MANAGUA – Concerns over Nicaragua’s governance issues are putting the continuance of foreign budget assistance and international cooperation at risk, despite efforts by the Sandinista government to maintain relative macroeconomic stability under tough international circumstances, analysts claim.
The foreign donor community has recently expressed strong concerns over the political direction of Nicaragua following a controversial decision by the Supreme Electoral Council (CSE) to cancel the legal party status of two minority parties considered viable contenders in several key municipal elections next November (NT, June 20).
The Budget Support Group, made up of EU countries plus Canada, sent a strongly worded letter to Nicaragua’s Foreign Minister Samuel Santos last week saying the CSE ruling “represents a reduction of democratic spaces” and leads Nicaragua in a backwards direction that contradicts “citizens’ civil and political rights,” as well as the constitutional principles of political pluralism.
Instead of heeding the warning, Ortega lashed out at the foreign community for meddling in Nicaragua’s affairs. During a speech in Masaya on June 21, Ortega insulted the EU donor community by telling them, “We are not going to sell ourselves out for 30 coins; they can take their 30 coins and buy someone else.”
Ortega also insulted the EU Ambassador to Nicaragua, Francesca Mosca, by saying that the foreign donors are like “flies that land in filth.” In Spanish, flies are “moscas,” hence the double insult to the EU and to Ambassador Mosca.
The increasingly tense situation between the donor countries and the Ortega administration was not helped by recent comments from Vice Foreign Minister Manuel Coronel Kautz, who warned that any foreign diplomat in Nicaragua who interferes with domestic politics will be considered persona non grata.
Kautz went on to refer to the EU diplomats as a bunch of howling ally cats in heat.
The government has also produced recent friction with the International Monetary Fund (IMF), which it recently fined more than $1,000 for allegedly failing to comply with a worksite inspection by authorities from the Nicaraguan Social Security Institute (INSS).
The IMF, which last weekend concluded an 11-day visit to Nicaragua to measure the government’s compliance with the Poverty Reduction and Growth Facility arrangement, claims all its social security payments have been made to date.
Adding insult to injury, the INSS’ executive director allegedly snubbed IMF country director Humberto Arbulú, requiring the administration’s top damage-control expert, Vice President Jaime Morales, to allegedly apologize to the IMF director on behalf of the government, according to daily El Nuevo Diario.
Despite the IMF’s recent domestic issues with the Nicaraguan government, the international lending institution gave the Sandinista administration a satisfactory report card after its visit here last week.
In a press release issued on Monday, the IMF mission director Luis Cubeddu reported that discussions with the government had been “open and productive,” and that “the performance of the Nicaraguan economy remains generally positive.”
The IMF gave kudos to the government for its “continued implementation of prudent macroeconomic policies,” and noted “important advances” in the renegotiation of government bonds (Cenis), in its agricultural stimulus package and in safeguarding financial-system stability.
The IMF also noted advances in the government’s implementation of the structural-reform agenda, namely the recent passage of the Anti-Fraud Law to deter electricity theft.
The IMF’s positive report card seems to echo comments made last week by Central Bank President Antenor Rosales, who insists that the government has “over-complied” with its commitments to maintain macroeconomic stability. The goals that aren’t being met, Rosales said, have to do with the rising cost of oil, which is pressuring inflation upwards and requiring the IMF and government to constantly reassess realistic economic goals for the year.
Even opposition politicians are giving the government’s economic team credit for doing an admirable job maintaining a semblance of macroeconomic stability under difficult circumstances.
“Under very adverse international conditions – high oil prices and an economic slowdown in the United States – the Nicaraguan government’s economic team has done a good job of managing the economy. So much so that Nicaragua has met or exceeded most of the formal commitments under Nicaragua’s program with the IMF,” Liberal lawmaker Francisco Aguirre, president of the National Assembly’s Economic and Budget Commission, told The Nica Times. “From the purely technical standpoint, therefore, continued disbursements under the IMF program should be a slam dunk.”
There is, however, a “fly in the ointment,” Aguirre hedged.
Depending on how strongly the donor countries feel about governance issues, “They could withdraw their own financing for Nicaragua and pressure the IMF to suspend its support to Nicaragua,” he warned.
Politics Versus Economics
Former Central Bank President Mario Arana told The Nica Times this week that Nicaragua appears to be entering “a new phase of tension” with the international lending community. The problem is not so much economic, rather political – the administration’s continued outbursts and insults, coupled with growing concerns over the political direction of the country.
Arana says he doesn’t expect the IMF to make any “drastic” decisions at this point, since another high-level meeting between the IMF directorate and the Nicaraguan government is scheduled to take place next month in Washington, D.C.
The more immediate concern, therefore, has to do with the EU Budget Support Group, which provides some 30 percent of Nicaragua’s annual budget.
Arana, who worked closely with the EU countries as Central Bank president under the previous administration of Enrique Bolaños, said the donor countries have always expressed concern over issues of corruption and institutional democracy in Nicaragua – issues that the EU countries view as crucial to development and systematic poverty relief.
The Budget Support Group’s letter of concern, therefore, represents “a very clear and strong message that can’t be taken lightly,” he warned.
“This is a critical moment,” Arana stressed, while urging the Ortega government to tread carefully in the coming months to protect its foreign aid.
If the foreign donor community eventually decides that their concerns over politics outweighs their satisfaction with the economic situation, they could pull out and leave Nicaragua in a dicey situation.
Aguirre, of the Economic and Budget Commission, said a cutoff of foreign aid would be nothing less than a “coup de grâce” for the Nicaraguan economy.