the national economy.
Proposed modifications are not aimed so much at the content of the actual law as at the implementation measures. The new law should permit the government, through the Ministry of Justice, to intervene immediately in production units based on claims filed by the employees stating that decapitalization is taking place.”
Both the ATC and the CST are demanding that the new law include measures which enable labor to play a fundamental role in its implementation. Experiences of the last year show that workers are able to carry out investigations, file complaints and take over production, even with limited resources.
The new law against decapitalization is now being prepared for presentation. Among the measures contemplated is the confiscation of all property where the owner is involved in practices of decapitalization.
The popular organizations are asking that a temporary confiscation be effected during the period of investigation. After forming their case, the Ministry of Justice would present it to the corresponding court of justice. Permanent confiscation would then depend on the outcome of the case.
The investigation of a business could be initiated on the basic of employee’s claims that decapitalization is taking place. This law as proposed would be retroactive and could be applied to the more than 100 cases reported so far which have not been investigated due to the lack of effective legal measures.
Political Aspects of DecapitalizationDecapitalization wears down the already weak productive structures of the country and creates economic hardship for Nicaragua’s people. The business opposition then uses the resulting economic situation for a number of political ends.
Economic destabilization brings about political instability, and this is precisely what Nicaragua’s opponents would like to foment. Within Nicaragua, opposition sectors are quick to manipulate, for their own political ends, the legitimate complaints of the people regarding the rising cost of living and rising unemployment rates.
Abroad, opposition spokespersons cite low production levels as proof that the present government is incapable of reactivating the economy and solving the real problems of the country.
Often business owners leave production at a complete standstill, forcing the government to intervene. The opposition then initiates a public opinion campaign stating that the government is interfering in the private sector, attempting to nationalize all production and quickly moving towards communism. They claim that the government is retreating from its promise to maintain a mixed economy.
It is no accident that 1981 is named the Year of Production and Defense. The reconstruction of the country depends upon the reconstruction and consolidation of the economy. In this moment, attacks launched against the revolution are primarily of an economic nature. Decapitalization is counted among these.
ConclusionIn considering the demand for a new law on decapitalization the government faces many challenges. They must make a law which effectively prohibits decapitalization practices, while at the same time not scaring off those who have been investing and producing. They must meet the strong popular demands for an end to capital flight, realizing that whatever measures are taken will be used by political opponents to discredit the revolution, both at home and abroad. They must find ways which allow for popular participation in both company management and production while at the same time providing the technical assistance needed to maintain production levels.
The task before them is enormous. Yet one thing is clear. This government will not tolerate any longer those who wish to impoverish Nicaragua for their own personal gain. There are simply too few resources for too many needs.
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