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Central American University - UCA  
  Number 5 | Octubre 1981



Some Aspects Of Nicaragua’s Economy

Our annual economic program is part of an overall strategy which was first set up in the economic plan of 1980. This overall strategy defines three principal goals of the economy.

Xabier Gorostiaga

I. To Satisfy Basic Needs.

Our strategy differs from other models of economic development whose first priority is to establish a model of accumulation. Our first objective is to satisfy the basic needs of the majority of the population. This creates a new logic which we call the “logic of the majority”, i.e., the logic of the poor. Instead of organizing the economy from the perspective and interest of the top 5%, as it was done during the Somoza dynasty, we are trying to organize the economy from the perspective of the majority. This new logic will form the basis of the economy for the next three or four years, that is, until we finish the reconstruction period.

This reconstruction period will last five years because of the reduction in Nicaragua’s Gross Domestic Product. In the last two years under Somoza, there was a 32% negative growth in the Gross Domestic Product. In July, 1979, per capita income was equal to that of 1963. The first thing we are trying to do is to recover the former levels of production and standard of living with, or course, a different income and power distribution. The World Bank estimates that this will require ten years. We are more optimistic and believe we can accomplish this in five years.

Since our first goal is to satisfy basic needs (food, health and education), the Literacy Campaign was a priority last year. In economic terms, the Literacy Campaign did not constitute the most efficient use of our scarce resources. Yet considering the interests of the poor in a country with an illiteracy rate of close to 60%, we saw the literacy campaign as fundamental.

In education and health today, we are spending more than double what Somoza spent in the best budget year for education and health, which was in 1978. We now have close to 850,000 persons engaged in educational programs. One third of our population is enrolled in formal or technical higher education programs, and this weighs too heavily on our economy in this reconstruction period. This is why we are implementing mobilizing methods of education such as the adult education campaign. The students of this campaign will go on to teach others how to read and write and also how to produce in the agricultural sector. We are trying to create an educational system which includes the entire population of Nicaragua. Each ministry will offer permanent training and formation courses. We realize that the lack of people with technical and political preparation constitutes one of the main obstacles to achieving our goals.

In the area of health, we do not have the resources to meet the needs of the majority of our population. That is why we are using health campaigns. We are mobilizing the people to carry out vaccination campaigns, campaigns against malaria, and nutrition programs. We are linking education and health so that these two activities will help us to create a new labor force which is better able to produce, better able to organize the country. Health is part of the productive system. We are a very poor country, a very underdeveloped country and a devastated country. Yet we are showing the world that education and health are not a matter of economic resources; they are a matter of political will. Although we do not have monetary resources in this reconstruction period, we are solving the problems in health and education better than the majority of the Latin American countries.

II. Economic Independence

The second goal of Nicaragua’s overall economic strategy is to start a program to increase our economic independence. Historically, we have been extremely dependent on the United States; close to 60% of our export/import relations have been with the United States. In the last two years we have reduced this to less than 30%. At the same time, we have diversified our economic relations.

Some people think that this signifies that we are incorporating ourselves into the Soviet bloc. It is important to see that our policy is to diversify our dependence. We are a poor, underdeveloped, small country. We will be forever dependent. The only way of getting some flexibility is to diversify our dependence and increase our international relations. Instead of walking with two legs, the United States 60% and the rest of the world 40%, we now want to have four legs. First, we would like to keep economic and diplomatic relations with the United States. Second, for the first time we have economic and financial relations with all of Europe and Japan. Third, we now have economic relations with the non-aligned countries of Latin America and the Arab countries. Fourth, we are just starting relations with the socialist countries. At present only 5% of our economic relations are with the socialist countries. We will try to expand this figure to 25%, not to become members of the Soviet bloc, but rather to have greater flexibility and freedom. In general terms, we are planning to develop 25% of our economic relations with each of these four groups: The United States, the rest of the capitalist countries, the non-aligned and third world countries, and the socialist countries. We call this the Diversification of Dependence strategy. This is not easy to carry out. It implies a lot of changes in technology. It takes time.

We are also planning to create a new Central American Common Market. The former model of the Central American Common Market was established by transnational companies and the United States in order to incorporate this region in a development model which was planned in the U.S. Now we would like to have a much more independent region. We would like to be members of the Central American Market, buy we propose different aims. We would also like to integrate the Caribbean economies into our neighborhood relations. Mexico and Venezuela may play a very important role. At this moment they are providing us with oil on very good terms.

Nicaragua and Mexico have established a very strong new economic relationship. Likewise, Nicaragua is beginning new economic relationships with Cuba, Venezuela and Brazil. For instance, instead of importing John Deere tractors directly from the United States, we are importing John Deere tractors from Brazil. In this way, we try to avoid the possibility of a U.S. economic boycott against Nicaragua, and this is a real danger.

We have seen that the United States first suspended all financial aid, then began using food as a weapon against Nicaragua, cutting off the wheat credits, and now the United States is moving to pressure the World Bank, Inter-American Development Bank and other banks in an attempt to block the financing which we receive from these institutions. The new President of the United States is developing a very tough line toward Nicaragua. We not only face the threat of some kind of military intervention, we also face the danger that the United States will isolate us financially, trying to create difficulties for Nicaragua’s economic development. That is why we are diversifying the sources of financing and the sources of technology.

III. A New Accumulation Model

After accomplishing the first two goals, our third main goal will be to start a different accumulation model. Historically, the whole articulation of our economy was not based upon the needs and wants of our population. It was based upon the needs and wants of transnational companies and the oligarchy of this country. If we have changed the logic or our economy, we have also changed its structure, which is the model of accumulation. We have just started a new program called PAN (the National Food Program). We are planning to be self-sufficient in basic food stuffs (corn, rice and beans) at the end of this year or the beginning of the next. Once you can provide this security for your population, you can move to a much more sophisticated kind of development, but you first need to assure this basic security.

IV. Problems Facing the Economy

We have been faced with three key problems in the last two years: unemployment, inflation and a decrease in productivity. In July 1979, we had close to 40% unemployment. The unemployment rate is now at 15 to 16%. We see this as a very positive economic and social development. Yet this employment has been generated more in the service sector than in the productive sector. We are now trying to shift employment from the service to the productive sector. In the first year, we had to get the economy going. Now in the second year, the challenge is to organize, to rationalize, to be efficient with an economy that is already in motion.

The second key problem facing us was inflation. In 1978–79, we had an inflation rate of 84%. We have lowered the inflation rate to 25 to 30%. Considering the bad production conditions which we inherited, world-wide inflation, rising oil prices, deterioration in our terms of trade, we think this has been a significant achievement. We do not care much about inflation of luxury goods. We care mainly about inflation of basic goods: medicines, food, transportation and housing. As you know the basic salary has not increased, except in the lowest income group. Last year all salaries lower than 1,300 córdobas were increased by 125 córdobas. This year salaries falling below 3,000 córdobas will be increased. In this way, we are creating a redistribution of income.

Unemployment and inflation then constitute two problem areas in which we think there have been significant advances. The problem we have not been able to solve is the decrease in productivity. All social changes bring about a decrease in productivity because they require adjustment. For more than 400 years, our labor force has been under the oppression of the colonial system, the capitalist system and, on top of that, the Somocista dynastic system. Productivity was obtained from the workers through oppression. Now that we are eliminating oppression, there is a relaxed atmosphere among the workers and productivity has decreased. We need to develop new conditions for productivity and these new conditions depend on political consciousness, organization and new relations of production.

If people can understand what is happening in production, they will realize that production is for them; that this is a popular economy; that the resources, benefits and surplus of this economy are not going toward capital accumulation for the rich, but rather are used in the service of the majority. Once these new relations of production and new consciousness have been adopted by an organized labor force, we think we can increase the former productivity without oppression. Yet this will take time. It will take many years.

Education, health, popular organization and economic models of participation are part of the package. When people say the literacy campaign was a political campaign, they are correct. Likewise, the new organization of economic relations is political and economic at the same time. This division between the economic and the political does not make too much sense within our historical conditions. Once the workers are participants in the planning and administration of production, they change the relations of production between the bosses and the working class. New social movements start. New processes are developed. It depends on education. It depends on organization.

V. The Technician in the Revolution

We are trying first to meet the basic needs of the majority. Yet we have to be very conscious that if we do not take care of the technicians they will leave the government sectors and strategic industries in order to obtain higher salaries in the private sector. Private enterprise normally pays a technician double the price which the government pays. At the moment, we are trying to create other incentives for technicians such as technical training, participation in international meetings, seminars and congresses and also the opportunity to play an important role in a new society. A technician is a respected person in the Sandinista society. In the Somoza era, technicians and academicians were not considered at all. They were seen as fringe people, often dangerous people. Now technicians see that they are key people in the whole reconstruction process.

VI. The Mixed Economy and the New Measures Announced on July 19.

We refer to our economy as a mixed economy. We have nationalized all the Somoza lands and property. We have nationalized the commercial systems. We have nationalized foreign trade. All this is what we call the People’s Property Area. This name differs from the name used in Chile, Peru or Cuba where it is called the State Area or Public Sector Area. We use the name “People’s Property Area” because we try to demonstrate that this area belongs to the people. The state is not the owner, it is only the administrator. The People’s Property Area controls less than 40% of the GDP. Sixty percent is in the private sector. That is why fundamentally we do not even have a mixed economy. We have the juxtaposition of a private economy on one side and a public economy on the other. Very few people realize that, 80% of agricultural production is in the hands of the private sector; 75% of industrial production is under the control of the private sector.

This implies that the “free market” and capitalism are still predominant two years after the Sandinista Revolution. What we are trying to bring about is that this “free market” and this capitalism be transformed in the interests of the majority.

In this stage of our development, we are trying to create a mixed planned economy. Some people will consider that this is a contradiction. But we think that with this political program of national unity, pluralism and a mixed economy, if this mixed economy is planned and organized to serve the majority, this project has a future. This is the risk that the Frente Sandinista is taking and also the risk that the private sector is taking.

It is clear that this revolution is a revolution for the poor. If this mixed planned economy does not work because the private sector does not collaborate, then this revolution will take measures to insure that this economy will work for the majority, to organize this mixed planned economy, given that the private sector controls the majority of production – that is, 80% of the land and 75% of the industrial sector – the People’s Property Area is creating an economic alliance with the medium and small producers within the private sector; with small and medium campesinos; with landless campesinos; with small and medium pulperos (neighborhood shopkeepers); with small artisans and with small and medium producers in the industrial sector.

This economic alliance is achieved through different means. For instance, in relation to financial credits, the co-ops and the small campesinos receive a rural credit which is much cheaper than the agricultural credit that the big farmers receive. Instead of paying 20%, they pay 12%. Thus, through economic mechanisms, we are organizing this alliance with the small and medium sector of the economy in order to balance the power of the big capitalists in agriculture and in industry.

On the other hand, we are organizing the workers and campesinos in order to increase the participation of these popular forces in the direction of production. That is why we are organizing Reactivation Assemblies and Participation Assemblies. In these, the workers discuss with the owners and managers of the enterprises the programs of production and finance and the production this year.

In this way, we use not only economic mechanisms, but also political and participatory mechanisms. All this creates the background for the laws and measures of July 19.

In these two years, we have found that a substantial sector of the big capitalists, the proprietors, are not investing. The private sector investment, which historically was over 80%, is now on the order of 10%. The majority of investment, then, has to be drawn from the public sector. As the public sector inherited an economy completely in ruins, the majority of this public investment is drawn from foreign capital and loans that have come into the country under very good conditions. But the flow of foreign capital cannot last for long. That is why we need to start a new domestic saving process in order to be able to invest with our own domestic capital, not basing our investment only on foreign capital.

First, we ask the private sector to invest. Second, we ask the private sector to produce. We are fully supporting the private sector, even the big private sector, to produce. We are financing 100% of cotton production and close to 100% of coffee production this year. We are granting private industrial producers the financing and foreign exchange to increase and reactivate industrial production.

From the private sector, we are asking for investment, production and an end to decapitalization practices. On July 19 there was a strong condemnation of decapitalization. There were some confiscations against firms who have engaged in decapitalization during the last two years. The July 19 measures were not a sweeping nationalization; rather, the new measures defined the rules of the game. You must invest. You must produce. You will get a reasonable rate of profit but you cannot decapitalize, because if you decapitalize your firm will be confiscated. July 19 then defined and reconfirmed the mixed economy. It also established a clear sanction against people who do not comply with these laws, these rules of the game.

On July 19, the Agrarian Reform law was also announced. The main points of the Agrarian Reform are the following: first, idle lands will be distributed to landless campesinos. We have 100,000 campesinos without land. These campesinos will be organized in co-ops for basic grain production, for cattle production. This is not only a distribution agrarian reform, it is also an organizational agrarian reform. Instead of dealing with individual campesinos, the government and banks will be dealing with organized campesinos. In this way, credits and technical assistance will be much more efficient.

Agrarian Zones constitute the second key point in the Agrarian Reform. In these zones, the government will rationalize production because there are individual plots without any sort of rationalization regarding the things they are producing. The government is not confiscating the land. It is saying to the private sector that we have to plan the economy for this agrarian zone in order to increase production, to rationalize costs and so forth. It is a kind of mixed plan between the government and the private sector in these agrarian zones.

The third key point in this priority program is called PAN, the National Food Program. We are planning to be self-sufficient at the end of this year and we hope that next year we will be able to export some basic grains. Thus PAN is a key aspect of the whole Agrarian Reform project. Now campesinos will have land. The campesinos will receive financing and technology and we will be self-sufficient in basic food stuffs this year. Next year, we will probably begin to export basic food stuffs, mainly rice and corn, in small quantities. In two years, we will also be able to export beans.

These, then, are not merely economic measures. These measures involve a degree of popular participation, a degree or popular vigilance and control to avoid decapitalization of the farms and of industry. It is the total package. On July 19 the most important issue was to define the rules of the game in which the mixed economy is preserved, but with some conditions, so that this mixed economy will be working and producing for the interests of the majority of our people.

Excerpts from a talk give by
Xabier Gorostiaga, S.J.
Ministry of Planning
Managua, Nicaragua

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