Current Events in Nicaragua

Our second speaker was Jose Luis Rocha, from the Research Institute Nitlapan here in Nicaragua. He came for a coyuntura, or political discussion of current events. This was especially interesting as the inauguration of Daniel Ortega will take place here on Wednesday. (Dignitaries from around the world are descending upon Nicaragua as I write this.)

Mr. Rocha gave us the history of Nicaragua’s internal debt & its impact on the national economy. In the early 1990’s, four Nicaraguan banks failed and their portfolios were reassigned to private banks owned by Nicaragua’s elite. These banks received bonds from the Nicaraguan government as insurance against potential loan losses. In many cases the government issued bonds (at rates of 17% to 18%) worth as much as 70% of the assumed portfolios, when the risk in reality wasn’t nearly this high. Thus the government was lining the pockets of these banks using funds from the national budget. In effect, money that should be used to improve a national economic crisis and improve conditions for the poor is instead being spent on the elite Nicaraguan banking sector.

To make matters worse there is, of course, debt service on the external debt to pay as well. While terms with the IMF (International Monetary Fund) are more favorable (lower interest rate and much longer term), the cumulative effect of payment on both internal and external debt has squeezed the national budget.

One of the first things that Daniel Ortega and the new government about to take power has done has been to meet with the leaders of this banking sector to give assurance that the new government has no intention of changing the terms of the internal debt. (That is to say, they assured the elite bankers that they would continue to pay the very favorable interest rate on the bonds, and keep the situation very profitable for them.) They have also reassured the IMF that they will keep inflation low and continue to service the internal and external debts under the current terms agreed to. This means that social programs for the poor are not likely to be the top priority for the new government of Daniel Ortega. There simply isn’t room in the national budget. These next few years will tell much about the intentions of the new Sandanista government and how it will work to improve the economy for ALL Nicaraguans.

Throughout the week in Nicaragua it was apparent that Nicaraguans from every political perspective are watching the FSLN and Daniel Ortega closely with a great deal of uncertainty. No one is quite sure how they will govern, and neither the left nor the right feel certain of what this new government will do to change things as they are in Nicaragua.