MANAGUA – When Sandinista leader Daniel Ortega returned to the presidency in 2007, it was anyone’s guess how Nicaragua’s private sector would respond.
After all, the pernicious policies of the Sandinistas’ experimental “mixed-economy” in the 1980s were marked by massive capital flight, confiscations of private property, hyperinflation and economic ruin. In less than a decade, Nicaragua went from being the wealthiest economy in Central America to one of the poorest and most heavily indebted nations in the hemisphere. The grinding U.S.-funded contra war contributed greatly to Nicaragua’s economic woes, but by the mid 1980s, Sandinista economic planners were managing economic collapse pretty well on their own.
The rebirth of the Ortega government has been a different story entirely. While preaching the evils of “savage capitalism” and chirping praises for socialism, Sandinista economic advisers have practiced the shrewdness of shopkeepers. As a result, Nicaragua for the past few years has set new high-water marks in exports, foreign direct investment and bank reserves, while the economy has grown at a faster clip than that of any other Central America country (excluding Panama).
Even Ortega’s privatization of Venezuelan aid, a source of controversy for the first four years of his administration, now has several independent economists reluctantly nodding their heads in belated acknowledgement of a job well done. That’s because the handling of Venezuelan aid has helped Nicaragua maintain a relatively balanced budget while dodging a bullet from the world economic crisis.
Meanwhile, the Sandinista inner circle has invested much of the Venezuela’s largess in Nicaragua’s nascent productive sector, becoming the new captains of industry with tendrils extending into oil, energy, tourism, timber, livestock and agriculture.
Though the Sandinistas’ steady advance into the private sector has occasionally raised complaints of unfair business practices, generally it has been a welcome change from the hostile appropriations of the past.
“Nicaragua is enjoying its best moments,” says non-Sandinista businessman René González, of the KPMG accounting and auditing firm. “I think the relationship between the private sector and the government is also in its best moment ever.”
González, the former president of the Nicaraguan-American Chamber of Commerce (AMCHAM), says the government started off on the right foot immediately after the elections in 2006, when Ortega met with leaders of private sector to assure them his administration would maintain a constant dialogue. The private sector, in return, gave Ortega the benefit of the doubt – one that’s lasted for five years, despite wobbling at times.
While the business sector occasionally raises concerns about rule of law and the fragile state of Nicaragua’s institutional democracy, those seem to be secondary concerns to economic growth. Indeed, despite some political qualms with the Sandinistas’ project, many industry leaders are wealthier now than they were when Ortega returned to power five years ago.
“Before, there was always a fear that if Ortega won the election all the money would leave the country because no one knew what model of government he would have,” economist Mario Arana, former Central Bank chief and ex-Minister of Finance, told The Nicaragua Dispatch. “But what has been clear is that the government is interested in having a strategic alliance with the private sector.”
Arana, who today serves as director of the Nicaraguan Foundation for Economic and Social Development (FUNIDES), says the Sandinistas have matured and become much more pragmatic since the Cold War days. He says they have learned from “the experience of a project that didn’t work,” and now are making an effort to develop a sustainable market economy that trades nicely with its friends.
Even Venezuelan President Hugo Chávez’ loaned riches are being invested productively in industries that will continue to bolster production and turn profits for Sandinista businessmen after the ALBA spigot dries, Arana said.
“The Sandinistas are more realistic; they realize what exists in the world today,” Arana said. “The international alliances from the Cold War are a thing of the past and no one is thinking about giving Nicaragua huge amounts of foreign aid like we saw in the past.”
To move forward, Arana says, Nicaragua needs to pull itself up by its own bootstraps and “insert itself into the concert of nations” that comprise the free-market global economy. The days of passing the hat for charity are over, he says. And the Sandinistas know it.
Still, as a small economy, Nicaragua’s luck still depends greatly on what happens in other markets, mostly in Venezuela and the United States.
To prepare itself for any future knocks, Nicaragua must keep its house in order, analysts stress.
For economist Nestor Avendaño, that means the Sandinista administration needs to continue its good relations with the International Monetary Fund (IMF), AMCHAM and the Superior Business Council (COSEP), a national conglomerate of 18 Nicaraguan business chambers.
“Ortega needs to walk hand in hand with the IMF and COSEP,” Avendaño says. He stresses that both those relationships are equally important to maintaining a stable business and investment climate in Nicaragua.
Depoliticizing the economy
The government’s continuous dialogue with COSEP, the country’s most important private-sector organization, has in many ways helped to depoliticize Nicaragua’s private sector and create a common vision for development.
Now, instead of using COSEP as a political soapbox to back opposition candidates, as the business council did in 2006 by endorsing the campaign of Eduardo Montealegre, the private-sector organization has learned to embrace its political pluralism and pronounce itself non-partisan.
But COSEP does believe in principles, says chamber president José Adán Aguirre. That’s why COSEP is pushing hard for clean, fair, credible and transparent elections in November.
“Nicaragua is going through an electoral process with enormous transcendence for the country’s economic and institutional future,” Aguirre said.
He added, “The correct administration of the electoral process and the transparency of the results will determine whether Nicaragua continues or not along the path of sustained economic growth and the strengthening of its democratic institutions.”
COSEP has already expressed concern about the Supreme Electoral Council’s ominous restrictions on electoral observation. It’s the latest in a litany of democratic concerns COSEP has raised since Ortega returned to power.
“Since 2007, we have asked for respect for the Constitution, independence of government branches, governability and institutional democracy, judicial security and the correct management of the public sector, as well as defense of free press, free mobilization and free expression,” Aguirre said.
With a list like that, it’s hard to imagine that relations between the private sector and government are smooth. But on economic matters, COSEP and ruling party see eye to eye more often than not. In fact, in the past three and half years, COSEP has achieved consensus with the government on the approval of 45 of 46 economic and financial laws, and 13 executive orders.
Some, however, wonder if that dialogue will be at risk if the Sandinistas win both the presidency and a super majority in the National Assembly, clearing the path for them to govern unilaterally. A new Sandinista campaign spot claims Ortega will win the elections with 58 percent, based on Sandinista polling.
“If Ortega wins 56 votes in the National Assembly, he’ll be able to pass any reforms he wants without negotiating at all with any political adversaries or anybody else. The Constitution would be in his hands, and the private sector should be worried about that,” economist Avendaño warns.
But such concerns are unwarranted, insists Ortega’s top economic advisor, Bayardo Arce, who promises the government won’t try to map a new course over the next five years.
COSEP, meanwhile, hopes democracy in Nicaragua will eventually follow in the wake of economic growth and investment.
“If the economy grows, democracy will grow,” Aguirre said hopefully. “There is no country in the world that gets more democratic by getting poorer.”
While the logic of that sentence is probably backwards, the private sector’s gamble is that economic advance will drag democracy along for the ride. Because if it doesn’t, any future growth will be built on shaky legs.
Says Arana, “To move sustainably towards the future we need political democracy and economic democracy. One without the other is not going to work.”
Next: will politics eventually derail Nicaragua’s economic progress?