Ortega’s economic failure

Buckle up: Daniel Ortega and Rosario Murillo
photo/ Tim Rogers

Buckle up: Daniel Ortega and Rosario Murillo

Daniel Ortega started his government in 2007 with the best macroeconomic conditions of any other Nicaraguan president in the past three decades.

In effect, at the start of 2007 there was no fiscal deficit; inflation had been reduced to a single digit; private investment was growing — modestly, albeit, but consistently; there was an enormous number of public-works projects and disposable financing for those projects, mostly from multilateral financial institutions; the gigantic foreign debt had been reduced, thanks to debt restructuring and forgiveness that started during the government of Violeta Chamorro (to the point where in the new era of Ortega government the debt payments were around 8% of the national budget); and the economy was growing at a rate near 5% annually.

In addition to these excellent macroeconomic conditions, Ortega won the “powerball” in two lotteries. The first lottery was that of Venezuelan aid, which represented on average $600 million annually, or 7% of the GDP. And given the reduced payments owed on the foreign debt, the Venezuelan aid meant Ortega was receiving more net foreign aid per capita than any other previous government, which is not a small thing. The second lottery that Ortega won was — for the first time in our history — we had a synchronized boom in the prices of all our export commodities, which translated into extraordinary income for our country and its producers.

Nicaragua was also a country with enormous levels of backwardness, especially in terms of poverty, the informality of the economy, low productivity and low salaries, and also limitations in the in the coverage and quality of education and health. Ortega inherited a country in conditions that would have allowed him to attack these problems at their core, but he hasn’t done that at all.

There is no doubt that Ortega has been very successful in concentrating power. In terms of his project of power for power, power for money, and by power for power, he has been extremely successful. But that’s the extent of his success. In terms of economic growth, Nicaragua is registering growth only a few tenths of a percentage point above the growth of the three years previous to his government. So removing all the structural obstacles to development, the government of Ortega has been a total failure.

We have to say it how it is, because there are apologists for Orteguismo who, in a veiled way in public and openly in private, peddle the idea that the “democratic cost” of Ortega’s government doesn’t matter because at the end of the day the economy is doing fine.

Well, actually it’s not doing fine. Economist Adolfo Acevedo this week published in La Prensa an article in which he argues that, based on the last annual report from the Central Bank, the past seven years of the Ortega government have shown a dramatic drop in private investment, from 26% of the GDP in 2007 to 16.2% of the GDP in 2013. That is a plummet, not a just a dip.

On one hand foreign private investment has grown, from 5.3% of the GDP to 8.5%; so the the plummet in total private investment is explained by the fact that national private investment dropped from 20.7% of the GDP to only 7.7%.

As national private investment plummets, foreign private investment grows — and that’s because sometimes they disguise national investment as international investment to protect themselves, because investors don’t have the same protections or guarantees as national investors. National private investment is totally exposed and vulnerable to the arbitrary actions of Ortega.

If we are going to call things as they are, the dramatic plummet in national private investment can be explained preciously by the lack of judicial and political confidence that investors have in the Ortega government. Institutionalism has been deteriorated. In other words, we are already seeing the “economic costs” and the “democratic costs” of the Ortega government.

Without private investment, productivity will not improve

In this context, it is no surprise that the last report published by the Nicaraguan Foundation for Economic and Social Development (FUNIDES) shows the low levels of productivity by our national economy — something that hasn’t changed.

If private investment had grown instead of plummeted, without a doubt there would be better levels of productivity; new investment is normally associated with improvements in technology, and with better technology comes better productivity.

Low productivity, especially in the agricultural sector, explains why salaries are so low. Simply, with low productivity businesses, regardless of how big they are, cannot afford to pay workers more.

This is another angle of the failure of the Ortega government. Real salaries, which were growing modestly before, have also plummeted. But this will be a topic for another article. I can only ask: If private investment has plummeted, and salaries have also fallen, who really is benefiting from the Ortega government?

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