Economic Crisis Called ‘Perfect Storm’

May 30, 2008

MANAGUA – With international oil prices reaching astronomical new heights, and a Nicaraguan government that has failed to respond with any coherent policies to mollify the impact on the country,Nicaragua could be heading for its worst economic depression in 70 years, according to Francisco Aguirre, president of the National Assembly’s Economic, Production and Budget Committee.

“I think it’s time to get into the foxhole and be ready to withstand a very, very critical moment,” Aguirre, a Harvard-educated lawyer and ex-ambassador to the United States, told The Nica Times in a recent interview.

“I don’t for one second underestimate the gravity of this situation.”

Aguirre, who monitors live updates of Dow Jones trading like someone watches a family member on life-support, said the higher oil prices climb, the closer Nicaragua gets to “an economic tailspin.”

As it stands, the situation is already critical, he said. When the government entered into its three-year program with the International Monetary Fund in 2007, all the economic projections were based on an average oil price of $76 a barrel. But if the price of oil remains around $130 a barrel – the current trading price – it would mean Nicaragua’s 2008 oil bill would top $1.3 billion, rather than the $760 million budgeted for the year.

If oil prices continue to climb to above $150 or even $200, it could spell disaster for Nicaragua, which has the greatest oil dependency in the region.

“We are on the threshold of a situation that would be as bad as the 1980s,” Aguirre said, adding that because the circumstances are much different from the ’80s, a more accurate comparison would be to the economic depression of the 1930s. “We have a very grave situation. I would say if the price of petroleum was to even approach the $150 mark, and if the average price of petroleum is around $130 for the year, Nicaragua would go into an economic tailspin that would be as severe as the depression of the 1930s, which was worse than the U.S. depression.”

The economic downturn is already taking a nasty toll on Nicaragua’s pinched middle class, he said.

“This is taking a tremendous bite out of the pocketbook of the Nicaraguan economy and is making the Nicaraguan middle class a species in danger of extinction,” he said.

Many working class families, Aguirre said, have already been forced to sell their second car and are thinking about trading in their other one for a motorcycle. They no longer have disposable income to eat in restaurants, and their dreams of offering their children a better life are fading, he said.

The poor, as always, are hit even harder. “This tragedy is repeating itself throughout Central America, but it’s particularly serious in Nicaragua because we started from less and we depend more on petroleum than any of the other Central American countries,” Aguirre said. “It’s either the perfect storm or the perfect nightmare.”

While the Liberal lawmaker said that Nicaragua’s economic crisis is foreign born, he lamented that the government has not done more to respond to it in a coordinated and productive manner.

“I think that the government has failed to arrive at a national consensus about this problem,” he said.

Instead of fomenting internal divisions and spooking investors, President Daniel Ortega ought to do more to nurture the country’s few and fragile moneymakers, namely tourism, trade and agriculture, Aguirre says.

“The only way to give Nicaragua a chance to survive is by protecting and nurturing the productive sectors, tourism, agriculture, industry, commerce,” he said, adding, “I wish our president would work more on resolving problems constructively rather than creating division. (He needs to) sort out our problems in a time of very great danger.”

Ortega, however, has thus far not shown much capacity for consensus – not even within his own administration.

As Central Bank President Antenor Rosales last week pleaded for additional financial assistance from an already leery European community, Ortega ranted about the “colonialist mentality” of countries that offer “conditional aid,” opposed to the unconditional and unaccountable aid from Venezuela (see separate story, page N6).

In the long run, Aguirre said, the country will need to be pulled out of its economic slump by the United States, as was the case in the 1950s. But in the short term, a U.S. economic recession may – ironically – help ease Nicaragua’s oil crisis, he said.

“Nicaragua can be saved by two things: lower oil prices brought about by a downturn in the economy of the major oil consumers, and secondly, by better governance internally,” Aguirre said. “We need both of those things to happen, but right now the impact of oil prices is so great on our society that anything that will bring those prices down is an enormous plus for us.”

 

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