Envío Digital
Central American University - UCA  
  Number 173 | Diciembre 1995



Poverty: An Incurable Epidemic?

What treatment for poverty? This is a key question that society must ask the many candidates. People must work for a reasoned vote. They must also watch out to be sure there are elections – some want to cancel them.

Nitlápan-Envío team

In early October, dozens of people were brought to the small health center in Achuapa, in the northeast corner of León, suffering symptoms of an unidentified hemorrhagic fever. Within three weeks, over 2,000 were infected, and at least 20 had died. Cuban and US virologists came to Nicaragua to study the mysterious disease, which was first suspected to be a new mutant of the hemorrhagic dengue virus. On November 6, it was announced that the Center for Disease Control in Atlanta had determined it to be a variant of leptospirosis, a bacteria transmitted in the urine and excrement of rats and other animals. The invasion of rats is largely the product of the highest rain levels in 50 years in this normally dry area.

The virulence of the disease depends largely on the general health of the body it infects and conditions for early and correct treatment. In the rural zones where the disease is proliferating, there is already dengue and malaria, as well as profound poverty and chronic malnutrition. Though the municipality has some 13,000 inhabitants, the town of Achuapa itself has only a small health center with a permanent medical staff of two.

The sudden and alarming appearance of the disease thrust the impoverished but ignored northwest region of Nicaragua into the international media. The focus on that epidemic also highlighted another epidemic Nicaraguans are suffering: 7 out of every 10 live in poverty, 5 of them in extreme poverty. These Nicaraguans have been abandoned by the government little social spending and no production credit is earmarked for them so they have ever shrinking opportunities for education, health and jobs, and eke out their survival with no income whatever or with salaries that are an insult to any human being. These conditions create a breeding ground for all epidemics, those known and others yet to be discovered. Grinding daily problems such as lack of personal safety, even in one's own home, and skyrocketing problems such as drug trafficking and use are, together with unemployment and economic stagnation, directly associated with this social plague.

Resources Exist, but the Will Does Not

Erudite international experts and many politicians and holders of high public office believe that the sea change taking place in the world today makes coexistence with high poverty levels inevitable. They want to infect us with this pessimism. The only public declarations of optimism and hope in Nicaragua about the possibility of attacking poverty come from some religious leaders Bishops Hombach, Brenes and Matta and a number of social organizations and NGOs working directly with the impoverished population.

This clash of opinions between the "world of finances" and these religious and social organizations has various interpretations. One is that pessimism about the feasibility of attacking the structural roots of poverty fits like a glove on the hand of insensitive career politicians and authorities who are irresponsible and negligent toward the concrete needs of the poor. The optimism of those who not only believe it is possible to tackle poverty, but propose how to do it and act on their proposals in daily battle is too much bother for those who feed off rhetorical debates and parlor intrigues.

The first thing that must be made clear is that the problem of poverty in Nicaragua is not a lack of resources. They exist, but the political system blocks their rational use. Our political system's insensitivity benevolently called "immaturity" by some to the nation's problems is beginning to boggle the minds of foreign observers. Most Nicaraguan politicians give the impression of being capable only of myopic contingency actions.

This impression became even stronger at the end of October, which was marked by notable caprice in political events. Despite the health emergency, producers' demands for credit to cover harvest costs, general discontent and mounting instability, the political class never lifted its head from its enigmatic power games, in which yesterday's enemies become today's allies, with no assurance that they will wake up tomorrow in the same alliance. What seemed impossible yesterday is permissible today. What is solid evaporates and randomness is the only predictable certainty in Nicaragua's political life.

Today's Enemies

In this context, the National Assembly, which must do by December everything that was put off during the five month executive legislative standoff earlier this year, began on October 10 to debate the Property Stability bill the most controversial of all pending legislation. It was to be followed by the bills to privatize TELCOR and reform the Electoral Law, not to mention the 1996 General Budget, and in that sequence.

This order of priorities for such transcendental tasks is clearly inverted. It would have been more logical to get the Electoral Law out of the way first since delay costs money in preparing for next year's national elections then examine the budget. Since a high level of consensus is needed to make any solution to the property issue viable, the property and TELCOR bills require more time. The enigmatic facts surrounding the decision to order the debates as they were makes it hard to figure out why it was done.

Deliberations on the "prioritized" property bill were abruptly suspended on October 26 to introduce the equally controversial bill to privatize TELCOR. After a few advances in those debates and the presentation of an alternative proposal by the TELCOR union on October 31, they too were suspended to make way for an unusual late night election of a new Comptroller of the Republic. But even that process was brusquely suspended in the wee small hours of the morning. No debates seemed to reach fruition. Rush and improvisation are bad signs in legislative debates over issues that are transcendental for the country.

Another enigma involved the National Assembly's unexpected election on October 22 of Julia Mena, a sociologist, teacher, business administrator and legislator from the Independent Liberal Party (PLI), to replace Virgilio Godoy as Vice President. Godoy had resigned three days earlier to run for President on the PLI ticket. The PLI is the only one of the five Liberal parties that has not joined the Liberal Alliance backing Managua mayor Arnoldo Alemán for President. President Chamorro's hand picked candidate and personal friend, Conservative Fernando Zelaya, was considered a shoo in for Godoy's post. The ploy on behalf of Mena, who served as first secretary of the Assembly's executive board in 1990, allowed the dominant alliance in the Assembly, which, at least for now, includes both the FSLN and Sergio Ramírez's Sandinista Renovation Movement (MRS), to firm up its ties with the PLI. Needless to say, pro Chamorro legislators and Conservatives of all stripes in the Assembly did not vote for Mena. Nor did Alemán's Liberals, who had put forward their own candidate. A few days after this move, ever shifty Alfredo César, who heads up the new National Democratic Party together with former Socialist Luis Sánchez Sancho, began his own enigmatic maneuvers to grab Assembly power for another "dominant" alliance.

Let's Not Kid Ourselves

The various political actors would seem to be suffering from an epidemic of fickleness, assuaged by nothing anyone else proposes. The worst thing is that those doing the proposing also seem overtaken with frivolity. They lack passion and love for their work or compassion for the problems that most concern the electorate: poverty, unemployment, personal safety, health, education. All these concerns can be summed up in one: hope that Nicaragua can improve.

But let's not kid ourselves. The politicians' current erratic behavior, however unpredictable it may seem or ineffective it may be in achieving their goals, revolves around a nucleus of very defined interests. The political system's instability and the political actors' hazardous and unprincipled actions are all linked to the "original sin" of Nicaragua's transition: the Chamorro administration's inability to create democratic institutions able to even begin resolving the country's basic problems.

After the relative calm following the approval of the Framework Law in June, energies are again heating up in the political system. That law, which put an end to the legislative executive impasse, was a compromise solution attired in legal absurdities. The goal of the executive branch was to prevent the reformed Constitution from going into full effect. In exchange for that concession, the National Assembly members got a temporary new distribution of power and the right to participate with the executive in making a series of key decisions. But the document seems to have been signed with the idea of violating it at will.

Political Market With No Ideology

That "law" handcuffs the two branches together even though they are going in different directions. The only things they share are the same disease of shortsighted decision making and the same desire to strengthen themselves by weakening the other. The movements of both branches have been erratic and self destructive ever since the law was signed. Both of these strange bedfellows sleep with one eye open, and their mutual bellicosity is making the stability that was achieved very precarious. Neither side loses an opportunity to alter the terms of the agreement they signed in its own favor. Representatives on both sides regularly explain away these tensions as "expressions of democracy."
Such power games have created a kind of "political market," blurring the contours of party positions and ideologies. For a while, the Chamorro electoral coalition known as UNO played the role of a rightwing grouping, the Chamorro administration tried to sell itself as centrist and the FSLN raised the banner of the left. But as the 1990s unfold, the world has moved so far to the right that even the moderate Republican model now passes as radical. With UNO atomized and Sandinismo divided, more or less monolithic blocs have given way to fleeting alliances, typical of representative democracies such as that of the United States. But unlike that country, where the solidity of the institutions and their sluggish response to change make political moves predictable, Nicaragua's weak democratic institutions make its political system totally unpredictable and volatile.

What exists in Nicaragua and ferociously resists change is a heavily presidentialist system that facilitates impunity and the pillage of state assets, thus making political corruption a way of life. Since Nicaragua is no exception in the Latin American landscape in this regard, the latest symbol of democratic efficacy across the continent is simply that top officials such as Pérez in Venezuela and Collor de Melo in Brazil are being punished for their transgressions. Even Salinas in Mexico is being sought.

Another new and more positive emerging symbol is the decentralization of power to municipalities, which could create channels for greater grassroots participation in the democratic game. Poverty could be challenged from these new spaces, in which even the poor participate.

The Mafia State

In Nicaragua, democratization has also had to coexist with a considerably polarized political system. The Chamorro administration happily used the powerful presidency it inherited to shake off the political and social base that elected it. To compensate for this congenital weakness and still be able to govern, the new executive turned to selective use of cooptation and clientelism, as well as out and out corruption. Its ammunition for this consisted of state assets, misuse of foreign cooperation and the sacrifice it imposed on the population.

In such a situation, poverty can obviously not be fought and production cannot be reactivated, since the state and privatizing networks have systematically eaten away the resources for social spending and productive investments. Nor is this environment healthy for a market society. When law does not reign, impunity does. And when there is no rule of law, there are no assurances for property, no competition in equal conditions, no certainty about the benefits of investing and no protection from abuses by government officials.

This has brought us to a situation in which the democratic process is beginning to irritate the power groups, since they feel constrained by it. They don't fear the "power of the press," since no public authority ever listens to or responds to the daily denunciations in the media, but they have begun to fear the votes of a population fed up with public administration.

Election Phobia

Votes are dangerous. A vote against continuing today's anti democratic economic policy would put the foundation the Chamorro government and the groups allied with it have been building into crisis. Since the economic and political groups that emerged with the 1990 Sandinista piñata and the later CORNAP piñata are not yet consolidated, everything done up to now could be reversed. This amalgam of potentially explosive old and recent interests adds to the polarization that caused the war and is, to some degree, still unresolved. Although the Sandinistas had brought the US supported Resistance to its knees militarily, they themselves were voted out of office, so neither definitively defeated the other. The inability to achieve a strategic transition in these years keeps that contest open.

The current political tangle can only be understood by seeing the erratic movements of some players through the prism of their key interest: to keep the two piñatas from being questioned by future governments. High level officials of both the past and current governments are in this pact together. The attitude of the Sandinistas participating in it can be summed up as "better dead than poor again." That of the Chamorro crowd is "a thief who robs a thief gets a hundred years of reprieve." Both are willing to do anything to prevent punishment and a reversal of their appropriation and enrichment.

The first aim of the recent feverish political moves, then, is to close the door on a series of strategic problems so firmly that no future government can reopen it. The dominant group is also aware that winning the coming elections will be difficult, so is doing all it can to erode the vote that today seems to lean toward Alemán's Liberals, who are both anti Sandinista and anti oligarchy. But that's not good enough.

An Ace Up Whose Sleeve?

Many of the current maneuvers are thus also tangled up with the possibility of interrupting the electoral process "until things are put in order." The main obstacle to this option is the Clinton administration's foreign policy, which wants no failure in the "democratic transition" it is supporting in Nicaragua. That is why the Carter Commission came down in July 1995 and proposed a quick way out of the property problem. US power is also behind the "miracle" of the International Monetary Fund's indulgence toward the Chamorro government up to now.

Despite everything, various actors could play the ace of putting off the elections, but only if all other options are lost. It is a desperate, last ditch ploy, to be used when the only alternative is electoral defeat.

The election of Julia Mena as the new Vice President can be understood in this light. If President Chamorro's choice had been elected, it would have opened the possibility of her resignation and the calling of a constituent election a year later. One more year would be very useful to nail down more favorable election conditions. The dawning of such an idea on the opposition Assembly representatives was what mobilized them so quickly to block Chamorro's choice.

The Tie that Binds

The four urgent and key pieces of legislation finally on the National Assembly floor are using up the little time the Assembly has left to organize the electoral contest well. This has been the Chamorro administration's constant gambit: if things don't go the way it wants them to, shelve them to use up time, then invalidate them on the grounds that they can now not happen.

The property problem has been latent ever since Violeta Chamorro took office, bubbling to the surface during all key episodes of instability the country has gone through, as it is doing again today. The pre electoral conflict today centers on it, and it is the tie that binds the property law, TELCOR's privatization, the election of a new Comptroller and the electoral law into one big tangle.

Linking the debate on the property bill to approval of privatizing Telcor has created a terrible knot, as could be expected in such an obvious tit for tat. The election of the new Comptroller is similarly knotty because CORNAP is financing an audit of its controversial privatizations that will be carried out by none other than the new Comptroller. The combination of stalling and muddying the waters on reforms to the Electoral Law could also be part of preparations for indefinitely suspending the 1996 elections. In October, Supreme Electoral Council president Mariano Fallos sternly warned the National Assembly that the delays in approving the Electoral Law were seriously affecting preparations for the race. He urged them to get the lead out.

The Magnitude of the Property Issue

The property problem is sizable but not unsolvable. In the rural area, it involves 71% of the farmland one way or another. At an urban level, over 108,000 families were benefited with some form of property during the revolution, 67,824 of them lots nearly 60% in Managua, and the remainder in the departmental capitals. The urban houses and lots given to beneficiaries over the course of the Sandinista period were sanctioned during the transition period by Laws 85 and 86, and the rural properties by Law 88.

While many of these properties went to the poor, the criteria were often political favoritism and paternalism, particularly as the revolutionary process became more polarized and commitment began to wane. In such cases, the assignation of such goods was a kind of state subsidy to compensate Sandinista activists for what in a capitalist system would be considered intolerably exploitative wages. In the countryside, criteria of economic efficiency and peasant participation were ignored.

When the FSLN lost the 1990 elections, it massively privatized state assets to try to correct for all this. But a small segment of Sandinista leaders took advantage of the chaos to issue sizable properties to themselves. That is the most specific use of the term "piñata," although most of the right uses it to refer to all changes in land tenure carried out during the revolution.

One of the Chamorro government's first decrees was 11 90, which created the National Confiscation Review Commission to examine all urban and rural expropriations of any kind effected during the revolution. By mid 1994, it had received claims for 7,185 rural properties comprising nearly 1.8 million acres 25% of all farmland and for 5,207 urban properties. A negotiation with the government and national political and social leaders led to an agreement that attempted to protect those who had received small properties before the date of the elections, thus focusing the spotlight on the "piñata," but the Commission's work has dragged out and been far from satisfactory for all involved.

The massive privatization of state businesses carried out by the Chamorro administration at dirt cheap prices through CORNAP, the holding company it created, complicated the issue further. That process did not even pretend to favor the poor, and is referred to by many as the "second piñata."

Where Are the Key Problems?

The structure of the property problem offers clues to its solution, recognizing that no solution will ever leave all those involved fully satisfied.

The nearly two million acres of disputed rural land include the following:
* Confiscations of properties belonging to the Somoza family and allies (40%);
* Assignments through the 1981 Agrarian Reform Law (26%);
* Appropriations through the Law of Abandonment (0.5%);
* Lands purchased by the Sandinista government (6%);
* Lands purchased by the Chamorro government (8%);
* De facto occupations (10%);
* Others (0.5%).

The appropriations through purchase and a good part of the confiscations of those related one way or another to Somoza, as well as the lands of the Sandinista agrarian reform should remain outside of any review. These properties make up almost 70% of the disputed land and could be resolved by accepting the legality of both the Sandinista and current governments' actions. The other 30% is the true object of review and compensation.

At an urban level, the lots classified as real cases of abuse by a few Sandinistas under the umbrella of Laws 85 and 86 do not even make up 11% of the total. So where's the problem? It is in the cases of unjust or illegally appropriated properties, and in the abuses by a few large beneficiaries of the CORNAP privatization.

A separate problem is caused by US policy as interpreted by US Senator Jesse Helms. He and other rightwing members of Congress are vociferously backing a small number of Nicaraguans who took out US citizenship after their properties had been expropriated. By constantly trying to freeze US aid until the properties of these fine, upstanding, and indirectly powerful US "citizens" are returned, Helms and like minded colleagues are keeping Nicaragua off balance from afar.

Part of Nicaragua's current political model is based on the tacit complicity of the Sandinista leadership. In exchange for certain stability for its administration at the outset, the Chamorro government agreed not to question the Sandinista piñata. The sequel to that pact was the CORNAP piñata. The voraciousness of the groups it benefitted was unlimited. As happened with the FSLN, though for different reasons, the process CORNAP headed up had no legal framework to regulate and legitimize the transfer of state goods to private hands. Both processes have further impoverished the country, while enriching small segments with a speed unparalleled in the country's modern history.

In the context of the prevailing corruption, one can expect little more from the new Comptroller's audit of the CORNAP privatizations than an erasing of tracks. As the saying goes, "Who pays the fiddler, calls the tune."
But if national interests do not prevail over the powerful individual and family interests of these various groups, the property problem, otherwise perfectly possible to resolve, could still cause problems come election time. The fight against the poverty epidemic would be the biggest loser.

Two Articles Approved

By the end of October, the property law was still far from passage. The day the debate began, Minister of Finances Emilio Pereira presented overall official data to the National Assembly. Between 1979 and 1990, he reported, 177,138 urban and rural properties were expropriated or confiscated from 5,288 individual or organizational owners and provided to 171,890 families in other words, for each owner adversely affected, 32 were benefited. The three property laws passed by the outgoing Sandinista government (85, 86 and 88) legalized 70% of all those properties. The government calculates "abuses" in 2,300 cases of rural property transfers. Pereira said that those confiscated are claiming close to 1.2 million acres, but admitted that a massive return of rural and urban properties to their old owners would "bring chaos in unimaginable proportions."
As the debate got underway, Pereira leaked a list of potential abusers of Laws 85 and 86, later claiming it was "preliminary and confidential." According to this list, partially published in the media, 2,700 suspicious cases were found in Managua alone among the 11,000 cases reviewed between February 1992 and August 1995. In response to its publication, Barricada, the FSLN daily, published a separate list of some 120 individuals, among them well known Somocista officers and government officials, who were confiscated yet later richly compensated by the Chamorro government, even though Decrees 3 and 38 justify those confiscations.

In the heat of the debate, organized ranchers from Chontales demanded compensation for cattle "confiscated" (killed and eaten) during the war years. An estimated 80% of the cattle herd was lost in that southeast cattle region, an area of heavy fighting during the later part of the war. Today, 90% of those ranchers are in debt and decapitalized.

Only the first few articles of the property stability bill were approved before the article by article debate was temporarily tabled. One of them ratified the benefits to 108,000 urban and 70,000 rural recipients. The documents issued by the Sandinista agrarian reform and that of the current government thus acquired value as "public documents."
Payment of indemnification to those confiscated was also ratified, including Somoza "friends and allies" included under Decree 38. This gives them the right to now present their cases to the Confiscation Review Commission, although the Barricada list suggests that some of them have already found a better route to the purse strings. Minister of the Presidency Antonio Lacayo reportedly approved some 2.2 million córdobas for such indemnifications in August 1995, the month before he resigned his post and two months before the relevant article of the property law was given the nod.

There was also consensus among the legislators that real estate recovered by the state be offered first to the original bondholders. And, finally, an article was approved that sets the indemnification for claimants who win their cases on current registry values for the property, in the condition it was in at the time it was affected.

As can be observed, the political criteria prevailing in those decisions were to minimize offending any of the various power groups and to take into account the rights of the grassroots electorate, given the proximity of the electoral period. The key question now is whether or not the law will be passed before this year's legislative session ends in December and, if so, under what conditions.

Chicken Soup or Golden Eggs?

A key problem in not offending anyone is how to finance such conciliation. The government first sounded out international cooperation, but though it got some help for this, the likelihood of getting any more than is earmarked in the Enhanced Structural Adjustment Facility is slim. The cash disbursements the government expects in 1996 are 8% below those estimated for 1995.

That explains the government's initiative to privatize TELCOR to an international consortium. The IMF set its sale as a condition for disbursing foreign resources at the start of the year. The executive then announced it as a fact, though it had yet to be approved by the National Assembly. Since approval did not happen during the long crisis between the two branches of state, even after indescribable efforts by the executive, the IMF pulled back from insisting on it. Then ex President Carter came on the scene, and proposed that income from privatizing the state utility could be used to revalue the indemnification bonds. That returned the issue to the front burner and linked it to debate over the property law.

The somewhat reworked and surely temporary alliance that now dominates the National Assembly, made up of the Christian Democratic Union, the FSLN, the Sandinista Renovation Movement, the National Democratic Party and the PLI, is trading the TELCOR privatization card for concessions to the property bill and election of the Comptroller. Another card still to be played will be the 1996 budget.

The executive's proposal to privatize TELCOR is the worst option for the country, though it is a quick and easy way out for the government. Because the government wants chicken soup, it has opted to kill the hen that lays golden eggs, the only profitable state business that remains. But sacrificing the hen will not be enough to revalue the bonds to the needed $500 million level. TELCOR is valued at $159 million and if half plus one of its shares are sold, as the executive proposes, it will only bring in $79.5 million. Not even selling off 100% would resolve the problem. (See "Privatize TELCOR," in this issue, for the telecommunication workers' alternative, which proposes to save the hen and use its golden eggs to revalue the bonds.)
As with the property issue, the TELCOR case shows that there is more than one viable and positive solution. But the political game and the veto power of small interest groups make it hard to choose the better solutions. The problem of how to finance the "please everyone" policy in the property conflict is still open.

This raises the issue of CORNAP's murky management, since its massive privatization of state companies could have contributed greatly to resolving this issue. CORNAP has still not explained exactly what it received for the sale of these assets, some of them valuable, but the sale prices it has reported are well below current book value.

The Economy at the End of 1995

At this point, the government estimates that 1995 could close with exports valued at up to $500 million. Coffee alone is expected to contribute $150 million, only a bit more than comes in as family remittances. It is also estimated that imports will reach some $933 million, 6.7% higher than 1994. Production is expected to grow 4%, even though this has been a particularly difficult year for agriculture due to heavy rains and lack of production financing. Not only did the areas financed shrink, so did the financing per acre, affecting crops for domestic consumption more than those for export.

The government's efforts to reduce the foreign debt had encouraging results. On November 6, it successfully culminated its buy back of the country's debt with international commercial banks. The critical mass of debt bonds that had to be bought to assure the operation's success was 70%; it managed to buy 73%. The Swedish, German, Dutch and Swiss governments, as well as the World Bank and Interamerican Development Bank, donated $109.5 million to the government to close the deal, with which it bought the bonds at eight cents on the dollar. Only $300 million of the commercial debt is still outstanding.

That operation reduced the foreign debt balance by $1.3 billion. Germany's pardon of 80% of Nicaragua's $600 million debt dropped it another $512 million. In total, Nicaragua's $11 billion debt was reduced by nearly $2 billion in November.

Germany also restructured the payments on the remaining 20%: it will be paid over 23 years starting in 2002. In negotiations with Russia, which Nicaragua owes $3.3 billion, the government requested a 95% reduction, but Russia only accepted 88%. The final decision was tabled until March April 1996.

ESAF Is Foundering

All these successes will be at risk if the economy is not managed efficiently. This is particularly worrying as the year ends, since managing it politically, with no productive anchor or national vision, could capsize the costly monetary stabilization that has been achieved and swamp the small wave of improved prices for Nicaragua's export products.

The stabilization program is now on automatic pilot, partly because Antonio Lacayo, in his exclusionary style, has been running the government by remote control since resigning in September. In addition to his well known centralized decision making, he now has a new line: no other star should emerge in the official heavens that could eclipse either him or his National Project (PRONAL). Instructions to officials to keep a low profile are further slowing up the already scant, slow and tricky initiatives to correct economic policy.

Only a year after signing onto the International Monetary Fund's three year Enhanced Structural Adjustment Facility (ESAF), that program's lack of realism and the government's irresponsible management of it have made ESAF a virtual failure as the country moves into the electoral year. The government's aim in signing it was to get the minimum flow of financial resources that would guarantee some material base to the democratic transition, but the results have been the opposite.

In programs such as ESAF, the IMF basically sets fulfillment criteria: 1) the level of net international reserves, or hard currency, with which the country must finish the year; 2) payment on the foreign debt; 3) a public sector savings goal, based on identifying expansion of the fiscal debt as a fundamental source of inflation; 4) the financial system's net internal credit goal; and 5) an inflation target.

Besides these priority goals, disbursements are also conditioned on privatization, modernization of the state and financial and trade liberalization. These conditionalities vary according to the moment.

Two IMF evaluation visits, the first in March and the second in September, verified that the government had come nowhere near meeting the agreed upon international reserves goal for 1995. The reserves were to have increased by $75.2 million between April and September, but instead they fell another $54.7 million from an already negative balance. Correcting the huge shortfall at this late date is an impossible challenge.

The September mission pressured the government to take a series of rectifying measures, more for image purposes than for real effectiveness. The government was forced to announce that it was privatizing the Nicaraguan Development Bank (BANADES), to create a private bank that could recover its huge arrears portfolio. It also announced that it was unifying the official exchange rate with the one used in the money changing houses and was withdrawing local currency from circulation, which would also halt the drain on dollar reserves and the slow but steadily rising cost of the dollar.

Despite all that, the government did not accumulate the $29.4 million in reserves that had been programmed for October; in fact, it let another $6.8 million slip away. By the end of the month the adjusted net international reserves had shrunk a total of $113 million in 1995. That money was used largely to finance imports and to buy córdobas to sustain current government spending.

As could be expected, withdrawing currency from circulation with Christmas rolling around created major discontent on all fronts. Even more discontent was unleashed among those workers whose employers, both state and private, announced that they would be unable to pay the "13th month" Christmas bonus this year due to the stagnant economy and the shortage of money in circulation.

BANADES employees and organized small and medium producers responded to news of its pending privatization with something more creative than just discontent. On October 10 they unveiled what they call the National Patriotic Front Against the Foreign Monopoly. They released data showing that only 5% of the arrears portfolio corresponds to small and medium producers and named some of the big outstanding debtors who are bankrupting BANADES. At the top of the list is ECODEPA, the chain of peasant stores run by the National Union of Farmers and Ranchers (UNAG), which owes 22 million córdobas. Second is William Baez, the Minister of Social Action and main promoter of Antonio Lacayo's electoral campaign, with an outstanding debt of 11 million córdobas.

Preparing for Chaos

Monetary stabilization without a real adjustment and real economic reactivation has been shown to be insufficient and unable to cure the macroeconomic imbalances that brought the hyperinflation of the 1980s. And it is way too insufficient to cure the poverty epidemic that is growing across the country.

To eliminate hyperinflation, the government only focused on stabilizing prices. But that essentially depends on foreign aid, so it was bound to become a blind alley sooner or later. Since investment has not been reactivated, and the economic policy has not won the consensus of the country's main productive subjects, it was to be expected that we would end up stagnated at the level of price stability, without knowing where to go from there. Even that stability is increasingly fragile, since cash foreign aid is in permanent decline.

Foreign debt service and the government's practice of covering its economic inefficiency with foreign funds is eating up most of the foreign resources assigned to the country. An estimated $2.331 billion in cash was loaned or donated to Nicaragua between 1990 and 1997, of which $1.893 billion was paid on the foreign debt in other words, 81 cents of every dollar of foreign aid. The other 19 cents covered the economic policy's inefficiencies.

Now, at the end of 1995, we are faced with an extremely dangerous option: "letting go" of price stabilization. If this new irresponsibility in economic administration happens, it could be interpreted as another piece in the plan to block the elections and swindle the population out of its punishment vote.

The risk of going into 1996 without the financial backing programmed in ESAF is upon us. Together with other destabilizing factors, economic facts indicate that a situation of chaos and emergency is being prepared that could justify putting a provisional constituent government or a Government of National Unity in charge. Meanwhile, the failure to fulfill even the "bridge program" pacted with the IMF in September is translating into a severe restriction on money and a total scarcity of credits. Renegotiating an alternative ESAF with the IMF on a new basis for 1997 is one of the main points on the electoral agenda.

The current model is not just wasting foreign resources, it is also using domestic ones badly. In the past 20 months alone, the savings in Nicaraguan private banks increased by $150 million. But this money is not being invested in jobs and production for Nicaraguans. It is not dedicated to "curing" poverty. Of these savings, $60 million were invested in financial speculation on Wall Street. If that amount had been invested in production, unemployment would have dropped 5%. The resources to fight the poverty epidemic exist right here in Nicaragua.

The $140 million that comes into the country as family remittances, the fruit of the work of our emigrants abroad, contributes more to sustaining the country than the money of all the big investors. They don't invest in Nicaragua. The best and almost only investors are the poor who emigrate to Costa Rica or the United States and send money back to their relatives so they can set up urban and rural micro businesses and try to survive.

An "Electoral" Budget

Despite all these crises, the 1996 budget bill that the executive presented to the National Assembly in October seems to have a marked electoral year skew. Nominal spending is 57.9% higher than in 1995. Since nominal income is forecast to increase only 23.4%, we can expect a larger fiscal deficit. In 1995, foreign donations to finance the deficit dropped 77% in real terms compared to 1994. They are expected to rise a bit in 1996, but it is not assured. In turn, foreign loans earmarked for financing the deficit were 66% less in 1995 than in 1994; only a 7% increase in such loans is expected for 1996.

Domestic financing, through Central Bank credits to the government, is 122% greater in 1995 than in 1994. Given the restrictions on foreign financing and the difficulties with ESAF, this can only be explained as official electoral populism aimed at favoring PRONAL, Lacayo's party. The World Bank has warned that the current deficit level is unsustainable, "since it is not clearly seen that a rationalization of public spending exists" or that "a large part of the programs really get to the benefited sectors."
An examination of the composition of programmed spending increases suspicions. Juicy amounts are assigned to some ministries, especially Social Action, Construction and Transport, Agriculture and Government, particularly for the category "investments for peace." The same is true for public services such as INAA (water and sewage), PAMIC (a program to support micro businesses), the National Rural Development Program and several other special credit programs. The assignment to the Supreme Electoral Council naturally increases, for election year requirements.

The above categories make up almost 24% of the total budget and equal the entire year's spending on health and education. The other big budget line is for interest payments on the foreign debt, up 111% in real terms. It now equals 1.8% of the estimated 1995 GDP, 3.8% of the GDP expected for 1996 and 87% of the entire spending programmed for health.

The disproportion of the budget proposal can also be observed in the fact that, in real terms, 70% of the spending is to be financed with taxes. The government's October promise to lower or eliminate some taxes looks like it might be a bit hard to fulfill. With no major spending on public investment only on current consumption it will be hard to have any impact on reactivating production. Without reactivation, tax collection will probably drop even further, which will pressure the government to raise tax rates to compensate.

There Are Solutions

Political instability must be eradicated to eradicate poverty, since instability depresses investment. And the causes of poverty today are lack of investment in production, health and education, and a serious shortfall in the generation of productive employment.

The poverty epidemic, the vaccination to isolate it and the treatment to cure it are the issues on which civil society should measure the politicians' electoral actions and platforms. Aspirants to any important public post who do not have realistic proposals to deal with the poverty disease should be punished by withholding votes. Because the resources exist.

Far from the extreme polarization that characterized the 1990 electoral campaign, the population must now choose its new government with extreme care, assuring that it can also control its officials and make them fill their promises.

Realistic solutions exist for the majority of the huge problems Nicaragua is facing today, ones that are beneficial for the country, not just for anti democratic minorities. Negotiating a new ESAF, eliminating the foreign debt, resolving the property issue and reactivating the economy are all possible. But, if these "miracles" are to occur, the political system must change to its very core and immediately broaden society's participation. Not only must our vote be informed and well reasoned; we must also make sure that the elections are not cancelled altogether in the coming months.

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Agrarian Property and Stability

Two Just Laws: 85 and 86

Privatizing TELCOR: Not the Only or Best Solution

Poverty: An Incurable Epidemic?

El Salvador
Does this Economic Model have a Future?

The Election Scene

Dialogue Amid Storms and Tremors

One Year After Aristide's Return

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