President Daniel Ortega and his top economic advisers are reportedly hammering out the final details economic stimulus package this week in hopes of offsetting an expected dip in remittances, one of Nicaragua’s main sources of foreign income, according to Universidad American economist Manuel Salgado.
Remittances to Nicaragua reached as much as $1.5 billion last year, representing nearly a quarter of the country’s Gross Domestic Product (GDP). But economists are anticipating remittances will be slashed by as much as a third this year as unemployment continues to grow in the United States and other developed countries.
Though Ortega at press time had yet to unveil his economic “emergency measures” in detail, he did offer a preview in his State of the Nation Report, which calls for a departure from the restrictive fiscal policies that the International Monetary Fund (IMF) has traditionally encouraged for developing countries during times of recession. Ortega is also calling for a push to raise new aid from new strategic alliances in what the president calls a “multi-polar” world.
Ortega wants to subsidize farming, invest in “massive” road construction projects and expand access to credit for small entrepreneurs in hopes of achieving at least the 2 percent GDP growth that Central Bank President Antenor Rosales has set as this year’s goal. But economists say Ortega is overlooking what has traditionally been the Achilles’ heel of the Nicaraguan economy: political instability.
“Political stability is a precondition for economic growth,” Salgado said. “Nicaragua has a climate of uncertainty that has a negative impact on jobs and economic growth.”
By failing to find a solution to the democratic crisis triggered by widespread allegations of electoral fraud in the Nov. 9 mayoral elections, the Ortega government has drawn the ire of foreign governments, who have suspended millions in aid. The crisis is also giving private investors and tourists cold feet, Salgado said.
Honoring Debts
Though Ortega was expected to deliver his economic emergency plan during the Jan. 14 swearing-in ceremony of Nicaragua’s 146 new mayors, his speech was apparently cut short by hecklers in the crowd.
Ortega did, however, call on indebted farmers to pay their debts to micro-financiers, marking a reversal from his previous stance in a speech last July, in which the president encouraged indebted farmers to march on bank offices to demand favorable interest rates. That speech led to riots in the northern city of Jalapa, as debtors burned the buildings of micro-financiers.
“The policy of not paying has disappeared, we all have to pay, and the debtors and the financiers should negotiate, dialogue and achieve a restructuring of those debts,” Ortega said in his speech last week.
His call to pay off debts came after police quelled a violent debtor protest earlier this month along the Inter-American highway in Nueva Segovia. Riot police detained 127 rioters and 10 cops were treated for injuries after many of them were hit by rocks, according to police spokesperson Vilma Reyes.
“The police had to use anti-riot tactics to reestablish free transit for the some 10 kilometers of blocked traffic and thousands of people who were stranded,” Reyes said.
The Movement of Producers, Merchants and Micro-entrepreneurs of Nueva Segovia accuse micro-financiers of usury. The Movement’s leader, Omar Vilchez, said on La Primerisa radio that protestors are demanding approval of a proposed bill that would put a moratorium on their debts for three years while their 15,000 cases are reviewed.
Though most micro-financier’s offer interest rates ranging between 16-22 percent, some financiers charge poor farmers as much as 60 percent annually, according to Douglas Bojorge, Financial Commissioner for Nicaragua’s National Consumer Defense Network.
Bojorge said his network has been hit with an “avalanche” of 1,500 complaints from indebted farmers and other producers in recent weeks requesting that their debts be reviewed. As the economic crisis deepens, he expects to see more complaints flood in.
“Every day there’s less employment. Every day people are being laid off,” he said. Bojorge’s network represents debtors in complaints against financiers and serves as a mediator to help debtors and financiers renegotiate terms of payment.
The movement’s 15,000 producers have an estimated combined $50 million in debt, a sizeable chunk of the $280 million managed by the Association of Micro-financiers (ASOMIF), an umbrella organization of 22 Nicaraguan micro-financiers that serves 560,000 clients in Nicaragua.
Bojorge said another movement of producers is organizing in Managua and may soon launch similar protests against highinterest rate financiers.
ASOMIF said in a communiqué that the demonstrators want to create more economic problems than those already facing the country.
“It’s obvious that this movement (of indebted producers) has the express intention of destabilizing the economy and the country,” said the note released by 22 microlending institutions.
Salgado said the protests against the micro-financiers are proof that “Nicaragua needs more policies to stimulate its productive sector,” namely the creation of the longawaited Agricultural Development Bank.
“Producers need to get financing for technical assistance from state institutions,” Salgado, said, calling for the “creation of a bank for farmers or a law that would persuade banks to lend to small agricultural producers.”
Ortega said in his state of the nation report that he plans to form the long-promised production bank this year, which would offer favorable loans to farmers, with support from the Venezuelan-financed ALBA-Caruna cooperative, the public bank BANDES and the Nicaraguan Social Security Institute
(INSS).
Subsidizing Stability?
The government is also looking to invest an unspecified portion of the Central Bank’s $1.1 billion in reserves and INSS funds in the private banking sector to improve its liquidity.
Another goal, as outlined in Ortega’s report, is to obtain credit lines from “strategic allies and multilateral sources.”
In his report, Ortega said that Wall Street was the center of the “implosion of neo-liberal finance capitalism,” and that Nicaragua needs to make new friends.
“World liquidity is no longer in New York or London. Wall Street is functioning based on bailouts … Liquidity is in Beijing, the Persian Gulf and Russia. Nicaragua is well positioned in the new multi-polar world and we must take maximum advantage to defend the economy and jobs,” Ortega said in his report, which he has yet to deliver publically to the National Assembly due to the legislative gridlock (see separate story, Pg N2).
The president said he wants to seek out foreign support for public “macro-projects” and says “more dynamic economies” such as China, India and Brazil are more likely to provide support for such projects than the United States or even Europe.
Ortega has said he hopes to replace as much as $150 million in suspended U.S. and European foreign aid and budget support with financial support from his new allies such as Venezuela, Russia and Iran.
Ortega went so far as to say last November that–the U.S. aid suspension would make Nicaragua “more free.”
Salgado, however, said that Nicaragua, with a trade deficit running between $600 and $800 million, is not really in a position to brush off aid cuts. Foreign aid and remittances help to make up for Nicaragua’s trade deficit, but Ortega has yet to detail how he will fill the gap that would be left by $150 million in aid suspension, or the expected fall in remittances, which could decrease by as much as $200 – $500 million.
Though vocal opposition leaders have chided Ortega’s attitude toward the aid cuts, it wasn’t until last week that a leader within the government acknowledged that the government budget is in trouble.
Ortega’s top economic advisor, Bayardo Arce, told the daily El Nuevo Diario that the government’s 2009 budget plan is already “unsustainable” as is, even before being approved by the National Assembly. Arce said Ortega would soon be detailing economic “emergency measures.”
The bright spot for the Nicaraguan economy’s otherwise murky outlook for 2009 is the decelerating inflation rate, which dropped from 16.9 percent in 2007 to 13.77 percent in 2008, according to government figures.
Central Bank President Rosales predicts the rate will drop into the single digits in 2009, perhaps going as low as 8 percent, thanks largely to the drop in oil prices.
After Rosales and the rest of Ortega’s economic team presented the president with their recommendations for the government’s economic “defense” plan during a closed-door meeting Jan. 14, he announced that Nicaragua will maintain its “crawling peg” monetary policy in 2009, meaning the córdoba will continue to devalue by 5 percent annually against the U.S. dollar.
Rosales said the plan, which Ortega’s economic team has worked on in three sessions, is to be unveiled in more detail in days to come.
–With reporting contributed by EFE
