Envío Digital
Central American University - UCA  
  Number 146 | Septiembre 1993



Why is not One Doing Anything About the Economy?

The views of the crisis entertained by the government, the UNO and the FSLN are all simplistic and biased. It is not possible to keep submitting the people to the roulette of political short-sightedness. In these final months of 1993 all the chambers of the revolver are loaded.

Nitlapán-CRIES research team

Nicaragua is once again at a critical crossroads. Although the country seems to come up against a crisis every three or four years, this one differs from the others in its size and scope. The problem is not only that the international aid faucet is running dry, but also that the country is heading toward economic collapse. And if that were not serious enough, the truly critical part is that no political force not the rightwing UNO opposition, not the government and not even the FSLN is really working on a national alternative to the now exhausted model the country has been using since 1990. Each of the three has a simplistic and one sided vision of the crisis.

Meanwhile, the population cannot go on being subjected to the Russian roulette of this political myopia. By now, well into the last half of 1993, it has become a dead man's game; there are no more empty chambers in the revolver.

Clear Sailing for US Pressure

The current crisis is reaching its full strength because US pressure is being imposed on top of the weakened dominant political and economic model. On July 29, the US Senate voted 77 to 23 to hold back $103 million in aid already approved for Nicaragua until the Chamorro government fulfills several conditions. Among them is proof that none of its officials with a stress on its military are linked to the international kidnapping ring uncovered in May with the discovery of the arms arsenal in Managua. Adding further insult to the injury of this "guilty until proven innocent" approach to foreign policy, the Senate decided that the FBI should participate in the investigations into Nicaragua's involvement in this "international terrorism" network.

Freezing US aid to Nicaragua was like putting the final bullet in the gun, since it will also surely affect the loan flow from institutions such as the International Monetary Fund, the World Bank, the Interamerican Development Bank and the Central American Integration Bank.

Yet, rather than go all out to find a nationally acceptable way out of this collapse, the political elites are irresponsibly closing all the exit doors. The US Senate's manipulations, the Nicaraguan government's political paralysis and the voracious determination of the UNO and the FSLN to get more power or to defend what they have together with their premature entry into electoral games are combining to generate impotence.

A growing number in the US Senate now believe that the Nicaraguan government no longer requires the once necessary evil of FSLN collaboration; they think that a government and political system more clearly aligned with the others in Central America can finally be set up. This perception has no real opposition because the Clinton administration is so entangled in its own domestic and foreign problems that it cannot afford the cost of defending the Chamorro government. The arms arsenal discovered in Managua provided Senate Republicans a nice new pretext for this pressure.

Even if the pretext is gratuitous, the pressure itself is not. The Chamorro government had agreed to make political reforms once its economic ones were sufficiently underway. Since the political changes made to date are considered minimal, Chamorro is now being pressed to implement the essential ones, despite the failure of the economic measures and the continuing crisis.

This pressure has a multiplier effect on economically destabilizing the country, since it aims not only to block the disbursement of US foreign aid, but also to make Nicaragua's negotiation with the IMF more difficult and to send negative signals to the member countries in the Club of Paris.

What Happens When There's Not Enough Foreign Exchange

The government has no place to turn to get the $200 million it must have to finish out 1993 without an economic collapse. It tried to get these resources in April, at the Club of Paris meeting, but only received some $28 million. The Nicaraguan government privately acknowledges that it will not get the hard currency (foreign exchange) necessary for the normal functioning of the economy according to its plans.
The far right in the United States took advantage of this crisis to pressure for the installation of a pro US government and to wipe out any Sandinista presence in it, clearly taking no interest in the fact that this would destabilize and polarize Nicaragua even more.

The $200 million shortfalll presents the government with an even more mortal dilemma. It is obliged to either spend its small amount of foreign exchange reserves to hold down street speculating the black market money trading of the "coyotes" or else pay its debt service with the IMF, the World Bank and the IDB.

If it loses its control over the "coyotes," it will unleash a new wave of inflation, which it would try to control with successive devaluations. The purchasing power of salaried workers already dropped 15% in the first half of 1993. With the new spiral of inflation/devaluations, this purchasing power will drop even faster and more drastically. If, on the other hand, it does not pay on its debt with these international lending agencies, it cannot hope to get financial support for 1994.

The government will try to get out of its dilemma by cutting public spending and production financing even more and by raising indirect taxes, but this will only deepen the recession. The new recessive tendencies will mean less production and less employment. The government will thus collect less taxes and the fiscal deficit will expand. It will enter into a vicious circle from which there is no escape.

Who Wins if the Country Collapses?

Who benefits from the absence of a constructive and creative search for the way out of this crisis? The government's economic model has kept the entire country bogged down in recession while a small group of business heads, bankers, traders and speculators profit from big deals made as a result of their links to or privileged positions within the state apparatus. It is an economic crime against the people and the nation to have permitted these lucrative activities.

The country's far right does not appear to be of the calibre that its patrons of the north expected. It is doing nothing more than playing with the majority's poverty and the economy's vulnerability after three years of increasing neoliberal orthodoxy and subjection to the international lenders. Faced with the imminent collapse of their economic model, no members of the established political system seem up to the challenge the nation now faces.

The government's political and economic rigidity is blocking all exits and becoming more repressive in its response. It is totally discredited among the people for failing to achieve its promised economic reactivation under the protective wing of its "good neighbor" to the north and for its unwillingness to open up to negotiated alternatives. The population also has little tolerance left for the irresponsibility of the opposition elites on either side. There is a vacuum of leadership, without any upsurge of a social and political force capable of pulling together the national consensus necessary to find a way out.

The "evil of Somalia" a situation in which the political groups put their particular interests ahead of national interests seems to have infected Nicaragua's vital defenses. In the current drama, the problem is not the possibility that the government might fall, but that the country and its largely poor population is being dragged to the precipice of economic inviability and political ungovernability.

UNO: The Problem is Political

According to UNO, the solution to the crisis is political reform or intervention by a United Nations peace keeping force. Its objective is to obtain greater quotas of power or, better yet, total power in the political system. UNO thus reduces the crisis to a political problem, or, to be more exact, to the absence of its own political leaders in the government structures. Its proposal is simple: the government should cut loose the "political anchor" of Sandinismo and fulfill the series of conditions required by the United States:
* Dismiss not only General Ortega, but also the army's entire high comand and the commanders of the National Police, and apply the army's organizational law in the briefest possible time.

* Return National Assembly leadership to UNO rightwingers, so as to establish a new basis of understanding between the legislative and executive branches.

* Change the Cabinet, particularly the Economic Cabinet, getting rid of the few Sandinistas and even the UNO "centrists."
* Name a "palatable" Comptroller General.

* "Reform" the Supreme Electoral Council and the Supreme Court of Justice, a euphemism for cleansing those institutions of Sandinistas as well.

* Give a major push to decentralizing the state and privatizing the state's assets more rapidly.

* Resolve the property problem, replacing the current compensation through bonds with the return of state enterprises to their original owners. This is related to the changes in the army and police.

There are differences within UNO about how to get the greater quotas of power to which its parties aspire. The Christian Democratic Union, for example, is trying to negotiate more presence for UNO without totally excluding the Sandinistas. The Social Christians are also willing to share some power with the FSLN. On the other side, the extremists of Alfredo César's Social Democratic Party advocate the total exclusion of Sandinismo, threaten civil disobedience and call for the intervention of the UN's "blue berets" to impose order on the domestic conflict. Arnoldo Alemán Managua's mayor, a major presidential aspirant and the strongman of the Liberal Constitutionalist Party weaves between the two positions, despite his visceral anti Sandinista views. While he aspires to more power for UNO, and for himself in particular, he occasionally expresses willingness to negotiate with the Sandinistas.

The grain of truth in the UNO position is that any solution to the crisis must first effectively deal with the current political system's serious weaknesses. But a proposal that polarizes the country even more is hardly a viable political solution.

UNO's Economic Plan: More of the Same

UNO believes that, by taking over all or nearly all power, it could come to a rapid agreement with the IMF, free up US foreign aid and get new financing with which to "honor" the programmed foreign debt payments. It believes that it could and would do this all within a continuation of the economic model, although radically accelerating the economic reforms, as Finance Minister Emilio Pereira has proposed. UNO does not have an economic and social proposal different than that of the Chamorro administration. If it were to take power or more power it would base itself on the same economic policies, even though they are now at the end of their lifeline.

The UNO elite's irresponsibility would become evident even before its desires were fully realized. In the first place, time has run out on Nicaragua's ability to get extraordinary foreign resources. The current economic policy scheme, based on using foreign resources for massive consumer imports and foreign debt payments is thus no longer sustainable. Just in the first half of 1993, imports had to be cut by 20% for lack of foreign exchange. And the programmed foreign debt payment is 13% higher than the value of programmed exports. That, no matter how you look at it, is unsustainable.

In the second place, UNO, to be successful, must reactivate the economy, and the current economic policy has already shown its inability to do that. An essential change in the model is required, one that limits spending on imported consumer goods and redirects the resources toward productive reactivation, strengthening small and medium production which is the bulk of the national private sector and all those who want to invest in the country's productive recovery rather than take their money abroad. To bet on the current economic model's beneficiaries the bankers, importers and big merchants as the UNO elite would do, is to gamble away the country.

UNO's "political proposal" is in the country's best tradition of political cannibalism and is regressive: it aims to exclude a political force as weighty as Sandinismo, which would only generate greater polarization and instability. UNO's political pressures on the government could encourage a coup or bring the country even closer to an intolerable ungovernability than it is now. And it favors an image of permanent political conflict, making an even less attractive climate for foreign or domestic investment .

The FSLN: the Problem Is Economic

According to the FSLN, the solution to the crisis is economic reform. But it is using this rhetoric only to bolster its own political position and resolve its internal disputes. The FSLN elite both the leadership and the dominant groups in the party are paying dearly for the support given to the Chamorro economic policy the past three years, support they defend with the comment that "if we were in government, we would have had to do the same."
At the beginning, supporting the Chamorro government seemed advantageous. It allowed the FSLN elite to preserve what it considered the "gains of the revolution": command of the army and police, the property scheme set up after the "piñata," participation in the privatization process and quotas of power in the National Assembly, the Supreme Court and the Supreme Electoral Council. "Stabilizing axis" is what it called the alliance between the FSLN, the army and the executive branch. For the Sandinistas who headed this alliance, everything else was open to negotiation, even to sacrifice.

In 1992, however, as the deadline for fulfilling the political reforms agreed to between the United States and the Chamorro administration drew near, the alliance started going to pieces. In mid 1992, changes had to be made in the National Police. By the end of the year, the FSLN government relations were so bad that Daniel Ortega called for a general strike against the government, though it was stillborn. That exacerbated the discord within the FSLN between those faithful to the "stabilizing axis," like Sergio Ramírez, and the "radicals," like Daniel Ortega.

Then, at the beginning of 1993, the executive resolved its crisis in the National Assembly with collaboration from the Sandinista bench, giving a new lease on life to the alliance based on the "axis." This explains why, despite the FSLN's heated rhetoric about the need to change the economic course, it did not present a clear and coherent proposal to the government about this change (see envío no. 134). There was no shortage of alternative options, but the FSLN leadership refused to consider an economic proposal that could imply modifying the existing political scheme. Thus, FSLN criticisms of the neoliberal economic policy are only aimed at securing the Sandinista social base, which is suffering the consequences of the crisis first hand. But as 1993 rolls on, the certainty of economic collapse has removed any material justification for the so called stabilizing axis. The connection between the crisis and the economic model is so evident that it leaves no more room for illusions or image games.

The "Group of 29": Anger Without Alternatives

Shortly before July 19, the 14th anniversary of the revolution, 29 dissident Sandinista departmental leaders, intellectuals, union leaders, National Assembly representatives and Sandinista Assembly members issued a communique announcing that they would work to put an end to the FSLN's collaboration with the government. The 29 well known signers included former police chief René Vivas, Managua FSLN political secretary Victor Hugo Tinoco and the Atlantic Coast's presidential delegate during the former government, Lumberto Campbell. Among other things, they demanded "an organizational leadership of the FSLN that is compatible with a commitment to grassroots struggle."

This call for a new line by the "Group of 29" (already a misnomer since, by July's end, it had over 40 more sign ons), is built on the discontent of the party's base, for whom not a shadow of doubt remains about the government's inoperativeness and failures. It has become menacingly obvious that Arnoldo Alemán and the right are capitalizing on the government's erosion and the economic crisis, while the FSLN pays their piper.

The group also points an accusing finger at those Sandinistas in the "stabilizing group" who, despite the economic and political model's obvious crisis, remain faithful to their objective of buttressing the government as the only viable way out of the crisis without ruptures.

The Group of 29 has focused its sense of purpose more on the FSLN itself than on the crisis, thus doing the spade work for the victory of its line in the next party congress which might well be an "extraordinary" one called before the next scheduled congress. The signers' proposal to struggle for a change in the course of the economic policy comes at a time when the "stabilizing axis" argument is on the ropes, and they are hoping to throw the FSLN's centrist forces down for the count. But they have put forward no alternative economic model so far; their criticism stops at mere opposition to the existing one.

The Party's Dramatic Reality

The depth of the current crisis caught the FSLN off guard, engrossed in contemplating the internal struggle of its own interest groups. The party is unprepared and without enough coherence to pull together a national solution to the crisis. The most dramatic aspect of the FSLN is that the "stabilizing axis" and the current party leadership are still strong enough to block any attempt at political and organizational rejuvenation, both of which are necessary to create a new focal point of national debate around the country's main challenges.

The FSLN is currently made up of the weakened centrist group, which still has enough institutional strength in different branches of the government to keep the spent collaborationist scheme afloat, and the growing "Group of 29," which has not yet demonstrated the consistency necessary to constitute a team for political change that could push a realistic economic alternative. This group should be explicit about who the subjects are that can guarantee the reactivation of production and how to prepare criteria for negotiating with the international lending agencies to gain access to foreign financing based on a more flexible economic policy. Despite its ongoing rhetoric against neoliberalism, the Sandinista base has not yet exerted enough pressure to force a full internal debate that could lead to the design of a coherent and realistic alternative economic proposal.

The Government: a Failed Dialogue

The government's preference has been to solve the crisis by dialoguing with the political class, while the gulf between political power and the real interests of the small farmers and ranchers, the peasantry, small and medium industry, and even the productive sectors of big business, widens. After spending a thousand hours in the so called National Dialogue, it was clear to all that this was only a government stalling tactic to put off the conflicts and avoid the high costs that taking crucial decisions one way or another would imply. Using the dialogue as a "political show" devalued it and led to its failure.

The government went to the "dialogue" without leaving much room to offer anything new. It did not want any real shifts in its scheme of alliances, or even any initiatives that might prevent the economy's collapse. Given that set up, which was paralyzing by definition, the various political forces that "dialogued" became enmeshed in a palace tug of war, trying only to get particular advantages for themselves. None of those who attended put its money on the country; none questioned the continuation of the exhausted economic and political model and none even suggested that there might be ways out of the crisis.

The government's isolation has a history. It began with the Chamorro administration's refinement of the presidentialist apparatus inherited from the previous government. At the beginning this was useful. The sizable discretion attributed to the executive allowed it to negotiate the difficult transition of power in a highly polarized country just coming out of war. But that initial virtue, whose goal was a reconciliation project, slowly turned into an armor that shielded the executive from the population. Protecting this presidential prerogative from its attackers (mainly from the right) restricted the necessary democratization of the political system, reducing the political game to back room deals among elites. And as experience teaches, lack of democracy toward the outside ends up also undermining it within.

The executive first excluded Central Bank head Fran cisco Mayorga, who "resigned" at the end of 1990. Little by little, finance minister Emilio Pereira acquired preeminence through the central importance that cutting public spending and raising taxes had in the negotiations with the IMF. The Economic Cabinet was reduced and separated from the rest of the Cabinet.

After Silvio de Franco, Mayorga's replacement as Central Bank president, resigned last year due to his exclusion from decision making, the power axis revolved around Emilio Pereira and Minister of the Presidency Antonio Lacayo. Minister of Foreign Cooperation Erwin Krüger remained loyal to Lacayo and thus inside the shrinking inner circle, but without much influence. Now even this "mini Cabinet" of the bourgeoisie (Lacayo, Pereira and Krüger) is split over what option to take to stave off collapse. And a house divided cannot stand to negotiate with anyone.

Not Whether, But How Fast

Emilio Pereira wants to keep the economic policy on the same course, radicalizing the reforms even more, even though it is obvious that his prescription offers no cure. The IMF and the World Bank, however, give him high marks for tenacity.

Without abandoning orthodoxy, Erwin Krüger prefers a more gradual approach, slowing down the rhythm of the reforms to combine some reactivation with the stabilization measures. This would put Nicaragua in a better negotiating position with donor countries and agencies, since, as Janet Ballentyne, US Agency for International Development (AID) representative in Nicaragua, has already warned, "Stabilization is useless without reactivation."

Antonio Lacayo sees peril in either approach. He fears that speeding up the reforms, particularly the political ones, would hasten the rupture of his alliance with the Sandinistas, which could destabilize the country even more than it already is, and not only prevent any reactivation, but also cause the stabilization and economic reforms to fail. But he also fears any break with the IMF and World Bank, which would close off access to foreign financing, so crucial to maintaining current import levels.

Up to now, Lacayo has combined political gradualism with a constant "now you see it, now you don't" shell game to convince us that the economic reality is not where we think it is. In March 1991, his image creating skills were good enough to conceal the real nature of the economic package he was hyping. But the US Senate's economic blackmail to achieve its political ends has removed one of Lacayo's walnut shells, and the economic crisis has gotten too big to hide under the others. He would like now to repeat his 1991 performance, but his theater magic has become less dexterous with each public appearance.

Lacayo resists coming out from behind the presidentialist shield and creating real democratic spaces and teams to work on change that could cut the Gurdian knot of the current crisis. On July 26, he announced the end of the "political dialogue" initiated in May, which achieved absolutely nothing after 33 rounds. At the same time, he announced a new initiative a forum of economic specialists from all tendencies to study his economic plan and make a proposal on behalf of the whole nation to present to a meeting of the international lending agencies in September. But this attempt to import Clinton's image success as President elect does not really seek to forge a new economic model to stave off collapse; once again, the essential decisions have already been made.

Having closed one door after another to a democratic national debate, he is now trying to shepherd along some minimum adjustments to the same model, this time in the presence of specialists. It is wishful thinking to believe that he can get something out of this new "show" with the economists if he achieved nothing in his negotiations with the country's most powerful social and political forces.

Our Apathy and Inertia

This call for a national forum of economists, as well as our own reaction to it as professionals, bear the same stigmas as the failed national dialogue process. Not the least of these is the precipitous and short sighted nature of the forum. For more than two years economists of different tendencies have been criticizing the political class for misspending the $3 billion in foreign credits and aid that it has received, but the government never made any attempt to dialogue. Now that the damage is already done, it is calling for a forum to come up with a solution in a bit over a month.

But we specialists interested in the course of the economy are also responsible. We have not been able to meet autonomously to reach any minimum consensus about the economic model that the country needs. The same apathy, atomization and inertia that the political class is suffering has also infected us. In our passivity and separation from the potential subjects of a reactivation, we have been no better than the political and union leaders or the leaders of the rural and urban social organizations.

We have not opened a democratic and participatory space at the center of society. We only look up, wanting to impress those in power with our knowledge; we never look around us, to build proposals together with our colleagues that express the productive potential of the farmers and small and medium urban and rural production.

It is crucial that this space be genuinely opened, beyond the short term image game of this economists' forum. Prior attempts to do so were blocked either by the intolerance of the political system or by our own lack of courage to prevent the disaster that is now upon us all.

Among other attempts, specialists of different stripes met at the Central American University in 1986, after the previous government had misspent $7 billion on its statist model, to analyze the problems of that period's economic model in depth. There was basic consensus about how to avoid the impending hyperinflation, but the FSLN National Directorate did not appreciate the recommendation. The Directorate prohibited Sandinista economists from participating in a second meeting with their colleagues in the opposition, which aborted the initiative.

At the end of 1987, when CIERA, the agrarian ministry's think tank, convoked a debate about Plan Berta, the Sandinista government's proposal for a major devaluation, exchange rate systematization and currency change which was in fact implemented in February 1988, its conclusions were bitterly criticized for their inconsistency. They, too, ended up on the rubbish heap. Then between 1988 and 1989, a group of specialists made critical evaluations of and alternative proposals to the government's implementation of that monetarist plan. Finally, between 1990 and 1992, efforts were made to warn the new government about the recessive and exclusionary nature of its seemingly successful model. These proposals, made in isolation, were thrown out by the political class as a whole.

With the economy now teetering on the edge of collapse, the time lost cannot be recovered overnight. A serious, systematic and highly professional effort is needed, with sufficient access to information and with freedom of criteria, to come up with consistent and realistic reactivation proposals. But if the proposals are to be assimilated in their constructive spirit, without the traditional scorn of those in power, the political system has to relinquish its closed character.

If that does not happen, however, if the presidentialist system rejects such a process of designing alternatives, it need not paralyze the specialists again. We do not need the blessing of power to reach our own mutual understandings. What is indispensible, though, is systematic and consistent work among economists of different viewpoints to push forward a process in which we come to basic consensus about how to get out of the crisis. Our proposals must also express the real potential of the productive subjects that can make the country move ahead.

"Play Clean with Nicaragua"

This plea is the highly publicized slogan of the government's effort to discourage tax evasion, but it applies equally well to the country's political class. The immediate risk of economic collapse, which that class is not facing responsibly, has only multiplied their catastrophic discourse. Each side pounces on any flaw in its opponents' arguments, blithely ignoring the gaping holes in its own. Nicaragua and its people need the politicians to play clean with them, to replace the recessive and exclusionary economic model, which has outlived its usefulness, with one that is reactivating and socially inclusionary. The possibilities are by now few and limited, but that alone obliges that a genuine attempt be made for the first time to hammer out an effective and realistic socioeconomic consensus the first step of which is to renounce particular political interests. Ways out do exist, but to find them, and above all to apply them, requires the political will to collaborate to unblock the current political stagnation, and provide real support to production so it can reactivate the economy.

Real Political Concertación

The political and economic cost of sustaining the current scheme of power is too high. A domestically agreed to set of changes in the political scheme is required, in which the baggage of presidentialism and restricted political ties is replaced with wider democracy and market regulations. This internal coherency is becoming a national imperative if the US pressures and the conditions of the international lending agencies are to be confronted. Neither the US government nor the IMF will ever decide to give Nicaragua a viable space as a nation; the task of solidly preparing our own national agenda falls to us alone, as Nicaraguans.

It is fitting to ask ourselves whether the current government's weakness and total discrediting leaves it enough room to take charge of changing the country's course. These are moments in which only boldness and a real national vocation are sufficient to effect the necessary reforms. If the current government Cabinet cannot muster that, the next best thing would be to leave the house in order for a new one that does have the consensus required to face up to this task.

The main political initiatives would be:
* Changing the political system to overcome the concentration of power in the executive branch. This implies restoring the powers of the state and breaking with the total secretiveness that reigns in the executive.

* Eliminating the excessive centralization and impunity that the ministry of finances has acquired under this presidentialist umbrella. From the perspective of the country's governability, it is inadmissible for the finance minister to act as the international lenders' agent or representative, without the nation having any opportunity to make its own mandate prevail in these negotiations.

* Defining the rules for selecting and designing the economic policy with participation in this task by the government's full Cabinet, the National Assembly and the sectors that make up the Forum of Socio Economic Concertación.

* Institutionalizing the Sandinista Popular Army (EPS), and respecting its current command structure. The present crossroads, however, requires the removal of the stumbling blocks to a credible national understanding, so as to depolarize the country and contribute to the opening up of the political system.

To preserve the institutionalization and professionalization of the armed forces, General Humberto Ortega should be equal to the crisis, offering the country his retirement and thus favoring stability and national unity. Just as he defended the integrity of the national territory against foreign intervention from his post, he should now facilitate national concertación with his retirement. Without this, neither a real political agreement nor a constructive National Assembly discussion of the Organizational Law of the EPS is feasible.

* Resolving the most urgent problems generated by untitled properties, and the citizenry's resulting insecurity, and effectively reinserting all demobilized members of the army, police and former resistance into civilian life, together with those of any stripe who have rearmed.

Real Socioeconomic Concertación

The necessary reduction of the import bill and devaluation of the currency particularly if the latter is uncontrolled and dictated by panic will cause greater pain to an already wounded population. The hopelessness that has accompanied this sacrifice so far makes the necessary economic adjustments ever less viable. Confronting the crisis means finding some constructive way out of all the grief that has been caused by having taken the country on the wrong course. Unfortunately, so much time was lost in the first half of this year that, for now, all that remains is to avoid the economy's collapse and a far greater recession. But at least conditions can be created to redeem the 1994 95 agricultural cycle.

Building the foundation for a future reactivation, based on austerity and strengthening small and medium production, however, requires a more equitable distribution of the adjustment costs. The private banks and the major importers have benefited greatly in the midst of this national debacle; they must now assume their share of sacrifice. This means regulating the flight of resources abroad through the private banks and establishing greater selective control of imports to reduce the trade gap.

A reasonable negotiation with the foreign lenders and donors must take place in the very near future. The government has eluded an accord with the IMF because of the "bad marks" it got in the first half of 1993 by having more fiscal expenditure than income. The government has no financing on the horizon with which to pay the more than $200 million of its current external deficit, an amount that more or less equals its foreign debt service. This deficit has a structural character, resulting from the economic recession, growing payments on the foreign debt and low prices for Nicaragua's main export products. The structural aspect of its domestic account deficit is strictly due to the recession.

The government has also avoided loosening the anchor on the exchange rate, clinging to it as a symbol of price stability. Today, the IMF is recommending a drastic currency devaluation (preferably also freeing up the exchange rate) and even greater fiscal and credit restrictions. While those measures will hardly solve Nicaragua's crisis, the problem is that there is no possibility of financing the current external deficit or renegotiating its long term foreign debt without an IMF accord.

Given the extraordinary nature of the crisis, the only way to confront the economic collapse is to negotiate a non orthodox economic package with the IMF. But that requires giving the international community sufficient guarantees that the resources they contribute will have a real impact on production and generate reactivation. To have a shot at this negotiation, the government has to genuinely depolarize the domestic situation, abandoning all of its "theater." It can only speak to the IMF with the voice of national consensus about changing the country's course if it has achieved a real socioeconomic concertación, or negotiated agreement. Only an initiative of this calibre could break the political encirclement imposed by the US Senate and make possible new negotiations with the IMF to reprogram payment on the foreign debt and obtain access to new resources in the meantime.

Goals for Negotiating with the IMF

The main goal that must be met to have a reasonable negotiation with the foreign lenders and donors is the designing of a productive rehabilitation package that involves:
1) recovering and making use of the harvest in the second half of this agricultural cycle;
2) preparing conditions for the 1994 95 cycle;
3) an urban housing construction program;
4) maintenance of economic and social infrastructure programs.

The first two points involve strengthening the productive capacity of small and medium production, so as to make initiatives such as the Alternative Farmers' Program (see the June 1993 envío) and other programs of the agricultural organizations viable. The second two require a defined pre investment portfolio which can attract foreign resources to support it.

Focal Points of Economic Concertación

The main issues that would allow for a genuine economic agreement are:
* Good use of the country's financial resources, which are badly assigned at present.
The private bankers and big business interests associated with them enjoy the protection of the state banking system, taking advantage of the high interest rates to engage in speculative activities. They send sizable amounts of resources abroad to increase their own earnings in foreign banks and the New York Stock Exchange. While the economy's liquidity measured in money has fallen 14%, the resources in the hands of the private banks grew 28% in the first half of 1993, provoking the current shortage of money in circulation that is affecting the population so seriously. In only the year to date, $60 million has left the country through these private banks.

Paradoxically, the economy's total liquidity measured in both money and time deposits in local and foreign currency has grown 5% in real terms. But this is not seen in the streets because it is kept in private bank vaults both within the country and abroad. It is not channeled to agricultural production because the private banks do not take risks; they only loan money to profitable sectors located mainly in commerce. Even autonomous government entities such as the Ministry of Social Welfare, the Nicaraguan Energy Institute and Telcor, the telephone and telecommunications system, behave as speculators within this economic system, placing their money in short term deposits in the commercial banks and pressuring for high interest rates.

AID and IMF technicians question this miserable resource distribution, which enriches a handful of bankers and does nothing to relieve the producers' financial asphyxiation. The time has come to correct this unjust distribution of the country's scarce resources by changing the economic model.

The recovery of the economy's general liquidity is a basic condition for supporting any program to selectively reactivate production. But it is only feasible if money is prevented from filtering abroad through imports and the speculative acquisition of foreign exchange, and is instead channeled to production. The efficiency of the state banking system also has to be improved, by reducing interest rates and imposing restrictions (by collecting legal reserves from the commercial banks) on the banks' fabulous profits instead of on the producers. The autonomous government entities and state enterprises also should be prevented from using their deposits speculatively against the state banking system or depositing them in private commercial banks.

* Once the redistribution of the economy's internal resources is agreed to, the orderly channeling to production of both those resources and new ones from abroad should be guaranteed.
There are two main ways to increase the protection of national production. One is to basically encumber the importation of consumer goods and the other is to reduce the import tariffs on production inputs and on intermediate and capital goods. These measures would benefit those who produce for domestic consumption and reactivate employment. Those factories (independent of their size) and their workers, along with family micro businesses (those buried the deepest by the import avalanche), have the most to gain from these measures. The losers would be the major importers, whose cut of the market would be reduced, as well as medium and high income families with internationalized consumer styles, who would have to pay more dearly for their whims.

Such measures would also support the farm production that goes to the food, leather and shoe industries, and would free up foreign exchange to further support agricultural production.

* Monetary and Financial Reform
This implies turning the Superintendency of Banks into a neutral body that coordinates monetary policy and the regulation of the financial system's resources.

* Strengthening the development banks' role, regulating the private banks and making the state banking system more efficient.

Credit should be selective: it should support small and medium production, which has a clear history of portfolio recovery, and large production that is not oriented toward avoiding risks or sending its capital out of the country. Broad programs of nonconventional support for peasant and artisan production should also be promoted. To improve the possibilities of recovering this loan portfolio, more stable prices for these producers should be assured. For this to happen, ENABAS, the state grain agency, must have enough financing to purchase and store a significant percentage of grains in the peak harvest period.

No More Russian Roulette

The opportunities that have been squandered means that reactivation between 1992 and 1993 was lost. All that remains now is a search for the "prowess" necessary to attain economic stagnation rather than further deterioration. If we continue making blind leaps, the country will not only lose the train of reactivation and peace, but its own identity as a nation.

After having already "Haitianized" the population's poverty level, we could now come to a "Somalization" of the country, with the irremediable loss of national sovereignty. As we warned at the beginning, all the chambers in the revolver are loaded, so it's time to stop playing Russian roulette with the life of the nation and of its people.

The only viable wager now is on Nicaragua. This requires facing up to the dramatic challenges of the crisis with national unity and economic agreements. That means an end to arranging things with "more of the same" and accords only between the like minded. Openness and collaboration is needed and it is urgent that all real agents within the population who truly love this country and are willing to bet on its future decide what they want, reach an agreement with each other and work together. Workers, small and medium peasant producers, artisans and manufacturers make up the majority of this population, but they are not adequately represented either in the government or in the decision making levels of UNO or the FSLN. Without their participation, there cannot even be social peace, much less economic reactivation.

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