Can the economy grow as democracy shrinks?

second in a two-part series on the Sandinista government's relationship with the business sector

MANAGUA—The electoral turbulence that normally rattles Nicaragua’s economy at the end of every presidential quinquennial, forcing investors to return to their seats and strap themselves in for a bumpy ride, has failed to materialize this year despite the political cumulonimbus gathering over the country’s democracy.

“The investment climate has been very stable and favorable this year,” Gen. Alvaro Baltodano, president of the government’s National Free Trade Zone Commission, told The Nicaragua Dispatch. “This year (investors) are not worried (about the elections). They are very calm. The private sector has a lot of confidence in the Sandinista government.”

The surprisingly stabile business climate is an election-year first for Nicaragua. Traditionally, investors put their projects on ice during election season, waiting to see what the change of government will mean for the economy.

But this year’s continued growth in foreign direct investment and exports is bucking that trend. And it can mean only two things: private sector leaders are comfortable with the Sandinista government; and they don’t expect Ortega to be dethroned in the Nov. 6 elections.

While opposition civil society groups focus on the illegality of Ortega’s reelection bid and its implications for Nicaragua’s democracy, the business class is focusing on what Ortega’s continuance in power will mean for the economy. Between the moans of democratic agony and the hoots of economic approval, Nicaragua is increasingly becoming a tale of two countries.

The diverging economic and political realities may seem conflicting, but it’s not the first time Nicaragua has enjoyed economic growth in a shrinking democracy.

“Corruption and progress go hand in hand in Nicaragua,” says veteran political analyst Arturo Cruz Porras, 87. “Our political culture is horrible. We need to change it.”

To be fair, leaders of the private sector have also raised concerns about the country’s withering democracy and dubious rule of law. But the economy is on the right track, they say; so don’t throw the baby out with the bathwater.

“We are convinced that Nicaragua is doing things well,” says Carlos Hernández, president of Guacalito de la Isla, the $250 million tourism development being built by Grupo Pellas in the southern Pacific coastal region of Tola.

Hernández says there are still things that need fixing— “opportunities” for improvement, he says kindly. But overall, he says, the government’s efforts to coordinate its economic agenda with the private sector are paying off handsomely.

And the numbers reflect that sentiment. Since the Sandinistas returned to power in 2007, exports have doubled and foreign-direct investment has grown nearly five-fold. Nicaragua is the only country in Central America to recover all the free-trade zone jobs it lost during the global economic slump of 2008-’09. And it’s even grown beyond previous employment highs in the free-trade zone sector, on track to reach 97,000 factory jobs by end of the year.

In the first semester of 2011, Nicaragua attracted $284 million in foreign-direct investment. While investment doesn’t appear to be growing at a rate to meet Ortega’s ambitious goal of $1 billion by year’s end, it’s still up 32 percent from last year, according to Veronica Rojas, vice minister of the Ministry of Industry, Commerce and Development (MIFIC).

Rojas says most of the investment has been in telecom, energy, mines, and trade and services, distributed throughout most of the country.

“We are diversifying the type of investment we are getting, where it’s coming from, and the markets to which we are exporting,” said Gen. Baltodano, who also serves as Ortega’s presidential delegate to ProNicaragua, the government’s investment-promotion agency.

Baltodano attributes Nicaragua’s economic growth, stability and diversification to the government’s teamwork with the private sector. 

“We are convinced that this is working because we have reached important consensus about the economic development of this country,” Baltodano said. “The public and private sectors need to walk together to develop the country, generate jobs, and seek new investment, which is fundamental because without investment there are no jobs.”

After all, he says, the government is only a “facilitator” for business. “The fundamental investment must come from the private sector.”

Baltodano says important investment continues to come into the country even in the months and weeks ahead of the presidential elections. He says U.S. companies, too, are showing that they are no longer as leery about the Sandinistas as they once were. For example, Ball Horticultural Company announced as recently as last month that it is going to invest $15 million in a hydroponic production facility that will employ some 900 workers in Estelí.

Other big projects in renewable energy and petroleum exploration are also planned for next year, as well as the continuation of megaprojects such as the oil refinery in León and phase I feasibility studies on the proposed deep-water port at Monkey Point, on the southern Caribbean coast.

“The investment climate has been very stable and favorable this year,” Baltodano said.

However, Nicaragua’s challenge moving forward will be to continue to improve upon its economic growth without letting politics get in the way of development.

It’s a difficult juggling act to maintain and—one might argue—a needlessly risky one to attempt in the first place.

Democracy and economy might not be natural dance partners, but history has already shown that when dictatorship cuts in, it invariably ends up stepping on economy’s toes and ruining the song.

  • Gary Greenberg

    >Democracy and economy might not be natural dance partners, but history >has already shown that when dictatorship cuts in, it invariably ends up >stepping on economy’s toes and ruining the song.

    I think the Chinese are showing us that this axiom and its historical corollary are more mythology than anything else. Totalitarianism and capitalism might be a more potent and prolific marriage than we ever imagined. Indeed, a government that stays out of the way of the marketplace while keeping people docile (and prosperous) might turn out to be the most powerful government ever invented.

  • Pedro Arauz

    Excellent article Tim, you seem to have much better insight than most. Actually the Nica business elite has no other choice but to bet along though they know very well they will crash sooner than latter. I reckon that as soon as Chavez dies Ortega will eat them, same happened with Somoza after the 1972 earthquake bonanza coming to an end at and about 1976,best regard and keep them coming. I post your articles in my “chain” and we have a reach of about 30 M, yes 30 million connections!

  • Sayayuca

    “The diverging economic and political realities may seem conflicting, but it’s not the first time Nicaragua has enjoyed economic growth in a shrinking democracy.”
    And, which will be the other times such a thing has happened? The Somoza dictatorship? The Violeta Chamorro and the subsequent neo-liberal nightmare, that impoverished even more the already starving majority of the Nicaraguan population?
    Now, as far as I know, there are 5 competitors for the general elections this year; all of them formed by an alliance of parties of a wide spectrum of political positions. This fact seems hard to be called a “shrinking democracy”.

    • Carlos

      the ffact that 5 parties are running doesn’t mean there’s a democracy. i remind you, whether you’d like to accept it or not, 3 of the 4 “opposition” are satellites of the ortega’s sandinistas. pedro, I agree, when chavez dies he will eat them, and that they I will celebrate for their treason,

      • Sayayuca

        And what other characteristics are they to constitute a democracy? Just point a few please, with the support of impartial and honest sources, that are lacking in the Nicaragua of today. What you call “satellites” of the sandinistas don’t see themselves as such. This is just a very poor argument of your part.

        • Carlos

          It may be poor but truthful. and only because they don’t consider themselves satellites doesn’t meant they aren’t. of course they are going to deny it, I remind you that the purpose is to lie to people. Balance of power is one characteristic; do you honestly believe that balance exist in Nicaragua?

          • Sayayuca

            There is no democracy in the western world where such a “balance of power” exist withouth the negotiating of the major political parties. Such a negotiation has ben called in Nicaragua a “pacto” for the only purpose of giving it a negative connotation. The reason there is no participation of other political forces in the actual “balance of power” in Nicaragua is due only to their need to call themselves the “pure and real” opposition. I bet that given the opportunity of taking a seat in the Supreme Court or the CSE, you will find more than one of these “pure” parties or their leaders that will not hesitate to take it (as long as it comes with a good salary, in USD, “please”). Also, in the context of your comment, poor does not mean truthful, it means actually very doubtful. I thought you will come back with much more than this one characteristic, still a poor argument of your part.

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    • Carlos

      I was just trying to make a point that there is no democracy (or at least dying) in nicaragua. maybe you can enlighten me as to other characteristics beside the 5 parties running? and did you know that ortega never left power during what you call the neoliberal nightmare? don’t get me wrong, it wasn’t the best of times but i don’t let myself be blinded. there’s no perfect candidate, but you have to find the one that will open the door to democracy, which is Fabio Gadea.

      • Sayayuca

        I do know that what the Frente Sandinista and the PLC have agreed to is a pacto, in the literal sense of the word. Here is the Real Academia de la Lengua definition of the word: pacto.
        (Del lat. pactum).
        1. m. Concierto o tratado entre dos o más partes que se comprometen a cumplir lo estipulado.
        2. m. Cosa estudiada por tal concierto.
        As you can see, the negative connotation of the word has been given by our past history, and that is the sense the opposition wants to give it. Now, do you know who the magistrates of the Supreme Court that exonerated Aleman were? All members of his PLC party, there was never a “gun on his head” put by the FSLN to negotiate anything.Sent to jail by Bolaños and liberated by his own magistrates, that is the true.

      • Sayayuca

        Some other characteristics will be the existence of an independent legislative branch, freedom of speech, freedom of association, electoral freedom (do not confuse this with the number of political parties, since not all of them run or participate in the elections). All of these are present in the Nicaragua of today.

  • Carlos

    sayayuca, you know that’s a complete lie, that’s a very poor or biased opinion about the pacto. Either you are blind or pretend to be blind not to see that the relationship between ortega and aleman is a pacto, a partnership or whatever you want to call it. In other countries, yes you do see true negotiations where both parties reach agreement, whether good or bad, but the reality in Nicaragua is different, the type of negotiation you see between ortega and aleman is give me control of all institutions or you go to jail. If aleman or you call that negotiating, then i fell sorry for your poor judgement.