The Problem of neoliberalism

Nicaragua’s foreign debt and reconstruction: reality, myths and opportunism

The challenge presented by the National Plan

News Briefs

THE PROBLEM OF NEOLIBERALISM 

To understand the "neoliberal" problem, one must examine what the welfare state is and what it means. Since the 1920’s an economic model in which state intervention is a key factor was imposed upon capitalist economies. The other economically dominant model —that which was predominant in the USSR and, after 1945, in Eastern Europe— involved the state as the exclusive administrator of the economy. In this scheme of things, after the 1920’s, the economic ideas coming from the liberal mode of thought —and the realities which they upheld— disappeared from the socio-economic scenario: on the one hand were the societies of the capitalist system with regulated (or which suffered intervention from) the state; on the other were the "real socialisms" whose economies revolved around the state.

The welfare models became, from the moment at which they were in place, into a mechanism for confronting the severe crisis which the capitalist countries suffered after the First World War and which continued until the end of the Second World War (1945). For economists concerned with the examination of this period, classical capitalism characterized by free competition, adjusted by forces at play in the market, could not maintain itself alone. This is to say that the market —as the Great Depression of 1929/30 showed— became incapable of self-regulation and was left to the free play of unforeseen forces which produced intermittent crises. It was, therefore, necessary to introduce a regulating mechanism. The principal theoretical proponent of this economic formulation was J.M. Keynes, who was concerned with the impact of the crisis in employment and income. Keynes’s ideas gave way to the so-called "Keynesian revolution". And so his proposal for creating a better and reformed capitalism found proponents not only in other intellectual figures but also in politicians and businessmen who quickly took up the task of implementing the Keynesian "recipes". A series of precepts, which provided their own profile for the welfare models, emerged from the confluence of these theoretical offerings.

Those precepts can be summarized as follows: (1) state intervention in the economy in order to maintain full employment or, at least, guarantee a high level of employment; (2) public support and financing of a series of universal social services, including transferences to cover the basic human needs of citizens in a complex and changing society. "Universal" in this sense means that the social services were aimed at all species of revenues, and, in order for these to be available, no kind of income control was necessary. These services have as their objective, the provision of social security in the broadest sense; (3) State responsibility for the maintenance of a minimal level of living standard, understood as a social right —that is to say, not as public charity for a minority, but as a problem of collective responsibility towards the citizens of a modern and democratic national community.

On the basis of these premises converted into parameters of economic, political and social action were built social coordinates which, in the best implementation, were politically stable, democratic and with levels of social equality never before seen in any capitalist society. Although welfare state models were successfully imposed on Western Europe and North America (United States and Canada), it was the Scandinavian countries which exhibited the best successes. Among these, Sweden became the paradigm of the welfare state.

The Swedish model functioned successfully for almost thirty years. It was the obligatory referent for other governments engaged in constructing and/or maintaining welfare models. The Swedish model, however, was incapable of withstanding the rise in petroleum prices of the 1970’s which also caused a severe crisis in the world economy. The economic crisis of the 1970’s laid bare the limitations not only of the Swedish model, but of the welfare state model in general. Criticism was not long in coming and the major part of it was drawn up by prestigious economic schools of thought in the U.S., English and German universities. These economic drafts were what provided —and still provide—sustenance for the "new" economic liberalism. Other critics, closer to the cultural problems, moved towards neo-conservatism.

Neoliberalism poses as a priority the "rescuing" of the market from the state. For this reason its principal exponents developed master plans which would permit this to take place. It was a question of taking the welfare state apart, and, in accordance with this, formulating a program of economic reforms which were converted into government policy —the so-called neoliberal governments, one of the best expressions of which was the government of Margaret Thatcher in England— as well as the policies of international financial organisms such as the World Bank and the International Monetary Fund, whose proposal was, and is, to encourage the implementations of strong competitive economies in the context of globalization.

Here are three of the basic postulates of Neoliberalism: (1) the rejection of state intervention in the economy, be it welfare state intervention or that of "real socialism"; (2) unlimited defense of the market as the exclusive mechanism of economic regulation and (3) defense and promotion of economic competition as the maximizing instrument of economic development. From these postulates are derived a series of measures which can be grouped together under the following categories: (a) measures to make the state smaller and more efficient: reduction of the state; (b) the elimination of tariffs on imports: commercial aperture; (c) measures to make the economy more efficient: structural adjustment.

In summary, Neoliberalism as a program of economic reform is not focussed on metaphysical, anthropological or cultural parameters: what is proposed is to free the market from those elements which obstruct it, and among these is state control. It is a program which proposes to become a conjuncture of economic policies to be adopted by public and private administrative teams.

NICARAGUA’S FOREIGN DEBT AND RECONSTRUCTION: REALITY, MYTHS AND OPPORTUNISM

The project most cherished by the government of Nicaragua before hurricane ‘Mitch" was the entry of Nicaragua into the HIPC initiative. Now, however, with "Mitch", this dream may come true in 1990, the year before it was to have come to pass. One must, however, be clear, that the official dream cannot give rise to excessive optimism. The HIPC initiative means, in essence, that those to whom Nicaragua owes money, will adapt the foreign debt of the country so that it coincides with its ability to pay. The initiative, fundamentally, does not seek to pardon; what is sought is that we should pay.

This initiative does not directly seek development, nor does it guarantee it. It does not offer a clear benefit which will have repercussions on a freeing up of resources so that they might be invested in development. And now, even within the initiative, the weight of our financial obligations will always be considerable in relation to the size of our economy. To this must be added the system’s own cycle: if we pay, it is, in reality, because we have external income which permits us to pay. But nothing guarantees that the reduction of the debt is on a par with the increase in our foreign income. It may be that this will diminish.

Nicaragua’s foreign debt rose to 12,987 million dollars when the FSLN lost power in 1990. This amount represented approximately 6.8 times what the country produced in a whole year. From 1990 to 1997, the Chamorro government succeeded in winning important concessions on payment of the debt and reduced it by more than half. During this period, the countries which distinguished themselves in alleviating the Nicaraguan debt were Russia, which pardoned 3,099 million dollars, and Mexico, which pardoned 1,065.7 million dollars. These two countries pardoned a greater amount of debt than that pardoned by all of the members of the Paris Club together during this same period. These countries, the richest in the world, pardoned a total of 1,027.2 million dollars.

After 1997, Nicaragua began to seek entry into the HIPC initiative which arose from the Paris Club. The initiative proposes to reduce the foreign debt which Nicaragua owes to these countries by 80%, but on two conditions: that Nicaragua comply with certain measures established previously in accordance with structural adjustment (ESAF, for its initials in Spanish) and that Nicaragua succeed in convincing her other creditors to pardon debts with them as well, at least in the same percentage amount of 80%.

"Mitch" made it impossible for the liberal government to comply with the measures, which had been proposed within ESAF. Our creditors know that, even without the hurricane, it would have been difficult to achieve this, especially with reference to the level of international reserves demanded by the IMF. This is owing to the heavy lack of equilibrium existing in Nicaragua’s balance of payments, in which imports represent more than double the amount of exports.

With regard to the second condition imposed for entry into the HIPC initiative, there are more numbers to be considered. Before the hurricane, Nicaragua’s debt was 6,076.3 million dollars and it was distributed in the following manner: 28% was a debt with the multilateral organisms, 25% was a debt with the countries of the Paris Club, 17% a debt with Central American countries, 12% with ex socialist countries, 8% with the rest of the Latin American countries, 5% with the commercial bank and 1% a debt with various providers.

What is owing to the Paris Club countries represents only a fourth of Nicaragua’s foreign debt. So it is that, if Nicaragua entered right now into the HIPC, it would still owe a debt of 4,778.2 million dollars. This is the first myth that must be laid aside: the pardoning of 80% of the debt with the Paris Club does not represent the canceling of 80% of the whole foreign debt

Even should Nicaragua succeed in negotiating with the rest of its creditors —in order to achieve the condition which would permit its entry into the HIPC—, its debt would be reduced to 1,215.3 million dollars, which represents two years of the total of national exports. Annual interests would have to be paid on this amount which, for its presence inside the initiative, would be adjusted so that it does not represent more than 20% of the total of these exports. Although this may be qualified as a success, the amount would still be onerous for our small economy.

Nicaragua still has not negotiated with the rest of the countries to whom it owes but who do not belong to the Paris Club. Why has it not done so? Because the debt which it negotiates would become a "priority debt" and this would signify that payment of interests would be obligatory. On the other hand, it is erroneous to think that Nicaragua has been paying all along during all of these years to all of its creditors. As with most debtors with problems, it prioritizes those countries or organisms which may continue lending, and is in no hurry to pay those who will not give any more money. At the end of 1997. Nicaragua had accumulated 774.7 million in back interests.

Because of all of this, in the case of Nicaragua —and probably in the case of the rest of the countries seeking entry into the HIPC—, with levels of imports which almost double the level of exports, it is difficult to be truly solvent with the pardoning of 80% of a fourth of the debt.

Another myth which must be exploded is that of thinking that Nicaragua is paying its debt with its own resources. The government has had sufficient success in the internal equilibrium, controlling the fiscal deficit and earmarking almost 20% of the national budget to the payment of the external debt. All of this in order to comply with the conditions imposed by the structural adjustment program. But this success would not have been possible if Nicaragua had not received, during recent years, donations in order to cancel almost half of what it pays to cover its foreign debt.

In 1998, the government thought to pay 208.8 million dollars to service its foreign debt: 121.5 million to amortize capital and 87.9 million in interests. In a parallel way, it was programmed to receive, in this year when "Mitch" affected us, 106.9 million dollars in the form of donations from the international community. Of these, 30 million were liquid resources to pay the debt and to cover the deficit in the balance of payments. Another 78.9 millions would be received in resources earmarked to specific projects, and, although this type of donation was not directed towards the payment of the debt, it would permit the freeing up of its own resources so that it could make interest payments. Additionally, the government negotiated concessionaire loans in the amount of 351.l million dollars, of which it hoped to receive 168.9 million in liquid resources and 183.l million in earmarked resources. Totaling up the liquid resources received from the international community, we discover that of these over 95% of Nicaragua’s service to its foreign debt.

Its entry into the HIPC initiative and the pardoning of the debt in this way could mean even a loss of the donated resources and the concessionaire loans which Nicaragua receives, which means that it would begin to be able to confront the same level of debt service payments on the debt, but would have to use its own resources for this. To win the pardoning of the Paris Club debt without obtaining new concessionaire loans and donations could place Nicaragua in a very disadvantageous situation.

It is like a circle where the end is the new beginning. A pardon is received so that we can continue making payments. We pay with what is lent to us and we borrow so that we may continue paying. It must be understood that the foreign debt is not a problem of amounts of money, but is, rather, essentially, a mechanism which the North has for maintaining the economies of the South under its control.

The pardoning of the debt is necessary and very important, but it is not sufficient. At this moment, it is more important that Nicaragua continue to obtain new resources at low costs in order to reconstruct and reactivate the economy, especially that of rural Nicaragua which was devastated by the hurricane. It is for these reasons that the government of Nicaragua, together with the rest of the Central American governments, went to Washington to meet with the Consultative Group.

But the opportunity to obtain new resources for the country has revealed, as well, flagrant opportunism. The reconstruction program which the government of Nicaragua presented to Washington, for a total cost of 1,520 million dollars —which represents almost a year’s economic activity for the country—, includes a central component of modernization of the highway and energy infrastructure of the country. The cost of the investment for modernizing these two sectors—is more than 1,000 million dollars and represents more than two thirds of the total cost of the program.

It is evident that the government tried to take advantage of the new state of affairs which resulted from the "Mitch" disaster in order to obtain private, national and foreign investment to modernize its infrastructure and make it more efficient. One clear example of this official "opportunism" is the following: between the projects for "reconstruction" is included the widening of a four-lane highway between Managua and Masaya, the principal commercial artery of the country, not an inch of which was damaged by "Mitch".

The magnitude of the program for modernizing the highway infrastructure indicates that the government will administer an amount without precedent, of extraordinary resources and which national construction enterprises —some of which are the property of high-level functionaries of the liberal government and big businessmen allied to the President, and others with Sandinista big businessmen— will enjoy the possibility of obtaining large benefits never imagined before the passing of "Mitch".

This promising package for the construction industry is even greater, considering that the government has included in its construction program some 41,000 homes, for a total value of 204 million dollars and the construction of almost 100 health clinics and more than 300 schools, for a total amount of 100 million dollars. The sharing out of the benefits of this "boom" in reconstruction is crucial and underlies the political negotiation between the FSLN and the government. One should not forget that it was as a result of the earthquake which destroyed Managua in 1972 that powerful national construction enterprises were developed and these were closely linked to the principal functionaries of the Somoza dictatorship.

The contrast between the damages caused by the hurricane to the peasant economy of the poorest zones of the country and the project for the modernization by business enterprises presented to the government as a "national reconstruction" program reveal the cruelest and clearest signs of opportunism to date. The government does not have —does not wish to have?— a program for the rehabilitation of the peasant economy and uses the human and ecological tragedy occasioned by "Mitch" to consolidate a projects for the country which continue to exclude the peasants.

All of this clearly indicates that neither the reconstruction proposed in Washington us what Nicaragua demands, nor the consensus which it needs at this point in time is the pact between Daniel Ortega and Arnoldo Alemán, two leaders who represent neither the interests nor the aspirations of the majority of all Nicaraguans.

_____________________________

This article is presented by "Equipo Envío" from Nicaragua.

THE CHALLENGE PRESENTED BY THE NATIONAL PLAN

The consultation with the citizenry concerning the Bases for the National Plan is now at a very advanced stage. The development of the nineteen specialized workshops and the process for consultation by means of workshops in the fourteen departments of the republic has almost come to a close. The National Commission for Development and the Administrative Group prepared themselves —above all, the first, because, little is known abut the second— in order to present, at the beginning of next year, the preliminary results of this considerable new effort carried out at a national level.

This process, however, has already presented information, which demonstrates that the work has not been easy. In the case of the process for consulting by means of specialized workshops, there have been situations in which the topic at hand has had to be divided because of difficulties in finding a common way in the discussions; it is also the case that situations have not been lacking in which some people have become annoyed for not having been invited to participate in the process, at the same time that others have committed themselves to attend and have not participated. It is even public knowledge that there have been difficulties for those in charge of the process in making legible and concrete all of the conclusions and recommendations generated at these workshops. The results, however, of these workshops with a specialized character, still have not been made available to the public.

What have been made public, with regard to this phase of the consultation, are the results of the workshops and departmental assemblies corresponding to the level of Citizen Participation within the plan for consultation carried out by the National Commission on Development and the administrative groups. These results warrant a particular commentary. The process of consultations has revealed interesting results: a definition of the principal problems which affect Salvadorans in each one of the departments. Those in charge of the process have defined twelve problems in all, which are, in some manner, repeated throughout the major part of the country’s regions, among which —in the opinion of those in charge— six may be said to be outstanding: unemployment, delinquency, education, the problem of agriculture, poverty, scarcity of natural resources.

Nevertheless, the greater part of the problems which arise from the workshops are not new, nor is it a novelty to mention them as the public opinion of Salvadorans. In fact, several of these fundamental problems: unemployment, delinquency, poverty, education and natural resources have been present in the results of the public opinion polls conducted by IUDOP since the last decade. The first three are especially to be mentioned. In spite of the political changes which the country has experienced since the last decade, Salvadorans have not substantially changed their perception about the situations which most concern and trouble them. Unemployment, poverty and the high cost of living are the central concerns about the national and domestic economy. In the past, political violence; in the present, gang delinquency, are the referents of a violence that seems never to end. The manifestation of these same problems during the process of departmental consultation only reiterate their continued existence and provide evidence of the need to discuss sooner rather than later the possible alternatives to solution.

The clear coincidence between what is obtained by means of these citizen consultations concerning the Bases for the National Plan and the results of the public opinion polls only shows the importance of these mechanisms for participation by the citizenry so as to indicate what its problems are and so that it can make evident the need for solution to these problems; moreover it reveals the consistency of these concerns of the citizenry which appear in every area open for discussion. All in all, there is an additional value to be obtained from this effort to consult carried out on the basis of the initiative of the Bases for a National Plan. But because of the more formal and institutional process, the consultation itself has taken on a singular importance. The fact of listening to the population, or said in a more appropriate way, the fact that the population feels that it has been listened to.

One of the most frequently heard responses in the public opinion polls concerning what the country needs for the future is not the need for a national plan or a consensus between the principal political forces (these opinions are held by more than 15% in each case), it is something more basic, more fundamental: the need to listen to the population. In accordance with the last poll held by the University Institute for Public Opinion, more than 55% of those consulted affirmed that the most important thing in order to resolve the problems of the country was to listen to the citizens. At bottom, and, in spite of the possible local difficulties, the positive reception which these departmental workshops seem to have had as they were carried out during earlier months demonstrates that the expectations which this methodology generates is that it involves the citizens themselves in the debate about the problems which most affect them. As has been pointed out above, and without underestimating the results of the workshops, perhaps the fundamental value of this effort has not been to define the problems affecting the population in each of the departments—in some way the greater part of these have already been defined by the polls—, the fundamental value has been the exercise of citizen participation in the definition of these problems; the fact that an institutional body has carried out the consultations constitutes their basic and most important merit.

The better part of these expectations which the initiative for the National Plan has generated and maintained is rooted in that exercise, not in the discovery of the problems. After these workshops, the feeling among many citizens who, historically, have not been taken into account is that they have finally been listened to and that this could be the beginning of the changes so hoped for which might provide solutions to the problems of the country. These expectations, above all as they refer to the compliance with the recommendations coming out of the discussions, now represent the greatest challenge for those who carry out the process and for Salvadoran society as a whole. Behind the possibility of resolving problems encountered is found the commitment of those who have the capacity to change things.

There is, however, worrisome news with respect to the possibility of confronting and successfully responding to this challenge. One of the Commission members recently pointed out that during an interview that the power elite of the country resist change and that there are no guarantees that these elites will commit themselves to the results of the process. Should this be the case, the achievement obtained with citizen participation in the draft of a nation in the coming future will be useless. Little is known of the advance of the work of the Commission at a political level, and, to judge by the low profile of the Administrative Group, this could be an indicator of the great difficulties to be confronted in order for the elites of the country to be involved in this effort. Citizen pressure, certainly, can be an important factor for obliging the most reactionary sectors to commit themselves, but the capacity of civil society should not be overestimated given that it is not sufficiently organized to confront the sectors which habitually act with proven consistency when they perceive that their privileges are threatened.

Those in charge of the process of the National Plan ought not to underestimate the lack of commitment of the politicians and the elites; this country —especially the majority of it— cannot allow itself the luxury of renewed frustration and an increase in disenchantment with the institutions of the country. Expectations arising from the National Plan ought to be the center of commitment for all Salvadorans, especially the elites. Otherwise, this effort will have been in vain.

PARTIES. According to the most recent poll conducted by LA PRENSA GRAFICA-UNIMER, the support ARENA can count on for the next elections is double that of the FMLN. The opinion poll, conducted between November 17 and 25, revealed that ARENA holds the advantage of 23.5 points over the left party. This is to say, 39.6% of the voters support ARENA and 16.1% support the FMLN. Those polled thought that ARENA had a "better people team to govern with", for which they consider it convenient that that party might continue in office. ARENA members’ strong point is the youngest segment of the voting population, given that 55.9% of persons between 18 and 24 years of age think that this party has people who are more apt for government. For the FMLN, what is outstanding is the 80% support of those from Ahuachapán, while ARENA can count on the support of 53.9% of those from Cabanas. In third place according to preference is the PDC and the PCN. Some 1.2% of those interviewed are members of the PDC and 0.5% believe that the PCN members are most apt for government. The poll also revealed that the citizens are demonstrating a greater willingness to vote. Some 4l.6% are entirely sure of who they will vote for; 29% said that are sure; 16.8% have doubts about whether they will vote, while 7.6% said they will not vote (LA PRENSA GRAFICA, December 14, p. 4-5).

TAXES. With the aim of finally applying a municipal tax rate, the capital city mayor, Dr. Héctor Silva and the Association for Private Enterprise (ANEP) held a meeting on December 11 in order to discuss matters concerning this topic. ANEP says it has a proposal it is working on. "It is a short-term proposal. It is still not completely up to date as to its viability; we are analyzing it", stated ANEP leader, Mr. Arnoldo Jimenez. The only thing known about this proposal is that it contains propositions made public by International Development Agency (AID) advisor Mr. Mark Gallagher, under contract to analyze the municipal tax system. It is known that ANEP has declared that the mayor’s office plans involve "confiscations". Businessmen are sure that the taxes are passed on in a cascade effect and, if the mayor’s office tax proposal were approved, businesses would increase prices to the consumer. Dr. Silva, for his part, said that he is disposed to be flexible about the tax rates —of 0.35%— which aim to tax different businesses; nevertheless, he affirmed that the only unacceptable thing is "the regressive nature of the current tables". Another meeting between ANEP and the mayor’s office has been programmed for the penultimate week of December (EL DIARIO DE HOY, December 12, p. 8).