The Devastation of Debt

September 25, 2007

Last year's devastating hurricane was the most recent in a series of tumultuous events that have rocked Nicaragua over the past 30 years. Natural disasters have hit Nicaragua with dramatic frequency, most notably the 1972 earthquake, which leveled most of Managua, along with an assortment of floods, lesser hurricanes and volcanic eruptions that have hobbled the country from time to time.

Human-made disasters have not been far behind. For decades Nicaragua was run by a family dictatorship which treated the country as its personal fiefdom. The Sandinista revolution, which brought down the Somoza dictatorship 20 years ago this past July, offered hope for Nicaraguans, but was soon bogged down in a grueling war against U.S.-sponsored counterrevolutionary forces. The end of the war brought scant relief in terms of daily life. Draconian structural-adjustment programs, imposed on the small Central American country in the name of "development," have brought little more than greater impoverishment for the vast majority of Nicaraguans.

As they now try to extricate themselves from waves of political, social and natural devastation, Nicaragua's citizens are faced with a per capita foreign debt that is just over $1,300; this stands in stark contrast to the country's per capita annual income of only $500.[1] "No matter how you do the math," one woman told me in Managua, "it just doesn't add up."

In 1997, the government spent two and a half times as much on foreign debt payments as it did on health care and education combined. Nearly 40% of the population has no access to clean drinking water, and more than half the country has no sanitation services. Routine health problems quickly turn into long-term, debilitating conditions for those who cannot afford treatment. Many Nicaraguan children do not finish primary school, and the number of young children living on the streets grows by the day.[2]

Following the country's "reinsertion" into the international financial system in the wake of the electoral defeat of the Sandinista National Liberation Front (FSLN) in 1990, billions of dollars have entered the country as loans, credits and donations, but most have gone to service the debt. More than half of government revenue in the post-Sandinista period—some years soaring to 70%—has been earmarked for debt-service payments. With Nicaragua's key macroeconomic programs forged outside the country, structural-adjustment policies have retooled Nicaragua's economy to the point that it revolves almost exclusively around the country's ability to make debt payments.

Much of Nicaragua's debt was accumulated during the 1980s when the Sandinista government was forced to take out hefty loans, first in an effort to rebuild the country after successive Somoza family regimes left it bankrupt and in tatters, and later as a means to finance the war against the U.S.-backed Contras. Though the World Court ruled in 1986 that the U.S. government owed Nicaragua some $17 billion in reparations for direct and indirect damages caused by the Contra war, the post-Sandinista government of Violeta Chamorro buckled under U.S. pressure and eventually withdrew the case.

Yet the Court's decision—and the collective memory of that decision—underscores the understanding that much of the country's debt is directly related to expenses forced upon it by Washington's war. Debt imposed upon a country by more powerful adversaries in such inequitable circumstances, certainly the case in 1980s Nicaragua, is considered "odious debt," and historical precedents exist for the cancellation of such debt.

With a total debt burden of over $6 billion, Nicaragua urgently needs a government that both clearly understands the debt situation and is concerned with humanely steering the country around the economic obstacles it will inevitably face in the coming years. Under the current right-wing administration of Arnoldo Alemán, however, the government has deteriorated into a somewhat grotesque caricature. When Alemán was Managua's mayor, political cartoonist Manuel Guillén aptly dubbed Managua "Chaotic City," suggesting that much of the social and political chaos could be directly attributed to the mayoral administration. Today the popular cartoonist portrays Alemán as a bloated potentate, contemptuous of his own "subjects" and scheming to cement shady alliances that have little to do with the long-term good of Nicaragua and everything to do with his own short-term gain. Sketched in as his somewhat surprising sidekick is none other than Daniel Ortega, under whose leadership the FSLN has sidled into a governing alliance with Alemán's Liberal Party (PLC). The pact between the PLC and the FSLN has created a dangerous vacuum of both leadership and effective opposition that has relegated the majority of the Nicaraguan population to the position of political outsiders.

The rampant corruption of the Alemán government has been at the forefront of national consciousness since the country began digging out from Hurricane Mitch. The press has reported countless incidents of misuse of donations—for many, an eerie echo of the 1972 earthquake, when Tacho Somoza lined his pockets with foreign donations and left the country in ruins, never even bothering to rebuild the destroyed capital city. Several newspapers, notably La Prensa, have revealed almost daily evidence of Alemán's rapid and suspicious accumulation of properties. When reporters questioned him about his newly acquired properties, Alemán evaded the issue, blustering, "this is my therapy. Rather than paying a psychiatrist, I spend my time there."[3] These public revelations have put the government on the defensive. But perhaps more important are signs that they are beginning to break the psychological stranglehold of corruption on the population as a whole. The rather fatalistic attitude that "everybody steals" is, albeit slowly, undergoing a transformation to "everyone who steals is stealing from me."

This gradual change in consciousness is embedded in the palpable resurgence of Nicaragua's civil society, a resurgence that could prove absolutely crucial to a healthier balance of political forces. Nicaraguan civil society is today faced with the challenge of confronting both a dangerously entrenched bipartisan political system, as well as a long and frustrating history of violent caudillismo and paternalism that has colored every imaginable level of politics and social relations.

During the 1980s, grassroots organizations were very much a part of the Sandinista political structure, with mass organizations and most other popular movements dependent, to one degree or another, on the FSLN. The 1990 electoral defeat of the Sandinistas sparked a boom of new nongovernmental organizations (NGOs), and in the absence of a strong state with a clear social mission, the NGO sector in Nicaragua took on an increasingly important role in the design and implementation of a variety of social, economic and political projects. A functioning working relationship emerged in the early 1990s between the government of President Chamorro and civil society—due at least partly to the fact that the Chamorro Administration simply could not afford to turn its back on civil society. This gave those groups a modest but significant voice.

Arnoldo Alemán's January 1997 inauguration as president smashed this uneasy alliance, as he sought to definitively undermine the NGOs through restrictive legislation. In an attempt to marginalize the NGOs, Alemán's government blocked the delivery of significant amounts of material aid intended for victims of Hurricane Mitch. A number of containers were stranded in Customs with the government demanding taxes of 40% to 100%, and in some cases even more. It was not until several days after the hurricane that many of those shipments were finally released.

Aside from the tremendous material damage caused by Mitch, the storm served to underscore the widening social and economic gaps already existing in Nicaragua, as well as the country's deepening poverty. The Coalition for Emergency Reconstruction (CCER) was established in the days immediately following the hurricane, and now counts some 320 organizations as members. The CCER's successful April 19 national meeting, with more than 1,000 people in attendance, was a key moment in its development, serving as a coming of age of sorts for Nicaragua's civil society. The meeting was the official unveiling of the CCER's social audit, a unique and ongoing process that puts hurricane victims at the center of an assessment process as key participants who are asked to evaluate relief efforts, both governmental and nongovernmental. The gender-inclusive language used at the meeting and in CCER documents also underscores the fundamental role of the Nicaraguan women's movement in the CCER from its inception.

This past May, a pair of meetings in Stockholm, Sweden organized by NGOs from Central America, Europe and North America to promote and evaluate relief and reconstruction efforts after hurricane Mitch served as a shot in the arm for NGOs in both Nicaragua and the other Mitch-battered country, Honduras.

On May 23 and 24, the NGO leaders met to discuss their own role, not only in reconstruction efforts but also in the economic and social transformation of their devastated countries. They called for major efforts on the part of the local governments, private banks and international financial institutions to reduce social and ecological vulnerability, to promote greater transparency, decentralization and citizen participation in decision making; and to contribute to regional debt relief.

Following the NGO meetings, donor and recipient governments met for four days and agreed that the roughly $9 billion in aid and debt relief for the two countries—to be spread over a five-year period—would be conditioned on greater donor and creditor oversight.

The Nicaraguan contingent of NGO representatives was optimistic upon its return from Sweden. According to CCER coordinator Ana Quiroz, "for the first time, some mechanisms for follow-up have been established" to monitor the funding extended to the corruption-ridden Alemán regime. A donor-country oversight group, made up of representatives from Spain, Sweden, Germany, Canada and the United States, will be set up to monitor the use of donated funds. Ironically, Alemán also returned from Stockholm with an optimistic attitude, claiming that he was responsible for drastically reducing the country's debt and bringing in new cash flows. Despite his public claims, however, he in fact had returned to the country, in the words of a local newspaper, "with his hands tied" as a result of decisions made in Stockholm to carefully monitor the aid coming into Nicaragua.[4]

The theme of transparency was a delicate issue in the discussions among governments at Stockholm—with both Alemán and Honduran President Carlos Flores taking umbrage at any suggestion that funds had been misused—and dominated the discussions of reconstruction loans and relief. According to the Reverend Norman Bent, a Moravian pastor originally from Nicaragua's Atlantic Coast, the emphasis on the issue "exposed Nicaragua as a divided society. On the one hand, there is an active organized civil society that seriously questions the government's role and demands accountability and transparency. On the other hand, there is a government that is not able to govern properly, as it is riddled by corruption."

CCER's Quiroz cautions against the way the government has attempted to sell the Stockholm meeting and debt forgiveness as a solution to all the country's problems. Ever since debt forgiveness became a hot topic in the wake of the hurricane, government propaganda has fueled this idea, and many Nicaraguans are under the mistaken impression that any amount of debt forgiven will translate into an immediate cash flow back to Nicaragua. The government has also marketed Nicaragua's entrance into the IMF's Heavily Indebted Poor Countries (HIPC) initiative as a sweeping solution to Nicaragua's economic problems, and has grossly misrepresented what HIPC will actually mean for the country. In particular, it has understated the additional fiscal austerity that HIPC demands.

Quiroz concedes that debt forgiveness could resolve some of Nicaragua's problems, but she notes that one of the key issues is how the incoming funds will be invested. She believes that there must be a coherent vision of how to wisely invest funds in the future in order to ensure a Nicaragua that will be sustainable over the long term. Rev. Bent agrees and argues that if a significant portion of the debt is forgiven, then civil society as a whole must demand that the government reallocate a high percentage of that amount into social programs aimed at decreasing poverty and dealing with the dramatically degraded environment.

In any case, despite the country's current and often daunting dependence on foreign funds, foreign monitoring and foreign programs, it is clear that any rebirth of the old dreams of an equitable, just and democratic Nicaragua must of necessity come from within. As civil-society lobbyist Cirilo Otero has put it, "Even though many of Nicaragua's problems come from the outside, the solution today must come from within, from Nicaraguans."[5]

Donna Vukelich is a writer and political analyst who has lived and worked in Nicaragua since 1985. She was on the staff of the magazine envío for six years and later was co-editor of The CEPAD Report. She is on the board of the Wisconsin Coordinating Council on Nicaragua and is active in its Women's Empowerment Project.

1. See "Una Ventana Para el Desarrollo," pamphlet published by the Grupo Propositivo de Cabildeo (GPC), Managua, July 1999.
2. According to the 1998 UNESCO Yearbook, only 54% of Nicaraguan children reach fifth grade. Available at .
3. Quoted in El Nuevo Diario (Managua), February 1, 1999.
4. Quoted in El Nuevo Diario (Managua), May 30, 1999.
5. Author's interview, May 1999.

Tags: Nicaragua, Arnoldo Aleman, debt, IMF, austerity

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