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  • Foto del escritorMarco Aurelio Peña

The anti-economics of Sandinismo

Nicaragua años 80
A supermarket undersupplied in the 1980s. // Photo: La Prensa

“A revolutionary would only have to distor the price mechanism to cause an economic crisis”

Paul Samuelson, Nobel Prize in Economics 1970

Sandinismo has consistently caused immeasurable harm whenever in power rather than good. In June 1979, opposition forces to the Somoza regime agreed on a program in Puntarenas, Costa Rica, where they decided to form a national reconstruction government and strategic guidelines for the revolutionary process after taking power, namely: i. Political pluralism; ii. Mixed economy; and iii. Non-alignment in foreign policy. Ultimately, the Sandinista National Liberation Front (FSLN) prevailed in the political scene and none of the mentioned guidelines, particularly that of a mixed economy, were fulfilled. The economy under the revolutionary government was steered towards statism with strict controls on domestic and foreign trade, nationalization of the financial system, and implementation of central planning policies akin to those of the communist bloc (Cuba, East Germany, Soviet Union). While modern economics already advocated for prosperity through economic freedom, the ideological fervor of Sandinismo led the country down the "road to serfdom," in the words of austrian economist Friedrich Von Hayek, Nobel Prize in Economics 1974.

In the 1980s (the so-called "lost decade" for Latin America), Nicaragua experimented with its version of dirigisme or central planning with some room for private enterprise. The hegemonic party vision and alignment with the communist bloc led to conflicting relations with the United States, and top-down imposition of authoritarian policies inevitably spawned the civil war, finding in the middle class and peasantry the social bases of the guerrilla resistance known as the Contra (after the “Red Christmas massacre”, indigenous people from the Miskito community joined the Contra). The commercial and financial embargo decreed by the USA, in a context of global geopolitics defined by the Cold War and competing economic systems, was a determinant of shortages in Nicaraguan markets for inputs and goods, resulting in rationing and extensive queues for access to basic products. As some are more equal than others in a collectivist regime, ordinary people queued for their AFA packages (rice, beans, and sugar) in an atmosphere of extreme scarcity, while the olive-green elite enjoyed the best consumer and luxury goods, luxuries that were the target of their speeches against the "odious bourgeois class."

Nicaraguans lining up to access basic products in the 80s. // Photo: taken from the internet

 The anti-economy of Sandinismo placed the country at the forefront of negative economic and financial statistics in the region with an economic cabinet adept at worsening things. In 1989, external public debt was 940.0% more than the gross domestic product in US$ of that year. Productively, the country suffered a delay of ≥ 15 years. The expansion of the state apparatus increased the number of jobs in the public sector, resulting in surplus bureaucracy, military personnel, and state security agents; which, in marginal terms, generated surplus fictitious labor which is nothing but unproductive work. Public finances became unsustainable by burdening the expenditure budget with an inefficient state apparatus and an unfavorable climate for reactivating the economic system through market forces given the statist and paternalistic political orientation.

From 1984 to 1989, the economy of the Central American country entered a devastating phase of stagflation (stagnation + inflation) with 6 consecutive periods of negative economic growth rates, registering in 1988 the deepest fall in total product with -12.4%. Economic recesion became chronic, informal employment skyrocketed, and private sector employment contracted. In 1977, per capita income had reached US$753; in contrast, by 1989, the same indicator decreased to just US$252 per inhabitant. Annual inflation for 1988 reached 33,548.0%. A total madness! The hyperinflationary spiral was uncontrollable with the issuance of inorganic money (printing paper currency’s without backing in production). It was like trying to put out a fire by pouring fuel.

Billete Nicaragua
Córdobas re-stamped during the 1980s. // Photo: taken from the internet.

The average annual inflation between 1985 and 1991 was unbelievably 7,415.0%, a situation as critical as a person surviving 7 years with extremely high blood pressure and not just ineffective but contraindicated treatment. Bureaucratic and political impulses to cover the fiscal deficit (given the wastefulness around public spending) led to excesses of printing money, worsening monetary imbalances. Mega-devaluations plummeted the value of the córdoba and the exchange rate in the black/free market reflected the absolute distrust of Nicaraguans in their legal tender. De facto dollarization intensified as the US dollar became a freely convertible currency, conventionally accepted and internationally used. On January 4, 1988, the official exchange rate was C$70xUS$1; the parallel rate was C$20,000xUS$1 and in the black/free market it was C$45,000xUS$1. In this “millions party” an ice cream could cost ≈ C$500,000. Purchasing power exponentially deteriorated. In this recessive phase of the economic cycle, the leadership and technical team of the central bank failed miserably—as did the economic cabinet—in their institutional mission to maintain monetary stability because the generalized rise in all prices was extremely high and unstable.

Operación Berta Nicaragua
The first Sandinista government announces a “new Córdoba”. // Photo: Nicas en el Exterior News.

With the execution of "Operation Berta" or the monetary conversion law approved on February 14, 1988 (a disastrous monetary reform in the region), the Sandinista establishment planned to deprive the Counterrevolution of financial resources, punish commercial speculation, and stabilize the monetary sector. The stabilization objectives were not met, and the national demonetization plan with "Operation Berta" (change of currency from C$1,000 old to C$1 new) massively confiscated money, decapitalized companies, and evaporated personal savings. Sandinistas who had access to confidential information about the operation before its execution rushed to get rid of paper money to acquire non-financial, real, and tangible assets (merchandise, raw materials, lands, vehicles, etc.). The saver lost his life savings, the producer lost working capital, and the merchant was left with sacks of bills after observing extraordinary sales in their business until February 13, 1988.

The inefficiencies of the so-called “área propiedad del pueblo” (APP) enterprises, the legal chaos of agrarian reform, and the poor results of the collectivist organization of peasant production determined mediocre economic outcomes. Cooperativism did not have the success observed in Costa Rica, whose governmental class, after the 1948 revolution, abolished the army, did not quarrel with the USA, and its policy of social guarantees was supported by the spirit of entrepreneurship as a development factor. With an ideological climate adverse to free enterprise, meritocracy, and price fixing in a market economy, private investment was discouraged, the middle class was strangled, and the average Nicaraguan's standard of living plummeted. Logically, economic conditions were equalized downwards. Illegal trade, smuggling and street vendors appeared as a result of the pernicious interference of the state sector in the exchange of market goods and services that distorted relative prices.

The civil war was one of the negative supply shocks that dashed growth prospects. The opportunity cost of buying armaments instead of financing quality education was assumed. The human and economic costs of the civil war had an intergenerational impact and society had to make up for lost time. War economy in a small country, heavily dependent on external savings, invariably leads to ruin and is by no means a strategy to achieve high levels of employment and economic expansion from an armament industry as has happened in the United Kingdom, USA, Germany, Russia or Japan. This is especially true when a political and military revolution is achieved with claims of social change but without economic, technological or scientific revolution. In terms of progress, a revolution with arms is not comparable to a knowledge revolution. The states of political exaltation (claiming to the populist, romantic and heroic) without economic infrastructure end up being very costly, with the unfortunate outcome that the distribution of collective costs is very unequal between those who make decisions and those who suffer the decisions.

After 5 years of the promulgation of the Fundamental Statute (1979), which foresaw calling general elections, the first Sandinista administration led by Daniel Ortega and Sergio Ramírez (1985-1990), the red-black duo of the 2 junta governments (1979-1985), rapidly impoverished the country over the following 6 years. Senior officials like Henry Ruiz (Ministry of Planning), Dionisio Marenco (Ministry of Internal Trade, Ministry of Planning), and Joaquín Cuadra Chamorro (central bank), without being economists or having competent knowledge in Economic Science, were someones of the decision-makers who destroyed the finances of thousands of Nicaraguan families and businesses. In another country with democratic and institutional maturity, disastrous economic management would have ended the career of a public servant; in the Sandinista party, this was irrelevant, as party loyalty was rewarded with more positions and renewed plans to access power. As is often said, success has mothers and fathers, unfortunately, failure is an orphan. Life goes on.

After the electoral defeat suffered by the FSLN in 1990, it was confirmed that the commanders were not adherents of economic desinterest. They were far from being Sandinos who demanded not even a plot of land for their burial. Under the pretext of ensuring "the economic bases of the revolution," before handing over power to the elected government, the Sandinista establishment committed a large-scale embezzlement against public and private property, dubbed by the vox populi as "the piñata", one of the most infamous cases of "rent-seeking" in continental economic history.

Laws number 85, 86, and 88 ordered that possession was worth as title as a guarantee of agrarian reform and changes in land tenure, which was convenient for middle and high-ranking Sandinista leaders, military and civilians, who seized real estate, vehicles, furniture, companies, rice farms, cattle ranches, coffee businesses, among other assets, that had been confiscated from private individuals and/or were state property. Confiscations from the Somoza family and alleged Somoza followers were not transparently managed and were not subject to accountability by an autonomous entity: mansions, household items, jewelry and even works of art ended up in the hands of FSLN members.

Journalistic investigations of the time published properties and vehicles assigned to Sandinista officials and public servants by name. It is an open secret that several scandalous transfers were hidden with frontmen or strawmen. It is said that public institutions were even looted of office equipment (typewriters, desks, etc.). Subsequently, the Nicaraguan state assumed the debt of the Sandinista embezzlement through payment bonds for compensation, with several cases of corruption in the claims, valuation and compensation of confiscated assets. During the privatization policy in the first half of the 1990s, Sandinista unions demanded 30% participation in each privatized company, with which Sandinismo from the opposition continued to plunder the public treasury through its agitators. A journalistic investigation in 2018 reported that "the piñata" amounted to US$1.300 billion in internal public debt and annually allocating US$72 million the outstanding balance would be paid until 2033. This is without mentioning the highly lucrative business of the underground economy in the armed forces during the transition.

The economist and philosopher Karl Marx proposed in "Das Kapital" (1867) his controversial hypothesis of "primitive accumulation of capital" to explain that the origin of fortunes at the dawn of the capitalist mode of production in Europe had been expropriation, exploitation and violence (illegitimate and dishonest ways of acquiring property). The essential application of this hypothetical formulation is functional to describe the illicit origin of "magic" enrichment and the formation of capital by a Sandinista segment that had spent its time living at the expense of the treasury of a small agrarian economy, without having an entrepreneurial reputation or relevant labor history in the job market like any upright citizen. These individuals convinced themselves that the price of their suffering, their ambitions and their revolutionary job had to be paid by society as a whole; therefore, they had to be allowed to forcibly take everything they could because they had risked their lives for their loot, they deserved to live like feudal lords and no one should stand in their way of governing from below until their future return to power.

Revolution Nicaragua
The nine commanders of the Sandinista revolution. // Photo: La Prensa

This is the genesis of a group of Sandinistas who enriched themselves and capitalized in a way that was not the result of wage labor, professional careers or entrepreneurial talent in market transactions with clear rules and competition. If businessmen liked the concept of value, Sandinista leaders liked profit; only that instead of toiling hard like workers and peasants, they chose to milk others' cows, illegitimately seize the cows or confiscate the farm owners. Perhaps the political interpenetration between Sandinismo and conservatism (of Granada's creole patrician even) in its opposition to Somoza regime ended up arousing material appetites and high society tastes in several commanders of the National Directorate and the 3 tendencies. After all, if there is anything more concrete than class struggle, it is the struggle between clever and fools. The tragicomedy in the words of General Humberto Ortega saying that he "would not leave the army on a bicycle" was the egyptian omen of a future privileged caste or superclass that would concentrate economic, political and state power.

From a dialectical view of reality, it is humanly false that Sandinismo has taken heaven by storm, but it is economically true that they took everyone's well-being by storm... up to today.

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