Nicaraguans feel the bite as Sandinistas raise food prices and devalue currency
Managua, Nicaragua, and Mexico City — Nicaragua's devaluation of its national currency and scrapping of state subsidies on prices of staple goods are pragmatic steps toward resolving the country's severe economic problems, Western economists and diplomats say. But the complicated austerity plan is likely to be difficult to enforce. And it may provoke more popular discontent with the Sandinista government, these analysts say.
The austerity plan, announced last weekend, will result in immediate price hikes of 90 to 100 percent on eggs, milk, and several other staples. Salaries will rise within the next few weeks, but only by 47 to 60 percent.
These steps make ``sound Keynesian common sense,'' says a Western economist. But for a revolutionary movement that came to power dedicated to improving the diet of peasants and workers, the Sandinistas' economic plan is a dramatic turnaround.
``Whichever way you cut the cake, the average Nicaraguan is going to have to eat less,'' observes one Western diplomat. The measures also will considerably increase the frustrations of the radical sector of the Sandinista party, which is seeing more and more stumbling blocks on the ``road to socialism.''
The plan intends to stimulate production and curb the expansive black market while conserving resources for efforts to combat the four-year-old anti-Sandinista war. The nation has a deficit of about $400 million and a foreign debt of almost $4.4 billion, by Nicaraguan government estimates. The war against contra rebels accounts for 40 percent of the national budget.
The austerity measures summed up in a speech last Friday by Nicaraguan President Daniel Ortega Saavedra include:
Devaluing Nicaragua's currency through a staggered exchange rate that favors producers exporting agricultural goods and penalizes importers of nonessential products.
Withdrawal of subsidies of prices, which will drastically increase the cost of many staples controlled through state distribution channels, such as eggs, meat, milk, cooking oil, beans, rice, and sugar.
An periodic increase in wages to offset the shock of higher prices.
Opening of government foreign exchange houses at free-market rates to boost the state's supply of dollars and curb high black-market rates.
A freeze on state spending and on expansion of government jobs.
The most drastic measure is the withdrawal of subsidies, which kept prices at artificially low rates and discouraged both large and small growers from producing. The low profits and nationwide shortage of goods produced an economic situation that was ripe for speculators. Many Nicaraguans quit farming or quit their jobs in productive sectors for speculation.
The gamble is that higher official prices will make speculating less profitable, that workers will find it more profitable to return to agriculture and other productive jobs. The measures follow recent moves to increase penalties for hoarders and speculators.
Economic decline is visible throughout Nicaragua. Decayed buildings and roads and broken bridges are left unrepaired. In Managua, gasoline stations chronically run out of fuel, often for two or three days at a time. On a recent trip into the countryside, campesinos said there were no supplies of cooking oil or soft drinks.
In the past several months, almost a dozen new shantytowns have cropped up alongside Managua highways. The clusters of one-room shacks house urban poor who cannot afford rent any longer, campesinos who have left their farms, and war refugees. ``We couldn't pay the rent,'' said a Managua woman. ``If you can call it a house, that's ours,'' she said, waving toward a home-made wooden shack draped in plastic.
It is clear that with the depth of the economic crisis, the Sandinistas had to take measures to decrease consumption, increase production, and control black market speculation, economists say.
One politically moderate Sandinista said the economic steps are the direct result of the change in economic personnel implemented by President Ortega last month. San-dinista moderates close to Ortega replaced radicals, and some economic decisionmaking power was taken away from party ideologues and given to government technocrats.
High-level moderate sources close to the Sandinistas say that radicals within the Sandinista party pushed for a different response to economic problems. The classic radical Marxist solution to the problem would be greater economic centralization -- more nationalization of private enterprise and of the food distribution network, greater price controls, and rationing. Radicals would increase production by increasing social controls and propaganda.
Several politically moderate Western diplomatic and Nicaraguan analysts say that although the economic steps will increase popular discontent, they will not have any immediate dramatic political results because neither the domestic political opposition parties nor the contra rebels present real alternatives to the average Nicaraguan.
These groups are not yet effective channels for the anti-Sandinista sentiment, the analsyts assert.
One moderate Nicaraguan economist sees these moves as a potential base for a new Sandinista economic policy, which would give greater emphasis to the private sector -- not big business represented by COSEP, the national businessmen's council, but small and medium- sized businessmen and farmers. However, he said, for such a policy to be successful, massive injections of foreign aid would be needed.
This economist says that if the Sandinistas had initiated economic austerity measures in 1982, the move would have been less difficult and Nicaraguans would not have faced such a severe reduction in living standards.