Economic crisis forms backdrop to election
NICARAGUA tion by about 20%. This change in the currency corresponded to a big devaluation of the cordoba and the unification of exchange rates. Previously there had been two exchange rates — one for exports and one for imports.
That state of affairs allowed both private and state enterprises to import goods at a cost lower than the real market price, which increased the trade deficit. Purchases of fertilizers and tractors were notably inflated by this. The "relatively modest" prices of these goods meant that they were
TEN YEARS after the triumph of the revolution, the Sandinista
National Liberation Front (FSLN) has moved into top gear to win the elections scheduled for February 1990. A setback for the Sandinistas at the elections, or a descent into chaos following on massive economic sabotage by the capitalists, could create favourable conditions for the counter-revolution and allow the United States to relaunch armed aggression on a massive scale.
ARNOLD BERTHU
HE ECONOMIC situation is real-
T ly disastrous. Industrial production fell by 30% in 1988.
Agricultural production has also seriously declined. The gross domestic product (GDP) has fallen by 10%. Unemployment has gone from 25% in 1987 to
30% today. The purchasing power of the workers fell by 85% in 1988.-
Nicaragua is in an economic depression and the standard of living of the masses, and in particular those sectors that form the base of the revolution, has been seriously affected. Apart from the problems in getting basic foods and other essentials, living conditions have deteriorated in general because of the restrictions imposed on social spending, whether on education or
The deterioration finds concrete and disturbing expression in a new rise in illiteracy and infant mortality, even if these have not reached the level of Somoza's time.
The crime rate has also risen.
There are, however, other factors to be taken into account in arriving at a complete picture of the life of the Nicaraguan population. The fact that the war has effectively ended is a major boon. The
Contras are no longer in a position to carry out assassinations or create a situation of insecurity in the regions where they previously operated (which never included the most heavily populated part of the country, the Pacific Coast). The masses are aware that the removal of the Contra menace is the result of the policy of the
Sandinistas, given human and material support by the popular base of the revolution. Also to be taken into account is the prevailing climate of freedom of expression, criticism and organization.
The main reasons for the crisis are the war and the economic blockade; the extreme backwardness of the country before 1979; the total dependence of the Nicaraguan economy on the world market; and the weight of debt ($6.7bn in 1988; if Nicaragua had paid all the interest due it would have amounted to 103% of the value of its exports!). These are things the Sandinistas could have no
The economic crisis was acute even before 1988, but the political and economic measures with which the Sandinistas hoped to meet the problems have led to a depression. In 1986-7 Nicaragua found itself on the edge of the abyss. Inflation was completely out of control and was above 1,000% while defence absorbed 50% of the budget.
Effects of economic and social measures
The Sandinistas reacted effectively on the military front, dealing the Contras a decisive blow in March 1988. But the economic and social measures have hit the masses hard without making a real improvement in the economic situation.
One of the first measures, adopted in February, aimed to radically reduce the amount of money in circulation. Every Nicaraguan had to exchange their money for a new currency — one new cordoba for 1,000 old cordobas. Over a certain sum, the money could not be immediately exchanged but was to stay in a closed bank account pending investigation of its
The latter measure was well received by most of the population. It hit some of those living off speculation and in particular the Contras who were not able, or did not dare, to change their money. This step reduced the amount of money in circulanot used or maintained with the necessary care.
Differences with standard monetarist policies
Other measures to reduce the money supply were taken at the same time through reducing state spending. This also included straightforward described in Nicaragua by the term compactacion (slimming down). The prices of fuel, water and electricity were raised.
These measures were along the lines of those followed in other Latin American countries under the aegis of the International Monetary Fund. But, as even Sandinista economists critical of the measures pointed out, the February measures difthe standard monetarism one basic point — wages. The average wage rose by around 500% to cover expenditure on 45 essential products (the "shopping basket").
Several factors made these measures ineffective. The devaluation led to a big rise in the price of imports essential for production, leading firms in turn to raise their prices on the internal market.
The firms, including state firms, have even anticipated expected increases in the costs of transport and imported goods and materials needed for production. In a context of an almost complete freeing of prices and a continuing lack of necessities, households were obliged to buy at a high price. All this gave a new boost to inflation which reached 944% between February and the end of May 1988.
In June 1988 came new measures of a more orthodox IMF type — a new devaluation of the cordoba and a wage freeze, to tackle what were rather simplistically held to be the causes of the inflationary spiral.2
The wage freeze did not stop the inflation, which had reached a total of 25,000% by the end of 1988, but the situa1. Between 1979 and 1983 the Nicaraguan GDP made progress, then from 1984, when the American aggression increased qualitatively, it fell. The evolution of the GDP over this period is as follows: 1980; +4.6%; 1981; +5.4%; 1982; +0.8%; 1983; +4.4%; 1984; -1.4%; 1985; -2.6%; 1986; -0.5%; 1987; ?; 1988; -10%. But it is not only Nicaragua that is in crisis. According to the United Nations Economics Commission for Latin America and the Caribbean (1989 report), production per head of population has fallen in the 1980s by 28% in Guyana, 26% in Bolivia, 20% in Guatemala, 16% in Haiti, 17% in Nicaragua and 14% in Salvador " 23 and Honduras.
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International Viewpoint #169 • September 18, 1989
NICARAGUA tion in the popular households had become dramatic. Consumption had fallen in absolute terms, and the shortage of essential goods had almost disappeared, since the tradespeople were no longer able to sell their stocks which had become too costly. Sandinista economists have provided figures which show the vertiginous drop in wages. At the end of 1988, wages made up only 5% of production costs in industry and 9% of current state expenditure. Harsh criticism of monetarist measures
The monetarist character of the 1988-89 measures has drawn very harsh criticism from militants who support the Sandinista regime. One of the most outspoken public criticisms is that of A. J. Acevedo Volg, a member of the Nicaraguan Association of Economists. In an article in the March 1989 issue of the pro-Sandinista Bulletin socio-economique he writes:
"The partisans of an orthodox, fundamentally monetarist, economic policy inside the revolutionary government.... believed that one of the basic causes of inflation was that, despite the accelerated and dramatic depreciation of their purchasing power, (nominal) money wages were still too high in relation to the supply of available consumer goods, and represented therefore excessive demand that had to be restrained. "
while recommending wage "restraint', they decided to leave free prices that are the source of the revenues of the unwaged economic actors. [This supplementary income then allows these sectors to increase their] demand for these very same consumer goods whose quantity is limited. But this is not said, because this other type of demand is not considered to be inflationary. If followed, the proposals of these economists would lead to a radical redistribution of income in favour of those sectors who get theirs through the movement of prices, (and these people are not necessarily productive) to the detriment of wage-earners."
Continuing his indictment of the economists that he calls "orthodox", Acevedo Volg adds: "For them the only source of inflation is the workers' struggle to halt the deterioration of their real wages, or the desperate struggle for survival of the 'non-competitive' small and medium sectors who press for access to credit and for better prices. But, even if they don't shout about it, they never consider as inflationary the fact that the entrepreneurs working in different sectors of the economy finance, transport, commerce, large-scale industry and so on — retain total liberty to benetit.... from more than average prof-
The violent tone used by Acevedo gives some idea of the seriousness of the type of 24 arguments put forward by a number of • economists with influence on the government starting in June 1988.
Between February 1988 and the start of summer 1989 the regime has tried out five packages of economic measures. The most recent (January 1989) tied to the effects of the terrible depression have, it seems, limited the growth of inflation. But the remedies used have caused a protracted depression and a radical lowering of the standard of living
The measures introduced in January 1989 take further the policy of reducing the number of functionaries and workers employed in the state sector at least 35,000 jobs have gone) without the raise in real wages that is being demanded by the unions, including the Sandinista
This new package has been accompanied by a series of overtures to the Nicaraguan capitalists and the private sector in general. These steps are probably based on political reasoning related present situation. The Sandinistas want to avoid the formation of an internal opposition front, including the whole of the capitalist private sector that would pick up the torch from the Contras and actively support the opposition parties. The new concessions have been made to neutralize potentially hostile capitalist sectors and to get a resumption of aid from the European imperialist countries.
End of land appropriations announced
In February 1989, in the name of the nine commandants, Daniel Ortega and Jaime Wheelock announced the end of land expropriations (which had benefited the small peasants) and stated their readiness to restore confiscated land to efficient private owners.
For example, a compromise has been reached with the Pelas family, whose San Antonio refinery was expropriated in June 1988; they have now been guaranteed the right to a part of the revenues from the exports of the company. The Nicaraguan authorities have furthermore promised that they will not expropriate the famous rum producing firm "Fior de Caña" that belongs to the same family.
These are symbolic decisions, since last year the nationalization of the possessions of the Pelas family was intended to serve as a warning to every Nicaraguan capitalist involved in the flight of capital. In his 2. The June declaration was accompanied by the following measures: the repayment rates on loans owed by the various types of enterprises are indexed monthly in relation to inflation. The idea is to limit credit and stop the financial system from being a source of inflationary increases in purchasing power. This measure has drastically limited the possibilities for individagricultural and artisan co-operatives to borrow. A significant number of co-operatives have had serious difficulties in buying enough spares, fertilizers and raw materials. The recessionary effect was immediate.
The second big measure was the freeing of the prices on all but 4 products (rice, sugar, oil and soap) whose prices can only be raised after a periodic review speech on the 9th anniversary of the revoimportance of this measure, insisting at the same time on the fact that the Sandinistas have been building socialism since July 19, 1979.
It is possible that the new line of concessions plus social partnership has prevented the entire capitalist sector from aligning with the political opposition, but it is very unlikely that the Sandinistas will get the capitalists to change their attitude to the economy and re-invest their profits in the country.
Tactical aspect of the Sandinistas' approach
It is necessary to consider the tactical aspect of the Sandinistas' approach. Confronted by the employers' economic sabotage, the Sandinistas could retaliate and resume expropriations. Thus, in mid-June, the authorities confiscated three coffee plantations belonging to the leaders of the Employers' Federation (COSEP) from Matagalpa accused of sabotage and of working with the American embassy.
The economic problems, however, have led to outbreaks of popular discontent. There have been a number of strikes since February 1988; in spring 1988 in conautomobile repair, in autumn in some industrial plants and more recently among teachers. The demands have mainly been for wage rises and saving jobs. Protest movements have also arisen in the countryside. In March 50 workers on a state farm near Matagalpa protested against the decision of the Ministry for the Development of the Agrarian Reform to return their enterprise to private ownership. The same was true of a group of co-operators from the National Union of Agriculturalists and Stockbreeders (UNAG) whose farm was going to be given back to a capitalist.
These movements were of small size, but are the tip of an iceberg. Although they have not been subjected to repression, they have been denounced vigorousimperialism and the right-wing opposition. Some strikes have been led by the unions tied to the two Communist parties, who have, furthermore, been in a front with the right-wing parties for a year. 3 counter-revolutionary muddies the waters and feeds the accusaand with government agreement. Only urban public transport and medicines remain partly subsidized. The cost of long-distance travel rose ninefold.
The third measure was that wages were to be only partly indexed. In industry firs were authorized to top up wages through productivity bonuses. But it is clear that overall workers' wages have fallen strikingly. The situation is worse in the state sector.A ceiling of 30% was put on wage increases, while prices were rising at 5 or 6 times that level. Nonetheless, to allow them access to three basic food products state functionaries have received since July 1988 a monthly ration of 5kg of rice, 5kg of beans and 2.5kgs of sugar. For the lowest paid 43% this represents a doubling of their sal aries and is significant for the others.
September 18, 1989 • #169 International Viewpoint tions against the strikers. However, despite the bad role of the two CPs, and some right-wing unions, it is not possible to accept the amalgam made by some Sandinista leaders between often justified actions of workers and peasants and the right-wing. The discontent, furthermore, also expresses itself inside the proSandinista organizations themselves. But the fact that none of the street demonstrations organized by the right, with the support of the CPs, has had mass attendance — the biggest assembled 8,000 people — shows that, if the workers are ready to protest against certain government measures, they are not ready to give their support to the "peaceful" counter-revolution. Economic strangulation and the military threat
In this very complex situation, the basic fact about popular sentiment is that the majority of the masses retain confidence in the FSLN. This is certainly not a blind and uncritical confidence and it can be damaged by specific economic or political measures (such as the release of the former Somozist guards). Nonetheless this confidence rests on the enormous capital gained by the FSLN, a confidence sustained by their ability to convince the masses to accept sacrifices to defend the revolution.
The military defeat of the Contras has led the Bush administration, in agreement with the Democrats, to look to the development of an internal oppositional front while keeping the Contras going as means of pressure. The message is clear: economic strangulation and the military threat will be maintained until there is a substantial change in Nicaragua — that is, VENCT the removal of the Sandinistas and the restoration of a capitalist state. The Nicaraguans desperately need international economic aid, since they cannot reconstruct the country from their own resources. Eastern European aid totally insufficient
The Soviet Union measures out its aid through an eyedropper. Clearly all aid from the Soviets and the other Eastern bloc countries is useful but the level is totally insufficient. The USSR has few strategic interests in the region and is using Nicaragua as a means of negotiation and pressure on the United States for the solution of other "regional" conflicts. They will not allow the Sandinistas to be overthrown, but beyond that the Sandinistas will have to look out for themselves. Commandante Victor Tirado wants to see this as a positive sign (see /V 168), but his optimism hardly hides the danger which looms as a consequence of the end of Soviet military aid and the small amount
There is a second international factor that is having a negative impact on Nicaragua. Even if the European capitalist states (though not Thatcher's Britain!) exercise a certain amount of restraint on American aggression, they are also black mailing the Nicaraguans. 4 The blackmai consists in linking the possibility of a resto important concessions by the Sandinistas to the capitalist sector, concessions which imply the extension of capitalist exploitation and therefore social regression. The Social Democrats — with the possible exception of the Swedish Social Demo-
Ded
NICARAGUA crats — and the European Christian Democrats, who all have important interests to defend in Latin America, are conducting this blackmail under the cover of a campaign supposedly for democracy.
In fact the democratization that they propose is the liberty for the Nicaraguan capitalists and multinationals to exploit the Nicaraguan masses on an expanded scale through more unemployment, privatization, social expenditure cut-backs and so on. They hope to see Nicaragua lose its power of attraction for the peoples of Latin America.
American and European imperialism are intervening in the build up to the February 1990 elections with financial means vastly superior to those at the disposal of the Sandinistas.
The United States and the Christian Democrats - with the Germans in the front line — have already given the Nicaraguan opposition $3 million for its electoral campaign. International solidarity with both the Sandinistas and the Nicaraguan masses is thus of vital importance in these elections. * 3. The photo of Altamirano, the General Secretary of the Communist Party of Nicaragua (CPN, pro-Moscow) applauding Contra leader and ex-Somozist colonel Bermudez, was published in all the press whether Sandinista or oppositional. It is entertaining to recall that when Emest Mandel visited Nicaragua at the end of 1984, the PCN's joumal Avanze ran a headline on the front page: "The proof that the FSLN is a petty bourgeois party: It receives Emest Mandel, leader of the reformist and counter-revolutionary Fourth International." 4. After Ortega's visit to 11 European capitals the few govemments that decided to give something, under the auspices of Sweden, decided on a contribution of $50m. Just previously, the American Congress had given $66m to the Contras. Thus: $50m from Europe for 3.5 million Nicaraguans and $66m from the US for 10,000 Contras!
SANDINO VIVE