Amid growing concern that Nicaraguan President Daniel Ortega is leading his country off the path to democratic reform, foreign donors have started to cut off massive amounts of economic aid. Combined with the worsening global financial crisis, the Western Hemisphere's second-poorest country finds itself in increasingly dire financial straits.
"If 2009 will be a tough year worldwide, it looms as catastrophic for Nicaragua," says opposition lawmaker Francisco Aguirre, president of the National Assembly's Economic and Budget Commission. "Our ills are compounded by our severe governance problems. All of this political uncertainty is raising our country's risk and also turning off the donor community that sees democracy, transparency, and rule of law as important to development."
US Ambassador John Danilovich, the head of the US Millennium Challenge Corporation (MCC) and one of Ortega's few friends in the Bush administration, announced last week that the US was suspending the remaining $64 million of $175 million awarded in grants for sustainable development projects in Nicaragua. But Mr. Ortega, a former socialist revolutionary and cold-war nemesis of the United States, shrugged off the move, saying that Nicaragua would soon get some help from Russia and Venezuela, both of which are eager to expand their influence in the region.
US concern over alleged electoral fraud
Mr. Danilovich expressed "deep concern and disappointment" over allegations of electoral fraud in the Nov. 9 municipal elections in Nicaragua. The political opposition has refused to accept the results of the poll, and leaders of the private sector and the Catholic Church have called for an internationally audited nationwide recount.
"We had hoped, for the sake of the Nicaraguan people, that the government would continue the country's trend toward peaceful, democratic, and credible elections," Danilovich said in a statement issued to the press. "I am afraid recent evidence shows that this is not the case."
César Zamora, president of the Nicaraguan-American Chamber of Commerce (AMCHAM), calls the cutoff in MCC aid a "nuclear bomb on the economy." He warns that a permanent freeze in US aid could serve to "radicalize the government" of Ortega. AMCHAM is now lobbying the US to reverse its decision when the MCC's board of directors meets to discuss the situation Dec. 11.
"The government is paying dearly for electoral fraud," says economist and left-wing lawmaker Enrique Sáenz, of the opposition Sandinista Renovation Movement (MRS). "For the thousands of votes that were stolen, Nicaragua is paying with millions of dollars in lost cooperation."
Support from Venezuela
This isn't the first time Ortega has found himself at odds with the US. He led the Sandinista government's battle against US-backed contra forces in the 1980s.
The Sandinista leader has long complained about the nature of "conditional aid" from the US and Europe, and has dismissed the MCC suspension by saying it makes Nicaragua feel "a little bit freer." Others in the Ortega administration have gone so far as to say the loss of US aid will make Nicaragua "stronger."
Mr. Chávez, meanwhile, congratulated Nicaragua for "taking off the chains."
Chávez is the Sandinista government's closest ally in the hemisphere and has been Ortega's bosom buddy in the Venezuelan-led Bolivarian Alternative of the Americas (ALBA). The Venezuelan leader is now offering to pick up the bill left behind by Uncle Sam.
"Comandante President Hugo Chávez told me that if the United States were to cut the Millennium Challenge Account I could tell the people of Nicaragua that we can count on the resources of the Venezuelan people, of ALBA, to continue those programs," Ortega said in his speech.
Chávez's ability to pick up the tab has become increasingly questioned as oil prices tumble from historic highs.
The Venezuelan government has already announced that its once ballyhooed plans to build and finance an oil refinery in Nicaragua are now under "evaluation," and that many of the other projects that Chávez has promised the Ortega government have yet to pan out.
Europe also reconsiders aid
Meanwhile, three of the six European countries that traditionally have given direct budget support to the Nicaraguan government have suspended their funding due to concerns over the Ortega administration's handling of human rights and democracy.
With only weeks left to go in the year, the European Union has yet to turnover millions in promised budgetary support for 2008. In total, the EU has only disbursed 10 percent of the $115 million pledged this year for budgetary support, according to the budget commission's Aguirre.
Bayardo Arce, Ortega's top economic adviser, has dismissed the foreign aid flow problems as "bureaucratic" glitches, rather than political punishment.
Still, Nicaragua's internal political crisis is also contributing to the country's cash-flow problems.
An additional $92 million in budget-support loans and development projects are locked up in the National Assembly, which has been gridlocked by opposition lawmakers since the elections. The government paralysis has also prevented approval of the 2009 budget, straining the country's program with the International Monetary Fund, which canceled a scheduled visit to Nicaragua last month.
Ortega, however, is confident that his friends will come through. In the past few months, the leader has spoken wistfully of the former days of Soviet cooperation during the heart of the cold war.
Dmitry Medvedev was reportedly a fan of the Sandinista revolution and a proclaimed "admirer" of Ortega, when the Russian leader was still a university student.
Now Ortega hopes that admiration will translate into a rekindling of Russian aid.
Nicaragua's vice foreign minister told government media this week that the two countries will sign agreements in the areas of tourism, energy cooperation, industry, military cooperation, mining, agriculture, and fishing.
The official also said that Russia has expressed interest in building an inter-oceanic canal across Nicaragua – an idea that has been batted around for more than a century.
Economists, however, say that falling oil prices are affecting Russia as much as Venezuela.
"With the collapse of oil prices, they will not be able to bail Ortega out," Aguirre said. "And anyone who believes they will do so also believes in the tooth fairy."