Economic Reforms Split Nicaragua

PERHAPS nowhere are the changes in Nicaragua more evident than in its capital city. Bleak and barren during the Sandinista era, Managua now buzzes with activity, its sidewalks lined with new shops, banks, and some of the priciest restaurants in Central America. Streets that were previously deserted are jammed with traffic as the sparkling new luxury jeeps of returned exiles angle by aging Soviet-made Ladas.

But at each stoplight the cars confront dozens of grimy-faced, barefoot children selling television antennas, birds, fruit, even an occasional baby deer in an effort to make a few cordobas.

A year after implementing a tough economic austerity program, the government of Violeta Chamorro has made significant progress in stemming Nicaragua's economic slide. Since the initiation of the program with a sharp devaluation of the cordoba last March, Nicaragua's balance sheet has vastly improved.

Inflation is down to less than 1 percent a month from the annual rate of 13,500 percent in 1990. Negotiations with lenders resulted in cutting of Nicaragua's staggering debt to $9 billion from $10.8 billion in 1991 and restructuring of much of the remainder on highly favorable terms.

By clearing arrears owed to the World Bank and International Development Bank, Nicaragua restored relations with multilateral lenders, paving the way for an unprecedented $1.2 billion in foreign assistance in 1991.

Yet despite such gains, most Nicaraguans are poorer than ever. Coming on the heels of eight years of consecutive economic decline, austerity has worsened an already dire situation. Poverty levels in Nicaragua now approach those of Haiti, the poorest country in the hemisphere. Crime has increased dramatically and city lots that were previously vacant are now strewn with thousands of dilapidated wooden shacks.

"You can't even go into the markets these days without people robbing you, they're so hungry," says Alejandro Gonzalez, who washes cars at the Intercontinental Hotel.

More than half the population is now unemployed.

"Everything is available in Nicaragua now except work," says Silvio Solis, who lost his job two months ago when the government closed the state factory he worked in. The father of nine now sells mattresses in a shack along a Managua highway. "At times we only eat beans now because we don't have enough money for rice," he says. "And we're doing better than a lot of people."

The worsening situation of the poor has sparked controversy here as Nicaraguans look worriedly to Venezuela, a country far richer than theirs with a much longer history of democracy, where austerity has recently contributed to social unrest.

Concern has surfaced on both the left and the right. Writing in the newspaper La Prensa last month, Conservative Party politician Emilio Alvarez stated that the government "should have foreseen the social consequences [of the policies] to reduce the impact ... on the weaker sectors of the population."

Those on the left warn of dire consequences should the crisis continue. "The economic plan is correct from a technical point of view. The problem is that there is no safety cushion," says Danilo Abud, former Nicaraguan ambassador to Honduras.

Adds Arturo Gallese, an economist with the Nicaraguan research institute CRIES: "If this keeps up I think the country is going to blow. I don't think they have three months."

Others say Nicaragua cannot afford a safety net and argue that the country should move even faster to restructure the economy before foreign aid declines. While about $741 million in foreign assistance is expected in 1992, that number is likely to drop dramatically in 1993 amid competition for funds from the former East bloc and neighboring El Salvador.

"The government has no resources to provide a cushion.... People have just got to aguantar," says a Western diplomat, using the Spanish word for "endure." "The suffering may be tremendous. But Nicaragua has had eight years of continuous economic decline. Why continue down that path?"

But obstacles to economic recovery remain intractable. With the worst infrastructure in the region, obsolete equipment, and high labor costs compared to the rest of Central America, Nicaragua is ill-equipped to compete with its neighbors.

"The economy of this country was not just hurt, it was destroyed," says Mr. Gallese. "It was de-linked from the world market. There was the war. And the Sandinista system caused huge distortions so that the production structure is no longer viable."

The explosive issue of property remains tangled as thousands of Nicaraguans continue to seek land confiscated by the Sandinistas. Efforts to legislate the issue have met with violent resistance from the left. With the police still controlled by the Sandinistas, the government lacks the ability to impose a solution.

In the absence of such authority rural Nicaragua remains racked by illegal land takeovers and violent clashes between former Sandinista and contra soldiers. "There's still anarchy here," complains Ramiro Gurdian, president of COSEP, a group of private business leaders. "There's no real rule of law, no respect for property rights."

Such problems have stalled production and scared off potential investors. While some are willing to open a restaurant or small commercial enterprise, there has been virtually no new investment in industry or agriculture, sectors with far greater potential for providing jobs.

In an attempt to establish order, Mrs. Chamorro's administration has made a bid to buy peace. In a series of highly publicized ceremonies about 17,000 former Sandinista and contra soldiers purportedly disarmed earlier this year, receiving $200 for each weapon turned in.

The government refuses to disclose figures, but sources close to the proceedings say that in some cases commanders received thousands of dollars to demobilize.

Yet whether such a policy will bring peace to the countryside remains dubious. Many of the weapons turned in are old and rusted; observers speculate that the former soldiers are keeping their good guns.

"This policy doesn't promote peace. All it does is encourage them to look for an arm to sell," complains Daniel Nunez, head of the National Union of Farmers and Cattle Ranchers.

Indeed the policy may only be fueling the fire. No sooner had the government stated that it would crack down on those who continued to operate illegally, then it was forced into a new round of handouts as roughly 1,500 former soldiers and their sympathizers last week took up arms and seized the northern town of Ocotal.

"People in Ocotal saw this as a chance to take advantage of the government. They said, 'We didn't get a piece of the pie, let's see what we can get'," notes one foreign observer.

Though the former soldiers have since relinquished their hold on the town, such problems seem likely to continue. The government has promised to provide land and houses to some of the newly demobilized. But the real concern of many is finding work.

Former Sandinista soldier Jose Beralta explained as he waited to hand in his gun during a disarmament ceremony earlier this year in the town of Jinotega: "We're all unemployed. That's part of the reason we rearmed. One has a wife, kids. We have to pressure the government for jobs."