San José, Costa Rica, since 1956

Business Climate Cools, Forecast Uncertain

MANAGUA – Amid reports that Nicaragua’s business and investment climate is chilling under the watch of President Daniel Ortega, political and economic leaders are blaming one another for the situation and calling for greater efforts toward dialogue and consensus.

During last week’s second annual National Competitiveness Forum, new concerns were raised about the country’s declining competitiveness and a clear ideological line was drawn between the public and private sectors. While the Sandinista government talks of a movement toward socialism, those belonging to the private sector and the ideological right are arguing the case for openmarket capitalism.

The lack of consensus is reflecting in the country’s investment climate and business competitiveness rankings. According to the World Bank’s annual 2009 Doing Business report, which ranks the ease of doing business in 181 economies around the world, Nicaragua slipped 11 spots to 107 this year, indicating that the country is losing ground internationally.

“Despite the explosive trade growth caused by CAFTA (the Central American Free-Trade Agreement with the United States), there are some worrisome signs,” U.S. Ambassador Robert Callahan said. “Some indicators show that the competitiveness of Nicaragua has declined in the past two years in comparison to other countries. And this is a new phenomenon, because in past years Nicaragua’s competitiveness had been increasing quickly.”

Callahan stressed that other countries that are attracting investment and showing economic growth have proven that “capitalism is anything but savage” – in reference to Ortega’s mantra denouncing “savage capitalism.”

The Doing Business index is not the only report that gives Nicaragua’s business climate negative marks.

Erick Miller, an international business consultant from WashingtonD.C., was hired by Nicaragua’s Superior Business Chamber (COSEP) to evaluate the country’s business climate and levels of competitiveness. After several weeks of meeting with leaders of unions and the private sector, he came to the conclusion that “the perception in the private sector is that the investment climate is getting worse.”

Miller said that issues such as “little confidence in judicial security,” minimumwage insecurity, a lack of common vision for the economy, poor infrastructure and problems with customs, are just some of the issues complicating Nicaragua’s business climate. Still, the veteran consultant said, the problems aren’t beyond repair.

“Despite high inflation, the situation isn’t too serious,” he said of the Nicaraguan economy.

But in order to get back on track, Miller stressed the need for a “common vision” and a “national consensus about the country’s production policies, based on the demands of the international economy.”

The Finger of Blame

Some leaders of the private sector say the biggest problem to fostering a positive business climate in Nicaragua is President Ortega’s political discourse, which critics say creates the impression of hostility and instability and scares away investment.

Liberal Party lawmaker Freddy Torres, vice president of the National Assembly’s economic commission, argues that Nicaragua’s compliance with the International Monetary Fund (IMF) should be a positive for the country, but unfortunately, he said, it hasn’t offset Ortega’s discourse, which has “generated turbulence and a lack of confidence.”

Torres notes that the IMF has lauded Nicaragua for its “compliance or over-compliance” with all of its obligations, which “should be a sufficient message to attract massive investment.”

But even that important international stamp of approval hasn’t been able to makeup for Ortega’s ranting, Torres says.

The Ortega administration, meanwhile, says the problem with the investment climate has to do with everyone, not just the president.

Bayardo Arce, Ortega’s top economic advisor, told The Nica Times that reports of a negative investment climate here are overhyped by the national media and opposition leaders.

“Other countries don’t want to chase away investment or tourism, but we are specialists in doing the opposite,” Arce lamented, in blaming the opposition for spreading “exaggerations and lies” about the Ortega administration.

However, Arce conceded, it’s not only the opposition that’s contributing to the country’s image problem.

“The government is not innocent, and I am not going to defend every last word (Ortega) says,” Arce said, when pressed on the impact of the president’s rhetoric on the investment climate. “He’s been in politics long enough to defend himself.”

Behind Ortega’s discourse, Arce says the administration is trying to get the economy moving but has faced stiff opposition from Liberal lawmakers who are blocking the administration’s economic-stimulus package.

“I worked with the president to prioritize 18 economic laws; we have to pass these laws so the economy can move forward,” Arce said of the economic package sent to the National Assembly weeks ago.

Included in the economic stimulus package are: the Coastal Law; the Renewable Energy Law; the Micro-Finance Law; the law reforming state concessions; and the law to create the long-awaited Competitiveness Committee, which the business chambers insist is imperative to finding solutions to the economy’s problems.

The stimulus package is currently being held up by Liberal lawmakers who are protesting an alleged land takeover of one of their colleague’s properties.

By doing so, Arce argues, the Liberals are using the national economy as a political bargaining chip and worsening confidence in the country.

“That’s (their idea of) investment climate – freezing the economic package,” Arce said.

Better Dialogue Needed

Arce said the government wants to work with the private sector to move the country forward, but that doesn’t mean that it’s going to hand over the keys to the kingdom.

“I have a great respect for the private sector, but I’m not going to put them on an altar,” Arce said. “Much less so now, after everything we are seeing in the United States” with the recent collapse of several large financial institutions.

The solution, he said, is working together in a public-private partnership.

“We have to look for a way to develop a dialogue that is more inclusive and more substantive,” Arce stressed.

On that point, nearly everyone seems to be in agreement. The problem is that no one has figured out how to do that yet.


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