Economic Crisis Tests Leadership Of Nicaragua

IMPOVERISHED NATION Chamorro's move to devalue currency may help bid for foreign aid

WHEN Nicaraguan government officials meet with international lending institutions in Washington, D.C., this Monday, they may finally have something to sell. After several false starts over the last year, the government of President Violeta Barrios de Chamorro earlier this month attacked soaring inflation, devaluing the currency 400 percent.

Coming amid a severe economic crisis, the austerity program represents a critical test for the president, as she attempts to unite Nicaragua's political factions behind the measures and win support from donor nations for aid.

Nicaragua is $350 million in arrears with the World Bank and the Inter-American Development Bank, and must pay the debt before new credits can be secured.

Government officials returned from a similar meeting in Paris last December empty-handed, mainly for lack of a coherent program to stabilize the economy. Now, time is running short.

``What we have here is an economy that is completely destroyed,'' says Gerardo Timossi of the research institute CRIES.

Since 1981 the effects of war, revolution, and natural disasters have cut Nicaragua's production 40 percent, making the country the second poorest in the hemisphere after Haiti. Living standards for the nation's 3.7 million people have been set back to the levels of the 1930s.

President Chamorro's plan focuses on inflation, which ran 13,000 percent last year. The plan, pushed by her chief minister and son-in-law, Antonio Lacayo, calls for replacing the cordoba with new ``gold cordoba'' bills. These were issued in limited supply last year on par with the United States dollar, and would now be devalued to five to a dollar. Disparagingly referred to here as the ``chanchero'' or ``dirty money,'' the cordoba is to disappear by the end of April.

Chamorro also wants to privatize state-owned companies.

The package includes government controls on prices for basic goods such as rice, beans, and sugar, at rates representing reductions in real terms. Salaries, while adjusted, do not keep pace with prices, so that buying power for state workers is at least temporarily reduced.

On Monday, Sandinista labor unions agreed to a truce with the government, settling strikes involving hospital workers and teachers, and postponing negotiations over salary adjustments. The government agreed to increase salaries if inflation decreases by May 22.

Critics doubt the government will be able to control prices and worry that the plan will increase unemployment, already a staggering 40 percent. Mr. Timossi says the package favors the rich.

``This plan has big winners, but it also has big losers,'' he says. ``It produces a brutal transfer of resources from salaried workers to the big exporters.''

Nicaraguans have generally greeted the measures with grudging acceptance, viewing them as the only visible option for economic recovery.

``Before prices were changing from Monday to Friday. You can't start a new business with that kind of inflation,'' says Antonio Vanegas, a Managua barber. ``We're in a difficult economic situation now but I'm optimistic that the plan will succeed.''

In contrast to the Sandinista unions, which immediately objected to the plan and launched strikes over the salary issue, Sandinista Party leaders took a wait-and-see attitude, publicly recognizing the need to combat inflation but expressing concern over the impact on the poor.

These reactions have raised speculation over what appears to be growing independence of the unions from the party.

``The largest risk of the plan is what will happen within the Sandinista base. I'm not sure that even the unions can guarantee social stability,'' notes one European diplomat. ``And there is a feeling now within the Sandinista Party that it no longer controls the unions.''

Miguel Pineada, an electrical assistant at Managua's airport who was on strike last week, says the government is ``not taking into account that a father must feed his family.''

Under the plan announced March 3, the father of three's salary would fall from the equivalent of $80 to $42 a month, pitifully little in a country where prices now rival those in the US.

``If the plan fails, the leadership of this government is going to be completely destroyed.'' says Carlos Fernando Chamorro, editor of the Sandinista-affiliated newspaper Barricada, and son of President Chamorro.

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