After a Year of Ortega, How Is Nicaragua Faring?

January 15, 2008
Managua, Nicaragua

On Jan. 10, 62-year-old Sandinista leader Daniel Ortega celebrated his first year back in office as Nicaragua’s president and his first year back in power in a peacetime Nicaragua after his troubled first rule from 1985 to 1990.

Things are different this time around, however, and Ortega is struggling to maintain popular support. Opinion polls last week show his disapproval rating rose more than 18 percentage points, from 36.4% in April to 54.6% in December. Opposition leaders boycotted his State of the Union address last week.

So what’s the problem? Ortega hasn’t responded to the expectations of his constituency, say political analysts. The economy has not grown, new jobs have not been created, and large numbers of citizens continue to leave the country in search of opportunity.

One of the most criticized moves made by Ortega was his controversial installation of citizen councils (CPCs) to operate in neighborhoods and towns under the leadership of Sandinista party members. Some have suggested that CPCs represent a return, in a new guise, of the Sandinista Defense Councils (CDS) of the 1980s—known then as “the eyes and ears of the revolution.” Others say that creation of the CPCs is an attempt to establish a partisan system loyal to the Sandinistas and argue that the CPCs will be vulnerable to cronyism.

Many were particularly unhappy when Ortega appointed his wife and First Lady, the poet Rosario Murillo, to oversee the CPCs. Murillo also manages her husband's agenda, handles the abundant state advertising budget and orchestrates presidential rallies usually held in the evenings.

The formation of the CPCs was rejected by Congress but allowed by the country’s Supreme Court, controlled by government supporters. In his defense of the CPCs, Ortega called the liberal opposition and dissident Sandinistas "rabid dogs," and he directed aggressive insults at the media, whom he termed "pieces of trash."

Political onlookers believe that Ortega’s poor handling of these and other matters has paved the way for an alliance of opposition parties, which could materialize this year, before municipal elections. That would be good news, say many onlookers. Three opposition parties formed a “bloc against the dictator'' in November and delayed approving his 2008 budget.

The country’s economic outlook is also worrying. With a population of 5.7 million people, Nicaragua had the lowest rate of growth in Central America in 2007: 3.5% as opposed to the 4.7% the government had predicted. The annual inflation rate was over 14%, the highest in the last decade.

This inflation rate increase was due in part to an increase in the international price of oil, say economists. Other reasons include the low training level of the workforce; not enough public investment; a Judiciary that remains politicized; a lack of transparency in Venezuelan aid; and fragile democratic institutions.

Ortega did not create the 100,000 jobs needed to absorb the labor force. And despite his violent attacks on "wild capitalism," he signed an agreement with the International Monetary Fund (IMF) that commits him to staying on the course set by the "oligarchic and imperialist" presidents that preceded him.

Ortega has defended the new deal with the IMF by noting that it includes "a social commitment to the poor," but critics have said that the government does not have the tools to fulfill its promise of social justice.

The Nicaraguan president did not launch plans this year to distribute Venezuelan loans to thousands of poor farmers, as promised. Instead, Hurricane Felix worsened the lot of the country's agricultural sector, leaving more than 200,000 peasants homeless and doing irreparable environmental damage in northeastern Nicaragua.

An offer from Venezuelan President Hugo Chávez to build a $4 billion oil refinery also appears to have been set aside…for now…in light of Ortega's move to seek an agreement with the multinational Esso to process the 10 million barrels of Venezuelan crude oil that Nicaragua expects to receive in 2008.

The successes: On the positive side, there were some successes in 2007. These include re-establishing free education and health services—and especially acquiring power plants from Venezuela that helped mitigate an energy crisis that would have led the country to economic collapse.

Ortega has met often with COSEP, the leading private business group in Nicaragua (similar to the U.S. Chamber of Commerce). During his campaign in 2006, Ortega promised to respect private property and meet Nicaragua's foreign and domestic public debt obligations. Leading businessmen in Nicaragua report that in his meetings with them, Ortega has been a model social democrat—very professional and straightforward—and has worked with them on steps that the government can take to create more private-sector jobs, such as creating free trade zones; negotiating additional free trade agreements with other South American countries; improving public infrastructure; and establishing private-sector investment banks.

Ortega reportedly has also been scrupulous to ensure Nicaraguan-government compliance with the CAFTA-DR agreement. From April 2006, when CAFTA was implemented, to December 2006, total trade with the U.S. was up nearly 20% over the same period in 2005.

Your Latin America Insider,

Suzan Haskins

P.S. What does all this mean to those of you who are considering relocating to and investing in Nicaragua? Friends who live there say Nicaragua is the same easy-going place it has been for the last decade. And, in fact, opportunities for investors are greater than ever.

The uncertainties of Ortega’s reign have caused real estate prices to drop—yet, as the Los Angeles Times reported about Nicaragua on Sunday, “With prices along its Pacific Riviera one-fifth of those in already discovered Costa Rica, a 45-minute drive to the south…the second-home market is now mirroring the first wave of Costa Rican real estate investments by North Americans 20 years ago.” In this same article: “Nicaragua is reportedly the safest of all Central American countries today, according to a study by INCAE, the Harvard Business School affiliate in Managua, and strongly encourages tourism and foreign investment."