NICARAGUA SANCTIONS: SANDINISTA RESPONSIBILITY FOR THEIR ECONOMIC FAILURES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R001802770021-1
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 47
• Document Creation Date: December 22, 2016
• Document Release Date: August 19, 2009
• Sequence Number: 21
• Publication Date: May 18, 1985
• Content Type: MEMO

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SUSPENSE
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WASHINGTON. D.C. 20506 Executive Registry
85- 2063
May 18, 1985
MEMORANDUM FOR MR. NICHOLAS PLATT
Executive Secretary
Department of State
COLONEL R.J. AFFOURTIT
Executive Secretary
Department of Defense
MRS. HELEN ROBBINS
Executive Assistant to the Secretary
Department of Commerce
MR. EDWARD J. STUCKY
Acting Executive Secretary
Department of the Treasury
STAT
Executive Secretary
Central Intelligence Agency
MR. JAMES FRIERSON
Executive Assistant to the
U.S. Trade Representative
MR. C. WILLIAM LASALLE
Chief of the Executive Secretariat
U.S. Information Agency
SUBJECT: Nicaragua Sanctions: Sandinista Responsibility
for their Economic Failures
The attached papers, prepared by the State Department, document
Sandinista responsibility for the deterioration of their economy
and their efforts to establish close ties to the Soviet bloc.
You are requested to give wide distribution to this material
C-387
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within your agency. The papers provide talking points and
background papers which can be used to refute efforts by the
Nicaraguan government and others to blame the United States for
Nicaragua's economic failures and to contend that U.S. actions
have driven Nicaragua into the arms of the Soviets.
Executive Secretary
Attachments:
Tab A Talking points on Nicaragua's economic crisis
and quotes from Sandinista officials
Tab B Paper on "The Sandinista Economic Failure"
Tab C Questions and Answers
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TALKING POINTS ON NICARAGUA'S ECONOMIC CRISIS
The following talking points supplement those previously
prepared concerning the United States trade embargo on
Nicaragua. They are to counter arguments that the United
States is responsible for the deterioration of Nicaragua's
economy and is driving Nicaragua into the embrace of the
communist world.
-- Although Nicaragua's economy was damaged during the
revolution, it began a recovery in 1980-81 due to the hope of
Nicaragua's producers and large amounts of foreign economic
assistance. Initially, Nicaragua received very favorable
treatment from Western nations and international assistance
institutions. For example in 1981 Nicaragua received $363
million in loans from bilateral and multilateral sources.
Additional amounts were probably given as grants. During the
early period, the United States was the largest bilateral
donor, providing $118 million in economic and humanitarian
assistance by 1981.
-- Unfortunately, as the Sandinistas implemented policies
which placed Marxist ideology over economic realism, the
economic deterioration has grown steadily worse. This
deterioration began well before the existence of a full-fledged
insurgency in Nicaragua.
-- United States aid was suspended in 1981 because of the
Sandinistas' support for subversives in El Salvador. Aid from
other sources has continued; however, due mainly to Sandinista
policies this money has not succeeded in reviving the
Nicaraguan economy. In 1978 the Somoza Government received
about $100 million in bilateral and multilateral assistance;
GDP per capita was about $1300. In 1984, the Sandinistas
received about $500 million in aid, but GDP per capita was only
$956.
-- Since 1980, the GNP in per capita terms has declined
steadily, and is now more than 25% below the pre-revolution
level of 1978. Exports declined by 70% in real terms since
1978.
-- Nicaragua is seriously in arrears in its debt repayments
to most of its major creditors. Many of its arrears extend for
more than a year. For example, arrearages to the World Bank
totalling more than $15 million now exceed 300 days, a period
which is longer than any of the Bank's other 145 members.
-- Key agricultural production has fallen off sharply because
of disincentives such as price controls, lack of needed
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fertilizer, insecticide and transportation, and harassment of
the private sector. Cotton production is down 20 percent this
year; the coffee and sugar crops are also depressed.
-- The United States initially gave strong support for
Nicaragua in multilateral financial institutions. It now
opposes loans to Nicaragua because it is not a good use of
funds to support governments whose economic policies discourage
development.
-- The Sandinistas, for tactical reasons having to do with
their image abroad, have given lip service to a mixed economy,
but behind the scenes they have been striving to break the back
of the private sector and take control of an ever larger
portion of Nicaragua's economy. Today, barely half of the
tightly controlled economy remains in the private sector, and
Sandinista leaders have predicted that the state will generate
more and more of the GNP. (For example, Vice President Sergio
Ramirez spoke of the state producing 80 percent of GNP.
Barricada, February 28, 1983)
-- Sandinista anti-private sector policies such as
confiscations--often used to punish political opponents-- plus
controls on prices, wages, finance, interest rates and foreign
exchange, and high taxes have strangled private enterprise,
discouraged production and prompted many of Nicaragua's
businessmen, managers, and professionals to go into exile.
The country's two largest independent labor
confederations, the Nicaraguan Workers Central (CTN) and the
Confederation for Labor Unification (CUS), with a claimed
combined membership of approximately 70,000, face policies of
official hostility -- including arbitrary and illegal
imprisonment --designed to intimidate members into abandoning
the independent unions. (The FSLN-affiliated unions claim
membership of 320,000, including seasonal workers.) In 1983,
the Sandinistas seized a union hall belonging to a stevedore
organization and held an illegal "vote" by non-union members,
installing a Sandinista leadership. This blatant violation of
labor rights was officially condoned by.the Ministry of Labor.
-- Sandinista policies have created unprecedented hardships
for the average Nicaraguan, including shortages of food and
other basic necessities. Wages, first frozen by the government
in 1981, have plummeted in real terms as inflation has soared.
According to GON statistics, real average monthly wages in the
private sector fell by one-third between 1981 and 1984.
Unemployment rose to over 20 percent last year.
-- The government has taken over the distribution system and
basic consumer goods are rationed. The rationing system is
operated by FSLN "block committees," providing yet another
method of coercion of the population.
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-- The Sandinistas' actions have repeatedly demonstrated
their long and close alignment with the Soviets. The
Ortega-Gorbachev economic agreement that was signed in Moscow
on April 29 is just the latest example. Thus, there is little
the U.S. can do to "drive" Nicaragua into the arms of the
Soviets; the Sandinistas embarked on this course long ago.
-- Only strong pressure can succeed in compelling the
Sandinistas to return to the original goals of the revolution,
i.e., a truly pluralistic, democratic society.
Sandinista Quotes
Quotes illustrating Sandinista leaders' consistent
adherence to Marxist-Leninst ideology and their "strategic
allies," the Soviets and Cubans, are:
-- The principal founder of the FSLN movement, the late
Carlos Fonseca Amador, in a written message to the Soviet
Communist Party in 1971, described the,FSLN as a "successor of
the Bolshevik October Revolution" and stated that "the ideals
of the immortal Lenin are a guiding star in the struggle."
-- In a major policy and planning document prepared only two
months after the July 19, 1979, seizure of power, the
Sandinistas described the United States as the "rabid enemy"
and referred to the Nicaraguan middle class as the "traitorous
bourgeoisie."
-- "Marxism-Leninism is the scientific doctrine that guides
our revolution." (Defense Minister Humberto Ortega, in a
pamphlet distributed to subordinates, August 25, 1981)
-- At the July 1984 commemoration of the Cuban revolution,
Sandinista Interior Minister Tomas Borge said: "We have come
here to be . . . next to our brothers of the Communist Party of
Cuba, to tell them once again . . . that Cuba's friends are
Nicaragua's friends, and Cuba's enemies are Nicaragua's enemies
(Havana Domestic Service Radio, July 25, 1984, quoted
in FBIS, July 27, 1984)
-- The Sandinista strategy to manipulate public opinion in
Western countries by "displaying" the private sector was
illustrated in Comandante Bayardo Arce's now famous May 1984
speech: ". . . for us it is useful, for example, to be able to
display an entrepreneurial class and private production . . .
while we move ahead in strategic ways . . . . We have talked
about the first experience of building socialism with the
dollars of capitalism."
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THE SANDINISTA ECONOMIC FAILURE
Sandinista policies, which have consistently emphasized
Marxist ideology over economic realities, have thrown Nicaragua
into a severe economic crisis. Nicaragua was a productive
agricultural country with approximately 3 million inhabitants
and more than 29 million acres of land. Since the 1979
revolution, the Sandinista government has sought to implement a
marxist state-controlled economy, while using rhetoric claiming
to favor a mixed economy and a pluralistic society.
After five years of Sandinista rule, the facts speak for
themselves. The Government of Nicaragua in the tradition of
its mentor, Cuba, has secured effective control of the economic
life of the country. Immediately after the revolution, it took
control of 40 percent of the economy by nationalizing all the
Somoza holdings as well as entire industries such as banking
and export marketing firms. To increase their share since
then, the Sandinistas have used a variety of ideologically
motivated means such as confiscation, limitation of access to
credit, and wage and price controls. Although nominally half
the economy remains in the private sector, even that part is
tightly controlled by the government. As Comandante Bayardo
Arce put it, "any investment project in our country belongs to
the state. The bourgeoisie no longer invests--it subsists."
Anti-Private Sector Policies
Sandinista policies and regulations have stifled the
private sector and have been powerful disincentives to
production. The Sandinistas have not respected private
property; they have confiscated whatever firms or lands they
pleased, often merely to punish opponents. They imposed price
controls which made impossible a reasonable profit for
producers, thus discouraging production. They have required
farmers to sell their products to the government at prices so
low that many small producers have been driven completely out
of business. They have used their control of banks, financing
and interest rates to squeeze out the private sector and for
political purposes. The percentage of loans to the private
sector dropped from 70 percent in 1978 to only 10 percent in
1984.
Nationalization of all export marketing and stringent
controls over access to foreign exchange has thwarted
businessmen trying to develop Nicaragua's export crops. High
taxes imposed by the Sandinistas (the highest in Central
America) ensure slow economic strangulation of private
enterprise. These policies, coupled with the repressive
political climate created by the Sandinistas, have caused many
of Nicaragua's business executives, managers, farmers, and
professionals to become disillusioned and go into exile.
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Impact of Militarization
As early as February 1981, the FSLN announced that it
would build a 200,000-man militia (almost 10 percent of the
population). Today the government admits to spending 40
percent of the budget on the military. Regimentation of the
society has also had disruptive effects on the economy. For
example, the obligatory military service has diverted human
resources from production to the military. The impact of
militarization of the society cannot be accurately quantified,
but it is reflected in the areas of transportation,
communication, and education. Fear of conscription into the
Sandinista army has affected labor discipline, with many young,
able-bodied workers and students fleeing the country or hiding
from the authorities.
Economic Decline and Inflation
Sandinista policies have led to economic decline and have
created unprecedented hardships for the average Nicaraguan.
The gross domestic product is 14 percent below
pre-revolutionary levels. The budget deficit is more than 20
percent of the gross domestic product and growing. National
savings is only about 1 percent of the gross domestic product,
one of the lowest rates in the world. Inflation in the price
of many food staples has reached 200-300 percent and continues
to climb. Wages, first frozen by the government in 1981, have
plummeted in real terms. Lower and middle class families are
unable to maintain even their low standards of living. Basic
consumer goods that previously were readily available to the
public have now become scarce, and the long lines typical of
Eastern Europe have become commonplace. Numerous products are
now being rationed through a system administered by Sandinista
"block committees."
Debilitating Controls
The Sandinistas have moved to take over much of the
distribution system and push out the private sector. As in
other state-controlled economies, a black market has become
active. Domestically produced goods such as meat, sugar, milk,
and eggs are becoming scarce, and imported consumer goods are
virtually nonexistent. Sandinista regulations restrict private
citizens' access to foreign currency, and Nicaraguans wanting
dollars must exchange their money on the black market for only
10 percent of its official value. To discourage people from
leaving, the Sandinistas have set passport and exit visa fees
so high that they are equal to nearly a full month's wages for
the average Nicaraguan.
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Loss of Credit Rating
Sandinista policies have made Nicaragua increasingly
dependent on foreign handouts. Exports have declined 25
percent in nominal terms and 70 percent in real terms. In less
than six years, the Sandinistas have tripled Nicaragua's
foreign debt from $1.6 to $4.6 billion. Nicaragua has fallen
in arrears on many of its debts and it is not considered
creditworthy by commercial lenders.
Initially, Nicaragua received very favorable treatment
from the international community, obtaining hundreds of
millions of dollars a year from Western nations and
multilateral financial institutions. As the Sandinistas have
steered Nicaragua ever further toward communism, support from
the West has been declining.
Role of the United States
From the time the Sandinistas took power in 1979 until
1981, the United States was the largest bilateral donor to
Nicaragua, providing $118 million in economic and humanitarian
assistance. The United States also supported Nicaragua in its
dealings with multilateral financial institutions and private
banks. For example, by 1983 the Sandinista government had
received more than $250 million from multilateral development
institutions to which the United States is the principal
contributor.
Actions by the United States against the Nicaraguan
economy have not been arbitrary or sweeping. We suspended
government-to-government aid in 1981 only after the Sandinistas
persisted, in spite of repeated warnings, in their support of
armed insurgency in the region. Only in 1983, with the pattern
of Sandinista destabilizing actions even more clearly
established, did we reduce Nicaragua's sugar quota.
The Sandinistas made clear nearly six years ago that they
were committed to a close security and economic relationship
with the Soviet bloc, and Cuba. President Ortega's trip to
Moscow is only the latest visible sign. The economic sanctions
announced in early May cannot be blamed for pushing the
Sandinistas into the Soviets' arms. By the same token, we have
advised the Sandinistas that we are prepared to reexamine the
sanctions at any time they take concrete steps toward a
dialogue and other measures leading to genuine reconciliation,
freedom, and peace in Nicaragua and the region as a whole.
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May 1985
THE NICARAGUAN ECONOMY FIVE YEARS AFTER THE REVOLUTION
THE ECONOMY: THEN AND NOW
Nicaragua is the largest Central American nation in land
area but has a population of only about 2.7 million people. It
is one of the least developed countries of the region and is
mainly an agricultural country. Gross Domestic Product (GDP)
is $3.1 billion; in real terms, about 14% below 1978 levels.
Nicaragua's key exports are coffee, cotton, sugar, meat,
seafood products, uananas and gold; it has a small industrial
sector based mainly on agricultural chemicals. Population and
economic activity are concentrated on the Pacific coast.
When the Sandinistas took power after a year and a half of
intense struggle, the economy was badly damaged. Capital
flight and lost production amounted to as much as $1.5 billion;
foreign exchange reserves were close to zero. The foreign debt
at the end of 1979 was $1.6 billion. The budget deficit was
over 7% of Gross Domestic Product (GDP). ECLAC, the UN's
Economic Commission for Latin America and the Caribbean,
estimated that the fighting had caused. about $500 million in
physical damage.
After five years in power, the Sandinista government is
still struggling with the same problems, as well as some new
ones created by their ideologically oriented policies. Output
is 14 percent below pre-revolution levels. The foreign debt
now stands at $4.6 billion, and Nicaragua is incapable of
meeting its debt service obligations. The budget deficit is
over 20 percent of GDP and growing. The trade gap has averaged
about $350 million for the past five years. The Sandinistas
rely on foreign assistance to bridge a $500 million balance of
payments deficit.
Recent Government of Nicaragua (GON) economic statistics
are not considered credible by many international observers and
institutions. The Sandinistas claimed a 3 percent growth rate
in 1983, but government officials admit that the standard of
living declined. Even the official statistics reflect the
visible decline in living standards. In real terms, overall
non-military consumption per capita was off 3 percent in 1983,
while real private consumption per capita fell by almost 8
percent. The GON attributed this decline to the effects of
aggression, but increasingly the Nicaraguan people are
beginning to question Managua's economic policies. And for the
first time, the Sandinistas are admitting that they have made
serious mistakes in managing the economy.
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The year 1984 and the first quarter of 1985 have seen an
acceleration in the economic decline of the country. Although
hard figures are unavailable, both the coffee and cotton
harvests for 1984/85 were significantly below projected levels,
coffee possibly 30-40 percent and cotton
at least 20
percent.
Price inflation of many food staples has
been
200-300
percent
and these continue their upward climb.
Real
wages, on the
other hand, have declined and lower and middle class families
are unable to maintain even their relatively low standards of
living.
Meanwhile, the Sandinistas have made no significant
changes in any of their policies and programs to respond to the
deteriorating situation or to retreat from the ongoing
transformation to a Marxist style economy. Small price
increases have been given to producers and unrealistically low
wage raises granted to workers at all levels of the economy.
Real prices for goods and services have risen owing to
shortages unrelieved by these halfway measures. The GON 1984
budget was almost 10 billion cordobas in excess of receipts and
1985 looks even worse. Today the Sandinistas continue to
ignore free market indicators in favor of controlled wages and
prices. Oil from the Soviet Union, now their only regular
supplier, and Soviet and Eastern European shipments of all
kinds of foods, consumer goods, and industrial equipment have
thus far prevented a total collapse of the economy as internal
production declines.
Nicaragua has received very favorable treatment from the
international community since 1980 in assistance grants and
loans. Even the generous amounts of aid received by the
Sandinistas has not permitted a reactivation of the economy.
Much of the assistance received has been in grant form or
low-interest loans; yet the GON is unable to pay its bills and
remains dependent on external resources to stay alive.
Virtually all of their oil imports have been provided without
payment.
At almost any time at least one Sandinista representative
is abroad seeking economic aid. The Sandinistas generally have
been successful in soliciting support although aid,
particularly from Western Europe, has been falling off since
1983. Since taking power, they have been able to rely on
donations -- primarily from Canada, Sweden, and the Soviet bloc
-- for Nicaragua's entire wheat supply. France and Spain have
also been helpful in certain areas of the economy. While other
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nations under the San Jose Accord 1 were struggling to meet
payment obligations for petroleum imports, Nicaragua was able
to put off payments without losing its oil supply. Venezuela
did cut off deliveries in mid-1982 when Nicaragua failed to
make a payment, but Mexico took up the slack and turned a blind
eye to Managua's failure to honor its obligations until August
1984. Since then, Mexico has been firmer about requiring
payment and has limited shipment of crude. Mexico announced a
cutoff to Nicaragua pending renegotiation of the oil debt which
now stands at over $500 million.
The Soviet Union seems willing to take up part of the
slack in aid. The Soviets, who beginning in 1984 provided
roughly 70 percent of Nicaragua's oil needs, is now expected to
supply nearly 100 percent either directly or through swap
arrangements with other oil producing countries. However, on
more than one occasion, the Soviets have made it clear that the
Nicaraguans should continue to pursue economic tie$ with the
West because the Soviets are not prepared to fully subsidize
their policies as they do for Cuba.
Cuba has also helped Nicaragua, but at least part of its
aid may be counterproductive. Despite currently depressed
world prices for sugar and slim chances for increased world
consumption in the foreseeable future, Cuba's largest
international development project in Nicaragua is the $74.5
million Timal sugar refining complex near Managua. Operations
at the mill reportedly must be subsidized by the GON. Cuba
likely will remain willing to provide aid also in the form of
Cuban-produced goods and technical assistance and doctors and
teachers. However, pinched for foreign exchange itself, Cuba
will not provide hard currency assistance. Many Nicaraguans
believe that some manufactured goods, such as clothing, soap
and some food products in short supply, are being exported to
Cuba as barter payment for Cuban aid. This is not acknowledged
by the GON.
(1) The San Jose Accord, initiated in 1981, is an agreement
whereby Mexico and Venezuela agreed to supply crude oil to nine
Central American and Caribbean countries on a concessionary
basis. When Mexico and Venezuela negotiated another one-year
extension of the Accord in August 1984, they made the supply of
crude conditional on strict compliance with the payment
arrangements specified.
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Nicaraguan export earnings traditionally have been and
continue to be based primarily on agricultural products.
Coffee is the main export product, followed by cotton, sugar,
and beef. Together, these four products make up approximately
70 percent of total exports. Export performance has been
dismal, dropping 25 percent in nominal and 70 percent in real
terms from 1978 to 1984. Private sector analysts dispute
government claims that poor performance is a result of adverse
world market prices and dislocations caused by the war.
Instead, they blame Sandinista attacks on the private sector
and GON fiscal priorities which have effectively denied them
access to hard currency in order for them to purchase needed
pesticides, insecticides, fertilizers and spare parts for
machinery to keep production high. These Nicaraguan analysts
believe many of the problems encountered in the private sector
are part of a deliberate policy of the Sandinistas to build up
the state sector of the economy at the.expense of the private
sector.
When the Central American Common Market [CACM] was
functioning well, prior to the onset of regional strife,
Nicaragua also had been able to develop some light industries.
Until 1979, about one-half the export products of these
industries went to CACM countries. In 1979, the percentage
dropped to one-third. Since then, light industries have
suffered declines every year ranging from 7 percent in 1981 to
almost 25 percent in 1982. Since 1981, Nicaraguan trade with
other CACM countries has steadily and sharply declined,
according to IMF figures. Nicaragua has accumulated huge trade
debts to its neighbors, owing Costa Rica almost $200 million
and Guatemala over $100 million. Its total trade debt to its
CACM partners is $400 million.
Nicaragua is actively trying to diversify its markets.
Until April 1985 the United States continued to be one of
Nicaragua's main trading partners, but its share of Nicaraguan
trade declined since the revolution in favor of Mexico, the
Middle East and the Soviet Bloc. Trade with Communist
countries has been increasing since the revolution. The U.S.
maintained its share of the Nicaraguan import market even as
the market was shrinking overall. Nicaraguan exports to the
U.S. declined by nearly half from 1983 to 1984. The
Sandinistas have been moderately successful in obtaining
supplier credit from sympathetic governments, but have
increasingly turned to barter and countertrade agreements.
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Based on the most generous debt rescheduling terms given
to any third world debtor, the Sandinistas were able to keep up
with obligations to commercial banks on external debt until May
1983, when they failed to make a $40 million payment.
Subsequently, foreign commercial bank creditors negotiated
several payment reschedulings, but Nicaragua has been unable to
meet these limited payments. Nicaragua is also in arrears to
multilateral financial institutions. In late September 1984,
the World Bank suspended credit to Nicaragua because of payment
arrearages. The GON also has arrears to the Central American
Bank [CABEIJ and the UN system as well as to the USG and other
governments.
Nicaraguan economic policy suffers from the overwhelming
emphasis placed by the Sandinista leadership on ideology over
economic realities. Many managers and professionals have fled
in disillusionment with the present government. CONAPRO, the
Nicaraguan National Association of Professionals, estimates 60
percent of managers and professionals in the country have left
since 1979.
The Sandinistas have emphasized social programs in a
political context where possible, to mobilize the population
and to indoctrinate the people in Marxist ideology. The number
of people included in the social security program has doubled,
although agricultural workers are excluded. Improving general
education has been a primary objective of the Sandinistas,
particularly in rural areas. Large numbers of Cubans have
assisted the government. Through its educational material, the
GON has sought to instill Marxist ideology in the next
generation of Nicaraguans. Many parents who are not
Sandinistas, and the Catholic Church have objected to this
process of "indoctrinal education". The Ministry of Education
has total control over the curriculum in both private and
public schools. For example, in church-run schools, the
Ministry of Education does not allow regular class-time to be
allocated to religious training. Moreover, government
officials have recently discussed initiating military training
for those eight years of age and above.
The Sandinistas are also proud of their accomplishments in
health, where they have increased significantly the number of
hospital beds and doctors. However, medical care has been
handicapped increasingly by the flight of the country's best
doctors and the severe shortage of foreign exchange to buy
medicine and medical supplies. Consequently, while many
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preventive medicine programs funded largely through United
Nations agencies continue to make progress, other areas of
medicine have declined sharply, with hospital care the hardest
hit.
Consumer subsidies have been a major expense, equaling
approximately 10 percent of GDP in 1983, and contributing to
shortages and production declines. These subsidies were
reduced in early 1985, but their sudden withdrawal has proven
catastrophic to lower income families squeezed by inadequate
wages.
The most damaging aspect of the Government's effort to
control consumer costs is the low prices it pays producers,
thereby discouraging production. According to Sandinista
officials, 93 percent of basic food items are produced by small
growers. Given the unreasonably low prices (and they are fined
or jailed if they try to sell their produce privately), these
small producers have basically withdrawn as much as possible
from the market economy. Forced to produce at or below cost,
they have limited production to their own immediate needs.
This has brought about a reduction in the production of corn
and beans, for example, of at least 50 percent. As might be
expected, the shortages resulting from price fixing have led to
hoarding and an active black -- or as some would prefer "free"
market, -- with prices more clearly reflecting economic
realities. This free market has been fought by the government,
but without much success.
There is a general shortage of consumer items in
Nicaragua. Imports are not available because of the foreign
exchange shortage owing to poor export performance.
Domestically produced goods are hampered by price controls,
shortage of imported inputs, lack of investment, and state
control of retailing and wholesaling operations for many basic
goods.
Price controls and control of distribution started in 1979
and were gradually expanded until the present. The growing
distortions and costliness of subsidy programs and price
controls caused the Sandinistas to make some changes in 1985,
but the structure remains in place. The control mechanism most
widely used is the ration card which is issued by the CDS, i.e.
block committee, which is controlled by the FSLN. Thus
shortages are also converted into a means of political
control. Gasoline is rationed at twenty gallons per month, and
coupons are obtained at state banks. Families can go to the
state-run Enabas commissaries to buy basic goods that are
available every two weeks. Typically, there is poor quality
sugar, rice, soap, edible oil, pasta, and spaghetti available;
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less frequently available are beans, and eggs; and rarely,
dried milk. Prices of these products, when available, are
usually one-fourth the cost of comparable free market
products. Vegetables such as potatoes, radishes and carrots
which are not controlled by the state are in sufficient supply.
The Sandinistas' interest rate policy is yet another
example of faulty economic decision making. Although inflation
is at about 60 percent, the maximum interest a Nicaraguan can
receive on a time deposit is 25 percent. Regular savings
accounts bear much lower rates. Such severely negative real
interest rates combined with the average Nicaraguan's distrust
of the nationalized banking system have led to a savings rate
of only 1 percent of GDP (1983), by far the lowest in Central
America, which underlines the country's dependence on external
savings and investment.
An overvalued exchange rate has been another damaging
Sandinista economic policy. The GON has allowed the
development of a three-tier exchange market system: an
"official" rate of 10 cordobas to the U.S. dollar for some
exports and most imports; a "special" rate of 15 cordobas per
dollar for imports of certain capital goods; and a parallel
rate of 28 cordobas per dollar for other transactions. The GON
has progressively transferred transactions to the parallel rate
as the other rates became more and more overvalued. On
February 8, the GON adjusted the parallel rate to a maximum of
50 cordobas to the dollar; multiple rates up to that amount are
being applied by the Central Bank to various categories of
goods. This increasingly complex and unrealistic exchange rate
policy has contributed to the severe shortage of foreign
exchange. The "black" market rate of over 500 cordobas per
U.S. dollar current today in Nicaragua may more accurately
reflect.the cordoba's true value.
The Sandinista government has consistently proclaimed that
.it wants to maintain a mixed economy. 2 Most confiscations
(2) Victor Tirado Lopez, a member of the FSLN Directorate,
gave the following definition of a mixed economy during a
speech on February 10, 1985, "A mixed economy is one in which
the state assumes a leading role because free enterprise and
the private sector in themselves do not guarantee the people's
welfare. They must be under the control of the state.
Nicaragua has already experienced the free enterprise system.
It brought us backwardness, misery, dependency, and a
dictatorship."
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occurred immediately after the revolution. Banks, insurance,
mines, forestry, shipping, export marketing firms, and all of
Somoza's holdings were taken over by the state. Also, numerous
farms, businesses and industries of persons accused of being
Somocistas were confiscated - all without due process. Since
then, take-overs of property, including that of U.S. citizens,
have been numerous but more gradual. The private sector today
barely accounts for just over one half of total means of
production.
However, even where the government does not have actual
ownership, it controls so many aspects of the economy that
private enterprise is severely constrained; the private sector
has considerable difficulty obtaining loans and foreign
exchange. The government-owned banks give preference to the
public sector. For example, in 1983 the public productive
sector received over six times as much credit as the larger
private productive sector. High priority sectors get lower
interest-rates. Loans to private commercial enterprises carry
the highest rates.
Fear of further nationalizations and the belief that the
Sandinistas' Marxist orientation is designed to destroy the
private sector has brought private investment to a virtual halt
throughout the country. Businessmen fear that new onerous
taxes and new regulations will be used to carry out further
confiscations, or so increase the debt burden many private
operations carry, that the government-owned banks and credit
institutions can move in and take them over legally. What
businessmen see is a Marxist economic structure which
eventually drains the private sector of all economic vitality.
If indeed the power to tax is the power to destroy, the
Sandinistas have gone the old adage one better: they have
managed to set controls in such a way as to ensure slow
economic strangulation, particularly of the large export
oriented cotton and coffee growers. Nicaraguan businessmen,
both small and large, today believe that the Sandinista
Government can, by regulation, punish its opponents whenever it
wishes. Consequently, without a return to democratic pluralism
and a respect for private property, there is little likelihood
that the movement toward state control of the economy at all
levels will not continue, despite the resistance of those
fighting for a free market economy.
Agricultural reform began with the seizure of Somoza's
land holdings and numerous other farms after the revolution.
The state took over their management and put the former tenant
farmers on a wage system. However, an agrarian reform bill was
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not passed until July 1981. Under the reform, all idle farms
over 260 hectares were to be nationalized. Over 1,000,000
acres were confiscated and converted to state farms and
cooperatives. This policy was initially popular with the
peasants even though they did not get title to the land they
farm. Today many people regard land confiscation as
politically motivated and a means to punish opponents of the
Sandinistas. The absence of clear title to lands "given' to
many peasant families has brought the program into question.
According to many observers, most of the best Somoza-held lands
have not been distributed but turned into state farms which
remain appendages of the Sandinista Government, ensuring
control of both the land and the peasants who work it.
Nicaragua has excellent agricultural resources and was a
food exporter until about 1977, but the GON has so discouraged
its farmers with low prices, input shortages and "land reform'
without titles, along with the new forced resettlement program
in which an estimated 700,000 quintales (one quintal equals 100
pounds) of grain was abandoned when the campesinos were moved,
that the country will be unable to feed itself again this
year.
Food prices were raised sharply last year; in the first
quarter of 1985 prices increased 200-300 percent, but a senior
Sandinista official recently said the country will still have
to beg for foreign food donations to cover rice and corn -
shortages. Even the plantain crop will be short. The cotton
crop, one of Nicaragua's important foreign exchange earners, is
20 percent smaller than expected for 1985, and much of the
coffee crop has been lost due to the absence of sufficient
pickers, low prices, and transportation problems. Meat
production is up (because of a 200 percent price increase), but
the total number of cattle being raised is declining. Much of
the meat, moreover, is moving into export channels and is not
appearing in the Nicaraguan marketplace. Meat has become a
thing of the past for virtually all lower income families; many
in the middle class now eat meat only two or three times weekly.
Nicaragua is unlikely to get substantial increases in farm
output until it scraps the so-called state cooperative farms
that weaken incentives and encourages private farming through
fair prices. Even then serious shortages of spare parts,
fertilizers and other off-farm inputs will continue to hamper
production. The GON has recently granted small price increases
to producers, but its original program of forcing producers to
sell to the government at arbitrary prices remains in place.
Without a free market
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economy, something which earlier made Nicaragua the largest
food exporter in Central America, a reversal of this decline
will not occur.
The GON also has made wage control an integral part of its
austerity program to reactivate the economy as well as regiment
workers in the economy. The Ministry of Labor strictly limits
wage increases and has directed pay raises toward the lowest
salaried employees in order to correct the "unjust" salary
structure inherited from the Somoza regime. In fact what has
been eliminated is a free market mechanism which rewards
skilled workers and managers. The result appears to be a trend
toward the creation of a mass society at the lower end of the
economic scale, and a flight abroad of qualified workers as
well as ingenious methods within the private sector to attract
and hold skilled workers by using fringe benefits. The
Ministry claims that its control of wages promotes stability in
the job market while eliminating wasteful competition among
employers for skilled workers. The facts are the opposite.
Inflation has destroyed real wages, forcing many workers to the
brink of destitution and employers to risk legal sanctions in
order to meet under-the-table demands or lose their best
workers.
Seven major labor confederations operate in Nicaragua.
The two largest are linked directly with, and are controlled
by, the FSLN. Three others are Marxist organizations and have
ties to Nicaragua's various Communist parties. Of the two
remaining independent groups, one has a Christian Democratic
orientation and the other is democratically oriented but not
aligned with any political party. The Sandinista labor
organizations maintain a high level of contact with sympathetic
labor organizations abroad, in accordance with the FSLN's
overall strategy of using every possible mechanism to promote
international support for its revolution. The Sandinistas have
offered Nicaragua as the venue for numerous international labor
conferences.
The Sandinistas proclaim that the revolution was fought on
behalf of the workers and peasants, and indeed the GON
initially adopted policies that were heavily biased toward
labor. Laws were enacted to protect workers' jobs and wages,
and the government almost invariably sided with the workers in
labor disputes. Sandinistas encouraged workers to denounce
"bourgeois" businessmen who were attempting to decapitalize
their firms and sanctioned plant takeovers by workers. These
policies had the predictable effect of seriously eroding labor
discipline and stimulating a rash of strikes and seizures of
firms by the employees.
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These policies also had the intended result of weakening
the private enterprise sector. After the GON had itself
assumed control over a significant portion of the economy,
however, it frequently suffered from the same type of labor
difficulties, i.e. strikes and temporary takeovers, as did
private sector firms. Finally, the FSLN/GON changed its tack
and initiated new policies focused on production. In September
1981, the GON imposed a state of emergency suspending the
rights and guarantees of Nicaraguans to strike.
In September 1983, the GON established a mandatory
national wage scale for all salaried workers. The plan called
for the creation of a 26-step wage scale, with all occupations
allocated to the steps, from level one for unskilled labor to
level 26 for the most qualified professionals.
Discontent with the GON's labor policies, especially the
wage scale system, prompted in mid-February 1984, the first
major labor strike since the 1981 decree banning such
activities. Some 5,000 field workers at Nicaragua's largest
sugar operation defied the prohibition on strikes. They seized
the estate's refinery to protest rising prices, frozen wages,
and reduced allotments of rationed items. The Sandinistas
criticized the independent union at the refinery for
instigating the strike, but in fact those participating were
field workers who had decided to disregard the leaders of their
Sandinista aligned union and initiate a spontaneous wildcat
strike. At first, the Labor Ministry resisted the workers'
demands for higher wages, arguing that any wage increase would
be inflationary. In the face of worker solidarity, the
Ministry ultimately backed down and approved pay raises.
The state of emergency has been extended nine times and
currently continues in effect. But, in conjunction with the
commencement of the three month election campaign period, the
GON officially lifted its ban on strikes in early August,
1984. Within three weeks, various unions began to test their
restored right to strike. Sporadic strikes began to break out
in various firms in late August, and on September 3, 720 metal
workers walked off their jobs. Within hours, the Labor
Ministry declared the strike to be illegal and said that there
would be no negotiations while it continued.
The Sandinista press blamed the non-Sandinista-aligned
unions for the flurry of labor disputes. It labelled them
"voices that are linked to the bourgeoisie and imperialism."
It stated that these "enemies of the working class" were
striving to foment strikes to distract peoples' attention away
from imperialist aggression.
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Comandante Victor Tirado, the member of the FSLN National
Directorate handling labor matters, asserted that "in the
current situation, strikes make no sense. They diminish
production and weaken the revolution." Tirado explained that
"the strike as a weapon, as a political instrument of the
working class, has already passed into history. The GON's
experiment with allowing strikes was thus short-lived, lasting
barely one month. While workers now have the legal right to
strike, a de facto ban remains in effect.
Military costs are another major contributing factor to
Nicaragua's economic woes. Somoza's National Guard never
exceeded 7,500 men until 1978 when efforts were begun, largely
unsuccessfully, to double the size of the Guard. There are now
120,000 armed Nicaraguans and the government is planning
further increases. At the beginning of 1984, official
Nicaraguan sources estimated that 25 percent of the budget went
to the military. President Daniel Ortega has admitted that 40
percent of the 1985 budget is earmarked for defense. Many
observers believe that figure to be much higher if indirect
support costs are included.
According to the Sandinistas, arms procurement is not
costing Nicaragua foreign currency. Weapons suppliers, they
claim, have either donated arms or granted generous credit
terms. Major expenditures for the military are for wages and
supplies such as food and uniforms. Nevertheless, the military
is suffering from shortages of basic supplies.
In addition to the direct costs of maintaining the largest
fighting force in Central America, the opportunity costs are
high. For the past two years, Nicaraguan harvests have
suffered because of manpower shortages. Students and foreign
volunteers have been shipped in to assist with cotton and
coffee harvests to help replace more experienced laborers who
are either now in the army, in hiding or outside the country.
Besides creating costly delays, the use of these inexperienced
pickers damages plants and reduces product quality.
It is difficult to assess how much of the current military
expenditure is due to the war against the freedom fighters.
The greatest majority of those whom the Sandinistas fight today
are former supporters of the FSLN or at least of the broad
goals of the pluralistic revolution. FSLN policies have
converted them into enemies. Even in the first years of the
Sandinista regime, when the freedom fighters were not yet
numerous, the army, militia and reserve were much larger than
under Somoza; obviously internal control was the primary reason
for the buildup.
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With the November 1984 election out of the way, the
Sandinistas are again turning their attention to economic
problems, which they admit are severe. However, the
Sandinistas have been careful not to raise expectations,
stressing that the fighting is a serious and unavoidable drain
on the economy. They continue to falsely blame their problems
on the regional economic downturn and U.S. aggression.
Thus far the Sandinistas have resisted the economic,
political, and social pressures to open the economy. The
halfway measures of raising some prices to producers will not
succeed, however, in revitalizing the economy. Too many
control mechanisms remain in place for the market to operate
efficiently. Moreover, because of their ideological outlook,
the Sandinistas are unwilling to make basic structural changes,
changes which would undoubtedly benefit the economy, but also
assist their democratic opposition. They appear to prefer a
deteriorating economy to one in which they would lose control.
Aid from the West will likely continue its downward
trend. The Sandinistas' continuing harassment of the
Democratic opposition seems to have dampened enthusiasm even
among their former supporters in Europe. Aside from political
considerations many countries have shied away from extending
credit lines and loans because of Nicaragua's poor payment
record. With production still declining, there is no realistic
way for the country to pay its foreign debts. Nevertheless,
for political reasons it is expected that the Soviet Union,
Cuba and Eastern European countries, along with countries like
Libya and Iran, will seek to keep the country from collapse
through massive assistance. With oil from the Soviet Union and
huge quantities of goods coming into the port of Corinto from
the Sandinistas' friends, the economy may continue to limp
along, but fundamental problems will remain.
Unless significant changes occur, the next five years look
as bleak as the first five years of Sandinista rule. The
government has called 1985 the decisive year in its battle
against the armed opposition and is devoting its resources to
eradicating them. It continues to blame its economic problems,
including shortages of all kinds, on this struggle. It has
also recently stepped up its campaign of condemning smuggling,
speculation and hoarding, attacking small businessmen and
further inhibiting their operations. The Sandinistas continue
to state publicly that Nicaragua is not becoming another Cuba
and that they want to maintain a mixed economy. A review of
policy trends and the private statements of various Sandinista
leaders suggests, however, that the private sector is headed
for a slow death.
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Rather than resort to wholesale nationalizations, the
Sandinistas will continue to tighten the reins on the private
sector, starving it of what it needs for existence:
remunerative prices, access to a-free market, freedom to buy
and sell, access to foreign currency, and, ultimately, the rule
of law, i.e., a true agreement between those in the private
sector and the Sandinistas which will allow them to exist as
free men in a free society. Without these elements, elements
which do not exist today in Nicaragua under the Sandinistas,
men and women participating in the private sector will finally
either be driven out or drop out, leaving the government to
step in. Present policies guarantee these results. Even after
the individual tragedies of those who lose everything in their
struggle come to an end, the national tragedy of Nicaragua will
go on.
After playing a key role in the ouster of President Somoza
in 1979, the US Government immediately airlifted food to feed
the thousands of persons displaced by the war. The US.
continued to assist the GRN with both financial and food aid
until 1981 when new loans were cut back substantially and
obligations continued on only a few projects. The US sought to
provide some military assistance, mainly training, but was
rebuffed and had the same experience when it offered Peace
Corps volunteers. The US supported the favorable treatment
granted by the commercial banks in their rescheduling agreement
and supported loans in multilateral banks based on stated
commitments to a mixed economy and sound policies.
As the arrogance of the Sandinista leadership and its
complete commitment to Marxism-Leninism and alignment with the
Soviet Bloc became increasingly apparent, US opposition to the
regime grew and was reflected in the 1983 decision to
drastically reduce the sugar quota. Preferential access to the
US market and a high price for sugar were deemed inappropriate
for Nicaragua. Opposition to loans in multilateral development
banks was based on the increasingly poor creditworthiness
record of the Sandinista government.
Numerous uncompensated property expropriation cases
against U.S. citizens have dragged on for over five years.
Despite the legal possibility of taking retaliatory action in
connection with these cases, we did not do so. Nicaragua
continued to benefit from GSP and was included in the list of
countries eligible for "duty free' treatment under the
Caribbean Basin Initiative (CBI). However, Nicaragua did not
meet the requirements to be designated for the CBI.
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Depressed economic conditions in Nicaragua were, of
course, due to disastrous economic policies adopted by the
Sandinistas and not to any actions by the US. Continued
intransigence by the Nicaraguan government in refusing to take
concrete steps toward a dialogue and other measures leading to
reconciliation caused the US Government to impose an embargo on
trade with Nicaragua at the end of April 1985. The embargo is
directed at the Sandinista regime, itself responsible for the
increasingly depressed economy, and not directed at the
Nicaraguan people who are the victims of that regime. The
primary cause of expected further economic deterioration will
not be the embargo, but rather the economic and political
policies of control and repression that the Sandinistas
continue to follow.
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Drafted:ARA/ECP:JCurry
ARA/ECP:STMyles
Embassy Managua:MDonovan
INR:LHochstein
4/26/85 Wang 4932F
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PUBLIC SECTOR PRODUCTION AS % OF GDP (Nicaragua)
YEAR
%
1975-77
12%(average)
1978
13.7%
1979
26.1%
1980
33.6%
1981
37.8%
1982
39%
1983
40%
1984
45%
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PERCENT SHARE OF BANK CREDIT THAT GOES TO PRIVATE SECTOR
(Nicaragua)
1975-77
75% (average)
1978
70%
1979
29.1%
1980
23.3%
1981
40.2%
1982
15%
1983
15.7%
1984
10%
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NICARAGUA: AVERAGE REAL WAGES*
(Annual percentage change)
1980
1981
1982
1983
1984
Average wages
Private sector
-15.0
1.4
-12.7
-12.6
-11.8
Public sector
***
-10.8
-18.7
-11.5
4.4
*Nominal wages are deflated by the consumer price index.
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CONSUMER PRICE
INDEX
(Nicaragua)
1975-77
7.4%(average)
1978
4.6%
1979
4.82%
1980
35.3%
1981
23.9%
1982
25%
1983
28%
1984
60%
1985*
*estimate
100%
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 Approved For Release 2009/08/19: CIA-RDP87M00539RO01802770021-1
COUNTRIES
YEAR
1979
Total
$2 million
1980
Economic
$30 million
Military
$5 million
1981
Economic
$80 million
Military
$40 million
1982
Economic
$150 million
Military
$90 million
1983
Economic
$240 million
Military
$110 million
1984
Economic
$280 million
Military
$250 million
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TOTAL ECON TOTAL MILITARY
1962-78(total)
1979
16.7
1980
37.4
1981
59.6
1982
6.2
1983
0.0
1984
0.0
1985
0.0
*indicates amounts less than $100,000
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(Nicaragua)
STATE ENTERPRISES FUNCTION AND STRUCTURE
1. Nicaragua Institute of Energy Generation of Electric Power.
(INDE) 100 percent of sector
2. Nicaraguan Institute of Water Water and Sewage Services.
and Sewage Facilities (INAA) 100 percent of sector
3. Nicaraguan Institute of Created in October 1979 with
Insurance (INISER) the nationalization of all
domestic insurance companies.
100 percent of sector
4. Nicaraguan Institute of The institute has a monopoly
Fisheries (INPESCA) over the marketing of fish
and seafoods.
5. Nicaraguan Institute of After the revolution, the
Mines (INMIEH) institute was given a
monopoly.over the exploi-
tation of mines.
6. Nicaraguan Institute of Transformed into a public
Post and Telecommunications enterprise in 1971; it
(TELCOR) operates the telephone and
telegraph network as well as
the post office service. 100
percent of sector.
7. National Lottery This enterprise has been made
dependent upon the ministry of
welfare. 100 percent of the
sector.
8. National Petroleum Company Commercialization of oil. 100
percent of wholesale market.
9. Enterprise for marketing It purchases and sells basic
of basic grains grains and other products of
massive consumption. It acts
in some cases (grains) as a
price regulatory agency.
10. National Bus Company (ENABUS) Public enterprise before the
revolution. 50 percent of the
sector in Managua.
11. National Railways
Public enterprise before the
revolution which mainly serves
the Pacific coast.
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12. Foreign Trade Enterprises
A. Five enterprises provide
pre-export financing to producers
which monopolize cotton, coffee,
beef, sugar, and banana exports
in addition to marketing the
different export products.
B. Nicaraguan Enterprise for
Agricultural Inputs (ENIA)
C. Nicaraguan Import
Enterprise (ENIMPORT)
D. Enterprises in the area of
public property
100 percent of the sector.
Imports those products and
sells them domestically to the
to the general public. 100
percent of the sector.
Coordinates the imports of
all State-owned APP (AREA
PROPIEDAD DEL PUEBLO)
Enterprises. 100
percent of the sector.
State ownership in these
enterprises varies from less
than 50 percent to 100 percent.
The major part of these
enterprises were confiscated
immediately following the
revolution.
13
People's Industrial Corporation
This is a holding
company of
.
(COIP)
about 100 enterprises grouped
into five branches:
1.
Metal-working
2.
Foodstuffs
3.
Construction
materials
4.
Textile and design
5.
Chemicals, plastics, and
14. People's Commercial
Corporation (CORCOP)
15. Enterprises Dependent on the
Ministry of Agricultural
Development
pharmaceuticals. 36 percent:
of total manufacturing
production in 1980.
Textiles, automobiles and auto
parts, appliances, general
services, supermarkets, and
popular stores. 20 percent
of the commerce in basic goods
during 1980.
More than 25 enterprises
producing agricultural inputs
and/or agroindustrial goods;
173 production complexes and
2,200 units of state production
generated by these enterprises.
Was 16 percent in 1980.
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16. People's Forestry
Corporation (CORFOP)
This corporation produces about
10 percent of total forestry
production.
17. Enterprises in the communications The State's radio corporation,
field the Sandinista TV system (2
stations), the Editorial New
Nicaragua (Book Publishers),
the "Office of Public
Relations,"and the "Cultural
Corporation".
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Qs & As on Economic Sanctions
Q: What is the condition of the Nicaraguan economy today?
A: --The Gross Domestic Product today under the
Sandinista Government is 14% below pre-revolution levels.
Foreign debt has risen from $1 billion in 1978 to $4.6 billion
today. The country is incapable of meeting its debt service
obligations and has extensive debt arrearages with most of its
public and private creditors. The budget deficit is over 20%
of the Gross Domestic Product. The trade imbalance has
averaged $350 million for the last five years -- exports
declined 70% since 1978. The Sandinistas are forced to rely on
foreign assistance, mostly from Soviet bloc countries, to
finance their balance of payment deficits which amounted to
$500 million in 1984.
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Q: What about the standard of living in Nicaragua today?
A: --Although the Sandinistas claimed a 3% growth rate in
1983, they admitted that the standard of living declined. The
accelerating economic decline continued into 1985. Price
inflation of many food staples ranged between 200-300%.
Domestically produced goods such as meat, sugar, eggs and milk
are increasingly scarce, and imported consumer goods are
becoming virtually nonexistent for the average shopper. Real
wages have declined 50% since 1980, so that many lower and
middle class families are falling into the poor category.
Unemployment rose 20% in 1984. National savings is about 1% --
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Q: What about production levels?
A: --The important coffee and cotton harvests for 1984-85
were significantly below projected production levels -- coffee
down 30-40% and cotton down 20%. These are the two leading
export commodities for Nicaragua. Production of such staple
products as beans and corn was down 50%. The country has gone
from exporting to importing food.
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Q: Is Nicaragua credit-worthy?
A: --Nicaragua is in arrears in debt repayments to most
of its major creditors. Arrearages totaling over $15 million
to the World Bank exceed 300 days -- more than any other
borrower. The IBRD has stopped making new loan commitments to
Nicaragua, and has suspended further disbursements on existing
loans.
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Q: Are the Sandinistas creating a state economy?
A: --The State's role in the economy increased from 13%
before the revolution to around 50% today. Government control
and interference in the economy is pervasive and has
discouraged private sector initiative. The government controls
all banks, major export industries, foreign exchange
allocations, and insurance. The private sector is harassed and
hindered not only by a lack of civil liberties but by arbitrary
confiscations, credit discrimination, price controls, excessive
taxation, and discrimination in access to foreign exchange.
Loans to the private sector dropped from 70% in 1978 to 10% in
1984. Taxes are the highest in Central America.
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Q: What about the impact of the trade sanctions on the
private sector?
A: --The private sector is already severely depressed and
reduced in size. It accounts for just over half of total
production, down from 87% before the revolution, and an
estimated 60% of managers and professionals have departed since
1979. Production, particularly for export, has dropped sharply
since 1980, partly as a result of adverse world market prices
and dislocations caused by civil strife. Most importantly,
Sandinista centralized government policies have severely
squeezed the private sector. Businessmen have been denied
access to foreign exchange to import vital items needed to
maintain production. Nicaraguan government enterprises have
enjoyed much greater access to foreign exchange and imports.
Nicaraguan businessmen recognize that the origin of the
nation's severe economic crisis is Sandinista policy.
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Q: Hasn't the U.S. undermined the Nicaraguan economy?
A: --From the time the Sandinistas took power in 1979
until 1981, the U.S. was the largest donor to Nicaragua,
providing $118 million in economic and humanitarian
assistance. The U.S. also supported Nicaragua in its dealings
with multilateral financial institutions and private banks. By
1983 the Sandinista Government had received over $250 million
from multilateral development institutions to which the U.S. is
the principal contributor.
--Actions by the U.S. against the Nicaraguan economy
have not been arbitrary or sweeping. We suspended
government-to-government aid in 1981 only after the Sandinistas
persisted, in spite of repeated warnings, in their support of
armed insurgency in the region. In 1983, with the pattern of
Sandinista destabilizing actions even more clearly established,
we reduced Nicaragua's sugar quota.
--The economic sanctions announced on May 1 respond to
almost six years of Sandinista actions threatening to us and
our friends in Central America. By the same token, we have
advised the Sandinistas that we are prepared to reexamine the
sanctions at any time they take concrete steps toward a
dialogue and other measures leading to genuine reconciliation,
freedom, and peace in Nicaragua and the region as a whole.
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Q: Why aren't Nicaraguans fleeing this mess?
A: --They are. Thousands of'Nicaraguans have fled the
economic, political and military suppression of the
Sandinistas. An estimated 60% of the country's managers and
professionals have left since 1979. Fear of military
conscription has prompted many young workers and students to
flee or go into hiding. People who have left for in Honduras
and Costa Rica number at least a 100,000. The Sandinistas have
set passport and exit visa fees so high that they equal a
month's wages for the average Nicaraguan.
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Q: Won't these trade sanctions hurt the middle and lower
class Nicaraguans the most?
A: --Our purpose in imposing these sanctions is to
convince the Sandinistas that they must change their policies
which have brought economic chaos to Nicaragua, and which
threaten the security of the region.
--The Sandinista leaders decide who suffers most from
their declining economy. Thus far, the political elite have
not denied themselves the imported consumer goods, the fine
food, fancy automobiles and the other priviledges which the
"nomenklatura" enjoys in other communist socities.
--We hope that these latest measures will convince the
Marxist-Leninst leaders that they must live up to the promises
made to their own people, to the OAS and to the Contadora
process.
--We have made clear to the leaders of Nicaragua that
these sanctions can be lifted at any time they take concrete
steps toward a dialogue with the democratic resistance and
other measures leading to genuine reconciliation, freedom and
peace in Nicaragua and Central America.
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Q: Won't trade sanctions push the Sandinistas further
toward the Soviet Bloc?
A: --We don't believe that trade sanctions will push the
Sandinistas into the Soviets' arms -- the Sandinistas made
clear nearly six years ago that they were committed to a close
security and economic relationship with the Soviet Bloc and
Cuba. President Ortega's current trip to the Soviet Bloc and
agreement with Moscow are only the latest signs.
--This process of identification with Soviet and Cuban
objectives in the region and of pursuing a growing military and
economic relationship with these countries occurred at a time
when we were Nicaragua's largest aid donor.
--We believe that trade sanctions will bring home to
the Sandinistas the costs involved in placing a higher priority
on their relationship with the Soviets and Cubans and their
destabilizing policies in the region, than they place on the
development and well-being of their people.
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