Envío Digital
Central American University - UCA  
  Number 63 | Septiembre 1986



Slow Motion Toward a Survival Economy

Envío team

"Today, after seven years of revolution, Nicaragua's economic order is passing through its most critical period," concluded the August 27 communiqué of the Fifth Ordinary Meeting of the Sandinista Assembly, the highest consulting body of the FSLN National Directorate.

A recent public opinion survey in Nicaragua showed that over three quarters of those interviewed see the war of attrition as the main cause of the economic crisis. It is also common knowledge that this war will be prolonged, and that the government must therefore begin to include the attrition as a stable component of the country’s economy. A much more interesting aspect of the survey was the economic maturity reflected in peoples' responses. A great majority of those polled said that the solution to the crisis lies in increased production; that is, in themselves.

Last year, the original economic reconstruction model was adjusted through a series of fiscal and monetary policies and the economy entered a second stage. According to Nicaraguan Planning Minister Dionisio Marenco, those measures (suspension of subsidies, salary increases, currency devaluations and adjustments in the foreign exchange rates) "no longer respond to the needs the nation is facing. A third stage, a war economy, is required."

The National Directorate interrupted its Assembly, initiated in July, to broaden the discussion about the economic crisis. This, plus the fact that more time was dedicated to this annual meeting than to any of the previous ones, underscores the importance the FSLN leadership is giving to the need to forge a new model, one of people's survival in the face of the war.

The fundamental problem is that the government has not yet succeeded in forging it. The old model has been given a few new twists and a new label, but a truly new model has yet even to be visualized. A real economy of resistance and survival will have to go much deeper than simple appeals to the working class and peasantry to work with more discipline and will require more radical measures than mere cuts in the state budget.

In this article, we attempt to analyze the obstacles that have impeded the shift from an economy of reconstruction initiated with the overthrow of the Somoza dictatorship, to one of survival. We will also illustrate how the population itself, ever more mature in its understanding of the economic problems, is facing the task of increasing production in times of war.

The economic costs of defeating the contras

Throughout 1985 and 1986, the Sandinistas have dealt strategic blows to the FDN contra forces. These military advances do not mean that the counterrevolution will disappear but that the Nicaraguan military structures have gained a strategic initiative in the irregular war.

Although it’s too early to be categorical, the Senate's approval of $100 million for the contras, coming as it did after the World Court's decision to sanction the United States for its military aggression against Nicaragua, will probably mean greater diplomatic attrition for the United States. For example, the increasing use of new technologies such as anti-tank mines against civilian transportation can only undermine the FDN's reputation even more in Europe and Latin America.

Nonetheless, if the FDN is suffering military attrition and the US government is suffering diplomatic attrition, Nicaragua is paying the economic costs. In this aspect at least, the administration's war can be thought of as a success for Reagan. What the congressional vote means from this perspective is that the US government as a whole has decided to continue pursuing military pressures designed to crush the Nicaraguan economy, so as to destabilize and defeat the Sandinista revolution.

Throughout 1986, the economic crisis has been deepening. And the perspectives for 1987 are indeed bleak:
* There is increased flight of the technical-professional sector abroad or into commercial speculation and the informal sectors of Nicaragua's economy.
* Labor indiscipline in the productive sector has grown due to reduced worker repression after the triumph and to the elimination of basic incentive mechanisms caused by the laboring class’ drop in real salary levels.
* Inflation in June and July, extrapolated to an annual rate, was more than 1,000%.
* It is expected that 1986 exports will be valued at less than $250 million, 20% less than last year.
* 1987 can be expected to usher in an even more serious spiral of scarcity and inflation given the lack of dollars to import productive inputs and the inability to improve the discipline of either the productive workers or the technicians and professionals,.

The following analysis addresses three sets of fundamental questions:

* What is happening to the economy’s foundations? Has the revolutionary state lost control of the economy? What is causing the current inflationary spiral?

* How will today's Nicaragua survive economically? How is the population responding to the crisis? What incentives are being used to put on track an economy so hard-hit by the war?

* Why has the economy’s reorientation from one of reconstruction and reactivation to one of survival in wartime been so slow in coming? What are the perspectives for Nicaragua's economic model?

Has the revolutionary state lost control of the economy?

The truth is that it never had it. The inherited economic structures, Nicaragua's insertion into the international labor market, the mixed economy model and the very social transformations of the revolution mean that the new state has never been able to gain effective control over the economy. Even during the 1979-83 period, when the reactivation project produced an expansion of the gross domestic product, this was not because the state controlled the economy.

In the first place, the government of a small country in the capitalist periphery could never control the price fluctuations for its raw material exports. These fluctuations, not government policies, are what determine growth levels in the capitalist periphery.

This is particularly true in countries as small and vulnerable as Nicaragua. Between 1980 and 1983 Nicaragua experienced a 31% deterioration in its international terms of trade. Between 1983 and 1985 the gap increased only by another 2%. In this last year, however, the deterioration has again been palpable. In 1985, Nicaragua could buy one jeep with 58 hundredweight of coffee, 128 hundredweight of cotton or 3.4 tons of meat. In 1986, that same jeep cost 80 hundredweight of coffee, 295 hundredweight of cotton or 7.3 tons of meat. Faced with this evolution of prices in the international market, the most efficient government in the third world could not exercise effective control over its economy without eliminating all of its subsidies, cutting all of its social programs, drastically diminishing public sector employment and increasing repression against the working class. Obviously, the political power won by the masses in the new Nicaragua has determined that such bald IMF-style measures are impossible in any economic program of the revolutionary government.

In the second place, a government that only administers 30% of the country's industrial production and 20% of its agricultural production obviously cannot control economic development through a classic system of centralized planning. Given the political power of the masses and the economic power of the private sector, the only option is to utilize market forces and the social forces within the private sector to guide the direction of economic development. In the Nicaraguan transition, however, this type of economic influence by the state over the private sector has been further limited by the clash of class interests, the effort to create an economic climate of social well-being for the urban masses who were questioning the prerogatives not only of the capitalists but also of the artisans and peasants, and finally the fact that Nicaragua has been confronting the most powerful country on the planet, which wants to delegitimize and halt the Sandinista attempt to achieve economic and political sovereignty.

Finally, the social transformation process itself makes any type of government control over the economy enormously difficult. Given the Nicaragua of 1979, no state intervention model could have guaranteed government control over the economy’s evolution. A model that would have eliminated the private sector, as suggested by the ultra-left groups, would have produced the greatest economic instability, together with the possibility of US intervention. A mixed economy model that would have favored the peasants, artisans and small business and commercial interests over the large entrepreneurial groups would have produced a more radical agrarian reform, land takeovers and a significant disarticulation of the farming sector. Instead of economic reactivation and rapid growth rates in agriculture, Nicaragua would have suffered the hard economic consequences of a period of intense class struggle.

The chosen path was a mixed economy that attempted to protect and stimulate the production of the large capitalists, control the mobilization of both workers and peasants against their masters, and create a state sector able to pass export profits on to the people in the form of schools, health centers and subsidized food and urban services (known in Nicaragua as the "social wage"). In this third model, class conflict was held in check by state mediation, but this made it no less real. The growth of a public sector that promoted a rapid growth of social benefits for the whole population and a tremendous burst of popular organizations was not exactly the economic climate the business owners were demanding. The class conflict began to be registered in decapitalization by these sectors and increases in both the domestic and external deficit.

In the final analysis, any model would have produced a highly unstable and relatively unmanageable economy. This is the nature of a truly revolutionary situation. The massive insurrections of 1978-79 could not possibly have spawned the ideal conditions for rational administrative control by the state.

Two groups in Nicaragua believed the possibility existed for control over the economy through centralized planning by the revolutionary government. The first is the progressive middle class and technocrats employed in the state sector itself and the second is the well-to-do, whom it suited to encourage the image projected by the Reagan Administration of a "totalitarian Sandinista government, which exercises total control over the life of the country."

By profession, the technocrats and progressive middle classes are inclined to rely on schemes of rational control, administrative efficiency and the capacity of government policies to change the course of history. This perspective is much less objective than the common sense perspective that thinks government functionaries aren't worth much at all, or the social science perspective that sees government policies more as a product than a cause of class struggles and international tensions.

For their part, the working class and the informal urban sector never believed the state controlled the economy, but they did put pressure on it at the beginning to increase the flow of benefits from the state toward themselves, understanding that this was a right won by a revolutionary people in the insurrection.

In periods of intense social struggle between classes, political vanguards and governments that attempt an authentic social transformation have relative autonomy and high potential to influence the course of the economy through the mobilization of social forces, but not through systems of planned control. Revolutionary processes are not the optimum setting for programs of a bureaucratic ilk.

Why the 1985 economic policy?

The elimination of subsidies for basic consumption items and the currency devaluations of February and March were aimed at stimulating the supply of nationally produced consumer goods as well as exports by offering better prices to producers. These changes were necessary to maintain the economic activity needed to sustain the military front and procure basic food supplies for the population.

To understand the new measures, it is important to bear in mind that the Nicaraguan private sector is made up largely of peasants and small and medium farmers, artisans and other impoverished producer-sellers. These groups in fact wield more economic power, though in a dispersed form, than the big producers grouped within the Superior Council of Private Enterprise (COSEP). By 1985, the class struggle was leading to profound adjustments in the nature of the mixed economy, with these groups beginning to take the dominant role within the private sector. The new policies, then, were not intended to strengthen either planning or government control over the economy, but were concessions to the demands of this productive sector in specific and the rest of the productive sector in general. They were recognition of the need to use market forces to stimulate both state production and private initiatives.

Much as a sailboat can’t head directly into the wind but must be carried obliquely to its destination by that wind’s force, there was recognition in the first months of 1985 that concessions would have to be made to the laws of the marketplace in order to maintain any momentum in the economy. Those laws would have to be used to mobilize people’s initiatives in the private sector as well as rationalize administration in the public sector. The political orientation of the discussions in the Sandinista Assembly in August of the same year encouraged FSLN militants to help their base learn how to guide the sailboat using the wind of the market forces as an aid.

These concessions regarding production dealt a serious blow to salaried workers who had no family members involved in commerce or small mercantile production. The official prices for essential goods such as sugar, corn, rice, chicken and cooking oil rose some 400% while wages increased less than 200% on average. The situation of public employees was even worse than that of industrial workers, since the latter’s salary increased between 160% and 180%, while the increase for the former was only 120%. This explains the current concern of public employees that the state is incapable of controlling the economy. It also explains their constant pressures since early 1985 for higher salaries and increases in different aspects of the social wage.

Leaving aside the technocratic myth about the possibilities of state planning as well as the pessimism of the middle sectors whose disposable income has been drastically reduced, there are positive signs. Economic adjustments and movements among the popular sectors independent of state initiatives offer the possibility of creating a more stable survival economy. Before turning to these tendencies, though, it’s useful to analyze the results of the 1985 economic package in detail.

What caused the inflationary spiral?

As Table I shows, the inflation rate was stable until mid-1985. For this reason, many people believe that the 1985 governmental measures caused the current inflationary spiral. In reality, however, a whole series of problems were crumbling the foundations of the economy without the population realizing it. In particular, the economy was sagging under the weight of strong subsidies to both consumers and producers. When the government eliminated the subsidies and devalued the currency, the problems provoked by an increasing external deficit fell full force on the population.

The 1985 measures thus only triggered the inflationary spiral. The explosive itself was made up of three factors: 1) the weight of old unresolved problems such as the one mentioned above; 2) the adjustment measures to stimulate production; and 3) the new increase in the military budget, which grew from a third to nearly a half of the national budget between 1984 and 1985.

The government's attempt to save the working class from the impact of the inflation through wage increases only aggravated the inflation, since the nominal increase in purchasing power to the workers was not matched by a real increase. The revolution could have transferred real purchasing power if it had limited this transfer to the productive workers, but it couldn’t resist the political pressure exercised by its own militants who represented nonproductive sectors and who, given the rise in prices, defended their demand for increases in their social salary. In other words, the subsidies eliminated by the government in one area were reintroduced in another. The plan to prioritize the productive sectors, both in salaries and in subsidies, fell apart in the face of grassroots pressure.

The history of the CATs (Workers’ Food Centers)—low-priced supermarkets in which, according to the plan, only workers tied to production could shop—exemplifies how political pressure subverted the state measure. At the beginning, 100,000 CAT cards were given out. By August 10, 1986, the moment when an effort was initiated to reduce the number of cards in circulation, there were 350,000 cardholders. Even retired national lottery sellers had gotten them. This sort of expansive policy, not limited to the productive sectors, meant that with each nominal rise in salaries, the working class suffered a new deterioration in its living standard. After the third experience of this, the workers began to criticize any new plan to raise their salaries. This seemingly surprising rejection of more wages was a natural reaction to the enormous expansion of money in circulation, in which some income was channeled to producers, but much more to speculators in the commercial sector.

Without the consolidation of new forms of access to and control over productive inputs and consumer goods by peasants and productive workers, any artificial control policy exercised by the Ministry of Domestic Commerce (MICOIN) over merchants will only serve to increase the power of speculative capital over the working population. Without a policy that offers bold incentives to the productive sectors, including a large part of the informal sector, increased governmental commerce regulation will only discredit the FSLN’s economic leadership even more.

The city-countryside readjustment: One positive element of the package

The 1985 economic package was not a total failure, as some are inclined to think. It succeeded in beginning to readjust the terms of trade between the city and the countryside and to distribute more productive inputs among the peasantry.

During the National Union of Farmers and Cattle Ranchers (UNAG) congress in April 1986, Agricultural Development and Agrarian Reform Minister Jaime Wheelock noted that " peasants have not only been incorporated actively into the revolution, they now constitute an unfailing dynamic influence, a real power, one of the pillars of the revolution."

That was not always the case. In fact, until early 1985 economic policy was skewed against agricultural producers and workers to the benefit of the urban population. As can be seen in the chart, prices for agricultural products rose relative to prices of industrial goods and the remuneration of services in the last years of Somoza, owing to the increase in raw materials prices in the international market in those same years. The chart also shows how the revolution reversed the terms of trade, drastically lowering the prices of agricultural products relative to those of industrial ones. Not until 1984 did the prices of rural products begin to rise again, a result of the scarcity of foodstuffs that the cities began to experience.

Peasants did not become "one of the pillars of the revolution" in those years because it was not included in this modernization project. The technicians promoting agrarian policy had little confidence in them, characterizing them as dispersed, backward and unable to incorporate modern technology and increase production. Between 1979 and 1982, these technocrats geared their modernization efforts to the state agricultural sector, where they could control a rapid infusion of capital and new technology on the big lands confiscated from the Somocistas.

Beginning in 1983, the same modernization patterns were applied in the production cooperatives. Again, the technicians controlled the production plans and guaranteed modernized production. There was no real effort to assure that the great bulk of the peasants got the traditional inputs they needed to produce. In addition, MICOIN's distribution project in the countryside eliminated the small merchants who exploited the peasantry but didn’t manage to replace them with state or cooperative distribution channels to supply the peasantry with the productive inputs they needed.

The result of all this was that, proportionally, peasant producers suffered the above-mentioned reversal in their terms of trade much more than the wealthier ones. For example, cotton and sugar production is fundamentally in the hands of big producers and the state. In 1984, these producers received 19 and 20 córdobas respectively for each dollar received from the export of their product. Small and medium peasant producers, on the other hand, grow some 42% of the coffee and 95% of the sesame cultivation. In 1984, these producers received only 15 and 10 córdobas respectively for each dollar obtained from their harvests, according to figures from the Nicaraguan Central Bank and Ministry of Foreign Commerce, elaborated by CIERA. Prices for the production of grains for domestic consumption were equally low. In 1975, a peasant could buy 13 radio batteries from the sale of a hundredweight of corn. In 1984, this same amount of corn couldn’t even purchase two batteries.

The new economic policy of 1985 had as a central goal to correct these agricultural pricing policy problems. Urban consumer subsidies for basic grains were lifted and some liberalization was permitted in the commercialization of these products in the countryside.

Improving the prices for their products were correct measures to benefit the peasants, but in the early months of 1985 they didn’t work as planned. On the contrary, they hurt the peasants even more for the simple reason that they were implemented just as the harvest had been turned over to the merchants, leaving this unproductive sector with windfall profits as the fruit of a policy designed precisely to transfer income from the unproductive sector to the productive one.

The delay in implementing the measure at all was due to the lack of agility in formulating it, but its implementation at such an inopportune moment was because the state lacked sensibility to act effectively in the economic realm. In short, during the first months of the 1985 economic adjustments, the peasantry was not only not a revolutionary pillar, it was a social force barely in communication with the technocratic strata that directed economic policy. In the following harvests, the peasants began to benefit from the new policy and from the new terms of rural-urban trade, and their situation improved substantially.

This readjustment between city and countryside has still not borne all its fruits, but it is the key to provisioning the cities and to the way out of the inflationary spiral. Without the support of peasant production and an adequate supply of basic goods, the revolution will never be able to control commercial speculation.

In conditions of scarcity such as Nicaragua is experiencing, speculators are not a small group of well-off people, but an enormous sector of informal merchants. A majority of them also produce the goods they sell, and don’t have enough stock to engage in anything other than a kind of micro-speculation. They sell what they have at high prices so they can buy productive inputs whose prices are likewise escalating.

Without adequate supply, a vicious circle is created. Industrial workers tend to leave their jobs and move into these micro-speculative activities where they can earn enough to buy the increasingly costly provisions they need, thus lowering industrial production even more. The government tried to break this vicious circle by increasing workers' wages, but with insufficient supply, it only threw fuel on the inflationary fires, increasing the monetary mass without simultaneously increasing the supply of goods.

By raising salaries without being able to guarantee working class access to extremely basic products or control the political demands from the other grassroots sectors, the 1985 economic measures were too naive. The slogan of equality for the urban population outshouted the more needed slogan of prioritizing production and guaranteeing increased flow of inputs. The state lacked the boldness to really carry out the plan.

In moments of transition, the contradiction between social justice and production of goods doesn’t disappear and can even become more acute, especially in a country suffering a battering war of aggression. On the other hand, the readjustments initiated between the cities and the countryside had a positive impact on the economy’s foundations, but here too the state lacked the boldness needed to stimulate peasant production to the level the country needed.

In sum, the government's lack of audacity in prioritizing the productive sectors leads back to its inability to create a new economic model for survival in wartime. The absence of such a model and not some isolated errors in policy have generated the economic problems since 1982, when the need for a new model was already becoming evident. Until it is designed, the population will be obliged to defend itself as it can against the onslaught of the economic crisis. In many cases the population has, in fact, already shown itself capable of defending itself with enormous creativity.

Popular initiatives to reorganize the economy

Over time, the grassroots sectors have reacted in three very marked ways to the revolutionary state’s economic management.

1) Between 1979 and 1982, people were under the illusion that the revolutionary state would be an inexhaustible fountain of benefits. It was a period in which Nicaragua had access to enough liquid foreign exchange—that is, dollars not tied to projects or commercial credits—and wasn’t suffering the weight of the military aggression and exorbitant military budgets it had to contend with later. The economic model of national reconstruction and national unity was based on stimulating strong public spending for a reactivation that benefited multiple sectors within a very broad class alliance.

2) With the military aggression and the economic crisis in the 1983-85 period, this illusion turned into frustration and into strong demands on the revolutionary state to solve the problems.

3) Since 1985, the state’s inability to direct and harmonize the demands of the diverse grassroots sectors has been provoking these sectors to disregard the state and search for effective solutions to economic survival on their own.

Although the public opinion poll mentioned above showed that political support to the FSLN has held and even grown, the same poll revealed a serious criticism of the revolutionary government’s economic decisions. It shows once more that there is no direct correlation in Nicaragua
between this economic criticism and the FSLN's political support. Although the Reagan administration dreams of another Chile in Nicaragua, the model of political and economic attrition that preceded the overthrow of the Salvador Allende government is not being repeated in Nicaragua. Unlike Chile, the weapons in Nicaragua are in the hands of the people and there is no other significant political or civic force capable of challenging this grassroots power or crystallizing the discontent into an anti-Sandinista political movement. The population, then, instead of politicizing the economic crisis in a counterrevolutionary manner, has been looking for its own solutions to it.

These shifts in attitudes have been determinant in the unplanned recomposition of the economy that the population is beginning to carry out. This recomposition doesn’t represent a political mobilization to defend the revolution’s economic flank as much as it does a conglomerate of individual and local initiatives to satisfy vital necessities. These initiatives are much more widespread than the examples of worker consciousness that fill the pages of the daily papers: testimonials to having worked more than eight hours, to the creativity of the innovators in creating spare parts with which to save foreign exchange, to the doubling of the agricultural work norms in Jalapa to give people enough rice to eat, etc. All this growing worker consciousness is indeed an integral component of the popular effort, but here we want to point out other responses that are less political and less known.

Meeting inflation with barter

For the past year and a half, while the state was talking about its plans to cut the fiscal deficit and control inflation, the amount of money in circulation was, in fact, expanding enormously. In response, people began simply to demonetarize the economy to the extent that they could. At the neighborhood level, an increasing number of transactions are taking place based via barter. Often a seller will not offer his or her product to someone who lacks other products to offer in exchange. In Managua, where over 45% of the economically active population works in the informal sector of production, services or commerce, nearly half of the population has something to exchange. To assure their own supply of goods, families with access to some type of merchandise or service will simply contract a regular exchange with producers or sellers of other scarce products.

The ones who have trouble with this mechanism are obviously the public employees and workers with families not tied to the informal sector. But even in these circumstances, there’s a way out. For example, the wife in one working class household has managed to construct her own supply network for scarce goods at affordable prices with a series of sellers based on long friendships, constant conversations and pleading. Another woman in a poor neighborhood of Managua has elaborated a plan for different purchases with "her" merchants in different stores. With great pride, she explained to us how she had calculated the schedules of the buses that go between three marketplaces of the capital. For her the problems of scarcity and inflation have become a challenge to her capacity to win over her friends and be back home in less than two and a half hours.

Multiple family and friendship networks cross the Managua markets, which seem so impersonal to the eyes of the outside inspector. The economic crisis accentuates even more the "personal nature" that underpins this kind of economic demonetarization. On the other hand, while this phenomenon is softening the impact of the inflation, it’s not saving the proletarian families. One of the women mentioned above had an envelope in her house for each of her children, in which she had been saving money to buy them clothes. June’s inflation ate up what she had planned to save that month.

Meeting state rigidity with people's agility

A second feature of the people's recomposition of the economy is a series of new forms of grassroots control over the selling and distribution of products.

The old system has been characterized by multiple state interventions, by popular organizations and particularly by merchants and intermediaries, in which the latter have a big advantage over the state because the size of their operations permits them integral control and greater agility over the negotiation. On the other hand, the state system has continued to be so inflexible and bureaucratic that it can’t take advantage of the commercial power that its large scale could give it.

There are two reasons for the state’s lack of commercial agility: 1) centralized decision-making in the ministries that impedes adequate responses to local market conditions, and 2) an exaggerated disarticulation of the multiple commercial functions among the different ministries. In many cases, the state system only serves to pass the subsidies on to the merchants who buy at official prices and then resell to the public at exorbitant ones.

The population is very critical, and inclined to give much more weight to illegal sales to merchants by corrupt MICOIN officials than the number of cases merits. Such corruption is in fact insignificant compared to the widespread micro-speculation in food by the myriad producer-sellers or by consumers themselves, who, given their own desperate situation, often resell for profit at least part of the foodstuffs they get at MICOIN-set prices.

As some with rural contacts have recognized, however, "inefficient people, bureaucrats, shameless operators," as well as micro-speculation by the population at large, are the product of an inefficient, bureaucratic and inflexible state system in general and the scarcity of products in particular.

Peasants and workers have taken the lead in pushing against the rigidity of the state system and increasing their own participation and control over distribution channels. For example, UNAG has created a series of "Peasant Stores" to distribute agricultural inputs to peasants and receive their harvests. These stores are replacing the poorly integrated efforts at rural supply and purchase by such diverse state institutions as the National Development Bank, MICOIN, ENABAS (the basic grains storage and distribution system) and PROAGRO (a division of MIDINRA, the Agricultural Development and Agrarian Reform Ministry). The integral service offered by the Peasant Stores in regions V and VI have permitted an increase in peasant production of corn and beans and better commercialization of these basic grains to the city than through official channels.

UNAG, urged to respond to peasant needs not satisfied by the state during the past seven years, developed this whole system outside of state efforts. With financial assistance from Sweden, UNAG has been able to create the kind of integrated purchase and sale system that was recommended in the first documents and programs of the state project called PAN (National Food Program). The state could never overcome the lack of integration of the various ministerial "fiefdoms" involved in distributing the products and the original PAN program was thus never put into practice.

The Peasant Stores are based on a grassroots dynamism that is really aimed at territorial control of all commercial movement. In some places such as San Dionisio (Matagalpa), the Peasant Stores are pushing to integrate MICOIN’s supply channels called PARs (Poles of Rural Supply) into the UNAG organization. This would avoid costly duplication of such services as transportation and storage and would assure that the consumer products in the PAR get directly to the peasants instead of being channeled through the multiple circuits of small rural commerce.

At the end of August, cooperatives that produce vegetables on the Carazo plateau began to promote meetings between themselves and other small vegetable growers of Jinotega and Matagalpa with retailers from Managua, Leon, Chinandega, Granada, Matagalpa and Jinotega, in an effort to rationalize the commercialization of their produce. This kind of popular effort is born from the base, which is ignoring the state and seeking solutions to its problems through people-to-people contacts. Sandinista militants whose base is made up of peasants and retailers rather than public officials act as mediators between the two groups.

In Matiguás, an organization of peasant Delegates of the Word has consolidated a supply and commercialization organization in its municipality. As with UNAG, the peasants received foreign funds for the purpose. When envío asked the directors of this project—which involves more than 8,000 people—if their members wanted higher prices for their beans in order to stimulate production, the response was: "We’re contracting with the factories to get clothes in exchange for beans. We don't want money. We want products."

The economy as a whole can’t function based on this kind of barter, but at the moment it’s one of the basic economic recomposition mechanisms. These new expressions of popular participation can be seen as positive steps in the struggle to gain a new equilibrium in the Nicaraguan economy, particularly when barter is based on grassroots organization and efficient transaction bonds appear between the city and the countryside,.

The demand of industrial workers to receive part of their wages in kind is another sign of this same tendency of the base to insist on more direct control over the supply process. The state responded to this pressure because it wanted to stimulate direct productive work and stop the working class stampede toward the informal sector of the economy. Although the same workers resell at least some of the products given them as wages, it’s one way to prevent their real wages from deteriorating so rapidly. It’s a step toward the decomposition of minimum conditions for the salarization of work. The efficacy of this policy was somewhat undermined because it was rapidly extended to other, not directly productive sectors, always in the name of equality. As we saw before, this diminished the desired prioritization of productive labor.

The Farm Workers Association (ATC) is testing out other mechanisms of grassroots control over the distribution of inputs. For example, when there’s a bureaucratic delay in getting agricultural inputs out of customs at the port of Corinto, hobbling production, ATC sends a commission to Corinto to pressure the customs officials then mobilizes its cadres throughout the distribution chain, from the port to the farm—whether state or private—to assure that the inputs arrive in time.

Meeting the dollar shortage with a "dollarization" of the economy

Nicaragua's acute lack of hard currency for the import of productive inputs and consumer goods has resulted in an illegal dollar market in which the exchange rate for the dollar keeps pushing inflation upward. Given this situation, Nicaragua's numerous buhoneros* have had to compete in the very tight market for dollars to keep their import operation going.

*buhoneros are licensed individuals who travel back and forth between Managua and Miami or Central American capitals to purchase small quantities of anything from eye shadow to car parts, usually for specific clients such as small retailers, auto repair garages or even neighbors, friends and relatives. They pass along the inflated dollar prices to their clients, which enables them to once again compete for the same dollar at its ever higher prices. In turn, the producers and merchants tack on to the final consumer price the exorbitant costs they have incurred in getting these inputs or goods. The expansion of the córdoba supply in l985 and l986 resulted in a continuing upward spiral in the prices of the dollar and of imported goods.

In early 1986, the government de-authorized some 2,000 buhoneros and began assigning dollars to 200 others who sell basic inputs to cooperatives and other formal production units. Since the buhoneros had exercised the key inflationary influence in the illegal dollar market, this measure brought a certain stability to the price of the black market dollar, which has hovered around 2,100 córdobas for the past six months. The controls, however, create a new problem because these import peddlers provided an endless variety of inputs to the informal production sector—small industry and household production. Many of those who are no longer authorized are beginning to smuggle their imports across the borders, which increases their costs even more. These factors have counteracted the positive effects, further stimulating the raging inflation.

In this context an even more direct "dollarization" of the economy has taken place—i.e. more and more business transactions are done directly in dollars. For example, in an attempt to reduce the illegal market, the state, as we detail below, has begun to sell certain products in dollars inside the country. For their part, small producers and informal artisans and merchants are dealing with the buhoneros directly in dollars as a survival mechanism. When possible, they charge their customers in dollars, then sell them to the buhoneros at the illegal rate to both augment their income level and pay for the inputs they need to keep their enterprises going.

Purchases in dollars for a whole series of products are becoming increasingly frequent. One area of the economy where this has become predominant is the real estate and housing market. The buying and selling of houses, in both the fancy residential neighborhoods and the poorer ones, is done almost solely in dollars. With the present inflation rate, it’s not feasible to sell a house in córdobas, because they can be devalued by 70% in the three or four months it takes to complete the purchase.

This matter of the economy’s dollarization can lead to false moralistic homilies. It’s important to emphasize that the amount of dollars used by Nicaragua’s upper classes, or by diplomats and foreign journalists, has less weight in the economy than those spent by the broader masses of people. A significant amount of dollars are sent to Nicaragua through private channels by relatives living outside the country. Thousands of Nicaraguans settled in the US before the l979 triumph of the revolution, and since then the war and the economic crisis have led many thousands more from all social classes to migrate. According to some estimates, these private remittances may amount to about $50 million a year.

In today's Nicaragua, the $25 a month that a domestic employee gets from her aunt in Los Angeles is the lifeline that enables her whole family to survive. She earns 20 thousand córdobas a month on her job, and the $25 gets changed into more than 50 thousand córdobas. Another example: at the minimum wage of $4 an hour, a relative in the US earns in one day the equivalent of the monthly salary of the head of a government department in Nicaragua.

Although these dollar injections are not comparable to the $250 to $300 million that go to El Salvador each year in the same kind of family remittances, they are still considerable. They provide the hard currency for a large part of the imported inputs used by the informal sector. Without this kind of dollarization, a link in the production of thousands of items and services would have disappeared, given the acute scarcity of foreign exchange evident since l983.

To the degree that Nicaragua has been losing its export capacity, the informal sector, which plays an important complementary role in the Nicaraguan economy, has sought a solution in the midst of the crisis—exporting family members and thus getting the foreign exchange that lets it keep up its productive and commercial activity. The dilemma is that the state is trying to curb the inflationary flow of dollars outside state channels while large sectors of the population depend precisely on that dollar flow for their survival.

The state has tried to absorb some of the flow in two ways: 1) by buying and selling dollars in the official exchange houses, and 2) by selling certain luxury items in dollars.

An exchange house is an official agency that tries to compete with the illegal dollar market by offering a legal rate that is much higher than the official government rate. Recently the exchange houses raised their rate from 900 córdobas to the dollar to l400. Even though that legal rate is far below the illegal price (currently 2,300 córdobas to the dollar), the exchange house takes in about $12 million per year.

A second government mechanism for cutting into the illegal market is the sale of certain luxury consumer goods in dollars. The best-known government agency operating in this area is what is known as the diplomatic store in Managua, where foreigners can buy all kinds of imported items in dollars, from electrical utilities and auto batteries to a variety of US foods. The diplomatic store also sells Nicaraguan products in dollars, such as eggs or greens, to shoppers who don’t want to lose time hunting around in the markets. In fact, the store also serves many Nicaraguans who have access to dollars.

This store gets a great deal of criticism from people as a symbol of the existence of a privileged class of consumers, but it plays a positive role in the economy by reducing the amount of dollars on the illegal market by about $6 million per year. Thanks to this store the state earns almost $l million a year. In fact, these profits can be seen as a kind of state tax levied on the privileged classes whose consumer habits would otherwise be lining the pockets of the buhoneros. Moreover, because it’s easy to buy things in the diplomatic store and its prices are competitive, quite a few buhoneros have had to get out of the luxury goods market and into supplying small industry with productive inputs or importing goods the general population can use.

Although these governmental efforts have been positive, all of them taken together haven’t been able to take in even a quarter of the dollars circulating in the illegal market. In the final analysis, the dollarization of the economy is not an evil in itself but rather a normal adjustment in a situation where the war and the central government's foreign and domestic deficits feed a spiral of inflation that has been increasing geometrically since early l985. More troublesome than the dollarization of the economy is that people have clearly moved ahead of the state in taking the steps necessary to begin building an economy of survival, get hold of prices and give direction to other basic economic mechanisms.

New initiatives by the FSLN and by the state

The state hasn’t been completely passive in the process of putting together an economy for people's survival, however. In addition to the urban-rural readjustment, the state has supported forms of economic mobilization arising from workers and peasants in several cases, encouraging their development by bringing together the efforts of the various departments involved.

One example of the coordination of state programs at the base level is the "territorial enterprise," characterized by a systematic direction of attention to all workers and producers of a certain territory. This type of public administration means that in the Pueblo Nuevo valley in Estelí, for instance, where FSLN militants developed programs to take care of cattle, workers in state companies and in cooperatives, small businesspeople and independent peasants all enjoy the services the territorial enterprise offers for cattle raising. Another example is the Carazo plateau, where they state support is directed to all coffee producers, offering production inputs, food and clothing supplies for workers and their families, and technical assistance for coffee storage and marketing.

This kind of service is new for the state. Given the more "enclave" nature of the state's production program until now, in which there was a tendency to invest heavily in a few state production enclaves or in production cooperatives where it could exercise central planning, the state affected only 30% of production. The great mass of producer-artisans, independent peasants, small businesspeople or workers on the big private sector farms or factories—were not included among the priorities of the state's efforts.

The main objective of the territorial enterprise, then, is to put together the minimal conditions so salaried productive work can be a real survival option for the rural family. The workers' unions pressured heavily for cooking oil, sugar, rice and clothing as well as access to a small plot of land for the production of corn and beans for the family. For their part, the workers pledged to increase the workday and the quality of their work in cultivating the crop. At the same time, the territorial enterprise included peasants, businesspeople and cooperatives members in its program so they could have possibilities of expanding their coffee production. In Carazo, the same services were extended to the producers of fruits, vegetables and basic grains. During l984-l985 alone, the fruit plantations on the plateau grew by 940 hectares.

In these experiences, government action has arisen as a response to projects already begun by FSLN militants at the base level. What happens is that the militants who have lived closer to the problems of workers and peasants are in touch with others who work in local offices of the various state departments; the former manage to spark an enthusiastic response from the latter and get their support. These experiences have shown that the moral authority of FSLN leaders at the base level can break down the bureaucratic barriers of the various departmental fiefdoms and catalyze the development of coordinated state programs.

By early this year, the coordination of state action was consolidated under the direction of the presidential offices. Before that happened, such base-level initiatives tended to collide with the various state offices. The new coordination allows more flexibility and creativity at the local level, where the concrete coordination of government services must necessarily be worked out.

It is important to emphasize that this kind of action is the fruit of long years of work with base-level workers and peasants. One year ago, envío described the tensions and conflicts involved in that process of mobilizing people, both in the Carazo plateau and in Masaya (see "The Nicaraguan Peasantry Gives New Direction to Agrarian Reform," September 1985). That movement for access to land and to state credits and technical assistance launched by the poor peasants is the material and organizational base of the plateau’s territorial enterprise.

The movement involved patient and attentive listening to the demands of the grassroots masses and coming to a deep knowledge of the friendship networks from one little village to another. While the enclave model encouraged the slogan "don't raise people’s expectations if we can't respond," militants working at the base level in Carazo put forth an explicit policy of raising expectations. Because of their friendship with the workers and peasants, they knew what those expectations would be, and also knew what the market conditions and real possibilities of organization were, all of which made it possible to adequately respond to the movement.

Around mid-l986, MIDINRA began to launch pilot programs involving territorial enterprises in all regions of the country. There are obviously not enough material resources to apply this model to the whole economy. Moreover, it’s important to recognize that perhaps the greatest scarcity lies in the area of human resources—leaders qualified politically and technically to work well with the masses—who are the key elements for implementing this kind of territorial enterprise. Despite these limitations, however, the current pilot programs will give new leaders an opportunity to learn and will expand production, thus expanding the resource pool required for further application of this model.

All of these seed experiences give reason to hope that there will be further development of a model of people's survival in wartime. Without it, the new experiments in state action arising from the base of the Sandinista movement cannot have their fullest possible impact. Lacking a context for these experiments within a national dynamic, people's creative but very scattered initiatives are lost to the four winds. These efforts must be channeled and put together for survival.

What space for maneuver?

The most recent communiqué of the Sandinista Assembly outlined in broad strokes the key elements of its program to deal with the economic crisis: Defense of the revolutionary state demands that all necessary steps be taken to face and control the crisis, using our own resources and making the best use of resources from abroad. Defense of the revolutionary process demands that we take the following steps: more rational resource distribution and use and more organization in directing the economy, in governmental activity, in political leadership and productive activity, in discipline, in conserving resources, in efficiency and in unity and coherence carrying out policy.

As the Sandinista Assembly recognizes in this list of tasks, there is plenty of room to take action within the Nicaraguan economy even though the basic problems—starting with the war—originate outside. Clearly the revolutionary process can only affect and directly deal with the economy’s internal problems and assure that outside support not prevent the development of an economy of people's survival but rather demand it and help it get started.

The scarcity of liquid foreign exchange pressures the country to administer its domestic resources better and make the best possible use of the foreign resources it gets. Some observers think the Nicaraguan economy is stable enough to be able to cut back on the high levels of foreign subsidy it has been enjoying, but to do this at this time in order to force the emergence of a new economic model will only lead to major economic disaster. It must be possible to adjust the present model, making optimal use of foreign resources, as the Sandinista Assembly suggests, without restricting economic movement even further.

As Table II shows, the inflow of resources from abroad has averaged about $600 million annually since 1980, except for 1985 when it went up to $722 million. Naturally, the nature of this foreign exchange has varied: there has been an upturn in exchange credits tied to certain projects that are inappropriate for the present economic stage or to imports determined by the country extending the credit. It’s also true that the deterioration in the terms of international trade indicated in Table II has been systematically reducing the real buying power of every export dollar earned.

Although the US government has managed to interrupt the flow of liquid foreign exchange to Nicaragua, it has failed totally in its attempt to isolate Nicaragua economically within the region. One example of this failure can be seen in the meeting of the Central American economic ministers this month, in which they signed contracts to renegotiate the Nicaraguan debt in their respective Central Banks and thus facilitate the continuation of commercial exchange among all countries of the area, without excluding Nicaragua. (For more information on this, see "The Month" in this issue of envío.)

Why is the transition so slow?

Despite repeated government announcements in 1984, 1985 and 1986 of plans for implementing a more austere economic program and mobilizing people around economic issues in response to the war of aggression, the reconstruction model has basically continued rolling along on its original course. Indeed, increasing austerity has become the people’s lot and the government has been unable to devise the formulas neded to channel their frustration with the war into productive activities so necessary to bolster the war effort.

What are the obstacles that have made it so hard to transform the reconstruction economy applied in 1979-82 into a survival economy? Why have the administrative styles learned in the first years of the process not been dropped? What are the immediate measures that could contribute to that transition instead of setting it back even further? The need to address these questions is urgent, since the present war against Nicaragua involves a prolonged strategy of wearing down the country with an emphasis more on economic erosion than on military advance by the contras.

Structural and ideological obstacles

The FSLN has faced serious obstacles in trying to develop a survival economy—e.g., the inflexibility not only of the social structures inherited from the Somoza era but also the unbending nature of the ideological models consolidated during that regime.

As analyzed above, the revolutionary movement, having brought down the Somoza dictatorship, inherited a society with a profound imbalance between city and country. Under Somoza the idea had been to modernize the productive base and develop the productive forces for the incorporation of advanced technologies, particularly in agroexports and agroindustry. This left the productive forces of the peasantry on the sidelines while concentrating development in modern enclaves, mainly on the Pacific coast. Exploitation of the peasants and the resource transfer from outside the country—through loans, which meant greater indebtedness—had led to one of the most pronounced hyper-urbanization processes in the whole hemisphere. This rapid transfer of population and resources to the cities created another imbalance—this one between the productive and non-productive urban sectors.

After the triumph, the FSLN responded generously to the demands of its main social base—the urban poor—further aggravating the imbalance between these productive and nonproductive sectors of the cities. Moreover, the political necessities of a national alliance demanded that the agrarian reform move at a very slow pace. Even more significantly, the national economy had to be rebuilt with technical personnel trained under the dictatorship. The economic models available in 1979 were more a reflection of the frustrated aspirations of those technocratic strata than expressions of the required structural transformation of the economy.

It is now obvious that the investment effort exceeded the economy's capacities. Productive growth has not been sufficient to sustain such an expansive investment policy. In addition, it precluded capital replacement necessary to keep the normal movement of the economy going. Year after year the demand for all kinds of productive inputs and replacement of machinery grew sharply, not only in small and medium industrial production but also in the big national industry sector, whose physical plant was deteriorating because the priority was placed on new investment projects. This accumulated demand has been one of the main engines of inflation.

In the interior of the country, the deterioration of the peasant economy was becoming the main point of the counterrevolutionary ideology. There, certain investments would have enhanced peasant labor in projects designed to incorporate new lands into the production of grains and other foods, intensifying the use of labor instead of imported capital. But the modernization model got in the way. The Pacific coast region received 76% of the investment. Finally, this de-emphasis of the peasant sector led to a further increase in migration from country to city, aggravating even more the inherited problems and imbalances.

Only a minority of Sandinista activists had worked among the peasants; the vast majority had been forged in the fire of the urban guerrilla experience. The technical experts in the agricultural sector had even less understanding of the peasants. Since they had been brought up with the systematic anti-peasant prejudices fostered by the Somoza dictatorship, it is doubtful that they could have taken a different approach at the beginning.

Although the Sandinista movement’s political, ideological and cultural strategies have very original characteristics, the guerrillas didn’t come down from the mountains or emerge from urban guerrilla warfare with a very original economic strategy. Rather, they had to work with the model the technocrats had absorbed from the way of doing things under Somoza and from dependency on the United States. Moreover, they themselves were attracted to the grand socialist ideals of developing the productive forces and creating a working class with a high level of technical and political sophistication. Because the inherited modernization model was superficially compatible with these ideals, it held some appeal even for the Sandinista guerrillas.

This lack of an original economic conception is why a contradiction has often been noticed in the Sandinista revolution between strategic economic concepts and the tactical ways things are done. Because of all the above obstacles, the revolutionary leadership's visions of structural change and people's participation were converted time and time again into repetitions of the old economic model of modernization, urbanization and excessive use of technology.

The FSLN has worked creatively, like a shoemaker who keeps patching up an old pair of shoes. Time after time, it has tried to readjust the old modernization model and the socialist economic ideals to the needs of its own historical process. It’s not that the FSLN has a dogmatic interest in the old paradigms and models but rather that, as in the case of the shoemaker and his patchwork, it still doesn’t have in hand the materials and design to make new ones. Furthermore, the short-term perspective imposed by the war clearly works against any bold project of throwing out the old shoes in the hope of quickly finding a new pair.

Despite the fact that both the l985 and l986 economic plans recognized the need to put a priority on investing in equipment maintenance and repairs and productive inputs for the peasantry, for example, more than 80% of the state investment program was still for highly sophisticated long-term projects. This slowness in adjusting the government investment program to the new conditions brought about by the war can be synthesized into two causes:

1) Many of the foreign credits are already designated for specific use within the old investment model. A campaign of international economic diplomacy would be required to be able to convert projects financed according to the old model into economic resistance projects for wartime.

2) Although Sandinista leaders, both at top levels and at the base, are aware of the need for a new economic resistance strategy involving a greater degree of people's mobilization, the masses' criticism has had a slower impact on the technical and administrative strata of the state. In the hands of these strata, the new wartime resistance project ends up being a carbon copy of the old models with solutions that involve modernization, high costs and enclaves.

A survival economy means above all the capacity to move food supplies to the army and to the cities without spending vast sums on imports. It means consolidating the alliance with the peasants. The challenge of overcoming the main barrier to the creation of this model—the structures and ideology inherited from the old society that favored agroexporters and city dwellers over peasants—involves a profound transformation of the economic power structure. It involves the kind of new styles and programs of action that are taking place in the Carazo plateau, where the new people’s organization and new organizational designs have been making it possible to displace the better-off classes with no loss in the production level. Through the work of Sandinista activists, a new model has been emerging in some isolated places, but the FSLN has not managed to put this model into effect on any broad scale.

The economic challenges of the process

The economic challenges of the revolutionary process at this time are of two kinds: l) a program for structuring public expenditure in a way that allows for financing the war without adding even further to the deficit, and 2) a program for refashioning the economy according to a new pattern of people's resistance and survival. Both programs are highly political.

Budget Cuts. Any project to restructure public expenditure means passing along a greater share of the costs of the war to someone—some class, social group or government sector. The restructuring of public expenditure needed to keep up the national defense cannot be just a question of a simple adjustment but rather a new relationship between the state and the people geared to putting the economy back together along the lines of a new model of people’s survival.

The fiscal deficit must be reduced even further by eliminating subsidies, cutting back on public spending or eliminating investment programs. Only that way can the printing of new córdobas be limited, the expansion of the money supply controlled and inflation reduced. It’s technically possible to reduce the deficit substantially and begin a real fight against inflation. The problems that get in the way of making these moves are basically political.

The first of the various options for implementing these cutbacks would be to restrict the investment level, especially in long-term investments. Investments, amounting to l7% of the gross domestic product, exert heavy pressure on the economy. Cutting back on them by one third (6% of the gross domestic product) would have an enormous impact on the ability to shrink the fiscal deficit. Even with such a cutback, the country would still enjoy a 12% investment rate, which is very high. Depending on agreements with governments supporting the public investment projects, resources could begin to be used to replace physical plants or for inputs required in the productive sector or even for importing consumer goods to give the working class incentives and keep up its real salary. Cutting back on investment projects means cutting back on the size of the state apparatus and reducing costs incurred in designing and preparing these large projects. The main challenge is to be able to reduce the fiscal deficit and keep up military defense without cutting back even further on people's consumption.

When people criticize the state officials as privileged individuals or as a new class, there’s an objective basis to this to the extent that high investment levels are maintained at the cost of people's consumption. It has become clear that raising salaries to avoid cutting back on investment levels ends up having an even more negative effect on the living standard of the people as a whole.

Government planners looking for ways to reduce costs are also taking an approach whereby the army may begin to produce for its own basic food needs. This project could reduce the military budget by l0% (meaning a 5% reduction in the total government budget). This would not only be an effective pressure against inflation, but also an important political measure, since it would indicate that the Sandinista army is not only of the people but also wants to stop being too much of a burden on the people.

There are still very heavy subsidies for sugar, milk, cotton, etc. In some cases, such as sugar, the subsidies are more an incentive for the producers in a hostile international market than a real defense of the consumer. At present, it costs the equivalent of US$0.l2 to produce a pound of sugar. People buy that pound at 4 cents, and the state pays the subsidy of 8 cents, all while the same pound of sugar could be imported at 5 cents. Part of the solution would be greater flexibility in adjusting to the changes in international market prices. Sugar has gone down, for example, but sesame is now getting a good price. It should be possible to use the sugar companies’ equipment and labor to produce and export sesame, then import the sugar. The US war that seeks to put the Nicaraguan economy flat on its back doesn’t allow the luxury of maintaining inefficient production structures in international terms and high-cost subsidies that only fuel inflation.

Much thought has been given to a more coordinated administration of productive systems such as sugar or cotton. The activity would be administered like a company, to avoid the splintering of production and marketing by the involvement of several governmental departments. Only this kind of administration would give Nicaragua the flexibility needed to survive as a small country on the periphery even in peacetime.

People's Mobilization. The second challenge facing the economy at this point is as important as the first. Just cutting back on public spending in order to pass those resources along to the productive sector that can respond with profitable production in the short run is nothing other than the International Monetary Fund’s basic program for restoring the third world economies. It means asking the working people to go hungry until producers increase their profits and production levels go up. This prescription works against the people.

To overcome it, perhaps the most important challenge is to put a new model into effect on a wide scale in which the workers become the active force in the transfer of resources from nonproductive and inefficient sectors within the state to programs of basic goods production that allow people to survive a war against the economy. What is needed is the mobilization of people for their own survival, and nothing less. Until now, people's efforts to survive the economic crisis have been moving along on one track, while the government's program has been going in the same general direction but on another track. The key economic challenge for the revolutionary state is to know how to give direction to all the disparate efforts of people to rebuild an economy so sorely affected by the war.

Nicaragua in Economic Perspective

Despite all US efforts to destroy its economy, Nicaragua—while suffering a war and having to devote half of its budget to defense—has had some success in keeping its economy going. This is due above all to the economic solidarity Nicaragua has received from abroad and to the capacity of its people to keep repairing the economy and adjusting it to the exigencies of war.

It must be recalled that in England during the Second World War, cigarettes and toilet paper were not to be found, and milk was rationed until l955. In the US at that time, baking soda was used instead of toothpaste, which was in short supply, as were many basic food products such as sugar.

It is also important to note that, considering the international recession and the foreign debt that has the whole third world reeling, what has been happening in the Nicaraguan economy has not been completely negative in comparison with other Latin American countries. When the international press began to proclaim a year ago that Nicaragua was suffering under an inflation rate of 250% due to "Sandinista incompetence," there was no mention of the fact that the inflation rate in Argentina was about l,500%, in Brazil 400%, in Peru 600% and in Bolivia l4,000%. And Nicaragua was the only one of these countries laboring not only under the international recession but suffering a war as well. Recently, the austerity measures imposed in Bolivia have provoked strikes, a state of siege and once again deep political instability. Time Magazine indicated a short while back that the austerity program imposed in Egypt could provoke mass rebellions "which even an army as professional as that of Egypt would not be able to control." No such expressions of people’s rebellion have been seen in Nicaragua since the overthrow of Somoza in l979.

In this context, the struggle to create an economy of people's survival can be understood not as a desperate act by the government but rather as part of the Nicaraguan counteroffensive against the US "low-intensity warfare" strategy.

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