Nicaragua struggles for economic survival. Planning mistakes, 4-year war with `contras' fuel crisis

Six-and-a-half years after Nicaragua's Sandinistas seized power, promising economic betterment for the impoverished masses, the government is struggling just to keep the country afloat. ``We have had to pretty much abandon development, to focus on survival,'' laments Vice-Minister of Planning Ligia Elizondo.

The balance sheet of key economic indicators makes depressing reading for government planners.

Inflation has spiraled to 300 percent, the gross domestic product fell 2 percent last year, government income covered only half of expenditures, and exports slumped 14 percent, widening the nation's trade deficit.

For Agriculture Minister Jaime Wheelock Rom'an, though, ``just having got through 1985 was a victory. To have arrived this far should be considered acceptable.''

Sandinista leaders and independent experts concur that matters have reached this point because of a mix of external factors over which the government had no control and economic policy mistakes at home.

While critics stress the Sandinistas' own errors, the government heaps much of the blame on the war they have been fighting with United States-backed rebels, or ``contras.'' The four-year war has undoubtedly taken an enormous toll on the Nicaraguan economy, foreign economists monitoring developments here agree.

For a start, the government now devotes more than 50 percent of its budget to defense, according to official figures, draining funds from much needed investment projects.

At the same time, President Daniel Ortega Saavedra reported last month, contra attacks did $121 million worth of damage to the economic infrastructure last year -- equivalent to 40 percent of export earnings.

And what the authorities here call ``economic aggression'' by the US has also had its impact. International lending organizations such as the World Bank and the Inter-American Development Bank -- in which Washington has decisive influence -- have lent Nicaragua nothing since 1982 when the Sandinistas imposed a state of emergency as the contras began carrying out attacks from across the Nicaraguan-Honduran border. This has deprived Nicaragua of hundreds of millions of dollars in expected credits.

But other external factors, unrelated to the war, have hit Nicaragua just as hard.

The country's terms of trade have slumped 35 percent since 1980, the heaviest fall in Latin America, according to the most recent Economic Commission on Latin America report.

This means that Nicaragua has to export one-third more of its coffee, cotton, sugar, or beef to buy the same amount of imports.

These problems on the world financial and trade markets have prompted the Sandinistas to seek succor from Comecon, the Soviet-bloc trading group. The Soviet Union and its allies covered some 60 percent of Nicaragua's trade deficit last year with credit lines, says Foreign Trade Minister Alejandro Mart'inez. Among other things, these credits paid for all of Nicaragua's oil imports, which came from the Soviet Union. Nicaragua has been unable to pay back the credits thus far.

On the domestic front, President Ortega acknowledged recently that the country's dire economic straits ``cannot all be blamed on the war. We, too, are responsible for them.''

One of the economy's most glaring problems is skyrocketing inflation. This has been fueled by the government's policy of printing money to cover the 50-percent fiscal deficit instead of the more politically awkward policy of raising taxes.

Although the government regularly orders wage rises, which it tries to keep in line with price increases, real salaries are estimated to have dropped as much as 50 percent in the last two years.

``When you print money and try to maintain official prices at the same time, the result is black markets with higher prices,'' explains one foreign expert. ``That really squeezes popular living standards.''

The Sandinista policy on wages, which are fixed across the board for state and private sector workers alike in 28 scales, has been blamed for falling production. This led the government to change the rules last year. Where wages were set according to job description, regardless of seniority or output, the new scale rewards higher productivity. ``To each according to his needs'' has been replaced by ``to each according to his work.''

Production also suffered, economic policymakers agree, from grave problems of administration.

``The Sandinistas made a clear political choice not to allocate resources through the market, which would have meant that people with money would have had easiest access to them. So they needed a good administration, and they didn't have enough good administrators,'' the Western economist said.

This has shown up in the system by which the government allocates foreign exchange to businesses that need imports.

Not long ago, for example, the agriculture minister was given dollars with which to import machetes. Meanwhile, a machete factory lay almost idle because it had no hard currency with which to import steel.

But the Sandinistas' bent for economic planning, efficient or not, has by no means given their policy decisions a doctrinaire Marxist flavor, independent economic experts here say. The state, they point out, has taken over only 30 percent to 35 percent of production and distribution, leaving the vast bulk in private hands.

``The complete nationalization of the economy was neither politically desirable nor economically possible,'' says one Western economist. ``Production is spread among so many small farmers and artisans, distribution is in the hands of so many small shopkeepers, they just could not have done it.''

Although all exports and imports go through the government, as in many third-world countries, the authorities are seeking to ensure that prices paid to farmers are remunerative. This came about after they saw production fall during the early years of revolutionary rule for lack of incentives.

The big private farmers who raise most of Nicaragua's critical export products -- cotton, sugar, beef, and coffee -- have generally been guaranteed a 25-percent profit margin with their deals with the government. Although many of them complain that they are paid in cordobas, the Nicaraguan currency, dollar incentives have recently been introduced. Observers suggest that the fact that these farmers replant each year means that they find business worth doing, despite the difficulties.

So long as the civil war continues, foreign and local economists say, inflation will continue to spiral and economic normalization will be impossible. Ortega warned recently that ``this year will be marked by the same or greater tensions than last year.''

Meanwhile, says a foreign economist, the Sandinistas' attempt to blend planning with market regulation will mean ``continued irrationalities and inefficiencies, and they will just have to keep constantly juggling, trying to survive the war.''

Last in series. The previous articles appeared March 25 and 26.