MANAGUA – Nicaragua’s nascent economy could be on the brink of an important breakout year if Venezuela comes through with promises to deliver an important cooperation agreement to revitalize the country’s productive sector and fix the energy crisis.
The details of the aid package were scheduled to be announced by Venezuelan President Hugo Chávez yesterday, though much of it had already been outlined at press time.
The Venezuelan aid is expected to focus on agricultural credit, housing, debt relief and energy assistance, among other things.
The two most important areas of the Venezuelan aid program will focus on agricultural production and energy, said economist Néstor Avendaño.
New Production Strategy
The new agricultural-production strategy, which President Daniel Ortega has spelled out only in broad strokes, is based on reactivating small- and medium-sized agricultural producers with low-interest rate loans provided by three new Venezuelan development banks.
As part of Chávez’s vision for an alternative trade agreement, the Bolivarian Alternative for the Americas (ALBA), Venezuela would establish the new banks in Nicaragua to provide credit to small farmers, who would then sell their harvests back to Venezuela.
Ortega says that the new Venezuelan development banks would help rehabilitate the many small agricultural producers who currently are operating at half their capacities because of a lack of financing possibilities.
“We are already advancing on this,”Ortega said on May 28 when he introduced his government program to the Congress of the Sandinista National Liberation Front (FSLN). “During my last visit to Venezuela, I spoke with President Chávez and he thought this was an important project, to activate all the capacity that we have in Nicaragua and then use Venezuela as the market for all these products.”
The three proposed banks are the National Production Development Bank, the Community Bank, and the Municipal Development Bank, each of which would offer different types of low-interest credit and bonds to small producers.
Ortega added: “I have spoken with the president of the Bank of Venezuela, BANDES, and they are willing to set up here and work with producers. The important thing is that there is a will to create this bank, and we have the support of our brother country.”
The breach between good intention and reality might be sizable, however.
Economists and political opponents have already raised questions about how the banks would be financed, and Nicaragua’s Superindency of Banks, the regulatory body for all banks here, as of last week had not received any formal request from BANDES to establish a new bank here.
“I have my doubts about this,” said economist Avendaño. “Apparently Chávez and Ortega have some sort of agreement, and if it works out, good.”
Partners in Petroleum
Though leery about the future of the proposed banks,Avendaño insists that some sort of low-interest financing is desperately needed in a country where 83% of all business is small- and medium-sized and not eligible for credit under the current financial system.
The other element of the economic cooperation agreement between Chávez and Ortega involves selling oil to Nicaragua on favorable terms of credit.
Under the petroleum accord, firmed up last April in Caracas, the Venezuelan state petroleum company PDVSA will supply Managua-based oil company Albanic with petroleum on the favorable terms of 60% down and 40% on credit at 1% interest payable over 25 years, with a two-year grace period.
The profits garnered from the 40% of oil sold on loan will then be reinvested by Albanic in infrastructure and public-works programs in Nicaragua (NT, April 28, 2006).
Nicaragua, which spends $650 million a year importing crude oil, is expected to save a sizable chunk of money through the agreement, though doubts linger about some of the operational and logistical details of how Albanic will function.
Venezuela is also reportedly studying the possibility of building a pipeline across Nicaragua, as well as an oil refinery to service markets in Central America and Asia.
While many questions remain about the scope of future Venezuelan cooperation, the South American oil giant promises to figure strongly in the new government’s economic plans.
The new government will have its work cut out for it inheriting a sluggish economy with 3% growth and an average per-capita annual income of only $932.
Ortega’s team will have to keep promises to maintain macroeconomic stability, strengthen trade with the United States, negotiate a new program with the International Monetary Fund (IMF) and improve the effectiveness of public spending, economists say.
But if Ortega can manage to do all that while also implementing his new agricultural-production strategy and alleviating the energy crisis with the help of Venezuela, the economy could grow by 7% or more this year, Avendaño predicts.
But, the economist warns, if other sectors of society don’t get behind the plan, or if opposition political parties try to block it for ideological considerations or other concerns, Nicaragua will continue to plod along with modest 3-4% growth.
“If the new production strategy has political consensus and is supported by the unions, then I think the economy could grow 7% or more,” the economist told The Nica Times. “But if not, Nicaraguans themselves will create the antibody for the success of this strategy.”