Freeman

ARTICLE

A Visit to Nicaragua

MAY 01, 1988 by LAWRENCE W. REED

Professor Reed is President of The Mackinac Center in Midland, Michigan, and chief economist for James U. Blanchard & Company, based in New Orleans, Louisiana.

Last November, three colleagues and I visited Nicaragua for a week. It was the time when the democratization requirements of the Central American peace plan were to take effect. The place was crawling with American reporters and politicians.

It was also the week in which the fallout from a high-level defection kept Managua buzzing with both fact and rumor. Major Roger Miranda, chief staff officer to the country’s defense minister and privy to the government’s most classified secrets, had fled into the waiting arms of the American CIA with documents galore. The Costa Rican ambassador to Managua told us that Miranda’s defection had the Sandinista leadership biting its nails and burning the midnight oil.

But as the government of President Daniel Ortega struggles to contain the Miranda damage, comply with the demands of its Central American neighbors for peace and democracy, and turn back the increasingly popular appeal of the “Contra” rebellion, it faces a problem potentially more threatening than all the others. Nicaragua’s economy is rapidly descending into utter chaos.

“By every economic measure imaginable,” reports Time magazine (November 16, 1987), “the country has become considerably poorer” since the Sandinistas brought their Marxist agenda into play in 1979. The purchasing power of the average person with a job (many have none at all except what they conjure up illegally) is less than 10 per cent of what it was just seven years ago.

Almost everything is allocated according to a tightly controlled rationing system. Each family is limited to two bars of soap, two rolls of toilet paper, one stick of deodorant, and one small tube of toothpaste per month. Milk, sugar, and chickens are rationed, too, but often are not available at all for many days at a time.

The rice ration has been cut to one pound per person per month, down from five pounds three years ago. Armed militiamen check each shopper’s bag as he leaves the store to be sure no one “deviates” from the plan.

If you’re a Nicaraguan lucky enough to have a car, you’re entitled to no more than 17 liters of gasoline for a whole month. Ration stamps for the precious fuel are adorned with pictures of the deceased Carlos Fonseca, a Marxist who helped found the Sandinista organization in Havana, Cuba, 26 years ago.

Lines at gas stations are often more than 50-cars long. People literally push their autos for hours, one car- length at a time, as they advance in line with no assurance that the gas won’t run out before they get to the pumps.

One of our cab drivers, a middle-aged man named Armando whom I had befriended on an earlier visit in April 1986, said 17 liters of gas “only lasts me two days.” The rest of the gas he needs he finds on the black market, a network of illegal transactions which most Nicara-guans now utilize in order to survive.

“When my car finally breaks down,” Armando told us, “that’s when I’ll make my plans to leave the country.” Spare parts are impossible to find or too expensive to buy, which explains why Managua streets look like a vast and mobile auto junkyard.

A special segment on PBS’s McNeil-Lehrer News Hour last November 13 made the point that in shortage-plagued Nicaragua, “among the few things that always seem to be available are the complete works of Marx and Lenin.” On many occasions, Sandinista officials have proclaimed that the doctrine of Marxism-Leninism is “inseparable” from their ongoing revolution. We saw lots of the stuff all over Managua.

Just because something is on the shelf, however, doesn’t mean it’s affordable. Inflation is so bad in Nicaragua that prices quoted this week are almost sure to be obsolete next week. Reliable economic statistics are nonexistent in the country, but most estimates put the inflation rate at more than 1,000 per cent and accelerating.

In April 1986, one American dollar fetched 800 Nicaraguan cordobas at the legal rate, 2,000 on the black market. In November 1987, the official rate was 9,500 while on the street the rate was 18,000.

Last October, the government emptied its warehouses of unused 20-cordoba notes. Because today’s prices make such a small denomination essentially worthless, the government added three zeroes to make each note 20,000 cordobas. It used black ink stamped on the face of each note. The money supply was thereby expanded enormously all at once. On the very day we departed the country, most prices were scheduled to triple.

Government Controls

Under the Sandinista program, virtually all prices and wages are fixed by the central government. Farmers must sell nearly all their production to the government at prices it decrees. No one imports or exports except through the government. The bureaucracy is so all-encompassing that Nicaraguans complain about having to be screened by local Sandinista political committees before they can even apply for a driver’s license.

Ask ordinary citizens who is at fault for the economic crisis and overwhelmingly one finds the government, not the war, is blamed. More than one person noted that Nicaragua had war under Somoza (the ousted dictator) for a longer time than under the present government, but things never got anywhere near as bad as they are now.

One lady who had been waiting for two hours in a bread line complained bitterly, “The war has little to do with this mess; it’s the government’s planning that’s at fault.”

Many others mentioned the war with the U.S.-backed Contra rebels as a factor in the economy but said that if it hadn’t been for the Sandinistas’ economic and political policies, there wouldn’t be a war. Sentiment for the government’s official line—that the present problems are all caused by Ronald Reagan and the Contras—is not easy to find in Managua, and even tougher to locate in the countryside, where support for the rebels is broad-based and growing.

Poverty, always a problem in Nicaragua, has become pandemic. Few if any are starving, but many people are hungry and uncertain when or if their next meal will come. At a dump adjacent to Managua’s famed “Eastern Market,” city trucks unload garbage each morning. Whole families scavenge barefoot through the debris, sending a mass of flies in the air with every step as they search for half-eaten bits of food.

Just five minutes away, however, foreign visitors wine and dine at the posh Intercontinental Hotel. A favorite hangout for media people and pro-Sandinista foreigners, the Intercontinental features a lavish buffet every morning. The government takes good care of those who come to see what the revolution has accomplished.

By February of this year, the street value of the Nicaraguan cordoba had plummeted to 60,000 to the dollar. At that point, the Ortega government suddenly announced a three-day conversion of all “old” cordobas to “new” cordobas. All citizens had to exchange the old for the new at the rate of 1000 to 1 before the old one became worthless and illegal at the end of the three days. In a particularly draconian move, the government decreed that no one could exchange more than 10 million old cordobas; many merchants had much more than that amount. Ortega also appealed to the people to “fight inflation by refusing to buy overpriced goods or to accept jobs paying more” than those they held. He dispatched a wave of armed police to confiscate the property of “un- licensed merchants, speculators and black marketeers.”

The economy of this Central American nation of 2.5 million people is a first-class basket case and getting worse. The implications for the Sandinista government are ominous. Massive infusions of aid from its Soviet and East-bloc comrades and a repressive political system may not be enough to stave off the kind of turmoil that has brought down other governments around the world. If the Contras don’t get rid of the Sandinistas, as one political figure in Managua put it, maybe the economy will.

ASSOCIATED ISSUE

May 1988

ABOUT

LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

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