Nicaragua's Economic Boogie-Woogie
COLBURN, FORREST D.
A SORRY RECORD Nicaragua's Economic Boogie-Woogie BY FORREST D COLBURN Managua A European economist working here recounts the lament of a government official: "Our economy is like a...
...News from Nicaragua has been dominated by the reporting of political events: the riot in the provincial town of Nandaime...
...This year's rains have made for the best agricultural season since the Revolution...
...During the aforementioned speech, Ortega noted that in a nation of 3.5 million people (50 per cent of whom are 16 years of age or younger), 205,000 workers in the productive sector (public and private) support 210,000 government employees in administration, health, education, and defense...
...Furthermore, it is felt, a less antagonistic relationship with Washington could result in renewed financial aid from Western Europe, and perhaps ultimately the United States...
...Of these, the most conspicuous is foreign aid...
...Donations and credits from Western nations have pretty well evaporated by now, but the Soviet Union and its allies annually furnish Nicaragua with an estimated $500 million to $600 million in goods, not counting arms and ammunition...
...The country's output of goods and services (its gross domestic product) has declined by a third since 1977, the last year that the government considers "normal...
...The Sandinistas and contras are guerrilleros," explained a fisherman living along the banks of Lake Nicaragua—his apparent logic being that once a guerrillero, always a guerrillero...
...But on the whole, economic initiative remains stifled by the bureaucracy...
...But the government persists in running deficits, so the dilution of the currency continues...
...Even those Nicaraguans who are bitterly opposed to the contras, however, tend to give the government low marks for its management of the economy...
...No matter how vexing the situation may be, sheer desperation on the part of the poor ensures that there is at least a minimum of economic activity here, as in any Third World country...
...To get an overall idea of the price spiral that has afflicted Nicaragua under the Sandinistas, it is helpful to consider the cost of pineapples at Managua's Israel Lewite market...
...The goods are delivered to the state-run distribution network, yet they commonly filter into the free market...
...Dukakis...
...Aggravating this economic fiasco is the government's chronic budget deficit...
...Moreover, the government itself imposes a burden on society simply by virtue of its size...
...Nicaragua is also blessed with fertile soil, a benign climate and a favorable man-land ratio...
...The Sandinistas deplore petty trading and speculation, but without it Nicaragua would be considerably poorer...
...The Sandinista regime has combined its Latin American penchant for running government deficits and "covering" them by printing currency with dated Eastern European notions of a centrally-planned economy...
...Revisions in the price of sugar, for example, involve five ministries, require presidential approval, and take as long as six months...
...Meanwhile, the population has increased by perhaps as much as a third, so real per capita income has plummeted...
...By February 14 of this year there were five wildly discrepant official rates of exchange, andablack-market rate of about 40,000 to the dollar...
...Before the revolution the going rate for a pineapple was half acórdoba...
...Fiscal shortfalls have been covered by what is called in Managua "inorganic emissions"—a bureaucratic euphemism for the printing of money—and the market's revenge has been debasement of the currency...
...Some price controls have been relaxed, as have some regulations of private economic activity...
...Finally, there is the ingenuity of the Nicaraguans...
...Confronted with a web of obscure regulations, households employ an endless array of strategies to scrape together a living...
...Indeed, Soviet military jeeps can be found sporting license plates identifying them as being in private use...
...And truly liberalizing the economy would boost inflation, exacerbating the woes of the poor...
...We put in a coin and pushed the button for a tango...
...The Cordoba has been devalued vis-à-vis foreign currencies, a move that should provide a needed stimulus to exports...
...Great white hopes have often proved disappointing, and Michael Dukakis may not be able to meet Sandinista expectations even if he does reach the White House...
...Nonetheless, our coming election will be followed as assiduously in Diriamba as in Des Moines...
...the expulsion of the U.S...
...On that day the government introduced new bills with familiar faces but different colors, exchanging them for the old ones at a rateofoneto 1,000...
...trying to pursue both at once has proved devastating for the private sector and the burgeoning public sector alike...
...His election is thought to represent the surest end to the counterrevolution...
...The country's currency is printed in East Germany and the new bills are dated 1985, suggesting that some such reform had long been contemplated...
...Ambassador along with other embassy personnel, and the Reagan Administration's " return of favor...
...The proliferation of conflicting data makes tracking the economy a statistician's nightmare, but certain generally agreed-upon trends convey an idea of what the people must bear...
...Estimates inManagua of the current annual inflation rate range from200 all the way to 20,000 per cent...
...On June 14, President Daniel Ortega Saavedra gave a televised speech in Managua announcing a retreat from the principles of central planning and administration...
...Instead we got a boogie-woogie...
...It was hoped that the shock of shaving three zeros off the Cordoba would break the rhythm of Nicaragua's inflation, which had reached 7,000 per cent annually...
...Looking to the North for salvation is just as facile...
...Much of Nicaragua's economic distress can be traced to the contra insurgency...
...The purchasing power of agricultural wages—the most common form of income in this agrarian land—has dwindled to one-fifth of its former level...
...Exports have fallen by half...
...Thus in nine years of Sandinista rule the price of a pineapple, a locally grown fruit, has been inflated by a factor of 120,000...
...bickering in the contra leadership...
...Forrest D. Colburn teaches politics at Princeton and is the author of PostRevolutionary Nicaragua: State, Class and the Dilemmas of Agrarian Policy...
...By itself, either of these tacks would be problematic...
...It is too risky to cut the ranks of the Army, and eliminating civil servants from the payroll could cause a backlash among one of the few groups that has remained loyal to el proceso, as the Revolution is often called...
...They put little hope in the Arias "democratization" scheme...
...Given the low levels of productivity in agriculture and industry, this ratio cannot be sustained...
...Although the currency reform then knocked it down to 20, it has in the seven months since increased to over 60 córdobas...
...The only hope the Sandinistas see on the horizon is a great white one—Michaels...
...Despite a marked worsening in diet, no one actually starves in Nicaragua...
...The economy has been kept from collapsing altogether by a trio of factors...
...For urban and rural Nicaraguans alike, the important issue is the nation's economic boogie-woogie, which to date has meant an uninterrupted deterioration in their living conditions...
...Whereas inflation demands quick price changes and agile decision-making, the government, which intervenes to regulate the prices of many items, has made this impossible...
...Most Nicaraguans, though, have grown weary of politics after nine long years of postrevolutionary rule—the last six accompanied by counterrevolution...
...A SORRY RECORD Nicaragua's Economic Boogie-Woogie BY FORREST D COLBURN Managua A European economist working here recounts the lament of a government official: "Our economy is like a broken juke box...
...For the last few years, more than half of the national budget has been devoted to defense...
...At the beginning of the Sandinistas' rule in 1979, the Cordoba was pegged at 10 to the dollar, and no black market existed...
...Latin Americans have a habit of putting disproportionate blame on the United States for their ills...
...The toll has been heavy, both in lives and in resources...
...By February of this year the price had risen to 20,000 córdobas...
...This largess includes oil, agricultural and construction equipment, grains, and consumer items such as light bulbs and children's books (set in the icy tundra...
...For instance, farmers who will not bother supplying milk to government plants will produce it to sell surreptitiously to private cheese manufacturers...
...According to local economists, the Sandinistas have few politically safe options for reducing government expenditures and getting the economy on a sounder footing...
...in particular, controlled prices were to give way to market forces...
...Our Revolution is of Socialist orientation," he said, "but we are not at the stage in which Socialist policies would contribute to the principal objective, which is the defense of revolutionary power...
...However serious Ortega's intentions may have been, government officials have so far dragged their feet in putting them into practice...
...Raising taxes is hardly feasible either, because Nicaragua already has the highest taxes in Latin America...
...and speculation about what all these events mean for the regional peace plan put forward by Costa Rica's President Oscar Arias Sanchez...
...Price distortions have weakened incentives to produce, most notably in the case of export commodities...
...Therefore, the economy was to be "liberalized...
Vol. 71 • September 1988 • No. 16
