Can Nicaragua survive crisis in Venezuela?

A year after the death of Hugo Chávez economists think ALBA is now in its final days

Nicaraguans rally outside the Cathedral in León waiting for a visit from Venezuelan President Hugo Chávez back in 2009 (photo/ Tim Rogers)

Nicaraguans rally outside the Cathedral in León waiting for a visit from Venezuelan President Hugo Chávez back in 2009 (photo/ Tim Rogers)

As Sandinista faithful mobilize in the streets of Managua to pay homage to former Venezuelan President Hugo Chávez on the one-year anniversary of his death, Nicaraguan and Venezuelan analysts predict the international project he started won’t outlive its founder for much longer.

President Daniel Ortega, who is traveling to Venezuela to pay official tribute to his former benefactor, honored Chávez as a revolutionary who “fought for the people, fought for America, fought for humanity, fought for peace and fought for justice.”

Prior to leaving for the airport today, Ortega said that now, “more than ever,” the countries belonging to the alliance created by Chávez will “continue to fight for peace, for justice, for liberty and for the sovereignty of our people.”

But just a year after the loss of Chávez’s charismatic leadership, and amid the ruin of Venezuela’s economy, the Bolivarian Alliance for Our Americas (ALBA) —Chávez’s brainchild for regional integration — appears to be collapsing under the weight of its own ambition.

And some economists warn that the unraveling of ALBA could be devastating for Nicaragua’s economy.

Venezuelan economist Ricardo Hausmann

photo/ Tim Rogers

Venezuelan economist Ricardo Hausmann

“I think that ALBA has all the likelihood of bankrupting Nicaragua,” economist Ricardo Hausmann, director of Harvard’s Center for International Development and former Minister of Planning of Venezuela, told The Nicaragua Dispatch.

Though Nicaraguan exports to Venezuela grew by a whopping 7,000% during the first six years of ALBA (from $6.2 million in 2007 to $437 million in 2012), it was growth based on a “an artificial market — and that artificial market is in the process of collapsing,” according to Hausmann.

In addition to nearly 60% inflation, basic shortages, an underperforming oil industry, and a runaway black market, Venezuela is accumulating billions of dollars in new debt for unpaid imports.

“Venezuela has arrears to the tune of $56 billion in unpaid bills; that includes all the imports that Venezuela has done in the past eight months, which have not been paid,” Hausmann says. In addition, the economist says, Venezuela owes $3.5 billion to the airline companies.

Chávez’s vision of a socialist alliance in the Americas might not disappear overnight, but ALBA’s fate is not looking good, Hausmann says.

“ALBA is not an economic system; it’s a preferential agreement for Venezuela to buy stuff from its friends. Venezuela is buying less and less, it’s collapsing,” Hausmann says. “It owes too much money to too many people, and it’s going to default on many people; so its not an exactly super sexy market to be tied to.”

Indeed, the decline of ALBA has come faster than many would have guessed. After six years of steady trade growth under Chávez, Nicaragua’s exports to Venezuela dropped by $31.7 million last year, according to Nicaraguan government figures.

The Sandinista government's tribute to Hugo Chavez in Managua

photo/ Valeria Espinoza

The Sandinista government's tribute to Hugo Chavez in Managua

Nicaragua’s oil imports from Venezuela continued to increase; but Nicaragua is a paying customer. Venezuela, on the other hand, increasingly is not.

“The Venezuelan market is a temporary thing; it is already shrinking and it won’t be there (forever), so smart Nicaraguans are not going to want to bet on that horse,” Hausmann says, adding that Nicaraguan exporters who are currently owed money from Venezuela will probably not get paid.

On the other hand, Hausmann notes, Nicaragua was smart to not abandon its free-trade agreements with the U.S. and other countries. The United States remains Nicaragua’s main trade partner, purchasing $592 million in Nicaraguan exports last year — nearly $200 million more than Venezuela purchased.

“Nicaragua has all the disciplines of a free trade agreement, so from a business point of view it’s a much more open economy; there is a part of Nicaragua that has a set of economic rules that is infinitely healthier than those of Venezuela,” Hausmann says.

The challenge for Nicaragua will be to make sure its exports meet the stricter standards of quality required by other countries, so they can find new markets when Venezuela ceases to be a viable option. Even if the South American oil giant can pull it together economically, any political change of the guard in Venezuela would most likely end Nicaragua’s sweetheart trade deals.

Trying to keep it together: Venezuelan President Nicolas Maduro

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Trying to keep it together: Venezuelan President Nicolas Maduro

“The likelihood that the politically allocated market shares that Nicaragua has in that market are going to survive (any political change) is very unlikely,” Hausmann says.

Nicaraguan economist Francisco Aguirre is also skeptical about the future of ALBA. He says the unsustainable nature of the project was baked in from the beginning.

“With or without Chávez, ALBA — as originally conceived — was not sustainable,” Aguirre says. “Although Venezuela is potentially a very wealthy nation with the world’s largest petroleum reserves, Chávez also espoused what he called XXI Century Socialism which was one part populism, a second part economic mismanagement, and a third part corruption.”

Ortega, however, is more savvy than Chávez was, Aguirre says. Wisely, the Nicaraguan president never jumped into XXI Century Socialism with both feet.

“Daniel Ortega milked the Venezuelan cash cow while he could, but he’s smart and experienced, so he’s aware that Venezuela’s ‘aid’ to Nicaragua is diminishing; hence his rush to firm up special relations with other nontraditional donors such as Russia,” Aguirre says.

Ortega’s challenge moving forward, the economist says, will be finding a way to manage Nicaraguans’ expectations and keep his grip on power amid a deceleration of economic growth due to lower commodity prices and the diminishing role of Venezuelan largess.

A $40 billion Chinese canal, perhaps?

 

  • Pepe Turcon

    Great article Tim, thanks!
    When we keep striving for a better democracy we are doing the right thing, we get people like Winston Churchill saying so and it’s because we give real hope to people. Hope that goes beyond material things then we are spiritual beings in a material experience.
    Having lived in Nica since the times of the first Somoza it is my experience that in Nica when you base your organization on mediocrity you fail.
    The Somozas except for the last one had quite a few very decent elements in their organization and that’s the reason why Nica and the Somozas had a very positive side. The Somozas learned from scratch as opposed to Ortega who wants to re edit the Somocismo in Nica. He knows the Sandinistas where very unpopular (they would fit in a taxi, goes the saying) and could never defeat Somoza if not by killing renown Dr.Pedro Joaquin Chamorro in the 70′s. So Ortega is betting on this to avoid a popular uprising and there is no Pedro Joaquin alive to be killed.
    Somoza had the backing from the White House plus the Vatican and Ortega had the support of a mad loud banana Republic now dead Chavez so your question is actually an answer in itself.
    It’s a matter of time for Ortega to be finish and I am amazed on how fast this is happening. Just read the in-between the lines of everything he is doing or is not doing…
    Kind regards

    • Stevan

      What does a Chinease canal mean strategically for North America? Will Russian and Chinease military be allowed to cross the Americas?

  • Ken Morris

    Wow, when I started to read this article I was expecting more of the off-base bashing of the left, but as I got into it I felt that Hausmann actually knows what’s going on and Aguirre knows what Ortega is doing. These are two great sources and another outstanding article. BTW, while I really like Hausmann’s analysis, I almost think that Aguirre’s assessment of Ortega is more important. IMO, Ortega was never hoodwinked by ALBA or infatuated with Chávez. Yeah, he’s ideologically left and would like something like ALBA to work, but I think he played this thing pragmatically the whole way. He’s been there and done that with leftist stuff, and is way too shrewd to fall for it when the numbers don’t add up.

    • Pepe Turcon

      They should not be called “left”, the true left had a moral touch about it. Nowadays the word left is used to justify thugs and criminals. Al Capone was then more of a leftist by helping poor Italian immigrants? No he was what Chavez, Ortega and the like are: common criminals.

  • 1PierreMontagne1

    A little late for concerns about China and a second canal isn’t it?
    A second canal will only mean that China “owns” two canals!
    And china will be in charge of increased shipping and associated costs.
    Will china give favors to her friends …yes definitely.