Nicaragua cracks down on its thriving underground economy

The Nicaraguan government has launched a nationwide crackdown on the underground economy. Over the past two weeks, officials here have seized the goods and licenses of some 160 merchants in an effort to squelch corruption and speculation. The merchants' crimes: illegal sales of medicines, plastics, tires, chicken, and basic grains.

The government has proclaimed that ``economic crimes'' are as serious a threat as the war being waged by Nicaraguan rebels against the ruling Sandinistas. These crimes range from buying and selling goods on the black market to stealing from government ministries and state factories.

The government's effort, called Operation Iron Fist, includes roadblocks to catch would-be speculators, house-to-house visits confiscating licenses and merchandise, and stepped-up vigilance in government workplaces. A national commission has been named to strengthen penalties against offenders.

However, many economists say legal measures are not enough to combat a problem that stems in part from Nicaragua's economic crisis, which has left many people doing whatever they can to make ends meet.

Nicaragua's economic crisis has been compounded by the recently imposed United States trade embargo. US markets accounted for some $58 million in exports for Nicaragua last year and nearly $110 million in imports.

The people caught last week were workers, peasants, and merchants who were allegedly importing or exporting products without licenses or selling local products on the black market at prices above those set by the state.

The operation follows crackdowns at government ministries and state industries. Last month six employees at the state-owned plastics factory Plastinic were arrested for making false requisitions for products worth $120,000 at the official $60-to-1 cordoba exchange rate.

Some economists say government economic policies have helped lay the groundwork for the growth of the underground economy. A longtime policy of government subsidies has kept prices of certain goods artificially low, reducing profitability and, thus, the level of production. The combination of low official prices and overall scarcity has made black-marketeering extremely profitable.

Wages, though raised twice this year, have not kept up with inflation. Economists' estimates for the cost of sustaining a family of four ranges from 6,000 cordobas ($10) a month to 23,000 cordobas a month. The minimum wage is about 4,500 cordobas a month.

``Salaries don't suffice and there are shortages. People have to find ways to survive,'' says economist Cesar Samillan.

There are no official statistics, but the number involved in the underground economy appears high. The Oriental Market in Managua is considered the equivalent of a black market because so many merchants sell such goods as basic grains, cooking oil, and toilet paper -- which are supposed to be bought only through state distribution channels. Henry Thompson, director of the Masaya office of the Ministry of Internal Commerce, says thousands of people are involved in speculation nationwide.

The government has taken drastic measures to solve the economic problems. It has sharply increased prices, essentially discarding subsidies. Other producer incentives, such as credits, have been put into effect.

This week the government is to open money-exchange houses at the free-market rate for dollars. It hopes to increase its supply of dollars and decrease what has been a skyrocketing black-market rate for dollars.

Some economists say that controls on the economy, such as restrictions on producer prices and sales, must be loosened before production levels improve. One pro-government economist said that to spur economic recovery ``there will have to be a liberalization of the distribution system.'' But Sandinista leaders seem to believe economic improvement is partly a matter of control.