Nicaraguan revolution faces economic disaster
THE CURRENT disastrous economic situation in Nicaragua places the Sandinista revolution in great difficulties. Even if the contras' apparent disbanding has reduced the danger of an armed counter-revolution, nearly ten years after the July 19 triumph, Nicaragua is nonetheless under siege, on the edge of economic strangulation. DOMINIQUE LEGRAND
F OR Nicaraguans, 1988 was a year
of austerity. The situation will be even worse in 1989. In a special session of parliament, President Daniel Ortega announced that a new shock plan for the economy was being put into operation. This is the fifth such "package"
and it comes only four months after the last readjustment.
Ortega painted a grim picture of the disastrous crisis affecting Nicaragua, pointing to the steep decline in exports linked to the collapse of production, the astronomical inflation rate, and the bottomless pit of the
Export revenue went from nearly $500 million in 1981 to $267 million in 1988. Inflation skyrocketed to 36,000% between December 1987 and December 1988. It was at 111% in November, 1988, 126% in December and 200% this January. As for the deficit, it went up to $237 million in 1988, nearly matching income from exports. The Gross National Product (GNP) fell 9% in 1988. Thus, the downward spiral of the last five years (apart from the small gain of 1.7% in 1987) is continuing.
Finally, the foreign debt, which was at $3.8 billion in 1983, reached $6.7 billion last year. The interest payment alone represents 103% of export value.
The draconian economic plan for 1989 provides for regular devaluations of the cordoba until it reaches the level of the official and parallel exchange rates; an almost complete halt to investments; enormous budget cuts; a sharp reduction in the production of currency that feeds the fiscal deficit; and higher direct and indirect taxes.
Minimum of investments for forthcoming year
On January 4, 1989, the cordoba was devalued by 117%, and on January 27, by another 16%, which put the official exchange rate at 2,300 C$ and the parallel rate at 4,500 C$ to the dollar, with the black market rate remaining at 5,000 C$ to the
From January 30, bank credit will not be extended to anyone but heads of firms and producers who can guarantee its repayment. For everyone else, credit has been
The minimum of investments will be maintained this year, with a priority on finishing projects that are nearly completed,
NICARAGUA and, above all else, putting to rights the damage done by Hurricane Joan to production equipment and essential services.
Reducing the state budget by 48% means a cut of 40% in the ministry of the interior, 29% in defense, and 19% in education. Health is also being affected, as are all of the public services. These figures should be regarded with caution, because, taking into account the effects of inflation, the cuts could be even more drastic.
The printing of currency designed to finance the deficit will be reduced to 4%, from its 1987 level of 52%. Taxes will be imposed on new sectors such as the agricultural cooperatives, and indirect taxes on non-staple items like cigarettes and drinks will be raised. Higher unemployment and lower demand
To reduce its expenses, the state will "shrink" the workforce it employs, which means beginning massive lay-offs. It should be remembered that 210,000 people are employed in the public sector, nearly half the total number of wage-earners. According to preliminary estimates, nearly 35,000 may be affected, or close to 17% of the state workforce. But, here too, the figures must be carefully appraised, because many of those affected will be demobilized soldiers as a consequence of the relative peace which has existed since the Sapoa accords.
All the same, there is no doubt that these measures will mean higher unemployment and a much lower demand, which it is hoped will ease the inflationary pressure. State aid in terms of public transport, health and basic foodstuffs will be continued for public sector employees, those who are the worst affected by these measures. And the Sandinista Workers Federation (CST) is sending brigades into some regions to look at the possibilities for reclassifying unemployed workers.
Ortega is said to have stated in his announcement that it is better to pay a certain social cost today than to watch the economy collapse under inflation tomorrow. In the same way, he warned that if some areas of production and distribution do not conform to the economic plan as it has been laid out, the only alternative will be to institute a "war economy" of the type found in Europe after the Second World War.
There are two obstacles facing this economic plan, he continued. First, the deficit and the lack of foreign aid; and second, the lack of workers' confidence in the producers and heads of enterprises.
As if echoing these words, the employers' organizations and the representatives of the large landholders have rejected appeals made to them to respond positively to these measures, presented by Daniel Orega as beinanthe recommendations of 9 "the capitalist banks." *