NICARAGUA The hardest year since the revolution THE YEAR 1985 seems to have been a very bad one for the Nicaraguan economy. The devastating effects of the contra war and natural calamities aggravated the distortions of the mixed economy. (1) Facing this situation, the Sandinista government responded by accelerating the agrarian reform and various other economic measures commented on in the following article. MARIA MERRI production of cooking oil and soap -two of the five necessities whose prices are guaranteed by the state -last year required importing 42 mil lion dollars worth of raw materials.
Here again, the war is blocking greater utilization of the country's own resources, which could, at least in part, reduce this dependence. For example, the whole forestry development project, which was to provide the basis for increasing nontraditional exports and to lay the foundations for a lumber industry, has been thrown into disarray by the contras. That means that 14 million dollars in investment have gone up in smoke.
"We can't divide up what we don't have." This phrase by Comandante Cabrales, the minister of internal trade, sums up perfectly the facts about the population's number-one problem, supply. Any shortage feeds speculation and the black market. Nicaragua is no exception to this rule.
Through the Workers Supply Centers (CAT) and the Sandinista Defence Committees (CDS), the government provides a monthly quota of basic food products, hygienic - necessities and clothing.
However, while food products are distributed in accordance with the number of persons living in the same household, other products, in particular hygienic necessities, are distributed according to a quota allotted to each wage earner individually. In other words a single wage earner would get the same amount as one with a wife in the home who was the father of five children.
Moreover, since the CAT and CDS often do not have sufficient stocks to meet the demand, it is necessary to resort to the free market, where the prices are very elastic.
In an attempt to improve this situation, the Sandinista government has launched a twofold battle. Its first objective is to eliminate, or at least try to eliminate, the "informal" sector, which is an enormous cancer eating away at Managua. The second is to increase, at any cost, production and agricultural and industrial productivity.
Illegal traders are estimated at 40,000. The repressive side of the attack on this problem includes
1, by Charles-Andre Udry;, See "A step forward for the revolution, International Viewpoint, No. 97, April 21, 1986.
Wages were increased from 60% to 100% on January 1. The biggest raises were on the highest wages, unlike previous hikes. The government's objective was to give technicians and skilled workers incentive to remain in important sectors of the economy and not leave them to emigrate or to do more lucrative work in the informal sector.
3. On the elimination of subsidies on necessities, see "The revolution after six years, " by Jean-Claude Bernard, 'IV" No. 84, October 14, 1985.
International Viewpoint 5 May 1986
On March 9, the Nicaraguan government announced increases in prices and wages. The papers that day did not make very pleasant reading. Everyone was calculating what these steps would mean for them. But it cannot be said that this came as a surprise.
Since the national currency was devalued on February 1, with the cordoba going from 28 to 70 against the dollar, everyone had been wondering when the rises would come and how big they would be.
Wages were raised by 50% on March 2, after having already been increased by an average of 89% on January 1. (2) Prices, on the other hand, went up between 50% and 150%, depending on the product, and even by 200% for "high class" restaurants. All prices and charges went up in the food industry, transport, services, electricity, and so on.
These measures were a continuation of the line represented by the steps taken in February 1985, when the government removed the subsidies on necessities. The prices of such products had been kept at an artificially low level since the revolution. (3)
Officially, the inflation rate was 238% in 1985. But this figure does not take into account the great disparities in price rises. What is clear is that the standard of living went down in 1985 and that the drop was relatively steep. The Sandinista government has made no secret of the fact that 1985 was one of the most difficult years since the triumph of the revolution in 1979. The war is unbalancing the whole economic system, which, in a dependent country and in the midst of the world economic crisis, 8 was already vulnerable enough.
It is estimated that defence is absorbing about 50% of the state budget annually. There is the army of 50,000 that has to be fed, clothed and transported to the war zones. Moreover, it represents 11% of the country's agricultural and industrial labor force.
For 1985 alone, the total cost of the material damage caused by the contras is calculated at 120 million dollars.
In addition to maintaining the economic blockade, Washington has vetoed certain lines of credit extended to Nicaragua by the international financial institutions.
In total, in 1985, the cost of US aggression in all its forms (military, commercial and financial) was estimated to have reached the level of 608 million dollars, or 26% of the gross domestic product. Agriculture hit by drought and floods
As if this were not enough, in the past year agricultural production was hit by a series of natural disasters, a drought followed by catastrophic floods.
The volume of industrial production fell by 6.5%, while exports dropped by 11%. The value of the latter totalled only 300 million dollars and covered only 36.2% of imports. The trade deficit has risen to 531 million dollars, the biggest ever seen in Nicaragua.
Moreover, despite drastic cutbacks, the deficit in the state budget amounted to 23% of gross national product.
Even to be able to produce, Nicaragua has first to import. Just the
cleaning out the markets in the capital city, especially the infamous "Eastern Market," the bastion of the black market; the selective renewal of trading licenses in January; and the "iron fist" price control operations by the Ministry of Internal Trade (MICOIN).
The other side of this attack includes the creating of "people's inspectors," named by the CDS and the unions. They are to serve as auxiliaries for the MICOIN's inspectors so that supervision can be stepped up. Another measure is the establishment of regional garden farms. These are intended in time to supply the cities and prevent the black-. market prices, at least for fruit and vegetables.
An increase in agricultural and industrial productivity is crucial for the country. This is a major means of reducing shortages and therefore speculation. But there are and will remain many obstacles in the way of achieving this. On the objective level first of all, there is a chronic shortage of spare parts and raw materiials, which has been aggravated by the US blockade. Social investments earmarked for the countryside
But there are also subjective obstacles. In agriculture, for example, the workday is around four hours. In fact, it has gone up quite a bit. After the revolution, it is estimated that the workday fell to two hours.
This is a phenomenon inherent in any revolutionary process. It happens when the old constraints on workers are removed, especially on those doing the hardest jobs. It has to be understood as a natural thing. But it obviously poses some economic problems.
While waging an ideological campaign to explain the importance of rising production for developing the country, the Sandinista National Liberation Front (FSLN) has decided to give priority to the productive sectors of the working class and the peasantry in dividing up what is in short supply. This is to the disadvantage of other sectors, such as the services and administration
Moreover, this year almost all social investments - as in education, housing and health - will be earmarked for the countryside. The objective is to stimulate a sector vital to Nicaragua because of what it exports but also because of its production of food crops, and in this way to stem the rural exodus that has swollen Managua out of all proportion.
However, this measure is as much political as it is economic. With the
International Viewpoint 5 May 1986
The attitude of the peasantry to the government's policies will be decisive (DR)
turn taken in 1985 in the application of the agrarian reform, the distribution of land en masse and individually to the peasants, it is necessary to firm up the "workers' and peasants' alliance" as the backbone of the revolution, according to the expression of the national leadership of the FLN. (4)
This choice, which involves consciously favoring some sections of the population to the detriment of others, automatically incurs dissatisfaction among those momentarily left out. A number of measures have not exactly brought cheers from those affected. That goes for the increase in prices in Managua, which is higher than in the rest of the country. It goes also for the new working hours in the capital. The workday has been reduced and working time has been spread over the week. But workers in the tertiary sector and administration now have to work Saturday mornings. The reason for this was to try to solve the bottlenecks in mass transit in Managua.
The target of the 1986 economic plan is to achieve a growth rate of 5% over last year and to raise gross domestic product by 4.9%, which would make it possible to bring the economy back up to the level of 1983.
The Sandinista government hopes that the measures taken since January-February 1985 will bear fruit and that it will be possible to achieve an increase of 13% in industrial production and 4.3% in agriculture. However, the shortage of labor in the productive sectors is undoubtedly a substantial obstacle to achieving these ambitious objectives, even leaving aside the unknowns of the military situation.
The war has exacerbated the deformations of the country's economic structure, artificially swelling the tertiary sector. According to the Ministry of Planning, in 1985 the primary sector accounted for 25.1% of GDP; the secondary sector, 27.3%, and the tertiary sector, 47.6%. This breakdown reflects the extent of unproductive activities. Will 1986 be a better year than 1985? A certain number of positive factors indicate that it will. The price of coffee, the country's main export product, has soared on the world market, stabilizing at around 150 dollars per quintal [100 kilograms] as against 145 dollars per quintal last year. Moreover, this year the contras were unable to interfere with the harvest which was excellent. On the other hand, the prices for some other traditional export products, cotton and sugar, are in the doldrums. This year, Nicaragua intends to reduce the land under cotton by 20% in favor of nontraditional crops. On the military front, the defeat of the contras is becoming more pronounced. But for that very reason the possibility of a direct intervention by US imperialism may be reinforced. Everything seems to suggest that the anticipation of such an eventuality influenced the economic choice that the Sandinistas made, in particular their giving priority to relaunching the agrarian reform. Of course, the measures that have been taken have reinforced discontent, apathy and indifference in some sections of the population toward the government's policy. But if major developments occur, the attitude of the peasantry will no doubt be decisive.
C On the deepening of the agrarian reform, see 'IV' No. 97, April 21, 1986.