NICARAGUA: VULNERABILITY TO ECONOMIC SANCTIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00423R000200120004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 52
• Document Creation Date: December 22, 2016
• Document Release Date: July 21, 2011
• Sequence Number: 4
• Publication Date: December 12, 1984
• Content Type: REPORT

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Central intelligence Agency
DDI Registry
**NMI C40A~o
NOTE TO: The Honorable Robert C. McFarlane
Assistant to the President for
National Security Affairs
1. There has been a good deal of talk in recent months
about the contrast between US opposition to the Sandinista regime
and continued US trade with Nicaragua. In Central America
itself, the Hondurans, among others, have focused on this. In
this connection, the possibility of some sort of economic
sanctions has been raised.
2. In the attached, we take a close look at Nicaragua's
vulnerability to economic sanctions.
examination of the issue useful.
I hope you will find this
Robert M. Gates
Deputy Director for Intelligence
Attachments:
As Stated
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 1 - DDI Registry
1 - DDI Chrono
INTERNAL
DISTRIBUTION:
1 - D/ALA
2
SECRET
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The Honorable Robert C. McFarlane
Assistant to the President for
National Security Affairs
The Honorable Kenneth W. Dam
Deputy Secretary of State
The Honorable Fred C. Ikle
Under Secretary of Defense for Policy
General Paul F. Gorman, USA
Commander, USCINC South
RADM John M. Poindexter, USN
Deputy Assistant to the President for
National Security Affairs
The Honorable Langhorne A. Motley
Assistant Secretary of State for
Inter-American Affairs
The Honorable Richard L. Armitage
Assistant Secretary of Defense
(International Security Affairs)
Dr. Constantine Menges
National Security Council Staff
Lt. Col. Oliver North, USMC
National Security Council Staff
Mr. Nestor D. Sanchez
Deputy Assistant Secretary of Defense for
Inter-American Affairs
DDI/RMGates/de,
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Nicaragua: Vulnerability to
Economic Sanctions
S E C R E T
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Table of Contents
Page
Summary .........................................................
1
Economic Sanctions and Their Possible Impact .....................
1
The Export Picture ............... ..............................
2
Potential Embargo Targets ........................................
3
Bananas ......................................................
4
Nicaraguan Reaction.... ...............................
5
Market Reaction... ..... : ... o ... o ........................
6.
Beef ........ .. ......................................
7
Nicaraguan Reaction..... .................................
7---
Market Reaction....... ........................ oo ........
8
Seafood ......................................................
9
Nicaraguan Reacton ......................................
10
Market Reaction .........................................
10
Tobacco ......................................................
10
Nicaraguan Reaction .....................................
11
Market Reaction .........................................
11
Other Sources of Foreign Exchange ................................
12
The International Financial System ...........................
12
Foreign Aid ..................................................
13
The Import Picture ..................................... ........
13
Dependence on Imports ..........................................
15
Beyond the Simple Economics ......................................
17
Some Longer Run Effects ..........................................
18
S E C R E T
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Annexes
A. Economic Sanctions: A Historical Perspective
D. Nicaragua: Declining Levels of Foreign Assistance
E. Nicaraguan Imports
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Nicaragua: Vulnerability to Economic Sanctions
Summary
Based on a review of the Nicaraguan economy and its trading patterns,
US economic sanctions would likely cost Managua $25 million over the first
12 months of implementation in direct foreign exchange losses and impose
even greater indirect costs in terms of disruptions and dislocations.
While the impact would be unlikely to lead to any fundamental policy
changes it would certainly place a burden on the regime. The projected
loss in foreign exchange, for example, equals about eight-tenths of a
percent of GDP and would directly offset about 10 percent of current
Communist economic aid. On the import side, while Managua has already
begun to diversify away from the United States, disruptions in basic
consumer goods and spare parts for machinery could be expected.
The impact of US sanctions would not be limited simply to the pure.
economics. Any US action would almost certainly put additional strain on
an already weak managerial structure. As it is, economic activity and
living standards have deteriorated in Nicaragua--not because of lagging--
import capacity, but rather because economic mismanagement and
inappropriate price signals have precluded the efficient use of
resources. This has been compounded by a loss of business confidence,
which derailed private investment and reduced production efficiency.
If the experiences of past economic sanctions are a guide, the
dislocations Managua would face should decline over time. There are, of
course, a number of key political and strategic unknowns that could alter
the effectiveness of sanctions against Nicaragua. To the extent that US
allies--either in Latin America or in Europe--proved willing to actively
join Washington's lead, the initial impact of economic measures would be
both more severe and long lived. The prospects for US-West European joint
action, however, are doubtful. Indeed, foreign reaction could work in the
direction of offsetting US actions. Another unknown is how sanctions
might affect the relative position of internal opposition to the
Sandinista regime. If the FDN, for example, responded to US moves by
disrupting key export producing areas and interdicting goods being
smuggled out of the country, their tactical position could be
strengthened. At the same time Sandinista actions to batten down the
hatches could also sharply limit the existing flexibility of the political
Economic Sanctions and Their Possible Impact
In assessing the potential impact of economic sanctions, it is
important to understand the probable disruptions to the local
c c r o r T
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economy--both in simple economic terms as well as from a managerial
standpoint--from actions taken against exports, imports and financial
flows. From a purely economic standpoint this means determining the
cutback in foreign exchange a country will face and analyzing the ability
of the economy to both cut imports and line up new markets. From a
managerial standpoint, this involves assessing, even if in rough terms,
the disruptive effects that could occur from overextending talent already
in short supply.
As far as simple economics are concerned, any nation has four major
sources on which it can draw for hard currency. It can get the money it
needs to pay for imports by:
-- Exporting items to other countries.
-- Lining up new loans from the international financial system.
-- Drawing down foreign exchange holdings.
-- Receiving aid, grants, transfers, and the like from foreign
The Export Picture
Historically, when sanctions have been introduced, most emphasis has
been placed on the trade side. In general terms, Nicaragua exported
about2$390 million in goods in 1984, up some from the $370 million pace of
1982. Looking at 1982--the last year for which complete reporting is
1 For a description of how economic sanctions have been used
historically, and how successful they have been, see Annex A.
detailed information on Nicaragua's export trade see Annex B.
For more
2 The discussion of exports largely ignores services because we have
little information on their magnitude and character. Even so, we believe
they are small relative to commodities. Based on a review of what
information we do have, Nicaragua's principal export service to the United
States appears to he transportation via the national airline "Aeronica,"
which has five regularly scheduled flights to Miami each week. No US
carriers provide service to Nicaragua. We have no hard informat.ion on
Nicaraguan revenues from the service, but rough calculations suggest that
they are probably on the order of about $10-12 million annually with net
hard currency earnings probably totaling substantially less.
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available--nearly 70 percent of Nicaragua's exports went to the developed
world. The United States' share of the total was 22 percent. The
Communist world, led by Eastern Europe and China, accounted for another 12
percent of Nicaraguan sales, with the Central American economies totaling
an additional 15 percent of Managua's export total.
Zeroing in on specific commodities, Nicaragua's exports are dominated
by foodstuffs. In 1982, food and food-related materials accounted for
two-thirds of all Managua's foreign sales. As far as the specific items
in this single category are concerned:
Coffee and cocoa totaled 50 percent of total food-related
exports.
Meat, especially beef, and Seafoods accounted for another 20
percent.
Sugar totaled 12 percent.
Fruits, mainly bananas, and vegetables accounted for another 5
percent.
As for the remainder of Nicaragua's exports, raw materials and
manufactured goods--largely chemicals--dominate the picture, accounten
for roughly 20 and 10 percent of total foreign sales, respectively.I 25X1
Potential Embargo Targets
In the event of a US action against Nicaragua, four exports--bananas,
beef, seafood and tobacco--would likely draw the most attention because
they dominate US-Nicaraguan trade. In general Nicaragua would have five
basic ways to respond to any US-directed cutoff in trade. Specifically,
it could:
Simply accept the full loss of net foreign exchange.
Try to divert previous US purchases to other hard currency
markets, such as Western Europe.
Try to increase its sales to the Soviet bloc, realizing that
payment in hard currency would be far less likely.
Ask the Cubans to sell the goods through their sales networks.
Sell to middlemen in neighboring countries who, in turn, would
try to sell the items in the United States or elsewhere.
S E C R E T
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The exact choice or combination of responses would depend both on existing
market conditions and on the specific good involved. 25X1
Bananas
According to trade statistics almost all of Nicaragua's banana export
crop is sold to the United States. As of mid-November 1984, Nicaragua was
exporting an average of 110,000 boxes of bananas per week to the United
States. All Nicaraguan banana exports are shipped from the port of
Corinto on Nicaragua's west coast to Los Angeles. Although Nicaraguan
bananas represent only 4 percent of total US banana imports. they
constitute 19 percent of the West Coast market.
If Managua continues to maintain its banana sales to the United
States at its current pace, gross revenues from these exports in 1984 will
probably total somewhere around $25 million. Recent US Customs Service
data suggest that Nicaragua will earn $26 million from bananas this
year. the total banana exports will probably
run somewhere around 4.2 million boxes for the year and be sold at an
average price of roughly 5-6 er box, suggesting export earnings in the
same ballpark.
A US ban on Nicaraguan bananas would not, of course, lower Managua's
hard currency by the full amount of the gross revenue loss. To calculate
the loss, hard currency costs--that is the amount of hard currency that
Nicaragua must pay out in the process of raising and selling bananas--must
be subtracted from final
sales prirp. F_
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Nicaraguan Reaction. We do not know how Nicaragua would banana embar o.
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if bananas were sold to the East
Europeans, the elimination of hard currency shipping costs is possible
because most CEMA countries have their own ships. Moreover, West European
shipping costs, now higher than to the United States, could also be
reduced somewhat if Nicaragua successfully negotiated cost-saving
contracts on chartered refrigeration ships, an opportunity greatly
enhanced by the current worldwide glut of ships. It is doubtful, however,
that Nicaragua could successfully circumvent
a embargo by smuggling bananas into Honduras or Costa Rica because both
countries are major banana ex o ers in direct competition with
Nicaragua.
While we believe it is unlikely that Managua would simply let the
banana industry die, it is also questiona r a switch to European
markets would reduce costs substantially.
the higher costs would
largely be offset by the higher price ananas command in Europe. A recent
FAO study, for example, found that the landed price of bananas per box in
West Germany, the only market where short-term sales could be readily
made, has been running about a dollar above US levels. At least some of-
this.difference would probably be negated as Managua found itself
pressured to lower its price in order to make initial marketing inroads.
Elsewhere in Europe, sales would depend on the ability of the Sandanistas
to get a political nod since the market is already allocated among former
colonies and other traditional purchases.
Market Reaction. We have no information at present on whether West
European or Bloc countries would buy bananas from Nicaragua, or if they
would pay on a hard currency basis. In part, this would prove to be a
political decision based on the circumstances surrounding any US
actions. We do know from historical trends, however, that CEMA countries
typically prefer to barter for agricultural commodities. Moreover, West
Europeans already purchase duced in the eastern Caribbean
under the Lome Convention.
On balance it seems reasonable to assume a scenario under which:
-- Exports are totally disrupted for three months.
-- In the subsequent three months, inroads are made in West
Germany--the only EC country outside the Lome convention--and
sales return to 10 percent of their previous level.
-- During the second six months, Managua is able to raise banana
sales to a third of their previous level.
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.. L V IN 1
Under these assumptions the hard currency loss to Nicaragua would range
Beef
During the final years of the Somoza regime, beef production in
Nicaragua increased steadily. According to press reports, many cattlemen
were concerned about both the stability of the national currency and the
political future of Nicaragua and maintained high slaughter rates. After
the Sandinista takeover, these high rates continued until, in 1981, the
government instituted controls over slaughter to try to arrest the decline
While most of the economy sagged in 1982, the cattle industry began
to recover. We believe the upward trend in production would have
continued in 1983, were it not for inclement weather. An unusually severe
and prolonged dry season caused pastures to whither, even in the
highlands. When the rains did not arrive in May as expected, the supplies
of supplemental cattle feed began to run out, and cattle became very
thin. This led to a suspension of slaughter and exports during June and
July, according'to Nicaraguan data. Although the number of cattle
slaughtered in 1983 was greater than 1982, the average hoof weight was
down considerably. This caused meat production to fall to 85 million
pounds. Export volume was down slightly to 31 million pounds. Because of
lower US beef prices, export earnings fell by more, to $29 million.
During 1984, after the USDA temporary ban on meat imports because of
noncompliance with health regulations, export earnings hit a low of $17
Had the USDA not stopped beef imports from Nicaragua from mid-
February until the end of May this year, Managua would likely have earned
about $22 million--$5 million more than we estimate for 1984. Although we
have no reporting indicating how much of this amount would be net hard
currency earnings, it seems that fixed hard currency costs--at least for
feeding and grazing the cattle--would be minimal. Nicaragua, with its low
population density and abundant pasturelands, is ideally suited for the
cattle industry. Indeed, supplemental feed must only be provided during
the dry season, according to industry experts. We also have no reporting
on transport costs for beef, but according to transportation experts, they
should not be too terribly different from bananas, as both would be
transported in similar refrigerated carriers. Taking into account the
fact that beef has a much higher value per pound than bananas and, hence,
lower transportation costs per dollar of final value, we calculate that
Nicaragua would have paid $1.2 million of the $22 million in earnings to
ship the beef to the United States. Assuming supplemental feeding costs
of about $1 million in hard currency, Nicaragua's net hard currency
earnings from the United States would have been on the order of $20
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Nicaraguan Reaction. We do not know precisely how Nicaragua would
react to a US ban on beef, but, we believe, it is unlikely that it would
simply stop exporting. Diverting meat from the United States to Europe is
the most likely possibility, although transportation costs would be
higher. Regional options also exist. Nicaragua's cattle country is
primarily to the north of Lake Managua and the east of Lake Nicaragua.
Beef could be smuggled north along the Pacific coast into Honduras or
south along the coast into Costa Rica on the Inter-American Highway, as
Honduran and Costa Rican beef is virtually indistinguishable frnm
Nicaraguan beef.
Moreover, smuggling o beef was a major source of effective capital fliaht
in the last years of the Somoza regime,
While the amount of beef that could be moved by smuggling is e y low
relative to the volumes now being exported to the United States, the
option exists for at least some transshipment in this manner.
Certificates of origin can be easily falsified
Concealing the smuggling would be made much easier by the fact the
Nicaragua already ships;at least $35 million of its export commodities
each year to its neighbors via the trucking routes. For example, in 1983,
Nicaragua exported, mostly by truck, $16 million worth of goods to Costa
Rica, and $23 million to Mexico, Guatemala, El Salvador, and Honduras.
Many additional millions in regional trade also cross Nicaraguan borders,
and full cooperation from Costa Rican and Honduran authorities--including
a willingness to prosecute their own businessmen--would be required to
stop the transshipment of a substantial share of Nicaraguan exports to the
United States. Even then, the ease of falsifying documents, and the
probable willingness of businessmen in these countries to supply falsified
certificates of orinin maka it most unlikely that all the trafficking
Market Reaction. As in the case of bananas, shipping beef to Europe
would logically be the easiest option, from an economical standpoint, for
Managua to consider. We have no idea how Honduras or Costa Rica would
respond to-significantly increased smuggling by the Nicaraguans across
their borders. Even if they were very unhappy, it is unclear whether
Tegucigalpa or San Jose would be able to put a stop to any of the
activity. While smuggling is possible from Managua's standpoint, the
problem would be how much beef on the hoof could effectively be moved, to
say nothing about the added costs of fake documentation and middlemen
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Taking all of these considerations into account it seems reasonable
to assume that in the case of US actions against Nicaraguan trade we could
have a scenario under which:
All the beef which would have been exported to the United
States in the first three months following any US action is
completely halted.
-- In the subsequent three months, a quarter of former US imports
are shipped to Europe, and in the second half of the year this
amount increases to between 40 and 60 percent of former sales.
-- Within three months, an additional 5 percent of the herd is
surreptitiously sold to the United States through middlemen in
the region, but only with Managua paying 30 percent of current
profits to the smugglers.
Moreover, taking into account the additional transportation fees to
Europe, which would probably double these costs, and factoring in the
difference in US/European beef prices--the pr--ice in London in late summer,
for example, exceeds that in the United States by 15 pe cent--the otal--
hard.currency loss would run around $12.5-14.5 million.
Seafood
Shrimp is the most important fisheries product in Nicaragua. Even
so, shrimp production and export volume have deteriorated steadily since
1977, according to standard sources of trade data. The shrimp catch of
1981, for example, was down 43 percent from the 1977 level. Partial
figures for 1982 indicate that the catch deteriorated another 17 percent
that year. In 1983, Nicaragua estimates that production again fell, this
time by 45 percent, according to the US Embassy in Managua. The Embassy
reports that the declining shrimp catch is caused by the severe parts
shortage in the fleet, which shows no clear signs of being resolved in the
near future. Although export volumes have shown a similar pattern to the
shrimp catch, the value of exports has held up remarkably well because
average prices for exports have risen steadily.
Spiny lobster is the second most important fisheries product in
Nicaragua. Lobster production has followed a pattern very similar to that
of shrimp production. The peak catch of nearly 2.9 million pounds was
achieved in 1978, and has declined every year since then until 1983, when
production rose by about 5 percent. Again, the lack of spare parts and
equipment since the revolution is the principal cause.of the poor
performance. Like shrimp, rising prices have somewhat offset the output
declines. Industrial fish production is very minor in Nicaragua and is
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Based on recent trade statistics, we believe Nicaragua will earn $10
million in gross foreign exchange earnings for seafood this year from the
United States. It is unclear how much of this amount is net hard currency
earnings, but since the initial investment for boats has already been
made, direct ongoing costs should be largely limited to spare parts and
petroleum products. Fixed costs should be minimal. Given that the poor
performance of this sector of the economy in recent years has been
attributed to a lack of spare parts and machinery, the amount of capital
investment probably has been very low. As long as the Soviets are willing
to directly supply oil to Nicaragua, the only major hard currency costs of
marketing seafood abroad would be transport costs and possibly brokerage
fees. Although we have no reporting on what actual transport costs are,
according to transportation experts, the calculations would be similar to
those for bananas and beef because seafood must also be transported in
refrigerated vessels. Assuming no brokerage fees, and making the same
type of transportation assumptions we made for beef, but taking into
account an even higher value per pound Managua would net $9.5 million in
hard currency from seafood.~ 7
Nicaraguan Reaction. Like beef, we believe it is unlikely that
Managua would stop exporting seafood. If faced with a US ban, West and--
East European markets could provide a partial outlet. Transshipping the
seafood might also be considered, but given the difficulty in keeping it
fresh, the odds of successfully smuggling more than a small amount are
quite low.
Market Reaction. We have no idea how neighboring states might
respond to seafood smuggling by Nicaragua, or if they would even attempt
to stop it. If, however, we assume that the prospects for smuggling
seafood are half as good as for beef, and that the European sales outlook
is similar, then the net hard currency loss-fran seafood would be in the
range of $6-7 million.
Tobacco
Nicaraguan exports of tobacco leaf in the 1982/83 marketing year were
approximately 1.3 million pounds, valued at $4.4 million. Of total leaf
exports, $2.8 million worth--about 65 percent--went to the United States,
with at least part of the balance going to Bulgaria. The destination of
the balance of leaf exports is unknown. Cigar exports reached 1.8
million--$2 million worth--all of which were exported to the United
States. Cigarette leaf exports in 1983/84 were expected to reach only
638,000 pounds, valued at $1.5 million. According to the Agriculture
Attache, the decline in production is due to the country's overall poor
economic health and its inability to import needed inputs. Cigar export
projections for 1983/84 were not known, although most probably went to the
United States.
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The United States imported $5 million worth of Nicaraguan tobacco
products in 1984. This figure probably closely represents net hard
currency earnings,-as there appears to have been little Nicaraguan
investment in the industry in recent years., and transportation costs for
tobacco and its products, according to industrial publications, are
apparently relatively low. While it overstates the case slightly in the
event of a totally successful US ban, Managua would stand to lose close to
$4-5 million in net foreign exchange earnings.
Nicaraguan Reaction. In our judgment, Nicaragua would probably not
abandon tobacco production should a US embargo be imposed, if only because
domestic consumption is heavy and probably could easily absorb most of the
surplus. Moreover, Bulgaria has recently provided technical assistance to
Managua in planting some 695 hectares of new fields, exclusively for
export to Bulgaria, according to press reports. Bulgaria then, may be a
viable alternative to the United States. Moreover, according to US
Customs, Nicaragua could load the tobacco on ships making interim stops in
Central America or the Caribbean before entering US ports. US customs
agents would probably have a very difficult time distinguishing between
the two varieties. Ships carrying falsely-labeled Nicaraguan products to
interim stops before reaching the United States could probably be fairly
easily detected by their unusual pattern of port calls, but proving in a
court of law that products were actually Nicaraguan could be more
difficult. The option of selling to Cuba and letting Havana handle the
tobacoo through its marketing net is also one that Managua would almost
certainly explore.
Market Reaction. Barring a ban on Nicaraguan tobacco by a broad
range of countries, continuing export sales seem likely to us. Assuming
nniddlenan and transportation costs wiped out 20 percent of net earnings,
and the initial time required to line up new supplies delayed the sale of
another 20 percent, the loses oreign exchange would total somewhere
around $1.5-2 million.
TABLE 2
Foreign Exchange Losses Due to a US Embargo
Bananas: $ 3-5.5 million
Beef: $12.5-14.5 million
Seafood: $ 6-7 million
Tobacco: $ 1.5-2 million
Total: $23-29 million
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Other Sources of Foreign Exchange
Manauga's ability to get foreign exchange to import goods is not
simply limited to export earnings. Like any other country, hard currency
funds can, at least in theory, be obtained from the international
financial system and in the form of aid and grants from foreign
individuals and governments.
The International Financial System. In our view, the Sandinista
regime would be hard pressed to come up with much, if any, additional
currency through the international financial system. As it is, Nicaragua
has fallen into arrears on interest payments to commercial banks
Despite numerous
debt reschedulings, Managua has been unable to keep current on its
interest payments, and announced a one-year moratorium in June 1984, which
has been since unilaterally extended to June 1985
In our view, not only would Managua find it very difficult to line up
any additional new loans through the banking system, but it would also run
into problems with international organizations. During the last two
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years, Managua has fallen $10 million behind on debt payments to the
IMF. Moreover, the World Bank has recently declared Managua in default
and suspended further disbursements of funds, according to IBRD reports.
We believe Managua would also find it difficult to turn to its
foreign exchange holdings as a source of funds to offset any sizable
export losses. If the statistics Managua gives to the IMF can be trusted,
the country probably has around $130 million in total foreign exchange
holdings. At the same time, net foreign 25X1
exchange reserves--that is foreign exchange less short-term obligations--
were running in the red by around $450 million in 1983. As far as reserve
holdings in the United States are concerned, we know, based on data
compiled by US Government agencies, that the Nicaraguan government had
$3.3 million in banks in the United States at the end of June 1984, while
Nicaraguan banks--which the government fully controls--held another $4.6
Foreign Aid. From Managua's' standpoint, the foreign aid situation is
a bright spot in Nicaragua's overall financial situation.5 Since 1982,
foreign aid and grants have been a principal source of foreign exchange
for Managua. During 1984, we project that Managua will receive a total of
at least $760 million in official loans and grants--more than twice the
amount earned through exports. More than half of this aid--$470 million--
will come from Communist sources. While the Soviet Union accounted for
the bulk, North Korea, Bulgaria, and Yugoslavia also contributed. Of the
$760 million total, we project Managua will receive $510 million in
loans--of which $100 million will finance military purchases--and $250
million in grants--of which $150 will be used for arms. If hard currency
losses caused by a US export ban totaled the $23-29 million we roughly
calculate, the Soviet bloc could offset this loss only if they were
willing to increase total hard currency aid by about 5 percent or non-
military aid by about 10 percent.
The Import Picture
. Assuming the Soviets were unwilling to offset more than a fraction of
Managua's hard currency loss, and the regime did not dip into its foreign
exchange, then the direct loss in imports caused by the export dropoff
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would total about eight-tenths of one percent of overall GDP. If
Nicaragua were a typical economy with flexible markets and a responsive
manufacturing sector, the total loss, including direct and indirect costs,
could reach something on the order of 1.5 percent of GDP, assuming no
domestic offsets. In Nicaragua's case, however, the odds are that the
loss would be greater both because of the nature of imports from the
United States and non-economic factors that would be set into play.
As far as imports are concerned, the picture is fairly straight-
forward. During 1982, the most recent year for which we have complete
trade data, Nicaragua imported almost $824 million in total military and
nonmilitary megchandise, with about $150 million of that coming from the
United States. When compared with earlier years, 1982 trade figures
reflect a shift away from purchases from Managua's traditional trade
partners, the United States and the Central American Common Market (CACM),
and toward imports from Mexico, Europe, and Communist Bloc countries.
Favorable trade agreements with these countries--at a time when most US
export credits to Managua were being cut and CALM countries were
experiencing foreign exchange shortages--have been mostly responsible for
the change in import patterns. By 1982, Mexico had already replaced the
United States as Nicaragua's-main trading partner, although the United-
States still remains Nicaragua's largest single non-oil supplier. If
anything, we expect that this shift away fr on the United States and CACM
has continued since 1982.
Focusing on Nicaraguan imports, US trade statistics show that US
sales to Nicaragua will probably run about $120 million this year. This
would represent a 13-percent share compared with 31 percent during 1975-
77. If first-half 1984 trends continue, the main categories of imports
from the United States during 1984 will be:
-- chemicals, drugs, and fertilizers ($12 million)
-- vegetable oils, eggs, and other foods ($8 million)
-- agricultural and motor vehicle machinery and parts
($7 million), and
-- cereals and soybeans ($6 million).
6 For more information on Nicaragua's import trends, see Annex E.
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US firms will also export some services to Nicaragua. We have no hard
information on their~agnitude but expect their value to be small compared
Assuming that the Nicaraguans were determined to continue purchasing
US commodities, we believe that the government could, albeit with some
delay, difficulty, and expense, arrange for middlemen in neighboring
Central American countries or elsewhere to buy and transship most of
them. The Nicaraguans would certainly receive coaching from the Cubans,
who have over 20 years of experience in avoiding US trade sanctions and
already possess an extensive network of front firms through which they
could purchase goods for Nicaragua. Concealing purchases through cutouts
would be eased because the goods Nicaragua imports from the United States
are'commonly traded on international markets, and Nicaragua already
imports some $125 million annually from its Central American neighbors.
Dependence on Imports.
As far as Managua's vulnerability in specific import areas is
concerned, we believe industrial and consumer goods top the list. Even--
with the Sandinista government's policy shift away from industry--which is
generally pro-Western in outlook--manufacturing reportedly still counts
for a little over 25 percent of GDP, according to Nicaraguan data. Thus,
a successful cutback in imports of vital machinery and spare parts could
in time further cripple industry--already operating at only about 40
percent of capacity--as equipment wears out.
Managua would almost certainly consider expanding purchases with
other countries, although this could result in higher prices. Mexican
companies have already begun exporting pharmaceuticals using official
trade credits Other Latin countries, 25X1
7 Most US-Nicaragua trade apparently takes place via direct contacts of
US firms with companies in Nicaragua. We know of only one firm in the
United States that acts as a trade broker--the Sandinista-owned World
Commerce Corporation located in Miami. We have no information on its size
or assets, but expect that it is small. Nicaragua also has a trade
representative in New York and. another in San Francisco. Closing down the
small offices of the World Canmerce Corporation would remove one avenue
the Nicaraguans currently use to purchase US goods both for themselves and
for transshipment to Cuba. We think that such an operation could be
rapidly reestablished in Panama, however, a1hpit at g !e additional cost
and some temporary disruption of supply.
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such as Brazil and Argentina, could rapidly supply Managua's requirements
for vegetable oils, cereals, and soybeans at little additional cost. F
7 gua could draw on a line of credit set up last March. 25X1
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Imports of spare parts and machinery compatible with existing
US-manufactured industrial equipment would present some obstacles. This
certainly was the case for Havana when its trade was sanctioned by the
United States and the OAS, according to historical accounts. In
Nicaragua's case, however, Mexico produces a large quantity of
agricultural and transport equipment similar to the older US-made
equipment being used in Nicaragua. Compatible oil refinery equipment is
produced by several Western countries.
While Nicaraguan officials continue to stress publicly the need to
reduce consumer imports, Managua remains dependent on overseas suppliers
for basic items such as drugs, cooking oil, and cereals. A cutoff in
imports of any of these essentials could aggravate general grumbling among
Nicaraguans already frustrated by shortages of such "luxury items" as
toothpaste and toilet paper.
Managua so far has managed to insulate most of the domestic
agricultural sector--which accounts for about 25 percent of GDP--from the
need for Western-supplied inputs, such as fertilizer and irrigation
equipment. The Soviet Union and East Germany supply the regime with
tractors, trucks, and other heavy equipment. A cutoff of chemicals and
fertilizer could, however, hurt Nicaragua's rice and cotton crops. The
government has boosted acreage planted in cotton 20 percent this year,
making a potential crop failure even more disappointing.
Table 3
Type of Import Impact of Cutback
Vegetable Oil, Cereals, Soybeans, Increased consumer shortages;
Drugs longer lines; higher costs to
assure timely delivery from
other suppliers.
Machinery and Parts
Chemicals and Fertilizers
Strains on managerial staffs
to search for compatible
materials; lost production due
to additional downtime of US-
made equipment.
Could hurt crop performance--
particularly cotton and rice--
which depend heavily on these
inputs.
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Beyond the Simple Economics
The impact of US sanctions against Managua is not simply limited to
the pure economics of hard currency loss and import cutbacks. The
Sandinista regime is also vulnerable because of the basic nature of its
political-economic system.
Any US action would most certainly put additional strain on Managua's
managerial pool. Export cutbacks would have to be assessed, alternative
markets located, middlemen sought out, prices and terms arranged, shipping
organized, and delivery and export dates coordinated. At the same time,
foreign loans would have to be sought and the distribution of import
reductions would have to be determined and implemented. While coping with
these direct impacts would be a challenge, dealing with the indirect
effects and feedbacks would only add a new level of complexity to the
situation.
Even without any US action, the Sandinistas are having problems
managing their economic base
Production and living standards have deteriorated--not
because of lagging import capacity, but rather because economic .
mismanagement and inappropriate price signals have precluded the efficient
use of resources. This has been compounded by the loss of business
confidence, which ailed private investment and reduced production
efficiency.
In dealing with the managerial complexity of economic sanctions, we
believe Managua would also run the risk of overreaching, and thus
intensifying problems. If history is any guide, most of the trade losses
from sanctions are front loaded and temporary. Nevertheless, the
Sandinistas would see a sudden dropoff in revenue and could respond by
acting as if the losses were permanent. If Managua did this, we calculate
the import cutback would be far greater than warranted, thus intensifying
problems with spare parts and consumer goods.
Likewise, imposition of US sanctions could intensify the Sandinistas'
siege mentality, with important consequences for the populace and the
anti-Sandinista opposition. If this overreaction were to occur the regime
would probably renew measures to mobilize the population to counter a
perceived US invasion threat and would likely direct more manpower into
the military and militia--further curtailing production. The Sandinista
response could of course be even broader. In the past, the government has
publicly used charges of disinvestment to seize private property and
probably would take advantage of'sanctions to accelerate
nationalizations. While this'would weaken the position of many private
sector leaders, it would also directly increase the managerial problem
facing the regime. At the same time, we judge that any moves that
weakened the private sector would also have political ramifications. The
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political opposition draws much of its top leadership from the ranks of
private sector professional and technical personnel, according to the US
Embassy. As it is, the political opposition lacks depth,. and could be
much weakened if a few key individuals were forced out.
How Managua would deal with a sudden intensification of managerial
problems is an open question. It could simply batten down the hatches and
see the storm through. Alternatively, it could turn to the Cubans, asking
for even more economic advisers to man talent-short economic positions in
the ministries.
Some Longer Run Effects
On balance, we judge that the economic disruptions initially caused
will probably ease with time. If the experience of most other embargoed
countries is any guide, circumventing sanctions will probably get easier
as Managua finds avenues around trade sanctions. Indeed, given the
relatively low level of US-Nicaraguan trade, it is possible that lost US
markets could be replaced within two to three years. As the Sandinistas
continue to redirect the economy away from the United States, they will--
need fewer embargoed US goods. Moreover, they should find any problems in
getting spare parts eased as US equipment is replaced with machinery from
other countries. The transition would be smoother if Communist patrons
proved willing to offset at least part of the country's economic losses.
Obviously, sanctions would provide more of a problem for Nicaragua if
US allies--both in Central America and in Europe--joined in. As far as
the Europeans are concerned, we judge the odds of any unified support to
be quite low. Although increasingly disillusioned with the Sandinistas,
most West European countries would have real political difficulty
admitting they had been wrong in their earlier support. France, and
Mexico for that matter, have publicly stated that they believe a rapid
radicalization of the regime would occur if they abandon Nicaragua. In
the face of sanctions, it would not be surprising to see at least some
West European and Latin capitals opt to increase, even if quietly, levels
In the short run, joint sanctions by the United States, Honduras and
Costa Rica'would greatly compound Managua's problems. If illegal export
routes could be successfully closed, transshipments, and much more
importantly normal bilateral trade, would be curtailed. Over time,
Managua could adjust to this by increasing its efforts.. to shift more of
its trade to Europe, as well as both to and through Cuba.
If authorities in Honduras and Costa Rica were willing to seriously
enforce trade restrictions, they would find the region's geography working
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to their advantage. Costa Rica, for example, would really only have to
close down the Inter-American Highway. Because of swampy terrain, Lake
Nicaragua would offer few opportunities. Routing material down the
eastern coast would be logistically difficult and time consuming. The
most likely item that would move down the eastern corridor would be
cattle. Honduras, for its part, would have to monitor the westernmost 100
kilometers of its border. This is the region with the most developed road
network. To the east of this area, smuggling would probably be limited by
insurgent activity. Indeed, any attempt to smuggle cattle or the like
through FDN-controlled areas could only be viewed by the FDN as a windfall
A key unknown in any economic sanctions, of course, is how the Contra
would respond. At a minimum, we believe sanctions would certainly boost
the insurgents' short-term morale. If the FDN turned its attention to
action against cattle ranches, banana areas, and the like, the costs to
Managua could escalate. Attacks against the banana growing regions would,
of course, prove difficult, since most growing takes place in the Corinto
area, far from present insurgent operating areas. Cattle, which are
raised just north of Lake Managua and east of Lake Nicaragua, could prove
more vulnerable, although the insurgents would be hard pressed to sustai-n
any prolonged activities in the region due to supply problems. From an
FDN standpoint, the likelihood of a backlash against the insurgents for
taraettina Prnnnmic activity would also have to be taken into account.
Regardless of potential targets, it is clear that the insurgents'
ability to interdict trade would enhance their threat to the regime. To
the extent the Sandinista regime is unable to control the Contras,
countering any economic sanctions would draw on managerial and technical
talent, which would already be stretched thin.
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Economic Activity
INDUSTRY
Food processing
Beverages
Textiles and clothing
Chemical products
Metal products
Leather products
Petroleum refining
Fishing
Crude oil pipeline
AGRICULTURE
Coffee
Cotton
Sugarcane
Land Utilization
and Vegetation
Cultivated area-field crops; largely intermixed
with pasture, brush, or forest
Dense woodland; mostly broadleaf evergreen
with some pine
Open woodland; mostly deciduous with some
evergreen
Savanna; grassland with scattered cultivated
plots and forest
Marsh and swamps
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Economic Sanctions: A Historical Perspective
Economic sanctions have often been turned to as a political tool in
the diplomatic arena. From a broad perspective sanctions have
traditionally been pursued to achieve one of three specific goals:
-- Forcing a major change in a country's behavior or causing a change
in leadership.
-- Inflicting economic punishment for pursuing a given policy.
-- Signaling clear disapproval of another country's conduct.
In general terms, recent history has shown that most nations opted for
sanctions initially in an attempt to change an adversary's policies.
Indeed, it was found that this was a stated
objective in 9 of major incidents of sanctions since 1935.* While
governments have generally followed this most extreme option, it has at
the same time proved the most fruitless.
If economic sanctions are to-affect policy, they must have an impact
on the country being targeted. From an economic standpoint, the impact
can range from minor inconveniences to major economic dislocations. The
degree of economic cost itself will be affected by:
-- The access that exists to alternative sources of supplies or
markets.
-- The ability of the sponsoring country to enforce the sanctions.
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-- The ability a country has to adjust internally.
In almost all cases sanctioned countries were able to secure
alternative sources, supplies or markets for their exports. In this
regard, two key studies in which the United States was involved are
particularly enlightening:
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-- When the United States imposed sanctions on Iran in 1979/1980,
Tehran was heavily dependent not only on imports, but also on
goods from the United States. Iran relied on imports to meet most
of its requirements for capital goods, industrial raw materials,
military equipment, and consumer goods. Despite this dependence,
Tehran managed to find alternative sources--albeit at a higher
cost. Increased food shipments from France, Germany and Australia
more than made up the loss in US foodstuffs. Several Western
European, Japanese and even US firms traded embargoed goods
through intermediaries Supplier
arrangements covered a wide range of industrial goods, capital
equipment, and chemicals, all of which were sanctioned. US
involvement included the sale of goods such as engine parts,
tires, appliances and drill rigs.
-- When the Soviets invaded Afghanistan in 1980, the United States,
in consultation with most of its allies, agreed to impose a
partial grain embargo. As far as the allies were concerned each
was mindful not to take a major stance on sanctions tougher than
its neighbors did. Concerning grain, Moscow was able to line up
all the grain its ports could handle in the 1980-81 period despite
the embargo. The soybeans and soybean meal denied by the United
States was fully replaced by Argentina and firms in Western
Europe. In fact, EC, Canadian, and Australian grain exports to
the USSR all increased in 1980 compared with 1979.
Such an outcome is not simply limited to these two case studies. In
almost all recent sanction situations, alternative sources have been
found, if nothing else than from opportunistic middlemen and suppliers.
For example:
-- When the United States imposed trade sanctions against Uganda in
1979 one-third of Kampala's trade was with the US. Uganda
actively sought out new customers for their coffee and other
products as they saw the sanctions coming. Official data shows
they were quite successful--export receipts during the embargo
were little changed from their level before the embargo was
imposed.
-- When the French suspended their liftings of Algerian oil in 1971,
Paris quickly found that US and British firms filled the
exploration gap. Moreover, Sonatrach--the Algerian oil company--
emerged from the embargo as the tenth most important oil producing
company in the world.
The fact that commerical considerations often compromise cohesion
among allies in any prolonged sanction endeavor only makes the trade
barriers that are put up all that more porous. Nations subjected to
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embargoes are also able to adapt to cutbacks in critical goods by
adjusting internally. Increased self-sufficiency and a shift awa from
embargo items are the norm rather than the exception. 25X1
Focusing on two pertinent case studies--US/OAS sanctions against Cuba
and UK/UN sanctions against Rhod is--underscore the problems that are
involved with sanctions. 25X1
The Cuban Experience. In 1960 the United States took largely
unilateral actions against Cuba--American and British refineries refused
to process Soviet crude, sugar imports were stopped, and US technicians
and specialists were pulled out Cuba. In 1962 the screws were
tightened. The US imposed a total prohibition on imports from Cuba, and
exports to Cuba were banned, except for foodstuffs and medically-related
goods. In July 1964 the Organization of American States (OAS) voted to
follow the US lead by asking members to sever diplomatic and commerical
relations with Havana. In addition, all air and sea services to and from
Cuba were suspended and passport restrictions were imposed. Most OAS
members adopted the measures, though they were not enforced rigorously by
Cuba, in response, turned to the Soviet bloc for a trade outlet. By
1965 the East accounted for 76 percent of Cuban trade--up from less than 3
percent in 1957. This rapid shift, of course, was not without cost.
Probably the single most damaging effect was Havana's inability to obtain
needed spare parts for US-produced equipment. Other problems arose from a
lack of complementarily between Cuban import needs and bloc export
potential.
Over time the enforcement of the sanctions became increasingly
difficult. Not only did OAS members' resolve decline but the costs to
Cuba fell. Cuba's capital base shifted to Soviet, East and West European,
and Japanese equipment and machinery. Consumer goods were being produced
locally and Havana had opened front companies which enabled it to obtain
any needed US products. The political results were also far from what was
originally desired. As the impact of sanctions diminished because of
Soviet help, the Cubans became more of a irritant to the United States
because of their efforts to export revolution and act as Moscow's
surrogate in Africa.
All of these changes, coupled with a shifting political climate, made
it apparent by the-mid-1970s that Cuban isolation was no longer
possible. In August 1975 the OAS passed a resolution that allowed each
member to determine the nature of its relations with Cuba. The US voted
in favor of the resolution.
The Rhodesia Experience. The Rhodesia experience is not terribly
dissimilar from that of Cuba. Both nations turned to patron states--the
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USSR for Cuba and South Africa for Rhodesia--when faced with sanctions.
Unlike the Cubans however Rhodesia had an advantage of multiple borders,
albeit mainly with black neighboring states.
After the Ian Smith government unilaterally declared independence in
November 1965, Prime Minister Wilson of the UK imposed economic sanctions
against Rhodesia that banned arms and capital, as well as sugar and
tobacco which together accounted for two-thirds of Rhodesia's exports to
the United Kingdom. The British imposed a second set of sanctions in
December 1965 which, among other things, cut off several minerals (copper,
chrome, asbetos) and foodstuffs (corn and beef), as well as petroleum and
petroleum products. The UN followed suit with sanctions in December 1966
and May 1968 which banned all imports from Rhodesia and all export to the
country save medical and educational supplies. The UN resolutions--232
and 235--included reminders that a failure to comply with the sanctions
would constitute a violation of a member's obligation under the UN
charter. Moreover a Security Council committee was established to gather
information on any evasion of sanctions.
In many respects Rhodesia appeared to represent a near ideal target
for sanctions:
-- Exports were concentrated in a small number of primary products--
tobacco, sugar, and a few minerals--and only three markets--the
United Kingdom, Zambia, and South Africa.
-- Imports were concentrated in one product area--machinery and
transport equipment--and were purchased largely from two
countries--the United Kingdom and South Africa.
-- Overall foreign trade accounted for a sizeable portion of Rhodesia
GNP.
-- The British economy was not critically dependent either on
supplies of raw materials from Rhodesia or on a Rhodesian market.
Despite these advantages the sanctions quickly turned into shambles.
South Africa continued to trade with Rhodesia and provided critical
imports such as oil. We estimate that two-thirds of the goods moving
between Rhodesia and South Africa ended up in world markets with false
documentation. Other African countries also broached the embargo.
-- Disguised trade channels similar to those through South Africa
were available to Rhodesia from Portuguese Mozambique until its
independence in mid-1975.
-- Zambia--Rhodesia's largest 1965 export market--continued to trade
with Rhodesia and to use its transport facilities until 1973.
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Then in 1978, after a five-year hiatus, transportation bottlenecks
on the alternative Benguela and Tazara railroads forced Zambia to
resume transshipments via Rhodesia. This probably enabled some
Rhodesian goods--particularly white corn, light manufactures, and
coal--to find their way to Zambian markets.
-- Other black African nations--Botswana, Malawi, and
Zaire--maintained economic relations with Salsbury in spite of UN
sanctions.
On the export side, only agricultural sales suffered badly during the
sanctions. The embargo crippled tobacco sales, Rhodesia's single largest
foreign exchange item. This was because tobacco was too easily traced to
the source and could not, therefore, be passed through-foreign middlemen
to the world market. The sharp decline in tobacco earnings, as well as a
need to reduce dependence on imported foods, caused the government to
encourage growers to switch to corn and wheat production.
From an aggregate standpoint, the impact on the Rhodesian economy was
far from what the British had originally anticipated. Import substitution
flourished. Manufacturing replaced agriculture as the leading sector of
the economy. Total domestic investment climbed from 13 percent of GDP in
1964 to 20 percent of overall economic activity the first half of the
1970s. Overall GDP from 1965 to 1974 registered a healthy 6.5 percent
average annual growth rate. As it turned out, Rhodesia was, in effect, so
successful at internal adjustments that the sanctions left the country
with a much stronger economy than before the sanctions.
While the Cuban and Rhodesian case studies point out the problems of
successfully imposing economic sanctions, this is not to say that
successes have not been achieved. There is at least one major case where
sanctions were imposed with the goal of changing the leadership of a
regime--the Dominican Republic in 1961 and 1962--proved successful. There
are also a number of cases where sanctions designed to inflict economic
punishment or underscore displeasure also proved successful.
As far as the Dominican case is concerned in 1961 the OAS initiated
sanctions against the island because of its aggression against
Venezuela. OAS members voted to break diplomatic relations as well as
suspend trade in arms and military materiel. These sanctions were later
expanded to include petroleum, petroleum products, trucks, spare parts,
and other commodities. Moreover, in addition to joining the OAS
sanctions, the United States unilaterally cut back its import quota of
Dominican sugar.
The sanctions hit the Dominican economy when already sagging economic
performance was hampering adjustment and the Trujillo regime had turned
its attention to survival. The Dominican's were able to circumvent some
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of the sanctions by purchasing arms, vehicles, and petroleum--though at a
higher cost--from Canada, Western Europe, and the Middle East. Trujillo
also managed to ship coffee to the United States disguised in Colombian
bags, and he planned to build a Dominican refinery with French and US
contractors. Even so, the sanctions clearly worsened the economic crisis
as export earnings in 1961 were cut 21 percent and imports fell another 20
percent in nominal terms.
The economic deterioration fostered political unrest in the middle
and upper classes, the army and the church. -The regime responded with
increased repression and terror. An underground grew rapidly, and in May
1961 Trujillo was assasinated. By the end of the year his regime was
toppled and the Trujillo family fled the country. Whether the sanctions
were a key is, of course, an open question. It is impossible to determine
if they play a critical role in building local opposition or whether the
resistance would have followed the same course without OAS/US action.
In a number of cases, sanctions were introduced, in effect, to
underscore displeasure or inflict economic cost. For example:
-- EC sanctions on Argentina were primarily intended to symbolize--
disapproval of Argentina's invasion of the Falklands and the
European C anmunity's solidarity with the British.
-- The Arab League boycott of Israeli serves as a sign of opposition
to Tel Aviv and as a propoganda device.
-- Over time, sanctions against Cuba were seen as a way to punish
Havana and Moscow by making them pay a heavy economic price for
their alliance.
In our judgment sanctions that either punish or symbolize disapproval
have been employed in recent years for two basic reasons:
-- Countries recognize that economic sanctions are unlikely to cause
sufficient distress to change the conduct of the major powers, and
even poor states are usually able to mitigate or withstand their
impact.
-- Mass communications and diplomacy conducted at international
forums have placed a greater premium on adherence to universal
norms of conduct. Sanctions may symbolize a country's compliance
with these norms and highlight the deviation of another.
While the individual cases of economic sanctions are diverse and full
of pecularities, a review of their planning and implementation points out
one key lesson--to be successful, the impact of the actions must be
consistent with the objective being sought. In essence, then, the
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policymaking review must potentially consider:
-- The kinds of items to be withheld or markets to be boycotted.
-- The need and desire for multilateral sponsorship and the
willingness of other states to participate.
-- The economic and political effects of sanctions on the offending
country.
-- The degree of the target country's commitment to the action that
triggered the sanctions.
Which of these elements must actually be considered depends heavily on the
precise goals of the sanctions. If the objective is to demonstrate
disapproval, only the first two are pertinent; punishment, in addition to
the first two elements, requires assessment of the economic impact, while
an attempt to change a country's behavior requires consideration of all
four elements.
While such a view is conceptually simple, in reality it proves ---
extremely complex. Even the most careful planning process is unlikely to
take fully into account all of the political and economic dynamics
associated with the use of economic sanctions. If nothing else, the case
studies of sanctions revealed that miscalculation, misunderstanding, or
failure to take all of the key elements into account have caused sanctions
to fail, sometimes with serious adverse economic consequences for their
sponsor.
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ANNEX B
Nicaraguan Exports
Table 1
Nicaraguan Exports to the World, 1982
Value ($ million)
% of Total
370.0
100.0
Top Ten Partners
299.0
79.1
US
82.0
22.0
West Germany
52.0
14.0
Japan
43.0
11.0
Costa Rica
25.0
7.0
China
20.0
5.0
France
19.0
5.0
Netherlands
16.0
4.0
Guatemala
14.0
3.7
Mexico
14.0
3.7
Spain
14.0
3.7
Nicaraguan Exports to the World, 1975-77
Value ($ million)
% of Total
514.3
100.0
Top Ten Partners
428.1
83.1
US
140.0
27.2
Japan
63.0
12.2
W. Germany
57.3
11.1
Costa Rica
43.0
8.4
Guatemala
29.3
5.7
El Salvador
27.6
5.4
Netherlands
21.0
4.0
Bel gi um-Luxembourg
20.6
4.0
Honduras-Belize
15.0
2.9
Hong Kong
11.3
2.2
B-1
C F C R F T
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Table 2
Nicaraguan Exports to the United States, 1982
Commodity
Value ($ million)
% of Total Exports
Meat
Fish
Sugar
Fruit
Tobacco
Processed Food
Coffee
Soybeans
Vegetables
Chemical Elements
31.0
16.0
13.0
10.0
5.0
4.0
3.0
1.0
Less than 1
Less than 1
37.0
19.5
15.8
12.2
6.1
4.8
3.6
1.2
Less than 1.0
Less than 1.0
Nicaraguan Exports to the United States, 1975-77
Commodity
Su gar
Meat
Coffee
Fish
Tobacco
Fruit
Non-Ferrous Ore
Clothing
Fabrics
Cotton
Value ($ million)
39.3
32.6
21
20.3
5.6
5
3
2
1.3
1.3
% of Average Total
28
23.3
15
14.5
4
3.6
2.1
1.4
Less than 1.0
Less than 1.0
B-2
r f D F T
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J L %, 1\ L 1
Table 3
Nicaragua Exports to the World by Commodity Group
Foodstuff Exports, 1982
Value ($ million) % o
f Total
247.0
100.0
Top Ten Partners
212.0
85.6
US
82.0
33.2
West Germany
46.0
18.6
Netherlands
16.0
6.4
Mexico
14.0
5.7
Spain
14.0
5.7
France
11.0
4.4
USSR
8.0
3.2
Costa Rica
8.0
3.2
Italy
7.0
2.8
Guatemala
6.0
2.4
Foodstuff Exports, 1975-77
Value ($ million)
% of Average Total
280.3
100
Top Ten Partners
254.3
90.4
US
127.6
45.5
West Germany
47.3
16.8
Belgium-Luxembourg
19.0
6.7
Netherlands
18.6
6.6
Costa Rica
17.6
6.3
Japan
6.6
2.3
Guatemala
6.0
2.1
France
4
1.4
Italy
4
1.4
Mexico
3.6
1.3
B-3
c r r a F T
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Table 3 (continued)
Manufactures Exports, 1982
Value ($ million) % of Total
Top Ten Partners
30.0 100.0
30.0 100.1
Costa Rica 15.0 50.0
Guatemala 6.0 20.0
El Salvador 4.0 13.0
Honduras-Belize 3.0 10.0
Panama 1.0 3.3
Cuba 1.0 3.3
Japan less than 1 less than 1.0
US less than 1 less than 1.0
West Germany less than 1 less than 1.0
Netherlands less than 1 less than 1.0
Manufactures Exports, 1975-77
Value ($ million)
% of Average Total
82.5
100
Top Ten Partners
82.6
95.7
Guatemala
22.3
26.1
Costa Rica
22.0
25.8
El Salvador
21.6
25.3
Honduras-Belize
9.6
11.2
US
6.3
7.3
Venezuela
0.3
less
than
1.0
Canada
0.2
less than
1.0
Panama
0.2
less than
1.0
Mexico
less than 0.1
less than
1.0
B-4
C C /` n C T
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Table 3 (continued)
Fuels Exports, 1982
Value ($ million)
% of Total
Top Ten Partners
Costa Rica
1.88
38.0
Guatemala
1.71
34.5
El Salvador
0.79
16.0
Netherlands
0.19
3.8
Honduras-Belize
0.18
3.6
Cuba
0.13
2.6
Panama
0.04
less than 1
Mexico
less than 0.01
less than 1
US
less than 0.01
less than 1
Fuels Exports, 1975-77
Value ($ million)
%- of Total
1.56
Top Ten Partners
1.56
Costa Rica
1.21
77.0
Honduras-Belize
0.174
11.1
El Salvador
0.09
5.7
Guatemala
0.06
3.8
US
0.02
1.3
Panama
less than
0.01
less than
1.0
Finland
less than
0.01
less than
1.0
France
less than
0.01
less than
1.0
Greece
less than
0.01
less than
1.0
B-5
r r R F T
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Top Ten Partners
Japan
China
France
Taiwan
West Germany
Belgium-Luxembourg
Honduras-Belize
Italy
Guatemala
Table 3 (continued)
Raw Materials Exports, 1982
Value ($ million)
38.1
19.5
8.1
7.5
6.5
3.0
1.5
0.9
0.6
% of Total
100.0
43.3
22.1
9.2
8.5
7.4
3.4
1.7
1.0
less than 1.0
Raw Materials Exports
Value ($ million)
% of Average Total
146.8
Top Ten Partners
121.4
Japan
56.3
38.3
Taiwan
11.8
8.0
Hong Kong
10.9
7.4
West Germany
9.5
6.5
China (PRC)
8.2
5.5
Italy
6.4
4.3
US
6.3
4.2
Spain
5.9
4.0
Thailand
3.5
2.4
India
2.6
1.7
B -6
F r R F T
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Nicaragua: Declining Levels of Foreign Assistance
While total foreign financial assistance to Nicaragua has continued
to grow for a number of years, the level of aid from non-Communist
countries has begun to decline. With a few exceptions, we believe that
most developed and Latin nations will continue to scale back financing as
their government leaders becomes more pessimistic about their ability to
buy political moderation in Managua. Although Soviet and East European
support is expanding substantially we do not believe that it will fully
compensate for the loss of Western.funds .
Latin Support Tumbles
Financing from Latin America has fallen dramatically this year,
largely due to concern among leaders in the region about the regime's ----
repressive policies and its closer ties with Cuba and Eastern Europe.
Their domestic financial crises also incline Latin leaders to take a
harder look. We expect Latin American economic support to reach $148-158
million this year, compared to about $220 million in 1983. We project a
further decline in the total again next year.
Mexico, Nicaragua's largest Latin donor since the 1979 revolution,
has slashed its aid from about $150 million in 1983 to at most $90 million
this year. We believe President de la Madrid's cutback was prompted in
part by a willingness to respond to bottom-line US concerns, in part by
Mexico's own financial problems, and in-part by his own dissatisfaction
with the direction of the Nicaraguan revolution. The primary vehicle for
the cutback has been the decrease in Mexican oil shipments, which until
this year had been supplied on credits that neither side anticipated would
ever be repaid. We expect that Mexican oil shipments this year will reach
at most $80 million, down from roughly $130 million last year.
Financing from Venezuela and Brazil, which were substantial donors in
the early years of Sandinista rule, fell to about $10 million apiece in
1983 and will drop again to roughly $5 million each this year.
Nicaragua's credit lines with Brazil are now exhausted and will unlikel
officials also recognize that Managua has passe the limit of its
25X1
25X1
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Argentina is the only Latin American nation to have substantially
increased its credits this year, and that also seems likely to be cut back
after November. President Alfonsin, arguing that economic leverage might
induce the Sandinistas to open the political process, agreed in March to a
$45 million line of credit. Argentine aid had previously been limited to
a credit line extended in appreciation for Nicaragua's support during the
1982 Falklands war for the year as a whole we expect Nicaragua to draw on
this credit line for about $25 million. We believe that Buenos Aires
expects some political liberalization for its money, however. Should the
regime adopt more repressive tactics on civil liberties and political
opposition after the November elections Alfonsin in turn would probably
discreetly scale down disbursements under the current credit and take a
harder stance in the future.
Slowdown from the West
. Economic support from the West has probably also reached its peak,
but will decline more slowly than has Latin financing. We estimate that
assistance from Western industrial nations will total $84 million this
year, down about $4-19 million from 1983, and that it will decline again
next year.
Few leaders of Western industrial nations remain persuaded that their
assistance can be, used as leverage to induce the Sandinistas to adopt a
different political course, and the regime's repeated failure to fulfill
its promises regarding domestic liberalization is prompting several
European countries to scale down their economic support. For some
leaders, however, continuing financial gestures to the Sandinistas will
remain a relatively cheap way to shore up their support from the left at a
time when they are struggling to implement more important policies--such
as austerity in France or NATO membership and US base rights in Spain--
that face heavy leftist opposition.
The Netherlands, which in 1981 committed itself to a 5-year
reconstruction program disbursing $10-$15 million per year, recently told
US officials that it will phase out its aid almost completely after the
program expires next year, largely due to the Hague's dissatisfaction with
Sandinista political and military policies. At about the same time, Dutch
officials decided to step up their assistance to neighboring democratic
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Costa Rica. Dutch aid to Managua has been largely concentrated on
. agricultural, road and port development projects.
Financing from West Germany, which averaged about $19 million
annually between 1979-81, will also disappear. FRG officials have told
the US Embassy that current programs will be allowed to expire, and that
no new commitments will be made. Like the Dutch, German officials have
told US diplomats that they have moved against Nicaragua in large part
because of the Sandinistas' failure to allow political pluralism.
. Spain has been one of Nicaragua's most consistent financial
supporters, disbursing by our estimates, some $10-20 million in supplier
credits and humanitarian aid every year since the 1979 revolution. Madrid
also rescheduled Managua's $62 million bilateral debt in early 1981 on
fairly easy terms, and forgave $2.3 million in overdue interest, according
to the US Embassy in Managua. Madrid's current program--a $45 million,
3-year line of supplier credits--will expire in 1986. Nicaragua has been
trying to negotiate a second. $5 million line from Madrid
We doubt that Madrid will grant the additional credits soon or be
willing to renew the $45 million package after the current one expires.
Since it was announced in mid-1983, we believe that Prime Minister
Gonzalez has become increasingly disillusioned about the nature of
Sandinista rule. Moreover, we believe that Gonzalez--like Argentina's
Alfonsin--might discreetly slow the pace of disbursements should there be
a return to substantially tougher domestic policies after the Nicaraguan
elections. Thus, we project that Spanish financing in 1984 will probably
reach $8-10 million, in contrast to an estimated $15-20 million last
year.
We expect French support, by contrast, to remain at roughly constant
or only slightly lower levels next year. We estimate French assistance at
$18-22 million in both 1983 and 1984. Should plans for a new geothermal
project go forward next year, Paris would lend $9 million toward its cost,
and probably provide some $10 million in other assistance. We believe
that emerging French concern over Nicaragua's political direction,
however, will at a minimum preclude Paris from significantly increasing
its financing, and perhaps induce a gradual decline.
France is the only West European power to have granted military
assistance since the revolution--$16 million in a mix of credits and
grants in 1981_ There is almost no prospect that more such aid will be
forthcoming.
Aid from other Western nations will remain roughly constant this
year. $8 million in Austrian aid in 1983 will probably not be repeated
25X1
25X1
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this year. Canadian assistance may total $13 million, roughly double 1983
levels, but almost half the money is to go for a water purification
project which does nothing to ease Managua's most pressing problems of
paying for consumer and industrial imports.
Declining Multilateral Aid
Prospects of substantial funding from multilateral sources are
becoming increasingly poor. Nicaragua is currently some $10 million in
arrears to the International Monetary Fund, which this summer cut off
Nicaragua's access to Fund resources until the books are cleared of
arrearages. Similarly, Managua's roughly $6 million arrearages to the
World Bank recently prompted Bank management to declare Nicaragua in
default--the first such country in Bank history, according to US
officials. Bank rules specify that no disbursements can be made
countries in d fault.
In the year ended June,
1983, the Ban disbursed about 16 million to Nicaragua, and we believe
that roughly $3 million in currently-approved Bank lending is being held
up by the default. Disbursements from the Inter-American Development Bank
will probably total some $20 million in the year ending June 30, 1985,
down from the previous year's $33 million.
The Soviet Response
We expect total Communist financing to reach $470 million this year,
compared to $270 million in 1983. Moscow and its Communist allies have
increased their support substantially this year, in part to help
compensate for the decline from other sources. The most important example
is Moscow's decision to make up entirely for the decline in Mexican oil
deliveries. We estimate that Soviet oil deliveries will total some $85
million this year, up from just $2 million in 1983. In a marked departure
from usual Soviet policy, we believe that Moscow is requiring little or no
immediate payment for the petroleum. It seems most unlikely that Managua
will repay any substantial part of its debts to the USSR over the next
several years. We expect disbursements of non-oil economic assistance
from the Communist countries to reach some $135 million this year, down
slightly from about $165 million in 1983. This aid is mainly supplier
credits for manufactured goods, but also includes substantial technical
assistance and some donations of foodstuffs and fertilizers. In addition,
we have noted a few instances of actual loans or donations of hard
currency from Cuba, but believe that these remain relatively small. We
25X1
25X1
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estimate that financial assistance for military purchases will reach $250
million. 25X1
In general, however, Communist help is a poor substitute for Western
assistance.
quality of technical assistance also appears to be inferior.
Uncertain Support From the Middle East
Although three Middle Eastern nations have provided some economic
support in the past, we do not believe that any of them will be reliable
partners in the future. In 1983, Algeria agreed to pay preferential
prices for Nicaraguan sugar after the United States slashed Managua's
sugar quota, an arran oement that should have netted the Nicaraguans
25X1
25X1
roughly $14 million. 25X1
the deal has not been as remunerative as Managua expected, 25X1
an we dour at Algeria will provide substantial new aid in the
future. 25X1
In both 1982 and 1983, Iran lent Nicaragua roughly $27 million by
allowing Nicaragua to resell a tankerload of Iranian crude and deferring
payment from Managua until 1985 and 1986. 25X1
Iran has been very late in paying for some of its imports 25X1
from ica aoua and the another loan next year is uncertain
at best. Libya lent Managua $100 25X1
million and since then may have contributed additional money for
construction of a new sugar mill. Qadhafi's record in keeping promises of
financial aid is poor, however, and we doubt that the re ime is counting
on much if any additional money from Tripoli. 25X1
Implications
On balance, even if the dollar value of Communist aid rises
substantially, we doubt that it will fully compensate for the decline in
aid from other sources. These trends will markedly affect.both popular
living standards in the short run and the country's industrial base over
the somewhat longer term.
Discontent over worsening living standards erupted in a flurry of
work stoppages in August and September, shortly after the regime restored
the right to strike. The Sandinistas have taken a very hard line,
however, threatening to declare one strike illegal and refusing to
negotiate on several others until workers returned to work. Rather than
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again revoking the right to strike after the elections, and incurring
additional international disapproval, we expect the regime to continue
with the less visible, but still hard-line tactics it has used recently.
The Sandinistas may also attempt a strategy of dividing the workers by
providing substantial pay raises to non-strikers. As living conditions
continue to worsen, however, and most wage hikes are wiped out by
inflation that may reach 90 percent this year, we expect b
unrest, and some additional marketplace disruptions.
The problem is exacerbated by the Sandinistas' unwillingness or
inability to revive the economy. We foresee little if any change in
domestic policies, which have consistently tended to increase the
government's role in business decisions and to claim additional sectors of-
commerce and industry as the exclusive preserve of the state.
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Table 1
Projected Official Foreign Financing to Nicaragua in 1984
(million US $)
Total: 760-790
Western Europe 67-84
Western Hemisphere 148-158
Austria
2-3
`Argentina
25
Finland
4
Brazil
5
France
18-22
Canada
13
Italy
2-4
Colombia
5-10
Netherlands
14-18
Mexico
90
Norway
8
Peru
5-10
Spain
8-10
Venezuela
5
Sweden
11
West Germany
2-4
Communist Countries
470
Other
47
For:
Oil
85
Algeria
14
Weapons
250
Iran
27
Other
135
Japan
3
Taiwan
3
Multilateral
26-31
World Bank
2-6
Inter-Ameri can
Development Bank
20
European Economic
Community
UN Food and
Agriculture
Organization
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ANNEX E
Nicaraguan Imports
Table 1
Nonmilitary Imports -- 1982
(Million US $ CIF)
Total
Co
Go
nsume
ods
r Petroleum
and products
Intermediate
Raw Materials
Machinery
and Transport
World
776
171
180
237
238
U.S.
148
37
5
56
50
W. Europe
103
45
0
57
1
Japan
18
0
0
5
13
Canada
50
8
0
3
39
Mexico
154
12
120
11
11
Central America
129
46
7
64
12
South America
57
3
38*
11
-5
U.S.S.R
39
1
0
1
37
Other Comm.
50
11
0
21*
18
* Venezuela only.
** Cuba accounts for $17 million.
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Table 2
Composition and Trade Partners
(million US $)
Average 1975-77
1982
% of Total
% of Total
CONSUMER GOODS
of which:
128.6
---
171
FOOD
48.0
100
95
100
W. Europe
3.0
6.2
32
33.7
France
0
0
13
13.7
Irel and
0
0
8
8.4
Netherlands
0
0
6
6.3
United States
21.0
43.7
28
29.4--
Latin America
22.3
46.4
18
18.9
Costa Rica
9.0
18.7
7
7.3
Guatemala
7.0
14.6
6
6.3
Cuba
0
0
5
5.3
OTHER FINISHED GOODS
80.6
100
76
100
W. Europe
13.3
16.5
13
17.1
Spain
2.0
2.5
6
7.9
W. Germany
4.3
5.3
3
3.9
Switzerl and
2.6
3.2
3
3.9
United States
15.0
18.6
9
11.8
Latin America
49.6
61.5
43
56.5
Costa Rica
13.0
16.1
12
15.8
Guatemala
13.3
16.5
10
13.1
Bulgaria
PETROLEUM AND
0
0
4
5.2
OTHER FUELS
82.6
100
180
Mexico
0
0
120
66.6
Venezuela
68.6
83.0
38.
21.1
Panama
3.0
3.6
6
3.3
United States
4.6
5.5
5
4.1
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Avers e 1975-77
1982
$
% of Total
$
% of Total
INTERMEDIATE RAW
MATERIALS
217.3
100
237
100
Latin America
75.3
34.6
86
36.3
Guatemala
19.3
8.8
26
10.9
Costa Rica
22.6
10.4
22
9.3
W. Europe
42.6
19.6
57
24.0
France
2.0
0.9
17
7.2
W. Germany
18.3
8.4
12
5.0
Italy
2.3
1.0
8
3.4
Spain
1.0
0.5
7
2.9
United States
71.6
32.9
56
23.f
Cuba
0
0
17
7.2
Mexico
4.3
1.9
11
4.6
Japan
16.6
7.6
5
2.1
MACHINERY AND
TRANSPORT GOODS
174.3
---
188
of which:
MACHINERY
114.3
100
138
100
United States
55.3
48.4
44
31.8
W. Europe
30.0
26.2
35
25.4
W. Germany
13.0
11.4
11
7.9
Italy
4.6
4.0
11
7.9
Spain
4.6
4.0
6
4.3
USSR
0
0
16
11.6
Mexico
2.6
2.3
7
5.0
E. Germany
0
0
6
4.3
Japan
13.3
11.6
5
3.6
USSR
0
0
21
42.0
Japan
20.3
33.8
8
16.0
United States
17.6
29.3
6
12.0
W. Europe
17.0
28.3
4
8.0
Spain
9.0
15.0
2,.
4.0
W. Germany
3.0
5.0
1
2.0
Mexico
2.6
4.3
4
8.0
E. Europe
0
0
2
4.0
E. Germany
0
0
2
4.0
Sanitized Copy Approved for Release 2011/07/21: CIA-RDP89B00423R000200120004-7
 Sanitized Copy Approved for Release 2011/07/21: CIA-RDP89B00423R000200120004-7
Composition of Imports
in percent)
1979
1980
1981
1982
1983
1
Total Imports
100.0
100.0
100.0
100.0
100.0
Consumer Goods
27.0
29.1
24.3
20.6
20.1
Nondurable
21.6
24.2
19.6
15.0
14.7
Durable
5.4
4.8
4.7
5.6
5.4
Intermediate Goods 2
39.1
38.3
35.2
34.6
33.7
Inputs for agriculture
4.3
7.0
5.6
4.5
5.0
Inputs for industry
30.7
28.0
26.3
24.1
24.8
Construction materials
4.1
3.3
3.4
6.0
3.9
Petroleum Products
21.0
19.6
19.8
23.0
22.2
Crude and partially refined
18.2
16.7
17.3
19.1 15.6
Derivatives 2.8
2.9
2.5
3.9
6.6
Capital Goods 12.8
12.4
20.1
21.5
23.9
Agriculture 1.2
2.7
3.0
3.2
4.5
Industry 8.7
6.9
12.1
14.0
15.0
Transportation equipment 2.9
2.8
5.0
4.3
4.4
Other
0.1
0.7
0.6
0.1
0.1
(Source:
IMF Statistics)
r Excluding petroleum products.
Sanitized Copy Approved for Release 2011/07/21: CIA-RDP89B00423R000200120004-7