Ortega’s rhetoric obscures his economic pragmatism

By Allison Fritz
October 31, 2008

“The region is definitely changing – and may be moving more to the left than any other direction”, said Mario Arana, president of the Nicaraguan Foundation for Social and Economic Development.  At an event hosted by the Inter-American Dialogue on October 31, Arana spoke about the political and economic challenges facing Nicaragua and suggested that in the wake of the global financial crisis, “we may get a taste of more Ortega-like governments in the region”.  

When Ortega took office in January 2007, there was considerable fear that the former Sandinista leader and land-reforming president may deter foreign investment in the Nicaragua.  Though his election did result in some capital flight – around USD 200 million – it was not as much as most analysts expected.  

Although Ortega often echoes Chavez’s rhetoric, Arana noted, he has proven to be an economic pragmatist, keeping the IMF policies of the previous administration in place and negotiating free trade agreements with Europe, Canada, the United States, and its Central American neighbors.  Ortega actively promotes free trade and even suggested that a Republican victory in the United States presidential election would be favorable because it would open up free trade.

Before the economic crisis, analysts at CEPAL and the Economic Intelligence Unit predicted that Nicaragua’s GDP growth would fall from 3 percent to 2.5 or even 2.3 percent in the coming year.  “We are not saying much until we see how fiscal policy shapes up in the end,” Arana said at the event. “We don’t know what’s going to happen to Chavez funding, but the possibility is there will not be as much funding as before because of the [drop in] oil prices.”  Investment by Venezuela - at an estimated 500 million dollars annually - currently accounts for one half of all foreign investment in Nicaragua and almost 10 percent of the country’s GDP.

“I told a group of congressional staff that they should take note of the comparison, because if Venezuela gives 500 and all of the others together give 500 you can pretty much deduct the amount of influence that they [United States policymakers] can have.”

Venezuelan investment does not go directly into the Nicaraguan budget but rather is funneled into development projects and oil subsidies and is therefore difficult to track.  “The use of this aid is totally non-transparent and these funds should really be used to improve productive capacity”, one event participant said.

In spite of relatively high rates of investment in Nicaragua, the country’s GDP growth lags behind that of other Central American countries by an average of 2 percent.  Arana suggested that this low investment productivity may be related to frequent energy shortages and a lack of infrastructure.  

Despite the challenges – an almost certain drop in Venezuelan investment, rising inflation, tightened credit, a fall in export demand, high energy prices, and corruption - Arana sees the Nicaraguan economy as largely “delinked” from the global economic troubles and is optimistic that with improvements in the country’s infrastructure, this  potential delinking could actually attract investments – particularly in geothermal and tourism industries.

The public is not so optimistic.  A poll of 1600 Nicaraguans taken before the crisis showed that 70 percent of people have experienced a drop in purchasing power over the past year and expectations for the coming year are equally dire, though some sectors’ confidence has been buoyed by government giveaway programs.  A lack of confidence in the country’s economic direction coupled with dissatisfaction over the political model that is being offered may bring more people out to vote in the upcoming municipal elections, to be held on November 9.