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Achieving development by working around capitalism: Nicaragua, Ortega and ALBA
According to a Reuters headline, “Nicaraguans worry about Ortega's foreign friends”. If so, that had no impact on the way they voted in the presidential and parliamentary election, which was held in November 2011. Five years earlier in 2006, Ortega won 38% of the vote, gaining the presidency as the right wing parties were divided and their support was split between two rival candidates; Ortega’s party the Sandinista National Liberation Front (FSLN) took 38 seats out of 92 in the national assembly. In the recent election held on 6th November 2011, Daniel Ortega’s vote rose to 62.5% and the FSLN won 63 national assembly seats.
Notwithstanding that the outcome was in line with the opinion polls, right wing politicians in Nicaragua and the USA blustered that the election was fraudulent. But when the changes in Nicaragua since January 2007- when Ortega took office for a second time after a sixteen-year period in opposition- are taken into account, the overwhelming Sandinista victory is no great surprise. Behind the massive increase in popular support for Daniel Ortega and the FSLN lies the successful implementation of programmes which have markedly improved the lives of Nicaragua’s poor majority and re-built much of the country’s infrastucture; made possible to a significant extent by co-operation with Venezuela, Cuba and other Latin American and Caribbean countries in ALBA, the socialist trade bloc.
As a main figure in the revolutionary Sandinista movement which overthrew the corrupt US-backed regime of Anastasio Somoza in 1979, Daniel Ortega was already one of Nicaragua’s leaders when he was first elected as president in 1984. Under that Sandinista government, land was confiscated from the Somoza family and other oligarchs and redistributed to poor farmers; and the banking and mining sectors, along with the 25% of industry which had been owned by the Somoza family, were nationalised and used in the interests of the people. Education and healthcare were extended and provided free.
Health clinic in La Trinidad, Nicaragua, following attack by US-sponsored 'Contras'
The damaging effect of these hostile US actions was initially somewhat mitigated by the creation and expansion of trade and aid relationships with Cuba, the Soviet Union and Eastern Europe. However, after Mikhail Gorbachev became Soviet leader the USSR embarked on the process of abandoning communist policies which was to culminate in the fall of the Soviet Union; this process included a steep reduction in the favourable trade relations with, and economic assistance to, socialist-oriented states in the Third World, including Nicaragua. Other East European socialist countries, rocked by this development and facing the immediate prospect of transition to capitalism, made similar cuts in trade credits and aid.
With the curtailment of their advantageous economic relationships with the USSR and Eastern Europe, Nicaraguans in the late 1980s began to feel the full economic effect of the US sanctions. Added to the high cost of defence against the Contras, this was manifested in rampant inflation, high unemployment and falling real wages.
Inevitably, public support for the Sandinistas was dented. Ortega and the FSLN were defeated in elections held in February 1990 (in which the campaign of the anti-Sandinista opposition was, of course, funded by scores of millions of dollars from the US government) and even after that, the right wing forces continued to use the painful memories of the effects of the Contra war and the US sanctions as a form of electoral blackmail. As Karla Jacobs has noted:
Since 1990 the right wing managed to keep the FSLN out of power by claiming a Sandinista government would amount not just to an economic debacle but also to the return of some sort of armed conflict. It was the effectiveness of this fear campaign and not the results of their own programs of government that kept the right in power for sixteen years.
The results of those right wing programmes of government were summarised by Enrico Tortolano as follows:
Since 1990, World Bank and International Monetary Fund policies of privatisation and deregulation, supported by the local oligarchy, have created mass unemployment and poverty, reduced welfare spending and created unsustainable foreign debts. More than 400 essential state services were privatised between 1990 and 2006 under so-called “efficiency savings”. Illiteracy, which the revolution managed to reduce to less than 13 per cent, climbed to 34 per cent.
In 1989, despite the economic embargo and devastation of the war, the Sandinista government invested $35 per person annually in health services. By 2005, health spending had declined to $16 per person.
While out of power after the 1990 election, the Sandinistas still retained mass support, strong organisation and a sizeable minority in the national assembly. Daniel Ortega was therefore able to exploit the corruption and personal ambition endemic among the right wing in Nicaragua, by conducting tactical alignments which benefited the FSLN and stoked up factional rivalry between the leading right wing politicians.
Eventually, maneuvering by the Sandinistas helped to split the hitherto ruling party, the Constitutionalist Liberal Party (PLC), and resulted in right wing support being divided between two presidential candidates, Eduardo Montealegre and José Rizo, in the 2006 election. This was despite the blatant interference of the United States which through its ambassador, Paul Trivelli, tried to persuade the anti-Sandinista parties to choose a single candidate, offering additional funding should that be arranged (the US government, via the National Endowment for Democracy and USAID, officially spent $13 million in that election). After the PLC refused this proposal, the USA openly backed Montealegre, who was the protege of the incumbent president, Enrique Bolaños.
Regretfully, it needs to be added that in order to succeed in the 2006 election the FSLN agreed, along with all the other main political groupings, to the demand by the Catholic Church that all abortions, including for therapeutic reasons, should be made illegal. Ortega also placated the business community by promising to take a business-friendly path on the economy and by choosing as his vice presidential running mate Jaime Morales Carazo, a big businessman who was a former Contra leader and senior politician in the Constitutionalist Liberal Party, from which he subsequently became a dissident (for the 2011 election Morales Carazo was replaced by FSLN member Omar Halleslevens, who was formerly head of the armed forces).
The United States was nevertheless alarmed by the Sandinistas’ electoral victory in November 2006. An article in Inside Costa Rica, focussing on the relationship between the USA, Nicaragua and Iran, quoted US diplomatic cables released by Wikileaks to illustrate US concerns following Daniel Ortega’s return to the presidency:
Judging from secret State Department cables recently released by whistle-blowing outfit WikiLeaks, the situation in Central America was quite different just a few short years ago and the U.S. had a willing diplomatic partner in the conservative government of Enrique Bolaños...
With Ortega's second reelection in late 2006, however, alarm bells started to go off at the U.S. Embassy. Writing [to] Washington, U.S. Ambassador Paul Trivelli noted that while Ortega “needs us much more than we need him,” and the new Nicaraguan leader relied on U.S. assistance programs and much-needed foreign investment, nevertheless the Sandinista might strike a more independent foreign policy toward Iran. While predecessor Bolaños had worked closely with the International Monetary Fund and World Bank, Ortega struck a number of economic agreements with Ahmadinejad.
Turning up the heat, Trivelli met with Ortega's new Finance Minister to declare that “U.S. investors had begun questioning what sort of economic model the new government plans to pursue.” Defensively, the Nicaraguans countered that they would be willing to work with the IMF and World Bank, but the “overriding objective of the Ortega administration is to reduce poverty.”
That prioritisation on improving the lives of the poor majority is one of two key factors in the huge increase in the vote for Ortega and the FSLN between 2006 and 2011, the other being that the impression created by the fearmongering of the right wing- that a Sandinista return would result in war and economic disaster- was dispelled.
As indicated by the ‘defensive’ Nicaraguan reply to the USA on the questions of the IMF and World Bank, the Sandinistas have taken the pragmatic position of willingness to enter into compromises with capitalism and capitalist institutions, globally and locally; a position taken in the context of being leaders of a very small country with a low level of development and which is economically dependent on the USA (over 60% of Nicaragua’s exports go to the United States). Thus Nicaragua has maintained its membership of the US dominated ‘free trade’ pact CAFTA-DR, through which, due largely to very low wage costs (though unionisation and minimum wage rates have increased since 2006) it has increased its exports of clothing and agricultural products.
It needs to be emphasised that economic growth, as expressed in GDP increases, is not a measure of the welfare of the majority, and especially the poorer sections, of the population of a country. As often occurs under global capitalism, the proceeds of growth can be divided between a local and a foreign elite, leaving little or no benefit for most of the people; and foreign aid, when administered according to pro-capitalist principles, may have little or no effect in reducing poverty- as was indeed the case under US-backed governments in Nicaragua.
Rather than directly confronting capitalism, Nicaragua’s FSLN government has sought to work around the capitalist system, overcoming some of its negative consequences by means of state-led developmental programmes which have been facilitated by ALBA.
ALBA (the Bolivarian Alliance for the Peoples of our America) which Nicaragua joined following Ortega’s second inauguration as president in 2007, comprises Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, Dominica, Antigua and Barbuda, and Saint Vincent and the Grenadines. It is a trade bloc which aims to promote human and economic development by co-operation rather than by capitalist competition and profit making.
In a Morning Star article, Rob Miller describes one ALBA mechanism by which Nicaragua raises funding for development projects:
Venezuela sells oil to Nicaragua at market prices. However, 50 per cent of the value of the oil is converted into a 25-year loan at 2 per cent interest.
Nicaragua invests this money in infrastructural projects - roads, energy - and social and economic development programmes. The other 50 per cent, which Nicaragua has to pay in 90 days, can be paid in cash or in the export of meat, sugar, coffee and beans.
This arrangement, and the disbursement of investments funds from it, is managed by Albanisa, which is a joint venture owned by the Venezuelan state oil company PdVSA and the Nicaraguan state oil company Petronic. Agricultural exports to Venezuela, by which Nicaragua pays ‘in kind’ for its fuel supplies, have risen from a negligible $2 million in 2006 to an estimated $350 million in 2011, 23% of Nicaragua’s total agricultural exports. These exports are managed by another ALBA-related joint state enterprise, Albalinisa, which is also embarked on an investment programme to build Nicaragua’s food production capacity, constructing slaughterhouses, dairy processing plants and a corn flour processing plant.
Cattle shipment to Venezuela. Nicaragua exported an estimated 30,000 cows and bulls to Venezuela in 2011.
Reducing inequality and poverty
In Nicaragua, the impact of the Sandinistas’ ALBA-related programmes has been profound. As a 2011 IMF report on Nicaragua’s Human Development Plan details:
The results for 2007-2010 highlight a significant reduction in inequality among Nicaraguans based on better distribution of income and consumption as reflected in improved living conditions for the population, particularly among the poorest groups. This has been possible due to, among other factors, redistributive government policies with positive results, to economic recovery and positive economic growth in the midst of a world financial and economic crisis, and to a climate of confidence that has led to greater levels of social cohesion and national alliances lending stability to productive development and increasing investment, which have led to a reduction in poverty. Nicaragua ranks second in Latin America in terms of the reduction in inequality (Venezuela is the leader), achieving a minus 9.8 percent upon reducing the income GINI coefficient from 0.51 in 2005 to 0.46 in 2009. This improvement is significant considering that between 2005 and 2009 Nicaragua grew at an average annual rate of 1.69 percent, less than the 2.77 percent growth rate for Latin America as a whole and considering that this improvement occurs in a period of profound global economic, social, and environmental crisis.
It is important to note that this reduction in inequality, second only (in Latin America) to that achieved in Venezuela, was a dramatic reversal of the previous trend under right wing governments. During the presidency of Ortega’s predecessor, the USA’s willing partner Enrique Bolaños, not only inequality but even the rate of poverty actually increased, with general poverty (measured on a consumption basis) rising from 45.8% of the population in 2001 to 48.3% in 2005, and the rate of extreme poverty increasing from 15.1% to 17.2% in those years. This was despite economic growth of a respectable 3% annually, plus the
receipt of $580 million per year in Official Development Assistance from wealthy countries, equivalent to 13.5% of Nicaragua’s GDP, and also the granting in 2002 of debt relief, leading to the writing off of over 70% of the country’s foreign debt.
Following the Sandinista return to power, the rate of general poverty fell to 42.5% and extreme poverty to 14.6% by 2009. When measured by income, the FSLN government’s record on poverty reduction is even more striking: the proportion of people living on less than $2.00 per day fell by a third, from 31.6% to 21%, and the proportion living on under $1.25 per day was reduced by over half, from 11.2% to 5.5%.
Other developmental results under Daniel Ortega’s second presidency are also impressive. They include:-
Reducing adult illiteracy from 22% in 2006 to 3% in 2010; this was achieved with Cuban advice and assistance.
The restoration of free healthcare and education.
An increase of one third (from 439,002 to 583,896 between 2006 and 2011) in the number of workers in formal employment, ie, covered by the social insurance system.
The construction of seven new power stations, with involvement from Venezuela, Cuba and South Korea, adding 350 MW to the 760 MW of electricity generating capacity that Nicaragua had in 2006. This has ended the previous desperate situation in the energy sector, which had resulted in frequent and extensive power cuts. With the assistance of Brazil, Nicaragua is now embarked on the massive development of its hydroelectric energy production.
Major infrastructure improvements including new and rebuilt paved roads, ports and airports.
Introduction of subsidies for public transport and the provision of hundreds of (Russian made) new buses.
A raft of practical support programmes for poor families, ranging from ‘Plan Roof’ which is allocating a new zinc roof to 250,000 households which have up to now lacked adequate roofing, to ‘Zero Hunger’ which is providing 75,000 women in rural areas with livestock, seeds, equipment and advice on sustainable food production.
On 23 January 2012, Nicaragua announced a new initiative, aimed at addressing the serious problem of children’s non-attendance at school due to poverty. The Cuban press agency Prensa Latina reported:
The Nicaraguan Government will begin this week the free distribution of shoes and 250,000 backpacks with school materials to support low-income families.
Promoters of the Sandinista Youth will go house by house to deliver the school material to those families that the community identified as most in need, said the coordinator of the Communication and Citizenship Council, Rosario Murillo.
This program is part of efforts to ensure universal access to education, Murillo said in her regular dialogue with the people by Canal 4 TV channel. We have to make an effort, community, family, social and youth organizations and institutions, not only to ensure the incorporation into the schools, but that children do so with dignity, she said.
Nicaragua is still a very poor country and will remain so for quite some time to come. But, at least for the next few years, its direction of travel is assured.
Just as certain is that, so long as the Sandinistas are in power, Nicaragua- as befits a country with dignity- will be choosing its own friends, rather than having them chosen by the United States.