Nicaragua's Hard-Won Progress

FEB. 25 marked the second anniversary of Violeta Barrios de Chamorro's victory over the Sandinistas in free Nicaraguan elections. President Chamorro and her country have made remarkable progress that has gone virtually unnoticed by the United States and other countries, which have been preoccupied with Eastern Europe's similar struggle to rebuild after communism. Nicaragua is even more deserving of our attention. Its transformation is occurring in our own hemisphere, and its position is partly the result

of the millions of dollars the US spent to support the contras.

Chamorro and her 14-party coalition inherited an economic mess in 1990. The US economic embargo had strangled Nicaragua's trade. Ten years of war and Sandinista economic mismanagement had cut gross domestic product (GDP) in half and chased away most of the technically trained professionals. Real minimum wages had fallen to one-tenth their previous levels, and per capita food production had fallen 37 percent.

The Sandinistas had expropriated private businesses, usurped control of all foreign-trade transactions, and tripled public expenditures. By 1990, Nicaragua's budget deficit was 20 percent of GDP and could be financed only by inflation - which reached 13,000 percent in 1990.

Two years ago, the civil war officially ended, but the legacy of earlier conflicts remained. The Sandinistas emerged as the single largest political party and used strikes to disrupt Nicaraguan society. Chamorro thus faced a double challenge: to introduce desperately needed economic reforms - some of which would cause short-term economic hardship - while building trust and harmony within the country.

Despite the odds, the Chamorro government has begun a major transformation of the Nicaraguan economy. Presidential minister Antonio Lacayo brought inflation down from an average of 1,000 percent per month in 1990 to 80 percent per month in 1991, and to an anticipated 3 percent per month in 1992. The government dismantled the exorbitant military infrastructure and reestablished relations with the international financial community.

Although progress has been made, economic renewal is coming slowly for Nicaragua. The anticipated 5 percent expansion in total output in 1992 will make but a small dent in a country whose economy contracted an average of 2.5 percent every year throughout the '80s. More than half the work force is unemployed, and those with jobs earn very low wages. Relations between the Chamorro government and the Sandinistas remain tense.

Furthermore, Nicaragua must cope with a bloated state apparatus and a lack of hard currency. The Nicaraguans must create the conditions for private enterprise by stabilizing their currency, strengthening legal rights to private property, and opening up competition. With the support of the US, Nicaragua could consider some of the innovative programs being tested in Eastern Europe. In Hungary, for example, the Hungarian-American Enterprise Fund channels public and private seed money and technical expertise

to new private enterprises.

NICARAGUA starts from a much weaker economic base than Eastern Europe: Its per capita income is less than one-third that of Hungary. Although Nicaragua's potential for attracting foreign investment seems bleak, the government can lay the groundwork for expanded investment.

A clear regulatory system with low tax rates would attract private capital. A private investment fund could draw upon the resources of the Nicaraguans who left the country but retain love for their homeland. But wary investors still need to be convinced that Nicaragua is committed to free markets and that Chamorro is independent of the Sandinistas.

In the long run, trade, not aid, will revive the Nicaraguan economy. The US has provided $514 million in grants and loans during the past two years, but the real route to sustained and productive growth in Nicaragua is access to foreign markets in sugar, textiles, cotton, and other products. Nicaragua's exports to the US dropped from $206 million in 1980 to $14 million in 1990, and nearly 96 percent of Nicaragua's merchandise exports are concentrated in the commodity sector, primarily coffee and cotton.

Nicaragua has a long way to go, but the Chamorro government has started the economy down the right path. The US needs to intensify its support of Nicaragua, not only through its continued financial backing, but by giving the country the attention it needs and deserves in light of the tremendous changes that have occurred since Chamorro's electoral triumph.