Nicaragua: An Economy Under Siege

Against the Current, No. 24, January/February 1990

Katherine Gonzalez

THIS ARTICLE ON the Nicaraguan economy is a continuation of the symposium that begun with contributions by Keith Griffin and John Weeks in ATC 22. Further responses will appear in our next issue. The continuing effort of the United States to wreck hopes for economic recovery in Nicaragua, and to subvert the election campaign underway there, harmonizes with Washington’s lavish sponsorship of the Salvadoran military engaged in the murder of priests and wholesale repression of church, human rights and union organizations, as discussed in Marc Cooper’s interview elsewhere in this issue. —The editors

FROM JANUARY 1982, when the first coffee pickers were kidnapped, tortured and murdered, until the signing of the El Salvador agreements in March 1989, Nicaragua has been continually under attack. The economic costs have been enormous. Forrest Colburn is wrong when he states that in post-Revolutionary Nicaragua “the areas in which the fighting has taken place are relatively marginal to the economy. The bulk of the GM’ is generated in the Pacific region which has been free from fighting.” Over 70% of Nicaragua’s corn and beans is grown in the mountainous northern zones that were hit hardest by the contras. By 1984, 120,000 peasants had fled the region.(1)

In the 1984-85 coffee harvesting season, fifty-nine coffee farms were burned, 200 pickers were killed and 20,000 acres of coffee had to be abandoned. These coffee plantations had been expected to produce $69 million—over one-fifth of all the foreign exchange earned that year.

Because of the mobilization of trucks by the military, there was a shortage of vehicles to transport crops to market. Because many roads were mined and many trucks were attacked by the contras, drivers were reluctant to go to rural areas to bring in the crops. Dionisio Marenco told the legislative body in June 1984: “Right now the beans that are being eaten all over Nicaragua came from the second harvest of Nueva Guinea. It cost the lives of six companeros to get those beans out of the mountains.”

Many industries where large numbers of workers were mobilized felt the pinch. The tobacco farms, which are located in war zones, had half their workers called up for the militia. They had to pay both the soldiers and their inexperienced replacements. There was a de-dine in the amount of tobacco classed as export quality from 65% of the total produced in 1980 to 42% in 1985.

The largest burden, of course, was the diversion of 50% of the national budget to fighting the contras.

In 1982 Nicaragua began to experience economic difficulties that seriously worsened in 1984. Private capitalist investment dropped from 50% of total investment in 1979 to 20% in 1986. Export earnings dropped by 36% from 1981 to 1985. Part of this was due to declines in production and part to declines in world prices.

In the case of coffee prices rose but production dropped by 50% between the high of 1982-83 and the low of 1985-86 so there was alossinearningsof3o%. In the case of cotton a 40% drop in prices between 1983 and 1986, combined with a decline in acreage planted, resulted in a 60% drop in earnings from cotton. The seriousness of the situation is obvious when one considers that together these two crops bring in between 6o% and 65% of Nicaragua’s total earnings from exports.

The foreign debt grew rapidly to cover essential imports:  from $1.6 billion in 1980 to $4.4 billion in 1985. Spending on food subsidies, health, education and defense was maintained by deficit government spending and increasing the money supply—both factors leading to inflation. Inflationary pressures were increased by the government selling in-ported inputs to the agro-export sector at a lower exchange rate than it purchased for the agro-export.

In 1985-86 the government made some major changes in economic policy. Food subsidies were ended and prices for basic grains floated. Consumer goods and agricultural inputs needed by the peasants were prioritized over the needs of the urban population. A fiscal and monetary adjustment program reduced social expenditures, imposed a hiring freeze, restricted credit and set higher interest rates. The currency was partially devalued and tax collection unproved. Large-scale, technically advanced, capital-intensive investments begun after the revolution in order to break out of the cycle of underdevelopment and dependency were funded at lower levels.

In January 1986, the agrarian reform law was modified making it possible to expropriate smaller farms in the case of absenteeism, inefficiency (decapitalization) or abandonment But the more basic change in the agrarian reform had already taken place in 1985 with a reorientation toward the titling of more individual peasant owners. Paul Rice points out that before the changes of 1985 the ratio of land given to cooperatives compared to the amount given to individual peasant farmers was 9 to 1. After the change it was 50-50.

In 1981 the government’s goal for future land ownership had been for cooperatives to hold 40% of the land, the state 25%, and individual owners 35%. The government’s reasons for promoting cooperatives were both philosophical and practical. Cooperatives would eliminate exploitation and differences in wealth as well as selfish attitudes. They were a superior form of organization. On the practical side, they brought people together so that health, education, technical assistance, credit and mechanization would be available to them. Cooperatives would make economies of scale available to peasants.

In general the early program of the revolution reflected what Colburn has labelled as “a belief in the malleability of economics, a faith in economic progress, and a commitment to economies of scale and technology.”

By emphasizing the modem sectors of the economy, the Sandinistas opened themselves to two different kinds of problems: 1) the large private producers were reluctant to invest; and 2) the state enterprises had severe management problems.

Large private producers, who had opposed investing from the very beginning of the revolution, had early been offered concessions by the government. Further concessions and incentives were given based not on the class status of the producer, but rather as Colburn said, “on the importance of the crop to the national economy and the elasticity of supply.

This meant that the coffee sector composed of small, medium and large producers, many of whom had supported the FSLN during the insurrectionary period, received less in the way of incentives than did the reactionary large cotton growers of Leon and Chinandega. But regardless of the level of concessions, private production fell.

There were no profits calculated in the state sector either; in some cases, because the farms had no bookkeepers. In 1985, according to Colburn, only four out of 102 state farms were profitable. The state sector suffered from a serious shortage of capable managers for the farms. Even though yields on the farms were only slightly less than those of the private sector, costs were out of hand.

Government farms also had political obligations in terms of providing services and jobs for the people of the area. While these could help the revolution politically, they contributed to lowering profitability, which in turn increased the accuracy of public perceptions that the Area Propiedad del Pueblo (APP) was “autorizado para perder”—authorized to lose money.

If the economic adjustment policies can be rationalized by a worsening economic situation, how can the change in policy toward the peasants be explained?

Luciak points out that the FSLN, upon examining returns from the November 1984 elections by municipality, noted that the Sandinista party had received fewer votes than the national percentage in those rural areas where less than 10% of the population had received land under the agrarian reform. On top of this “vote for land” the peasants were also pressuring for land at the Ministry of Agriculture offices around the country and through UNAG, the small and medium producers’ organization. Every April in Masaya, a densely populated rural area, hundreds, sometimes thousands, of peasants would gather at government offices to demand land in time for the May planting.

After the 1984 elections in which the FSLN received only 40% of the vote in Masaya, the government began distributing land. When much of the state-farm land had been distributed, the government began purchasing and trading for land to distribute and finally ended up declaring the area a special agrarian-reform area in order to be able to expropriate some land that was being worked by its large-scale owners.

It was at this time also that UNAG became an active force in support of the peasants’ right to land on an individual basis Daniel Nunez who became president of the organization during this period, had a long “trajectory of struggle with the FSLN in the mountains of Matagalpa. He has been an active spokesman for the peasant sector saying that within the state “a greater effort needs to be made to understand the enormous potential for peasant production which Nicaragua has.”

In 1985-86 the Sandinista policy of prioritizing agro-industry and agro- exports was modified to an economic model favoring the peasant over the large modem producer. This occurred out of a recognition that: 1) peasants without land would not support the revolution and had in fact joined the counterrevolution in small but significant numbers; and 2) the large private farmers were not producing. The revolutionary government had better look to its natural base for support and if that base did not want to farm collectively but rather wanted individual plots of land, so be it.

Nicaragua’s agricultural development will continue to be bipolar, according to Alonso Porras, deputy minister for agrarian reform, “employing technology where it has been proved efficient and the resources exist and traditional production where conditions do not allow for more modem techniques.” He adds that “We plan to gradually develop the peasant’s technology.”

The results of the 1985-86 changes have been interesting. Stahler-Sholk reports that small-scale production had remained stagnant during the period of low prices from 1979 to 1985 but rose when prices rose after 1985. On the other hand, agro-export, which in areas such as cotton is dominated by the large capitalist and state sectors, has hardly responded to incentives. An exception is the sesame seed industry, but that sector is in the hands of small and medium producers.

Stahler-Sholk says that these tendencies seem to call into question the thesis of the inelasticity of peasant production. Supporting him in this are figures published recently in Barricada Internacional, an FSLN weekly newspaper, showing that “for almost all of the crops, while national production was declining the small producers and the agricultural cooperatives increased their production or suffered decreases substantially ink-nor to the national average.” According to Paul Rice, cooperatives that have taken over state farms have managed them better than state managers did. They have, he says, reinvested and kept costs down.

Rice also reports that at the present moment 4.9 million acres have been affected by the agrarian reform, (up from 15 million acres in December 1985). This is 40% of the arable land of the country. Sixty-two percent of peasant families have received titles—that is 120,000 families (up from 85,000 in December 1985). Half of the titles have been in individual holdings.

In the last quarter of 1987 Nicaragua entered a process of hyperinflation that was to top 30,000% for the year 1988. To try to bring the inflation under control, the government implemented several sets of drastic measures—in February and July 1988 and in January 1989. The first adjustment included a currency reform that substituted one new cordoba for 1,000 old ones. Interest rates were raised and multiple exchange rates abolished.

In July the price of the dollar on the parallel market was freed, the currency was devalued and prices on principal products of consumption were freed up.

In January 1989, all prices were freed, credit was further restricted, and it was announced that devaluations would take place with greater frequency. The number of public employees laid off would reach 50,000.

There are signs that the economic measures are achieving their short-term goals. Inflation was down to the (still spectacular) monthly rate of 20% in March from 46% in February and 126.6% in December 1988. Jaime Wheelock said in a recent interview that the government has achieved a greater “transparencia” in the relation between costs and prices without subsidies and artificial exchange rates. He says that production has been maintained at survival levels but there is a real danger that the country could fall into a serious recession if production of important crops collapsed.

The government is trying to bring all productive sectors together in what is being called “concertacion”—concerted action or convergence. The rural traditional producers have been the most favored by the liberalization of the economy and are responding the best. Salaried workers are insisting that a wage hike for them would not increase inflation since their wages are so low and the stores are full of things no one can buy. Industry is the “victim’ of the adjustment measures and possibly only the most efficient and those oriented toward export will survive. Some of the big farmers have met with the government to try to agree on strategy to raise production but others demand further political concessions.

The small and medium farming sector was given incentives later in the revolutionary process than the large private sector but used them more advantageously. Areas where small and medium producers are strong, such as corn and beans, coffee, beef and sesame—and areas planted before the October hurricane—show a rise in production in the 1987-88 harvest Corn, finally, met and passed pre-revolutionary levels of production. Credit here has to be shared, however, between increased peasant production and the coming online of the vast irrigation project in the Pacific Coast lowlands.

The strongest support for the revolution, however, is likely to come from the great mass of peasants who have received land under the agrarian reform and who, as Daniel Nunez said, may very well show everyone what the small farmer can do. The government and the FSLN would do well now to heed that class that gave it the victory in 1979 and which has suffered most under the recent austerity with job losses, elimination of subsidies, and cutbacks on social services. They, the urban workers, even more than the big producers, need to be considered at this moment.


  1. Facts and statistics cited in this article are drawn from a variety of sources. Interested readers are directed to the following work Forrest Colburn, Post-Revolutionary Nicaragua (1986); Joseph Collins, Nicaragua: What Difference Could A Revolution Make? (1986); Daniel Hodges, Intellectual Foundations of the Nicaraguan Revolution (1986). Articles in various journals include Carlos Vilas in Against the Current (January-February 1987); David Kaimowitz in The Journal of Peasant Studies (October 1986); Michael Zalkin in Latin American Perspectives (Fall 1988); lIja Luciak in Journal of Latin American Studies (May 1987) and various issues of the journal Envio and the newspaper Barricuda Internacional. This article also draws from an undated manuscript of Richard Stahler-Sholk, “Ajuste y el sector agropecuario, and a lecture by Paul Rice, April 24, 1989.
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January-February 1990, ATC 24

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