The Pandemic Depression
The Global Economy Will Never Be the Same
Like his fellow strongmen Vladimir Putin and Hugo Chavez, Nicaraguan president Daniel Ortega is routinely excoriated in the international media, sometimes for good reason. There’s no doubt that Ortega employs heavy-handed tactics against his opponents, tilts the electoral playing field in his favor, uses state power to advance the business interests of his friends, and from time to time lambastes “U.S. imperialism.” But this weekend, the guerrilla comandante-turned-politician is likely to coast to re-election.
Personal charisma -- so often the explanation for the unlikely popularity of certain leaders -- is not the answer to the Ortega enigma. A tedious speaker, the 66-year-old Ortega rarely holds press conferences. Nor is Daniel, as his admirers call him, a shining intellect, having cut short his formal education to engage in clandestine revolutionary warfare. But he is smart enough to learn from his mistakes and adjust his strategies to changing international and domestic realities. An astute and tireless political operator, Ortega has survived by seizing opportunities to broaden his political alliances and to debilitate and divide his opponents.
The meaning of Ortega’s rebirth might depend on the eye of the beholder. For some free marketers, Ortega’s brand of state capitalism is a worrisome precedent, even though it has garnered support from the local private sector. And liberal-democrats throughout the Western Hemisphere are alarmed by the erosion of certain constitutional norms -- including, notably, an end to the prohibition of presidential re-election. But Ortega might also offer some inspiration to those on the political left searching for an economic model that combines stability with distributional equity. And development practitioners of all political persuasions might benefit from understanding how Ortega’s Sandinista-led government has apparently been more effective at managing public sector resources than was its more efficiency-oriented, conservative predecessor.
The Education of a Revolutionary
After waging an armed insurrection that toppled the discredited Somoza dynasty in 1979, the socialist Sandinistas promptly ran the Nicaraguan economy into the ground. (The anti-Sandinista violence of U.S.-backed “contra” fighters contributed significantly to the destruction.) Massive expropriations of private property drove the private sector out of Nicaragua and hyperinflation increased popular support for opposition parties. Ortega was ousted in the 1990 elections.
Regaining power after winning the 2006 presidential race by a narrow margin, Ortega chose to hitch his future to free-market orthodoxy. In each quarter during his presidency, the International Monetary Fund, as required by its standard loan procedures, has monitored and approved of Nicaragua’s economic performance. And the World Bank and the Inter-American Development Bank continue to help Nicaragua design and finance social programs and infrastructure improvements.
IMF approval has reassured private investors that Ortega will not return to the bad old days of the 1980s. Under the new, reformed Ortega, there have been few property expropriations and no irresponsible monetary policies that might have eroded capital values. Notwithstanding occasional rhetoric outbursts against “imperialism,” Ortega has kept Nicaraguan policy well within the boundaries of the U.S.-Central American Free Trade Agreement (CAFTA). By far, the United States remains Nicaragua’s main trading partner.
During his years in opposition, Ortega routinely denounced “sweatshops.” Today, his government courts international investment in Nicaragua’s free-trade zones, which manufacture blue jeans and t-shirts for U.S. consumers. After a dip during the 2008 global economic downturn, employment in Nicaragua’s tax-free industrial parks has jumped this year and now provides close to 100,000 jobs for the urban poor. Abiding by IMF guidelines and CAFTA incentives, and stimulated by high international prices for its coffee, beef, and sugar exports, the Nicaraguan economy expanded by 4 or 5 percent during 2010-2011 -- a respectable performance.
This record of economic growth will surely help Ortega in this weekend’s elections. But he will also benefit from the weakness of the two main opposition candidates. One is Arnoldo Aleman, who served as president from 1997-2002 but was later convicted of corruption and even denied an entry visa by the United States. Aleman’s candidacy divided and demoralized the opposition; credible rumors suggest that Ortega encouraged and possibly helped to fund Aleman’s campaign. The other opposition candidate is Fabio Gadea, a folksy, 79-year-old radio personality. Gadea is backed by an amalgam of center-right and center-left parties, none of which have enough money or organizational heft to mount a strong campaign. In past contests, the Sandinistas’ opponents ran effective anti-communist scare campaigns.
But with their light pink banners featuring a smiling Ortega and inclusive slogans like “Christian, Socialist, and Solidarity – Unity for the Common Welfare,” the Sandinistas dispelled the fear factor this year. Ortega’s non-confrontational, moderate tone appealed to the 40 percent of voters who define themselves as “centrists” – the key swing voters absolutely essential to any candidate challenging the Sandinistas. Pre-election opinion polls showed these non-partisan voters lining up behind Ortega in unprecedented numbers.
The Grand Public-Private Alliance
Ortega’s success in economic policy has been aided by a political alliance with business elites. An elaborate series of private-public working groups and senior-level meetings between Nicaragua’s top capitalists and government ministers maintain fluid relations. Jose Adan Aguerri, the head of the leading Nicaraguan business association, described the approach as “communications with results.”
“The nation’s good economic performance is the result of an open political dialogue,” Aguerri said in an interview. “We know we will be heard, we do not fear a sudden change of the rules of the game.” Aguerri added that, during the past three years, the Sandinista-dominated legislature has enacted 45 business-related laws, all vetted by the private sector, which have measurably improved the business climate. During this year’s election campaign, business leaders proclaimed their preference for policy continuity and the political stability provided by Ortega. Their refusal to finance the campaigns of Ortega’s political opponents doomed those candidates.
Partly because his fellow Sandinistas control many unions and grassroots organizations, Ortega has also managed to avoid labor disputes and social unrest. Upon entering office, Ortega boosted the minimum wage, but later fixed wages to productivity; currently, Nicaraguan labor costs are very competitive in global markets.
The Ortega government has also been relatively successful in building up the country’s infrastructure, a prerequisite for profitable investments. Under the previous government, frequent electricity black-outs left businesses and citizens without air conditioning and potable water. Ortega has attracted international investments in hydro-power, wind turbines, and geo-thermal energy, which have led to improved electrical supply. In addition, Spanish and Mexican telecom companies are rapidly expanding the nation’s Internet and cell-phone connectivity. Ortega’s administration has also improved public transportation; indeed, before the election, new buses manufactured in Russia and Mexico arrived just in time to impress undecided voters.
Privileging the Poor
Support for the Sandinistas cuts across class lines, but the party has not forgotten the urban and rural poor who constitute its base. Ortega has reduced fees for health care and public education, subsidized public bus fares and electricity rates, and donated metal roofing to slum dwellers. His government provided thousands of rural families with five chickens and a rooster, to produce chicks for future consumption and fresh eggs for local markets. It also created low-interest loans and training for women micro-entrepreneurs in rural areas. In a particularly astute move, the government installed lights at professional baseball stadiums, so that the popular pastime could be enjoyed by working people at night games.
Altogether, the combination of economic growth and targeted subsidies drove poverty rates down significantly. According to analyses by both the government and private research institutes, the proportion of Nicaraguans living in extreme poverty fell measurably during the Ortega presidency. In response, Sandinista support rose among the peasantry, poor women, and idealistic younger voters.
To finance these social subsidies, Ortega raised taxes by a modest amount. More significantly, he relied on the oil-based largesse of Venezuela’s President Hugo Chavez. In 2010 alone, Venezuela provided Nicaragua with $511 million in oil discounts and direct aid -- accounting for a whopping 7.6 percent of Nicaraguan GDP. In return, Ortega mimicked Chavez’s anti-American posturing and joined Chavez’s regional Bolivarian Alliance of the Americas.
In this way, Ortega has managed to benefit from both IMF macroeconomic orthodoxy and Venezuelan subsidies – a clever balancing act. Indeed, leaders in Nicaragua’s private sector favor the Chavez connection, as it eases their own tax burdens and provides ready markets for commodity exports. Nevertheless, this strategy might soon become more difficult. If Venezuela reduces its aid next year, as anticipated, Ortega will be forced to cut subsidies and raise taxes again.
In private meetings with the author, senior U.S. diplomats in Managua grumbled about the flaccid anti-Sandinista opposition. They also complained that Washington has ignored Nicaragua, failing to react with sufficient vigor when Ortega orchestrated blatant fraud during the 2008 municipal elections, discriminated against opposition-oriented NGOs, and blurred the lines between government entities and the Sandinista party.
Although the State Department has not crafted an effective policy for dealing with soft authoritarians like Ortega, the U.S. Treasury Department and the U.S. Trade Representative’s office can rightly claim that their powerful policy instruments, such as CAFTA, have kept Nicaragua within bounds. And although Ortega has weakened some democratic institutions, Nicaragua remains a vibrant, pluralistic society where an impressive 80 percent of the eligible voters turn out for national elections. A reformed Daniel Ortega is likely to be firmly in control for the next five years. Assuming his re-election is achieved without widespread fraud, the United States and Nicaragua will have a fresh opportunity to enter a more constructive phase in their bilateral relations.