|Central American University - UCA
Number 15 | Septiembre 1982
The Impact Of Nicaragua’s Economic Situation On The Poor
What effects does the economic crisis have on the poor masses of the country, and what steps have the government and the FSLN taken to alleviate the problems? Are there any results?
Previous Envío articles on the economy have focused on the overall economic policies of the revolution and more recently the state of the mixed economy. In this article, we will look at the effect of the economic crisis on the poor majority within the country, what steps the government and the FSLN are taking to alleviate the problems, and what success they are having.
The economy of every country in Central America is in a state of crisis, and Nicaragua is no exception. While many of the causes of this economic crisis are common to all countries in the region (low prices for commodity exports, worldwide recession, lack of private investment, etc.), Nicaragua’s case is different from that of the other countries for several reasons. First, Nicaragua has adopted some policies very different from those of its neighbors in dealing with the economic crisis; and second, far from receiving any possible benefit from the U.S.-sponsored Caribbean Basin Initiative (as Costa Rica, Honduras and El Salvador may), Nicaragua is the target of a series of economic aggressions directed by the United States. These aggressions have taken the form of cutting off economic aid, blocking Nicaragua’s loan requests at the Inter-American Development Bank and the World Bank, and supporting a campaign of covert operations to sabotage key economic infrastructure and launch military attacks along Nicaragua’s borders.
In contrast to this panorama, the foes of the revolution charge that the Sandinistas have mismanaged the economy, and for that reason it is in a state of crisis. This simplistic characterization, which is clearly politically motivated, ignores certain basic data which show that Nicaragua’s performance compares relatively well with that of other Central American countries.
A second characterization of the state of the Nicaraguan revolution which we have seen repeatedly in the international press is that the euphoria of the revolutionary period has passed, largely due to the economic problems faced by the people. Many observers have interpreted this phenomenon as disillusionment with the revolution; however, it seems to us that it is logical and even desirable that this state of euphoria be overcome. The question is, to what extent is it being replaced by greater awareness of the political and economic factors that are influencing people’s lives, i.e., the process of “conscientization”.
We will not be able to answer that question fully in this article, but we do want to point out that there is an important ideological component to the present economic situation of the country. We will bring this out to some extent in our interview with the coordinator of the Sandinista Defense Committee of Ciudad Sandino, one of the poor barrios of Managua.
Our presentation here is limited by at least two important factors: first, the lack of certain data prevents us from presenting the economic situation more completely. Most of the national data we have is for 1981, and although there are few hard figures available for 1982, it is likely that the economic situation has worsened this year. Second, our more recent data on food consumption is based on a study done in Managua, and we are not, therefore, able to present the situation in the rural areas.
In analyzing the impact of the economic situation on the Nicaraguan population, we have chosen the areas of employment, salaries and prices of basic consumer goods as the three most important.
II- Some Basic Data
Table I shows that while unemployment has dropped considerably from the very high levels of the war period in 1979, it is still only slightly below what it was in 1978. In addition, most of the new employment has been created in the service sector and not in the productive sector, a trend the government is trying to reverse. Nevertheless, through 1981, important progress had been made to reduce unemployment. It is likely, however, that unemployment and under-employment have risen again in 1982 due to the shortage of foreign exchange for purchasing raw materials and the need to close certain factories that were being subsidized by the government.
In terms of nominal and real salaries, Table II demonstrates that there has been a considerable drop in real salaries, with the average purchasing power today only 69% of what it was in 1975. This, however, tells only part of the story because it lumps all different economic classes together and measures their salary against a price index of a wide variety of consumer products, many of which may never be bought by the poorest sectors.
According to the Inforpress report from which these figures were taken, the real family income for poor sectors decreased much less in 1981 than the 8% average figure and for some of the poor their real income may actually have increased. The reasons for this assertion are the following:
1- The prices of basic consumer products increased much less than the overall price index due to government control of prices.
2- There was a significant non-monetary income for the working class through work-place commissaries, subsidized lunches, free medical care, transportation to the workplace, etc., which reduced family expenses.
3- The increase in employment is translated into increased family income.
The overall price index (Table III) shows that while prices have increased substantially since before the war, the biggest inflationary period was in 1979 and since then the level of inflation has been reduced, although it is still higher than pre-war levels. As a result, the overall price index is some three times higher today than before the war, and the prices of food, beverages and tobacco have experienced the biggest increase of any group. Again, it should be emphasized that these price indices refer to all products and not the most basic products.
To place these statistics in the context of the rest of Central America, we will make some comparisons with the situation in Costa Rica and Honduras, neither of whose economies is presently suffering the distortions of a state of war. (It may be that comparisons between Nicaragua and El Salvador and Guatemala would be more appropriate, since one could easily argue that Nicaragua is undergoing attack, both militarily and economically).
In Costa Rica, the consumer price index shot up 65% in 1981, food prices went up by 70% and the head of the Central Bank estimated at mid-year that the inflation rate in 1982 would be between 90 and 100%. According to Inforpress, prices of basic consumer products in Costa Rica rose by 50% in 1981, compared to 9.9% in Nicaragua (based on figures from the CIERA study on food consumption which we discuss below). In 1982, prices have continued to rise as the government has cut subsidies on a series of basic items including water, electricity, urban transport, and some food items.
These measures were taken as part of an austerity plan which Costa Rica agreed to with the International Monetary Fund in order to relieve its balance-of-payments crisis.
The impact of these policies, however, is clearly falling most heavily on the poorest sectors of society. Inforpress estimates that a Costa Rican family of four needs 4000 colones a month for food and housing necessities, and 65% of the working class earns less than 3000 colones per month. In 1981, the real purchasing power of a working-class and a campesino family dropped by 24% and 30%, respectively, while in Nicaragua these groups lost very little if any of their real purchasing power.
In Honduras, the situation is slightly different in that the poor sectors have not been hit so much by rising prices as they have by unemployment and under-employment. In 1981, the government of Honduras, due to pressure exerted by the trade unions, granted salary increases which actually raised real salaries after they had declined in 1980. However, according to the Workers Confederation of Honduras (CTH) as reported by Inforpress, out of a labor force of approximately one million, some 200,000 people are unemployed and another 500,000 find only occasional employment. For that reason, the wages of a salaried worker are not a very good guide to the relative well-being of the poorest sectors of society. Honduras has also recently reached agreement with the IMF to receive $150 million during 1982 and 1983, with the corresponding austerity program for the country which is the second poorest in the Western hemisphere.
In February and March, 1982, the Center for the Investigation and Study of Agrarian Reform (CIERA) carried out a study of food consumption and distribution in ten poor neighborhoods in Managua. The study consists of 100 case studies of families to determine their consumption patterns, problems of food distribution, the effects of government policies, and popular participation in the food distribution system. CIERA, which is part of the Ministry of Agriculture, defined the target population as those families with incomes between C$1000 and C$5000, which includes 62% of Managua’s population. The interviews were conducted with the woman of the household.
III- Food Consumption and Distribution in Managua
In terms of actual food consumption, which we will use as a proxy for a more generalized indicator of the standard of living of the poor sectors, the study finds that in nutritional terms there has been very little change in the caloric and protein intake between now and before the revolution, although the composition of the diet has changed. Probably the biggest change in the diet is the reduction in red-meat consumption and a corresponding increase in consumption of eggs, cheese and beans for protein. In terms of people’s perceptions of their food consumption, this change in the diet has had a significant effect. One half of the people in the study said that they believed that they were eating as well now as before, while almost the entire other half (42%) felt that their diet had deteriorated. It was generally the poorer strata who believed that their diets were worse now than before the revolution.
The decrease in beef consumption is due to its high price (the price has tripled since December, 1978) as a result of the widespread slaughter of cattle during the insurrection and the reduced supply at present to rebuild the herds. Beef consumption, and the bones that are used to make soup, is the yardstick by which people in the city measure their standard of living since it is a highly preferred source of protein. Therefore, even though people’s nutritional intake may be the same now as before, many people believe that they are worse off. In terms of their tastes and preferences they are right, although nutritionally they are not.
One of the most important findings of the study is that the price of a basic diet for a family has risen significantly less than the general price index or than the prices of food items in general. (Table IV). This is a direct result of government policy to control prices of basic items, and it has achieved a considerable degree of success. In addition, the major price increases that occurred came in 1979-1980, and in 1981 the government was much more successful in keeping the prices of these items down. Nevertheless, people identified rising prices as the most serious economic problem they faced, and the most often heard comment from those interviewed was, “The salaries stay the same, but the prices keep going up”.
In order to guarantee adequate levels of consumption of basic items, one of the major policies of the government has been the transformation of the marketing and distribution system to reduce the role of the intermediaries, to avoid price speculation and hoarding, and thereby to defend the economic interests of the poor by guaranteeing adequate supplies of necessary goods at reasonable prices. To achieve these objectives, we will look at three aspects of government policy: controlling an increasing share of the marketing and distribution system itself to eliminate middlemen and prevent shortages from occurring artificially; price regulation of certain commodities and rationing if necessary; and price subsidies. Due to limitations of space, we will not be able to discuss a fourth policy which is crucial to the interests of the poor, that having to do with employment and salaries. An adequate description of the problems and of government policy with respect to these two areas would require an article in itself, which we hope to do at some point in the future.
IV- Government Policy: To Guarantee the Necessities.
Within Managua, some of the key problem areas are the innumerable levels of sellers and middlemen that still exist, most of whom operate out of the wholesale terminal and the Eastern Market (Mercado Oriental). The government’s new system consists of several elements. At the wholesale level, ENABAS is the purchasing and sales authority for all basic grains. It controls, however, only 40.7% of corn, 42.9% of beans, and 77.4% of rice transactions on a nationwide basis with corresponding figures for Managua being 28.2%, 34.25, and 38.2% respectively. Therefore, the ability of ENABAS to control prices is limited by its share of the market.
A- Developing a New Distribution System.
At the retail level, the government is also promoting a series of outlets which include; seven supermarkets in Managua; four new open-air markets in Managua; small grocery stores called “tiendas populares”, of which there are 11 in Managua and 63 in total; and what are called “popular outlets” (expendios populares), which are private stores that sell certain items provided by ENABAS at official prices (171 in Managua and 1200 nationwide). All of these government outlets compete with the traditional outlets of the Eastern Market and the pulperías, which are essentially small neighborhood grocery stores. In addition the government, at the instigation of the workers, has established 500 commissaries (comisariatos) in work places, which sell rice, beans, corn, oil, salt and soap. Again, the impact of these retail outlets is limited by their geographic scope and by the fact that many people prefer the traditional outlets due to the quality of the products sold there, more flexible schedules (the pulperías are open early and late), and the provision of credit by the small private merchants.
In the case of beans, for example, the CIERA study found that many people preferred to pay C$ 5.60 per pound for beans in the Eastern Market than C$ 2.60 for the ENABAS beans. The reasons are: the beans in the Eastern Market have better cooking qualities (due, evidently, to the way in which ENABAS was drying its beans), and also people go to the Eastern Market because, even though things may be more expensive, they can get most everything they want there. If there are shortages of a particular item for whatever reason, the Eastern Market is usually the best supplied because of black marketing or simply because the wholesalers give preference to their friends in the Eastern Market.
From this small example we can draw several conclusions. First, the traditional system, designed to make profits and not to guarantee necessities to the people, is deeply entrenched, and it is not easy to change to a new system in a short period of time. Second, even though the new distribution system offers lower prices to the consumer, it has difficulty competing with the old systems. It will take time to consolidate itself as it begins to respond to consumer demand and takes control of an increasing share of the market. Third, the consumption and purchasing patterns of the people themselves tend to reinforce the old system until the new system becomes consolidated.
A second government policy to defend the economic interests of the poor has been to subsidize the prices of basic grains. While price subsidies benefit all consumers, they do benefit the poor relatively more than the rich since the poor consume more basic grains in their diet and spend a larger share of their income on basic grains than do the rich. In 1980 the government paid C$ 281 million and in 1981 C$ 159 million in price subsidies for basic grains. For 1982, the purchasing prices of basic grains have been increased in order to raise the incomes of campesinos who are the main producers and to increase production in order to raise the incomes of campesinos who are the main producers and to increase production in order to attain self-sufficiency. Therefore; ENABAS will buy 100 pounds of beans for C$ 350 and sell it for C$ 260, and it will buy 100 pounds of corn for C$ 130 and sell it for C$ 90. The subsidy for the government includes both the price difference as well as all the costs of storage, transport, etc.
B- Price Subsidies
The third way in which government policy acts to guarantee the necessities is through price controls of certain products and, where necessary, rationing. This aspect of the policies also demonstrates the crucial importance of popular participation of the consumers themselves, through the Sandinista Defense Committees, in seeing that the price control and rationing mechanism function properly.
C- Price Controls and Rationing
The prices of fifteen basic products are fixed by the government at maximum levels and the prices of another 50 products are regulated to assure that they do not go too high. Retailers are fined if they charge higher than the maximum price, and the CD’s as well as the Ministry of Internal Commerce (MICOIN) are responsible for assuring that prices are controlled. (Interestingly enough, the CIERA study found that people in the barrios would prefer that MICOIN carry out this function because they do not like to be put in the position of having to watch over the activities of the store owners who are probably their friends and live in the same barrio). Instead of fining guilty store owners, recently MICOIN has adopted the policy of trying to compete directly with them in areas where prices are high in order to lower all prices.
One of the more interesting findings of the CIERA study was the almost unanimous support among the poorest sectors for the sugar rationing system. As one person put it, “Its great because now we don’t have to pay C$ 30 to buy sugar”. Another person commented, “It works well because you have your sugar guaranteed and also with the coupons you don’t have to wait in line for a long time, which the reactionaries always used in order to turn the people against the revolution”.
The only criticism among this sector was that five pounds per family per week was often not enough, particularly if one had a large family. Also, since the coupons are distributed by the CDS’S there are problems where these do not function well. However, while the upper and middle classes may view the rationing as restrictive of their freedom to unlimited consumption, for the poor it is the guarantee that they will be able to purchase sugar. Also, in the case of sugar, the coupon system works well because the government can control the supply since all of the sugar is refined in a small number of factories. This is not the case with a number of other basic products in which a black market would probably flourish if a rationing system was introduced.
To try to get a better sense of how the economic situation is felt in a poor barrio, we interviewed Wenceslao Aburto, the Coordinator of the Sandinista Defense Committee (CDS) in Ciudad Sandino. Aburto lives in the barrio of Ciudad Sandino, although he is originally from the countryside. He grew up cutting sugar cane and picking cotton for a living and moved to Managua fourteen years ago. He worked for eleven years in a factory and then for the past three years he has been involved with the mass organizations in the barrio.
V- Interview with CDS Coordinator in Ciudad Sandino
Question: Can you describe something of the present economic situation in the barrio and how it compares to the conditions before the revolution?
Answer: The majority of the people from Ciudad Sandino work as street vendors, or are women who sell at the market and some who work in projects here in the barrio. We also planted 240 manzanas of beans, and people worked on that collectively. There is a lot of unemployment in the barrio due to the economic blockade which the Reagan administration has set up against us.
It’s true that there are not the same economic conditions now as there were in 1975. Before you could get anything you wanted in the stores. On the other hand, there weren’t the social benefits before for the workers because those that were benefiting were the bourgeoisie and the capitalists.
Let’s talk about Ciudad Sandino itself. What did we have during the Somoza period? Did we have a market? No. Did we have paved streets? No. Did we have the health centers that we do now? No. Did we have the productive collectives that we do now? No, we didn’t. Before it was only the privileged sectors who benefited from government projects, but now it is the workers and the campesinos, the most marginalized groups in poor neighborhoods like Ciudad Sandino, who are benefiting.
Question: What were the people’s expectations of what would come after the victory of the revolution?
Answer: We knew that after the triumph the economic aggressions and the blockade would come. We expected it. It is one form of attacking us, because the intentions of the Reagan administration are not only to destabilize the revolution economically, but also to intervene military. And these are the steps that they are taking to lay the groundwork for an intervention. The economic aggressions are part of the plan that they have.
But there were some people who thought that after the triumph everything would be a picnic (una piñata). There are sectors which never had any participation with the people in the overthrow of Somoza, who never suffered anything, and so now it is logical that they are protesting and that they think that the situation is a result of the revolution, of bad management of our government. Now that we are breaking with the old system, everything is different.
In general, the people understand that you can’t have the best conditions overnight, but that it will take time. If we don’t explain, however, why we are in this economic situation, not only in Ciudad Sandino, but also in the whole country, then the people will be confused and will be discontented.
Question: How is the new market here functioning?
Answer: We have a problem in that respect due to the bad habits we have from the past. Many vendors are still going into the Eastern Market because there is less supervision there and they can sell at high prices. There is still not the consciousness that they are making money off the hunger of our people. And here in our market we have over one hundred empty stalls. We have to work harder to convince the vendors to sell here because it is the people of Ciudad Sandino who are suffering.
Question: What has been people’s reaction to the rationing of sugar?
Answer: Naturally, it takes people time to get used to changes. In the beginning we had big difficulties, big problems. There were a lot of people who took advantage of the system of coupons. But now people realize that this is the fairest and most reasonable system and that it guarantees that a poor worker will not be victimized by the merchants who raise the price and leave the poor without sugar. Everything is going well now, and everyone is guaranteed their sugar.
Question: How have people reacted to the rationing of gasoline?
Answer: Look, this question of gasoline really doesn’t affect us at all because we have never had a car, not even a motorcycle. Our only means of transportation has been the buses, and for that we need to make sure that we have one córdoba to pay the fare, nothing else. As long as there is gas for the buses to take us to work, then we don’t have to worry. The rich capitalist who has three cars and goes off to Granada to eat in the restaurants does not interest us. On rather, it does interest us that he go by foot or on horseback so that he’ll know how the people have to live. So, we believe that this measure is totally correct. It is only the minority who are affected by the rationing, but the majority who have never had any vehicle, why should we be concerned with it?
Question:Have any factories in or around Ciudad Sandino been closed or will they be closed down?
Answer: We are not sure yet. There have been reductions in the work schedule. In the factory where I worked for eleven years they are only working half time now, although they are still paying the minimum wage. The problem is the lack of raw materials.
It is these people who are unemployed who are suffering the most, and it is sad to see a person who has only his work to offer unemployed and unable to find work. As a result it is possible that there will be discontent among this group of people. But that is where all the mass organizations have to come into play and look for solutions. It is a social problem and we have to find the answer to it by promoting production collectives or in other ways.
Question: In terms of political education, it seems much easier to explain to the people the effects of military aggression than those of economic aggression, which is often a more subtle and complicated phenomenon. How are you confronting this problem?
Answer: This is in reality a very difficult task. Due to the corrupt system of the Somoza dictatorship we were brainwashed to think a certain way, and we have not yet been able to eliminate that way of thinking. But what do we do? We get together in a meeting and we explain to the people about prices, for example. Right next door, in Costa Rica, which has not had an earthquake, nor a war, nor the economic blockade, the prices are much higher, double what they are here.
That is an argument that we can explain clearly. How is it possible that a pound of meat costs C$ 22 here and C$ 60 in Costa Rica? So the people understand, of course.
Sometimes the economic aggression is not so subtle and complicated either, such as when the United States cut off our wheat. The people understand these actions very clearly. They understand that we are having difficulties, first due to the economic aggressions and second due to all the destruction we suffered during the war.
Original in English.