Are We Ready to Leap Out of Poverty In a Single Bound?
What legacy is President Enrique Bolaños leaving his successor?
His triumphal posturing suggests he’s done all there was to do and more.
At the risk of damping the electoral campaign’s festive, overly optimistic air,
it’s time to return to earth and sum up his administration’s economic achievements,
which might also help reign in the candidates’ exaggerated promises.
This year’s electoral campaign officially kicked off on August 19. Under the slogan “Nicaragua united will triumph,” the Sandinista National Liberation Front’s publicity features Daniel Ortega’s face on an inordinate number of gigantic billboards in Managua, other cities and highways and ludicrous promises such as “zero unemployment.” Another campaign tactic is the refusal of either Daniel Ortega or other party spokes-people to appear in any radio or TV debate or roundtable discussion with other candidates. Nor will the FSLN hold any massive demonstrations following the huge one they staged for the July 19 celebration of the revolu-tion because, says Ortega’s wife and campaign manager Rosario Murillo, “our campaign has the format of a pilgrimage.”
Although somewhat less ostentatiously than the FSLN, the Nicaraguan Liberal Alliance (ALN)-Conservative Party is also saturating the media and streets all over the country with propaganda. Its motto is “Sowing opportunities.” The Constitutionalist Liberal Party (PLC) campaign is similar, although with fewer resources, and its motto promises to put “Nicaragua First.” The two Liberal parties competed to have the most massive rallies to kick off their cam-paigns. On August 20, the PLC pulled together some 70,000 people in Sébaco with transport costs estimated at half a million dollars. A week later, the ALN did something similar in Managua, with a somewhat larger draw and surely superior cost, which included automatic phone calls to residents in the capital with a recorded invitation to the event. In stark contrast to all of them, the MRS (Sandinista Renova-tion Movement) Alliance has the most original TV spots and the fewest resources. Its motto is “The only good pact is a clean pact with the people.”
A gloomy moment in Just as the campaigns were kicking off, Nicaragua was experiencing the worst days of an inescapably critical and chaotic energy crisis. The electricity rationing climbed to 8 or 12 hours a day all over the country. With the energy cuts the water pumps also ground to a halt, leaving whole neigh-orhoods of the capital and other cities without water for days on end. Sur-geries were suspended in the hospitals and schools were without lights or water, but students didn’t go anyway because they couldn’t bathe and their clothes were either dirty or unironed. Without electricity, the dozens of little house-front shops in every neigh-borhood that sell cold drinks, milk, frozen chicken and other perishables to help make ends meet helplessly watched their meager profits rot before their eyes. Factories and commercial malls lost millions every day.
more ways than one
In the pointing of fingers that ensued, it was hard to tell who was not to blame. True to his style, Bolaños professed impotence and innocence. His only proposal was to grant a $9 million subsidy to Unión Fenosa, the Spanish company that won the bid to privatize energy distribution in the nineties, so it could get out from under its debts. Unión Fenosa echoed the impotence argument, declaring that it can’t distribute energy it doesn’t receive, and blamed the generating plants for the crisis. The plants in turn said Unión Fenosa owed them money, to which it retorted that it can’t pay what it doesn’t receive, and is in debt because so many citizens bypass their meters and hook directly onto the line in the street (hence its request for the subsidy). While that is certainly true, given that many families can’t afford the constantly rising rates, a number of users claim they turned to this illicit measure a couple of years ago when a rash of absurdly high bills were issued and Unión Fenosa, refusing to adjust them, simply disconnected those who couldn’t or wouldn’t pay. One person told envío that his father-in-law, accustomed to paying 2-300 córdobas a month, suddenly got a bill for no less than 40,000 córdobas and could get no satisfaction from the company. A number of officials blamed the generat-ing shortage on this year’s drought, given that part of Nicaragua’s electricity is hyroelectrically generated, leading more than some to contemplate pray-ing to heaven for rain. There were also rumors, never confirmed or denied, that Bolaños refused to—or couldn’t—pay to hook into the Central American grid, and other, equally unsubstanti-ated, rumors that Costa Rica opposed letting Nicaragua use the grid for some unexplained reason.
While the citizenry was tolerant at first, accepting the need to ration electricity even if they couldn’t sort through the reasons why, everybody had a different idea about how to do it. Managua’s commercial and industrial districts wanted electricity all day with their cut at night, but those living in the surrounding poor neighborhoods, who can’t afford good security, feared the crime wave that would result. People whose small businesses depend on refrigeration pushed for multiple, but shorter rationing periods, in the hope that frozen goods wouldn’t thaw and refrigerated goods wouldn’t go bad. Some wanted light in the evening so they could watch their favorite soap opera, while others, sweltering at home in the exceptional heat of those same days wanted it during the day so they could get some relief from their fan. But the supposedly programmed cuts never matched the announced schedule for longer than a couple of days, so no one could plan anything.
In Managua the frustration finally boiled over into angry street demon-strations and threats to torch the Unión Fenosa offices. The most optimistic social activists interpreted this flare-up as “the awakening of social con-sciousness.” But it was driven by about as much social consciousness as the waves of looting by young African Americans during the electricity blackouts in New York a few decades ago.
Miraculously, however, somewhere along the chain of entities responsible for the crisis—generating companies that don’t invest in improving their plant infrastructure, a transnational corporation that seeks its profits at the state’s cost, a government without leadership, parliamentarians thinking only about reelection—something was done to eliminate the day-long black-outs the very day after the protests. Managua, at least, went back to shorter, but equally random electricity cuts, at least for the moment. But nothing had changed. The energy chaos is still with us, because it’s a structural problem that won’t be resolved without the will to act.
“My fault for gettingIf any of Nicaragua’s serious structural problems are President Bolaños’ legitimate legacy, this is one of them. As Arnoldo Alemán’s Vice President, Bolaños headed up INE, the state institution in charge of regulating the national energy system, but the sum total of his initiatives was to promote the sale of ENEL, the state energy distribution company, to Unión Fenosa and the sell-off of several state gener-ating plants to various bidders. Over the past five years, his government has done nothing to link up the country’s energy system responsibly or begin reducing Nicaragua’s exceptionally strong dependence on oil and its derivatives to generate energy. It hasn’t bothered to design a state policy to promote renewable energies or give the go-ahead for the economically viable wind, water, solar or volcano driven energy projects that are ready for implementation. In fact it hasn’t even taken steps to at least ensure a new source of oil-based electricity generation to meet the growing demand.
Oil derivatives drive 83% of Nica-ragua’s energy production, and the rise in international crude oil prices has combined with official indolence to make the crisis even more dramatic. Of the five Central American countries, Nicaragua is the most oil dependent, pays the most for the oil it buys and has invested the least in renewable energy projects.
Bolaños has borne major respon-sibility for this issue for no fewer than ten years and his legacy to his successor is totally negative. His “excuse” for the August blackouts is an apt epitaph for his administration: “It was my fault for getting so enthusiastic about foreign investment to generate jobs that I never thought about how the energy demand would rise.” When Bolaños announced on taking office that he hoped to be remembered as “the best President in Nicaragua’s history,” the country would have been forgiven for expecting something more than this disingenuous myopic oversight and unbridled enthusiasm for energy-guzzling free trade zones.
Everybody’s promising energyAll five presidential candidates are promising to tackle the energy problem as a number one priority. Not one, however, is willing to admit that there will be no short-term solutions because the problems have been accumulating for so long. On this issue, as on others, ALN candidate Eduardo Montealegre is making the most concrete promises, taking full advantage of his access to the projects designed but never imple-mented during the Bolaños govern-ment.
Montealegre has announced that he will “sow fuel,” extending the cultivation of African palm and sugar cane to produce biodiesel and ethanol, projects already initiated in the country by private enterprise. He has also promised to push through the small renewable energy projects that the outgoing government ignored together with the gigantic Copalar dam, an environmentally destructive mega-project that would evict thousands of people from their communities and towns. Postponed since Somoza’s times, the project has recently been revived by foreign investors and their national partners, who reportedly include bankers, leaders of the ALN, FSLN and PLC, and even top army brass.
Soaring to progress?Although the unresolved energy gen-eration problems are affecting the entire economy and casting a dark shadow on the future, President Bolaños continues to boast to anyone who’ll listen that he’s leaving Nicara-gua “on the right path” with a healthy and growing economy.
No one claims that Nicaragua was on it when Bolaños took office in January 2002. The structural adjust-ment agreement with the International Monetary Fund was frozen and that in turn had frozen new international loans and donations. The economy was barely growing and the state of public finances was disastrous. The deficit was equiva-lent to around 7% of the gross domestic product (GDP) and barely two years earlier several banks had gone under, obliging the Alemán government to cover their deposits and investment debts to the tune of some US$500-650 million to maintain what confidence was left in the banking system. Adding to the problem, coffee prices had fallen to under $50 per quintal—today back up to around $120—and oil prices had begun their unstoppable rise. To cap all this off, Alemán and his cohorts had allegedly pilfered at least $100 million from the state coffers. In short, the government that Alemán willed to his successor was in critical condition, although it should be recognized that as Alemán’s Vice President for all but the last few months of his government, Bolaños was not entirely blameless either. The only thing that saved the day was the plethora of emergency and reconstruction projects financed by international cooperation following Hurricane Mitch at the end of 1998.
What is President Bolaños now willing his successor? In a fit of triumphalism, Bolaños announced in his farewell speech to the Army of Nicaragua on September 5 that his successor would receive the country “ready to alleviate poverty by various degrees in a single bound.” Nicaragua, he bragged, “has been provided the resources to shoot for the heights of progress and well-being like a space rocket, with unequalled impetus, with energy to climb several steps on the ladder of progress…. All of that makes me proud of what we have done. I could have done more, but no one can deny that we have made more progress than ever before in our country’s history.”
Propelled by the urgency of real-ism, let’s put things in their place and cut this rhetoric down to size.
Six reasons we have grown Nicaragua’s economy is unquestionably growing. As the chart below shows, the last two years of Alemán’s government showed a growth blip due to post-Mitch aid, but in Bolaños’ first year the accumulated problems mentioned above took their toll. In the past three years, it has recovered a modest but sustained growth rate, which is ex-pected to continue this year for six different reasons.
First, exports have increased significantly and the prices of coffee, sugar and beef—still the country’s main exports—have improved. This government is also responsible for an important growth in Korean, Taiwan-ese and US investments in the tax-free assembly plants for re-export, known as maquilas, ormaquiladoras, most of which assemble and export garments.
A second factor is the boom in remittances. Only some 15 years ago the money being sent home by emi-grants wasn’t being recorded in Nica-ragua’s statistical information. Today, according to official statistics, it amounts to US$800 million a year, reaching its highest growth rate during the current government.
A third factor is international cooperation, which had totally lost confidence in Nicaragua due to the corruption and other outrages institu-tionalized by President Alemán. Even though Bolaños was Alemán’s Vice President, his short-lived anti-cor-ruption struggle helped win back international confidence. He also recovered confidence by negotiating and signing a new three-year agree-ment with the IMF then managing not to violate it: a first since 1990. President Chamorro signed the first agreement in 1993, but failed to honor its conditions. Alemán negotiated a new agreement, but it wasn’t fulfilled either. It was a year into Bolaños’ term before his team negotiated a solution with the IMF mission.
The fourth factor behind the economic growth is the notable expan-sion of credit from the national finan-cial system to the private sector, which grew at an annual rate of 20% during the Bolaños administration, obviously energizing economic activity.
Two final factors: first, Nicara-gua’s definitive entry into the Initia-tive for Highly Indebted Poor Countries (HIPC), which significantly reduced the country’s foreign bilateral debt and its debt with the IMF and World Bank. And second, significantly more efficient management of public finances, which also helped generate confidence among the international community and private national and international investors.
Exports: But these rays of sunlight are accom-panied by many shadows. The export recovery is real, but not in the dimen-sions that Bolaños is proclaiming. In his report to the National Assembly, and then again when talking about the “jump” the country will take, the President announced that the country had hit US$1.6 billion in exports last year, claiming this surpassed the country’s record exports in 1978, the last year of the Somoza dictatorship.
Comparing apples and oranges
But that comparison has to be taken with a grain of salt because it’s not adjusted to a constant dollar and is thus like comparing apples and oranges. To wit, $1.6 billion in 2005 is equiva-lent in value to $1.4 billion in 1978. Moreover and unlike anybody else, Bolaños included the total value of the exports from maquiladoras operating in Nicaragua. The rest of the world only counts the value added by the maquila in the country, not the raw materials imported tax free for assem-bly. Doing things correctly, we would end up with $1.1 billion in exports.
That’s not to say that exports haven’t grown or that we haven’t achieved some diversification in our traditional export products. In addi-tion to the traditional coffee we’ve been exporting for a century, we’re now beginning to export organic coffee and gourmet shade-grown coffee, and these new products fetch better prices. Nicaragua is also exporting dairy products, especially to El Salvador, and is beginning to export beans. For all that, however, we’re still mired in the export of raw materials, with little or no value added.
The darkest shadows appear when we look at the trade balance. While export earnings grew, so did import spending, especially in the past couple of years, thanks in part to the rise in oil prices. Even accepting Bolaños’ asser-tion that we exported $1.6 billion in 2005, we imported $3 billion, nearly twice as much. This trade deficit is more or less the same as at the end of the Sandinista government in propor-tional terms. The largest in Latin America, it shows no sign of shrinking, and in fact keeps growing every year in absolute figures.
More and more people leavingSo how is that $1.4 billion gap financed? Remittances bring in $800 million a year, loans and donations from bilateral cooperation and multilateral lending institutions $500-600 million and foreign investment $250-300 million.
Emigrants’ remittances resolve many family problems and help stabil-ize the economy, but they also express the misfortune of a country that is expelling so many citizens because it doesn’t offer them jobs or a decent standard of living. Surveys taken in recent years consistently show an incredibly high percentage of Nicara-guans who say they would leave in search of work somewhere else if they could. The Bolaños government’s economic policy, which favors big capital and banks, has increased the emigration of small businesspeople and workers whose only option is to go work hard in some other country and send a little back home.
The characteristics of Nicaraguan emigration are different from those of the region’s other countries. While other Central Americans head largely to the United States, Nicaraguans emigrate in even larger numbers to Costa Rica and are now starting to go to El Salvador and to a lesser degree Guatemala. In all three countries the men work in agriculture and construc-tion, while women go to Costa Rica in huge numbers to work as domestic employees. There’s no emigration to speak of to Honduras, a country with a per-capita income and job opportuni-ties—or lack thereof—similar to our own.
This emigrant population has been totally absent from the Bolaños govern-ment’s discourse and priorities and has yet to be prioritized in any proposals from the candidates who will inherit this grave omission. The text of the MRS Alliance’s government program at least highlights the issue and offers some original proposals. On the subject of originality, Daniel Ortega has promised that, if elected, families won’t have to pay any commission on the remittances they receive. While he didn’t go into any details, one supposition is that the state would set up its own operations to broker these remittances, thus squeezing out com-panies such as Western Union and letting taxpayers assume the transaction cost. In Nicaragua’s current culture of fraud, money laundering and other forms of corruption, negative implica-tions suggest themselves to the wary, but it’s a definite vote-getter among the poor recipients of a relative’s hard-earned $25 a month.
Credits for whom and for what?The clouds also hang very dark over the credit expansion, another of the factors that have contributed to the economy’s growth and dynamism. The vast bulk of that new credit has financed upper-middle-class housing construction, commerce and above all high ticket consumer items such as vehicles and major household appliances. A full 60% of the loans provided by the country’s banks go for such items, while the entire agricultural sector only gets 10% of the credit supply.
Offsetting that somewhat, there has also been a boom in the volume of small loans provided by the various private micro-financing institutions. The combined portfolio of all members of Nicaragua’s Association of Micro-Financing Institutions (ASOMIF) is now nearly US$200 million, and 300,000 people have access to that service. But even then, only 32% of these micro-credits get to the rural sector.
All candidates are promisingThe promise to create an institution that will facilitate credit and technical assistance to the rural sector has been a centerpiece of all candidates’ pro-grams. ALN candidate Eduardo Monte-alegre’s version would be a develop-ment institute, following the best managerial formula of neoliberal administration (institutional reforms + entrepreneurial solutions). His institute would replace the Rural Development Institute, created during Alemán’s term. While that institution still receives an impressive amount of resources from bilateral and multilat-eral foreign cooperation, it was charac-terized by political patronage and corruption during the Alemán govern-ment. Now it is simply very disorga-nized and produces questionable results. Montealegre promises to reorganize all of this with more efficient management.
a development bank
His proposal differs from those of the other three candidates in one essential area: this institute wouldn’t be a bank, wouldn’t go after savings from the public and thus would never be independent. It would always depend on resources from external sources or in the national budget.
The FSLN’s Daniel Ortega is promising to create a state-owned development bank based on advice and seed capital from the Venezuelan government—specifically income from the sale of Venezuelan oil in Nicaragua. In his campaign speeches, Ortega has also announced massive subsidies, pardons and restructuring of old debts, which has generated expectations among debtors and anxiety among international cooperation because it would retrigger the culture of non-payment that became so widespread in the eighties, with profoundly negative results for the country. It has taken all of these past 15 years to begin to reinstitute the idea that a loan is not just another word for a handout.
PLC candidate José Rizo, a lawyer turned politician, promises to revive the old state-run National Develop-ment Bank under another name and with initial capital of $400 million. He proposes privatizing the Las Mercedes free trade zone as the source of this capital, but selling off this government-built maquila industrial park would never raise that amount.
The MRS Alliance and its candi-date Edmundo Jarquín offer a more realistic and more modest proposal: reorganize the state-owned Nicaraguan Investment Fund so it can provide direct services to rural producers with an initial fund of US$70 million, which already exists.
The kind of development bank structure that’s created and the institutionality that’s organized to make it function will be key to chang-ing—or not—the extremely unjust rules of the game we have now. The current system has notably harmed the rural sector, which has the greatest concentration of poverty and is furthest from the impetus of Bolaños’ “space rocket.”
Will these new institutions facili-tate credit to the most impoverished rural sectors? All proposals so far suggest that credit would at best reach rural producers with a certain level of capital who simply aren’t being at-tended by the national banking sys-tem. Isn’t there also a pressing need to create a peasant development institution that provides food security to the most impoverished?
Still indebtedDuring the Bolaños government, foreign aid stabilized at around $500-600 million annually. Since 2005 countries providing bilateral cooperation to Nicaragua have changed their ap-proach: rather than financing indi-vidual annual projects they’ve started coordinating to support three-year sector-wide budget programs in three areas: health, education and develop-ment. Most countries cooperating with Nicaragua have organized around this new World Bank-promoted model.
The next government will there-fore inherit some US$1.7 million in international cooperation for specific programs with set amounts, periods and objectives. The presidential candidates’ speeches make little refer-ence to the weight of this international cooperation.
Another legacy the government is leaving its successor is the foreign debt relief. But while the write-off of a large part of the foreign debt resulting from Nicaragua’s entry into the HIPC Initiative was supposed to have freed up resources for education and health care as a way of reducing poverty, it hasn’t happened. The Bolaños govern-ment has used most of those resources to service the domestic debt with the national banks, whose policies do not include debt relief—unless, of course, it’s relief from their debt to the government through tax exonerations.
The IMF has endorsed this rerout-ing of resources, which violates the conditions of the HIPC Initiative agreements, despite the most vigorous civic denunciation campaign ever seen in Nicaragua. Even international cooperation, specifically those coun-tries that pardoned Nicaragua’s debt to them and set the poverty alleviation conditions, has seemingly acquiesced.
In any event, it’s not actually true that Bolaños has left us a country free of foreign debt, because not all creditors are Paris Club members, which are the ones participating in the HIPC Initia-tive. Nicaragua still has significant debts with Libya, Venezuela and Costa Rica, which the government prefers not to mention.
The most burdensome legacyWorse than the remaining foreign debt is the above-mentioned domestic debt (equivalent to US$1.2-1.3 billion). Most of it is owed to a couple of national banks that have bought up the “CENI” bonds, issued after the collapse of several banks in 2000, and the “BPI” indemnification bonds, issued during the Chamorro and Alemán govern-ments to compensate people whose property was confiscated during the revolution. This debt has a far greater impact on the economy, and it will only increase in the next five years as more of these bonds reach maturity and are cashed in to the government.
Roughly a third of the debt corre-sponds to the CENIs and the other two thirds to the BPIs—most of which have long since been bought up by the same national banks that hold the CENIs. The IMF projects payment of that debt as a national priority for the next five years. The winning candidate will inevitably have to deal with this serious problem and will have to negotiate with the IMF in doing so.
The Bolaños government renego-tiated the originally five-year CENI bonds with the banks for a period “up to ten years,” but without specifying what percentages would be paid at different points over that span. The BPIs had a ten-year maturity period, which depending on their year of issue will have to be honored between this year and 2010, nearly the next govern-ment’s entire term.
Renegotiate the debt?The only candidate who has offered a clear proposal on the domestic debt is Edmundo Jarquín. He is promoting an independent and non-politicized investigation into the allegations of fraud in the valuing of the failed banks’ assets and subsequent issuing of the CENIs, in which presidential candi-date Eduardo Montealegre is implicated. He has also promised to first legalize this debt and then restructure it with a longer due date and lower interest. The other candi-dates have kept strangely quiet on this issue, perhaps because they all had some hand in the different phases of this “financial retooling” of the bank failures.
The part that no candidate is specifically addressing, even Jarquín, is the PBIs. The new government will to have to pay US$150-200 million annually to the banks holding these bonds. With the IMF’s mandate to pay them, will there be any room for renegotiating this debt or political volition to do so, particularly among the candidates backed by bankers?
The legacy that most beliesBolaños’ government is leaving its successor money in the public treasury and mechanisms for better tax collec-tion. When he took office, the taxes actually collected represented 13% of the GDP; now they’re at 16% of an increased GDP. This government has had more national resources available for social spending than ever before, yet the government chose to prioritize the financial system rather than the crises affecting education and health care.
A Swedish cooperation report in 2005 showed that annual per-capita public spending during Bolaños’ administration only rose from $30 to $32 in education and from $24 to $25 in health, which doesn’t even keep up with inflation. In contrast, the annual per-capita investment in debt service payments went from $25 to $41. This injustice, which is killing a good part of our people through ignorance, hunger and curable illnesses, is the legacy that most belies Bolaños’ triumphalism.
Development for very fewIf Bolaños’ legacy is a growing economy with rising exports, remittances and credit; more and better administered resources; a reduced foreign debt and stabilized international cooperation, why is there the perception that we’re still on the wrong road and worse off than before? Why is everyone saying and feeling—quite rightly—that the poverty is as bad as or worse than ever?
Why aren’t we making this “jump” Bolaños boasts of? The simple answer is that it’s because of the government’s priorities, which will be inherited by the next government and only deepen the disaster afflicting so many Nicara-guans.
We’re in the situation we’re in because the development strategy is perpetuating and exacerbating the in-equalities. The National Development Plan, with its six or seven “clusters,” is a strategy geared to creating what is fondly called a “business climate” to attract major foreign investors to Nicaragua. Unfortunately, most of the modest number this government has attracted are maquiladoras. Bolaños’ tenacious and sustained orientation has excluded all Nicaraguans linked to small and medium urban and rural businesses, even though they are the majority and generate the majority of productive jobs.
We’re in the situation we’re in because the privileged actors in this story are in the financial system and because the bulk of the remaining investments have gone into improving the infrastructure for foreign investors. The clearest case is investment in free trade zone infrastructure, in other words the maquila industrial parks. Thanks to Bolaños’ strategy, the free trade zones have highways and ports to move their products while peasants don’t even have access roads to get their harvests out to the rural highways.
Welcome, investors!It’s pathetic to think that the magnet attracting maquila investors to Nicara-gua isn’t even all the tax exemptions and infrastructure they demand of governments, but rather that Nicara-gua offers them its “competitive advan-tage” of the lowest paid labor force in Central America. And now that we’ve signed the Central American Free Trade Agreement, they are guaranteed not only profitability with low salaries but preferential access to the US market.
The World Trade Organization’s liberalization of the textile market and the competition from China are now affecting the textile maquilas in Guatemala and El Salvador, where negative growth has been registered for the first time, causing many maquila plants to close up shop. They still survive in Honduras, although with slowed growth, but they’re still growing rapidly in Nicaragua.
A “revolutionary” sweatshopWith his peculiar triumphalism, President Bolaños recently inaugur-ated a huge free trade zone for a new US investment that, in his words, will “revolutionize” the maquila industry in Nicaragua. A very powerful textile group decided to bring its entire blue jeans production to Nicaragua. The maquila will even produce the cloth in Nicaragua, which is a major step up given that maquilas traditionally import all production inputs, cloth included, tax free and only sew the garments here. In addition to producing its entire line of jeans locally, this maquila will thus also foster the resurrection of cotton production in northwest Nicaragua, which is currently in its second year of pilot cotton crops.
This new factory expresses the change of strategy of the North’s textile industry in response to Asian compe-tition. There’s nothing new in moving to Nicaragua to slash costs by paying low wages, wresting tax exemptions from the government and then export-ing back to the US market, also tax free, to sell their line to the US consumer at a handsome mark-up, even though the production cost is a fraction of what it would be in the States Such offshore maquila production began in Mexico even before NAFTA.
The “revolution” consists of creat-ing an integrated chain from agricul-tural production through to the export of the manufactured product for the first time in history. And it’s no accident that it’s being applied to heavier pieces such as jeans, which would have uncompetitive costs if they had to be transported from China or even if the bolts of denim had to be shipped down from the States. The industrialists of this new strategy say that they’ve already spoken with all presidential candidates and have nothing to fear from any of them. Daniel Ortega dedicated a good part of his opening campaign speech to these investors and lauded the benefits they will bring to Nicaragua.
How much longer Bolaños’ most shameful economic legacy is the mounting growth-equity contradiction. If it’s not resolved, the “rocket” will prove to be nothing more than a fizzling firecracker.
must the poor endure?
The estimated average annual population growth rate since the 1995 census was 2.6% annually, but with the 2005 census, it was discovered to have dropped to 1.8%, presumably ex-plained by the hemorrhage of emi-gration and greater access to and use of birth control methods by women of fertile age. Even with this significant drop, however, the 3.7% projected economic growth for 2006 isn’t nearly enough to generate sufficient jobs and opportunities for all the young people who enter the restricted job market each year and are often forced to leave the country at the first chance.
Maintaining the average per-capita economic growth of 1-1.5% achieved during Bolaños’ term, the World Bank projected where Nicaragua would be in 2015, the deadline for countries to fulfill the Millennium Goals in education, health and nutri-tion. The projection is very worrying: the 45% of the population in extreme poverty in 2001 would only drop to 42% by 2015. If our economy were to grow 4% each year over the next nine years, 38% of the population would still be struggling to survive in a poverty so cruel that they wake up to each day with only $2 or less in their pocket. And even if the growth were miracu-lously 5% a year—34% would still be in this dreadful situation.
The obscene inequity We would have to grow much more to eradicate such deep and extensive poverty through economic growth alone. But if we were to distribute the growth more equitably, that picture would change. And that’s the reality no one in the electoral campaign wants to name.
of extreme wealth
Nicaragua’s immense, obscene inequality is preventing the reduction of poverty and the country’s develop-ment. The benefits of the growth we do have are being siphoned off by an extremely wealthy minority, which is why poverty is being reduced so slowly and extreme poverty is so widespread.
Latin America has the greatest wealth distribution inequalities in the world, and Nicaragua is competing for first place according to the Gini Co-efficient, which measures inequality. On the Gini scale of 0 to 100, in which 0 is absolute equality, Nicaragua has a coefficient of 55, greater than the Latin American average of 52 and nearly double China’s 30. Nicaragua’s official income distribution data show that the wealthiest 20% of households hoard 60% of the national income, while the poorest 20% try to get by on 3%. There’s no way in the world to reduce poverty with this income distribution.
The government’s triumphal sta-tistics are all true, but unless com-plemented with these others, they don’t tell the whole truth. We are where we are because of this profound inequity, tolerated by economic elites closely linked to the dominant political elites.
The ALN’s “sowing” and Banker candidate Eduardo Monte-alegre doesn’t talk about such inequali-ties, or question the accumulation of wealth that the neoliberal model is promoting and that has brought us to this point. His emphasis is managerial: the state isn’t functioning well because it’s fragmented, with inefficient insti-tutions that don’t work the way they should.
the PLC’s “sensibility”
His campaign chief, banker Adolfo Argüello, insists that the ALN-PC proposes to transfer to public admini-stration the “good practices” learned and developed in banking—the econo-my’s most successful sector. According to this philosophy of success, Monte-alegre will inherit Bolaños’ govern-ment and manage it better, with better business solutions. He has dubbed this project “Sowing opportunities,” al-though he will only be sowing the programs Bolaños left unplanted. In other words it will be more of the same, except that Montealegre would now be the planter.
The PLC’s José Rizo, handpicked by party strongman Arnoldo Alemán, doesn’t question the model either. A public official during Alemán’s term and Vice President during Bolaños’, Rizo proposes an ambiguous “social liberalism,” arguing that Bolaños’ administration has suffered from a lack of social sensibility. The PLC offers various measures to “humanize” and sensitize” the model: 200,000 housing starts, the development bank and other projects always expressed in six digits.
MRS and FSLN: National or Venezuelan resources?The two Sandinista options, the FSLN and the MRS Alliance, both propose to modify the current model with develop-ment strategies that prioritize the small and medium economic sectors’ activities and mechanisms to distri-bute income more equitably. But while the MRS Alliance is gambling on national resources (otherwise known as taxing the rich), the FSLN would inject Venezuelan resources into social pro-grams, apparently leaving the very wealthy alone.
The MRS has announced that it would end exonerations, collect taxes from the big businesses that aren’t paying them, increase the taxes of those who earn more and cut the taxes of salaried workers on whom the bulk of the tax burden now falls. MRS Alliance candidate Edmundo Jarquín told the big business members of the umbrella group COSEP that “if you want politi-cal and social stability, you’ll have to pay for it.” In his various appearances, Jarquín, who has worked for the Inter-American Development Bank for years, has announced he would increase tax collection from 16% of the GDP to 20%.
With Nicaragua’s current GDP at US$5 billion, these four points would yield an additional $200 million a year, which his government would invest in substantially increasing social spending as a way of redistributing national income more equitably.
Daniel Ortega makes no mention of taxes, exonerations or tax reforms. His redistribution project is based on the foreign aid that he claims has been guaranteed by the Venezuelan and Cuban governments. He would promote social programs for the poor with the profits from the sale of Venezuelan oil and the collaboration of Cuban medical personnel.
And the famous One hot potato Bolaños is leaving to the new government is social security. During his term in office the World Bank promoted its privatization, with the state-managed pension system shifting to a system of private pension administrators. The argument in favor of this change was the state’s ineffi-ciency and the lack of incentives to workers to save more since their dues fall into a bottomless pit leaving them the same pension whether or not they bumped up their contributions.
The reform only got as far as naming a superintendent of pensions because top government officials suddenly woke up to the fact that privatizing social security would apply unsustainable pressure on the state’s resources. This is because workers under 43 years of age would move to the new system, leaving older workers in the state system. In practice this would mean that younger workers would no longer be financing the pensions of those over 43 years old and the whole burden would fall to the state. The fiscal cost would be so great that the government realized it would be better to promote the privatization plan on somebody else’s watch, and shelved it at the eleventh hour.
It is calculated that social security will begin to generate a deficit in 2009. No candidate has spoken of this, even though millions of dollars and the fate of thousands of insured workers are at stake. One can assume that the FSLN and the MRS Alliance will opt to reform the current state system, improving its administration and reviewing the benefits system, while the PLC and ALN-PC will promote privatization.
Agreement with the IMF?In May the IMF released its economic projections for Nicaragua according to two scenarios: if the new government provides continuity to the Bolaños government; and, if it doesn’t, which supposes an FSLN victory without saying so outright. If the Bolaños model and priorities are continued, growth would be 4-4.5% annually. If not, it would hypothetically drop to half that and investment would decrease substantially.
Would the FSLN reach an agree-ment with the IMF, recognizing this as a condition for almost all international cooperation resources? Would it do it only to legitimate itself internationally, pledging to follow all the current neoliberal conditions and goals, but pushing parallel social programs with the promised Venezuelan aid? Or would it decide that the Venezuelan resources would free it from the onerous conditions of an IMF agreement and not negotiate? In any event, would Venezuela’s assistance enter as “soft” loans with interest rates, grace periods and repayment deadlines similar to those of the multilateral finance agencies or as donations like the bilateral cooperation of so many gov-ernments in the world?
What maneuvering room with the IMF would the MRS Alliance have to negotiate its proposed project of “more and better market, but with more and better state”? And what about renego-tiation of the domestic debt and other income redistribution plans? At least it would have no problems cutting the tax exonerations because the IMF has always questioned them as excessively high.
As for the rightwing candidates, Montealegre, naturally, would have no problem reaching an agreement with the IMF because he questions none of its policies, as he has already demon-strated in government. As for Rizo, he would surely bend over backwards to accommodate the IMF if it looked askance on any of his “social liberalism” proposals, because that’s his specialty.
Saying the truth, The electoral campaign is taking place with these crude structural realities at center stage, but most candidates are turning a blind eye to them, because that’s what the publicity parameters require for any candidate who wants us to believe that Nicaragua will sud-denly be different after November 5.
knowing the truth
It would be much better if the candidates just told the truth: that those who’ve always suffered will go on suffering for a long time. From there, they could speak more convinc-ingly about what they’re thinking of doing with all the accumulated ills behind that truth.
It would also be better if Bolaños recognized the anguish of the poor instead of proclaiming the happiness that predominates in the world he inhabits. It would be better if he recognized that his imaginary “rocket of progress” only has passenger room for the minority of Nicaraguans who live as the First World lives, sharing none of the adversities of the majority of Nicaraguans who are slipping daily toward the Fourth World.
It would be better if the electoral propaganda weren’t so glitzy and upbeat. It would be better if the winning candidate in November were forbidden to wear a huge grin in the official photos. It would be better if we said the truth. If we knew it and if we assumed it.
Latest pollsAccording to a national poll on voting intentions conducted by M&R on August 4-10, Daniel Ortega has 32.1%, Eduardo Montealegre 25%; Edmundo Jarquín 19.9%; José Rizo 13.7% and Edén Pastora under 1%. Ortega is therefore just 3% short of what he needs to win on the first round as long as he stays at least five points ahead of the runner-up. Meanwhile, the hidden or undecided vote is 8%, which could either put Ortega over the top or allow Montealegre to ruin Ortega’s chance of winning outright in the first round. Perhaps surprising, Jarquín is actually running ahead of Ortega in the departments of Managua, Granada, Masaya, Carazo and Rivas.
The same poll shows that the Na-tional Assembly would have 41 FSLN representatives, 24 from the ALN, 17 from the MRS and 8 from the PLC. That wouldn’t give the FSLN-PLC pact enough combined votes to keep pushing through constitutional-rank reforms, but would also stop the anti-pact parties (MRS and ALN) from rolling back the reforms already passed over the last six years, as they have pledged to try to do.
In another national poll by CID-Gallup between August 16 and 19 using a smaller sample, Ortega obtained 29%, Montealegre 23% and Rizo and Jarquín 14%, while 19% of those polled were still undecided. Both polls show that Ortega would lose a second round vote against any of the other top three candidates.
Many analysts, including the poll-sters themselves, consider these polls to be very porous still, with a significant number of people who named a prefer-ence admitting they might still change their vote. There also seems to be little reduction of undecided voters, who could end up abstaining and thus favor Ortega.
The first 20 days of the official campaign were rife with speculation about the withdrawal of one of the two Liberal candidates (Rizo of the PLC or Montealegre of the ALN) to unite the anti-Sandinista vote and thus ensure Ortega’s defeat in the first round. Such rumors were fueled by US Ambassador Paul Trivelli’s announcement on Au-gust 28 that there would be “surprises in the coming weeks.”