ECONOMIC BALANCE FOR 1982
The year 1982 was marked especially by three chains of critical events: the military action of the Counter-revolution, the alternation of flooding and drought, and a complex economic restructuring.
Three series of events dramatically shaped 1982. First, there was an increase in the activities of the counterrevolution operating from Honduras. Second, a series of natural disasters occurred: the floods of May and June, followed by a prolonged drought. Finally, there is the current transition and restructuring of Nicaragua's economy. These three factors have had a negative effect on the country's production levels and consequently have affected the condition of this young revolutionary country.
In the international arena, Nicaragua is confronting increasing difficulties. This crisis is being experienced by countries throughout the third world. Every day third-world countries receive less for their traditional export products while they must pay constantly rising prices for the industrial products that they import. In Nicaragua, the level of indebtedness increased while the interest payments on servicing the debt and the partial refunding of credit exceeded half of the foreign exchange earnings. The resolution of this structural pilfering is not in sight.
Also to be considered is the economic war that the U.S. has waged to “punish” the Nicaraguan Revolution: the withdrawal of Standard Fruit from the country; the prohibition on the sale of computer replacement parts from the United States; the 90% reduction in Nicaragua's sugar quota; and the threatened suppression of imports of Nicaraguan beef if Nicaragua continues importing Cuban cattle.
In spite of these obstacles, which make Nicaragua's economic revolution even more difficult, there is a certain optimism. At the opening session of the IV Legislative Period of the Council of State, Daniel Ortega, coordinator of the Government Junta, presented an accounting of 1982 in his State of the Nation address. Part of this report referred to the economic situation. His words made no attempt to conceal the difficulties, the mistakes and the insufficient self-¬criticism on the part of some official branches. The following is a synthesis of the economic report that Ortega presented, which the Institute staff has complemented with some statistics and information from other sources.
THE ECONOMIC CRISIS IN CENTRAL AMERICA
Diminished Production Throughout the Region
While the world economic crisis has affected the industrialized nations, it has struck the countries of the third world with even greater force, especially those countries whose economies are based on agro-export production, as is the case in all of Central America. The gross national product of all the Central American countries, with the exception of Panama, decreased in 1982. Comparing the gross national product per capita, the negative economic growth, and population increases, Costa Rica, El Salvador and Guatemala experienced the greatest decrease in the gross national product (GNP).
Central America’s Indebtedness Exceeds Latin America’s Average
All of the Central American republics showed negative trade balances. Expenditures for imported goods were greater than earnings received from the export products. This situation increased the indebtedness. At the current time no reduction on the prices of imported goods is foreseen. Nicaragua has to continue importing these goods because the machines, seeds, fertilizers and industrial installations are what make possible the maintenance of the agro-export economy. Equally impossible to eliminate is the importation of petroleum and certain prime materials that are indispensable to maintaining the standard of living of the population. In the current situation, the importation of some non-basic consumer goods is also necessary to satisfy the demands of the upper-middle and upper class. It is a vicious circle: the increasing need for foreign exchange earnings for trade generates an increasing indebtedness. Mexico and Brazil currently have the highest foreign debts: more than $80 billion. While the foreign debt of Central America is only $14 billion, proportionally speaking, the per capita debt of Costa Rica and Nicaragua are greater than the per capita debt of Mexico and Brazil.
The Poor Get Poorer
The economic crisis currently being experienced by the industrialized countries hits third-world countries in even more dramatic forms. The recession provokes a reduction in world trade, which is translated into a decrease in the prices paid for prime materials – principal exports of the poorer countries – and an increase in the prices of industrialized goods. The terms of trade constantly become more unequal: export earnings are reduced and this worsens the whole economy. As a result of this process, Nicaragua experienced a $246 million decrease in its export earnings in 1981 and 1982. It is essential to bear in mind that $246 million is equal to almost half of what Nicaragua’s export earnings were for 1982.
WHO BEARS THE BURDEN OF THE CRISIS?
The economic crisis hits the weakest with the most force. The decrease in production levels as well as the GNP produce unemployment. The government is obliged to cut social assistance programs because it is forced to reduce its expenditures. In addition, the inflation that characterizes the crisis decreases the buying power of the workers’ salary even when that salary is increased. In spite of the crisis and its natural consequences for poor countries, this process does not operate in the same way in Nicaragua. Nicaragua is the exception in Central America because in the midst of this economic crisis the revolutionary government has not varied its political orientation towards satisfying the basic needs of the majority, i.e., the poor.
Nicaragua’s Cost of Living - Lowest in Central America
In Central America, Nicaragua has maintained the lowest prices on basic foods and consumer goods. The average Nicaraguan family – of six members – buys the “basic foods basket” at the lowest price in the region. This basket contains 21 products of basic necessity (rice, beans, meat, milk, soap…).
The prices of luxury goods increased 60% in Nicaragua. The shortage of foreign exchange earnings caused the importation of these goods to be reduced by 20%. Inflation reached 24.8% in 1982 as opposed to 23.9% in 1981. (In Argentina the corresponding figure for 1982 was 209%.)
Unemployment and Salary Decreases
In 1981 Nicaragua’s unemployment rate was 15.9%. This figure increased to 19.8% in 1982. (Some 185,200 persons were affected by this situation in 1982, and 143,800 in 1981.) In order to understand the reasons for the increase one must look at both the worldwide recession and the necessary adjustments that result from the effort to transform the deformed economic structure which characterizes Nicaragua to an economy that, before all else, covers the elementary necessities of the majority of its population.
The basic objective of increasing export production has caused a 3% decrease in the production of manufactured goods (five factories were closed, while there was a 6% increase in the level of production of state factories in the People’s Industrial Corporation – COIP). At the same time many industries experienced decreases in production: the lumber industry, 32.7%; the fishing industry, 18.9%; the mining industry, 18.6%; and the construction industry, 25.5%. The decrease in the GNP and the decrease in imports of 22.4% led to a 8.2% reduction in the total supply of goods and services. All of these factors have brought about an increase in the number of unemployed. The agrarian sector, the key sector of Nicaragua’s economy, maintained the same level of productivity that it had achieved in 1981, in spite of the floods and drought which were feared to have produced a drastic reduction in production levels.
The economic crisis also brought about a reduction in buying power. Even though there were some salary increases, these lost their significance when inflation was taken into account. Agricultural workers who receive the minimum wage saw their buying power diminish by 19.6%. For those employed in the secondary and tertiary sector there was a 14.4% decrease. The government policy of subsidizing basic food products and offering some service free of charge has partially alleviated these decreases in buying power.
In Spite of Everything, the Standard of Living Increased in Nicaragua
All Central Americans saw their real wages decrease in the course of 1982, in spite of increases obtained in their salaries. Naturally this situation has resulted in the further impoverishment of the poor and has made their survival more dramatic. Nicaragua has been an exception. It cannot be unconditionally asserted that the standard of living of the population has worsened. In spite of a decrease in the purchasing power of the family wage – the consumption of luxury goods decreased by 23.3% and that of consumer goods by 4.7% - the standard of living has remained practically stable.
This has been possible thanks to a government policy of maintaining and in some cases multiplying public services. The services which are offered free of charge in the social sector have substantially improved the quality of life. In 1982 life expectancy was 57.6 years (as opposed to 55.2 years in 1978); infant mortality among those children receiving medical care has been reduced in the past four years from 120 per 1,000 to 90 per 1,000; the number of medical consultations increased to 6.3 million (from 5.4 million in 1981), an increase which signifies 2.1 medical consultations per year per person (the figure was 1.9 in 1981). Thanks to the polio vaccination campaign not one new case of the disease was registered in 1982, while deaths due to gastrointestinal illnesses now occupy third place (before they were the number one cause of death). In the educational arena, the number of children and adults who attend schools, institutes, colleges and universities now exceeds one million (in 1981 there were 87,756 students), out of a population of 2.8 million.
Subsidies Policy Expanded
The government has remained loyal to its policy of defending the purchasing power of the family salary and has increased subsidies. Subsidies resolve the symptoms but are not capable of altering the profound causes of the crisis. In 1982 the revolutionary government spent 1.2 billion córdobas in subsidies, an increase of 35% from 1981.
The subsidies and free services offered by the government have maintained the “social salary” – services not paid in the form of a wage – and have maintained the standard of living.
1982 Economic Policy
Nicaragua’s economy, as is the case with the rest of the Central American economies, is in a profound crisis due to its structure of total dependency. This dependency is characterized by the fact that all of the foreign exchange earnings Nicaragua receives serve only for the momentary accumulation of capital rather than as a basis for a new, planned economic model. The foreign debt dramatically increases the dependency in that it puts Nicaragua at the mercy of foreign capital lenders. This dependency limits free management of Nicaragua’s economy by the revolutionary government.
Nicaragua: A Pacesetter in the Region
In 1982 all of the Central American republics submitted to the pressures of the International Monetary fund with the exception of Nicaragua. Nicaragua aspires to create its own path based on the following goals:
- To obtain self-sufficiency in the basic food products;
- To obtain foreign exchange earnings, vital to the economy, by an increase in agricultural production and agro-exports;
- To transform deformed industrial structures, developing new industries to produce articles of basic consumption and primary necessity. This industrial base will be oriented to the domestic market and primarily dedicated to the manufacture of Nicaragua’s own prime materials and the refining of its agricultural products;
- To increase the purchasing power of the population through the minimum wage; workers rights must be strengthened at all levels;
- To diversify relations with the international market, leaving behind traditional markets where terms of trade are disadvantageous, and to seek agreements with new purchasers for national products. Additionally, the number of countries from which Nicaragua imports must be increased, above all, among those that provide credit and technology transfers.
1982 Economic Goals Not Realized
The total economic production for 1982 was far from the projection and in some cases was lower than that of 1977, the best year under Somoza. This was especially evident in the agricultural sector, as the harvests were strongly affected by the floods and drought and therefore did not surpass the levels of 1981. With respect to the 1980 level, there was a 23% increase in its production.
The figures for 1982 do not include the record 1982/1983 harvests of coffee and cotton, which showed an increase of 2% and 36% respectively over projected goals. These record harvests of coffee and cotton - achieved in spite of a reduction in the area harvested and the flooding – were a result of the new productive structure and signify an important increase in overall production levels. They also represent a concerted effort to overcome the military aggressions and the counterrevolutionary sabotage.
Within these overall production figures, the following figures correspond to APP properties (those administered by the government), which cover a fifth of the national territory used for agricultural production:
The floods of May and June 1982 and the drought which followed – the worst drought in 40 years – represented an estimated loss of $446.5 million and reduced the area planted with basic grains by 11.6% or 70,000 hectares. The production of basic grains, especially corn, did not reach 1981 levels. This prevented Nicaragua from becoming self-sufficient in basic grains.
Additionally, the increases in production among the small and medium sized producers were also quite small. Yet it is precisely this sector that is receiving preferential treatment and is being reoriented by the Agrarian Reform. After the problems of the transition have been resolved, this sector will obtain the most important goals. The structural transformations of the economy, with their principal objective to increase the agricultural production, still affect the country’s production levels.
Six thousand head of cattle were lost as a result of the floods in May and June of 1982. In spite of this, milk production increased by 2.8%. The basic objective of the increased milk production is to end infant malnutrition. Also, due to the increased number of people raising pigs, pork production for domestic consumption increased by 20.4%. Though affected by the floods, poultry production increased by 33.7%. These statistics show Nicaragua’s capacity to overcome these natural disasters.
Industrial Production in Nicaragua
In 1982, Nicaragua’s industrial production decreased by 3%. Both Nicaragua’s dependence on the importation of prime and prefabricated materials and the decrease in exports of the whole area, due to the almost moribund status of the Central American Common Market, affected industrial production. Yet, industrial production has little significance in Nicaragua. Only 85,000 workers are employed by this sector of all Nicaraguan laborers.
In some sectors there has been a notable decline in production: beverages, tobacco, chemical products, and construction materials. But there was an observable increase in the production of flour, instant beverages, textiles, medicine, metal products, cosmetics. etc.
The government has initiated a reorientation in the state industries (i.e., those that belong to COIP), promoting a series of measures which should lower production costs. Some of these measures include uniting various factors in order to avoid duplication, having certain businesses specialize and giving priority to the production of basic goods that meet the needs of the majority. $500 million worth of investments are planned for 1983 in order to carry out this restructuring.
NICARAGUAN IN THE WORLD MARKET
The setback in export earnings was caused in large part by the constant reduction in prices for Nicaraguan exports on the world market. Because of this, Nicaragua lost $246 million in export earnings in 1981 and 1982.
The Foreign Debt: Draining the Country
Nicaragua’s foreign debt currently stands at $3.341 billion. Included in this figure are long-term loans, which for their low interest rate can almost be considered “gifts.” The interest payments that Nicaragua had to make in 1982 reached $154.5 million. (In 1981, the corresponding figure was $121 million.)
The payment on the principal in 1982 was $59.5 million (in 1981 it was $70.7 million). The debt service in 1982 was $214 million. (In 1981 it had been $191.7 million.) This figure represents 46.1% of Nicaragua’s total export earnings (the figure in 1981 was 38.3%). In short, the foreign debt is a constant drain on the economy.
In 1960, 52.6% of Nicaragua’s imports came from the United States. By 1977, this decreased to 29%. As a part of the Reagan administration’s policy of economic aggression against Nicaragua, the volume of U.S. imports has shown a constant decrease. The shortage of U.S. products was compensated in part by importing products from COMECON and, in part, by an increase of imports from allies of the Nicaraguan revolution, viz., Mexico, France and Spain.
HOPEFUL DESPITE OBSTACLES
An Obstacle Course
In spite of the hurdles, Nicaragua is hopeful for the future and is making an enormous effort to construct a base for its future productive structures, especially in the agrarian sector. In the region, Nicaragua is the exception. For while all the other countries are decreasing their investments in the agrarian sector, Nicaragua is increasing theirs.
Added to all the difficulties which have already been mentioned – the worldwide economic crisis, the crisis in the Central American Common Market caused by the war, the indebtedness, the economic war waged by the U.S. – there are other problems which also seriously affect the Nicaraguan economy:
- Capital flight that reached almost $640 million in the 1978-1982 period.
- The pressures being exercised by the international lending institutions, and U.S. economic pressures. In February 1981, the United States cut off a loan of $15 million already in the pipeline, part of a larger loan of $75 million. Afterwards, in March of the same year, the U.S. canceled another credit line of $10 million which had been set aside for the purchase of wheat. Then in April, the U.S. announced it would make no more bilateral agreements with Nicaragua. The Export-Import Bank of the U.S. followed this up by reducing its credit lines to Nicaragua from $8.9 million to $0.04 million.
- The losses caused by the counterrevolutionaries have reached $581.4 million cordobas. Added to that are the indirect losses which cannot be calculated: the most committed persons are sent to the border to defend the revolution, lowering productivity in the countryside, the factory and the office; and hoarding and speculation characteristic of such periods also affect the national economy.
- The governmental regionalization program entails a short-term weakening in production levels and requires considerable expenditures on the part of the government in this initial period.
The 1983 Economic Plan
In the State of the Nation address in May, Daniel Ortega spoke of the principal guidelines for economic development in 1983 and presented the 1983 Economic Plan. Some of the points which he mentioned were:
- That in spite of the existing obstacles, production will be oriented to national defense, the provision of basic foods, and the expansion of free public services;
- That export earnings will at least be maintained at the 1981 level to insure the production and provision of daily consumer goods as well as export products;
- That fabrication of the means of production destined for exportation or fabrication of goods for domestic consumption will be guaranteed;
- That a special effort will be made to maintain and improve the productive sectors and the provisioning of the population.
The following are some of the projects that are part of the government’s plan:
- The consolidation of the cooperative movement at the national level;
- Extensive development plans in various areas of the country (these programs include both the social and productive sector);
- An investment of 300.5 million cordobas for the production of black beans for export;
- Two large dairy operations for Managua and Matagalpa;
- A large cattle project in Boaco – Chontales;
- A national poultry project with an investment of 2.500 million cordobas;
- The sugar refinery of Tipitapa-Malacatoya with an extension of the area planted with sugar cane;
- A large vegetable project in the valley of Sebaco (in the Department of Matagalpa) with an investment of 264 million córdobas;
- A nation-wide reforestation project;
- Reactivation and expansion of the old gold mines beginning with a 547 million córdoba investment;
- 27 industrial projects in the government and mixed-economy sector, that will create 3,551 new jobs, with an investment of over a trillion córdobas;
- 10 industrial projects in the private sector;
- Extensive geothermal and hydro-electric projects, with an investment of 913 million córdobas. The geothermal project at the Momotombo Volcano – that will produce 20% of the energy consumed by Nicaragua – will begin functioning this year.