POLICY ANALYSIS: External Debt in Nicaragua
April 2nd, 2008
did not go to school today. She is seven years-old, standing among speeding
cars at a busy Managua intersection, selling chewing gum. On a good day,
Marta will make $1 to contribute to her family's income, still not enough
for her to go to school or pay for medical treatment. While Marta makes
pennies working at intersections, she, like other Nicaraguans, owes $1,400
to her country's wealthy foreign creditors.
faces the reality of Nicaragua´s poverty each day, living in a country
-over 50% of the population earns less than $1 a day
-80% of the country lives in poverty
-62% of the population is under and unemployed
-over 50% of school age children do not attend class, and 34% of
the urban population is illiterate
-one of three children is malnourished
the country with the largest per-capita debt in the world, Nicaraguans
bear the personal burden of their country's external debt. Instead of
spending money on health care, education, infrastructure, and other social
services, Nicaragua must put its resources toward paying back its debt,
meanwhile taking out even more loans.
debt currently stands at 6.7 billion dollars.
- 25% of the Nicaraguan budget is spent on debt payments each year
-14% on health care
-11% on education
relies on loans from multi-lateral lenders like the IMF and World Bank
to supplement the national budget and economy. Since Nicaragua does not
earn enough income to support its bare-bones budget each-year it must
rely on foreign loans to make ends meet. The IMF and World Bank operate
around the idea that capital from macroeconomic growth will "trickle
down" to eventually benefit the poor majority. But while Nicaragua's
macroeconomic indicators have show growth as foreign investment increases,
its human development indicators keep getting worse, thanks to IMF and
World Bank imposed Structural Adjustment Programs (SAPs a.k.a. ESAFs or
PRGFs). Structural Adjustment Programs were designed by the IMF and World
Bank to help poor countries "reactivate" their economies and
make their debt payments, by prioritizing exports and redefining the role
of the state. SAP's were not designed to reduce the debt that a country
owes, but to help them make their payments on time. The Nicaraguan people
are paying its debt time and time again through Structural Adjustment
Adjustment Programs Devastate Nicaragua´s Poor by:
Reducing the Size of the State. Nicaragua is forced to privatize state-owned
enterprises like telecommunications, electric, and water companies. Privatization
eliminates an important long-term source of income for the Nicaraguan
government, but creates a one-time sum of cash that Nicaragua will use
to make debt service payments and carry out structural adjustment programs.
After "downsizing" state-owned companies to be efficient enough
to sell, which includes massive layoffs of state employees, and huge increases
in rates, state owned companies often sell out at rock bottom prices to
transnational corporations. During the downsizing phase of the electric
company, electricity rates rose 62% for Nicaraguan´s, while the
transnational investors got a bargain on the sale of this state service.
the Government Budget. Nicaragua´s current budget deficit is 318
million dollars. To balance the budget, Nicaragua has to reduce social
spending on services such as health, education, and environmental protection.
For every $1 spent on health care, Nicaragua spends $5 on debt service
the Economy. SAPs force countries to modify their laws to attract foreign
investment by removing trade tariffs, eliminating subsidies and price
controls, and devaluing the national currency and privatizing state banks.
These policies hurt small and local producers, by shifting agricultural
production to prioritize export crops, which rely on the fickle international
market and demands for Nicaraguan export goods in the North. Fewer government
controls results in the exploitation of natural resources, and less attention
to labor rights. As a result of SAP policies that seek to attract foreign
investment and promote macroeconomic growth, Nicaragua's Free Trade Zone
is rapidly growing, where workers make the second lowest wage in the Hemisphere.
Who is behind the
IMF and World Bank?
The International Monetary Fund (IMF) and World Bank are headquartered
in Washington D.C. Even though the World Bank has more than 170 member
countries, most of whom are poor developing countries with external debts,
rich countries like the United States have decision-making power within
the World Bank and IMF. Unlike the United Nations that uses a one-country,
one-vote system, for the IMF and World Bank, a country's voting power
is determined by that country's contribution to the institution. The United
States holds over 17% of the vote in both institutions. Given that 85%
of the vote is needed to make decisions at the IMF and World Bank, the
U.S. effectively has veto power within both institutions.
Day Older and Deeper In Debt: Nicaragua's Cycle of Debt
Nicaragua is a bankrupt country that has entered into an endless cycle
of debt that keeps the people of Nicaragua impoverished. Because Nicaragua
doesn't have enough money in the bank to make its debt payments, it has
to take out even more loans and go further into debt, while leaving the
social sector without a cent. Nicaragua is paying back an unpayable debt
by sacrificing its citizens to IMF and World Bank imposed Structural Adjustment
Programs. Until Nicaragua is relieved of its debt burden, its people and
government will not have the freedom to make real choices about their
desired course for development, and take steps to climb out of poverty.
The Oxygen Mask
to the Poor: HIPC
The IMF and World Bank have offered an oxygen mask to a suffocating country:
the Highly Indebted Poor Countries (HIPC) initiative, which keeps Nicaragua
locked into the same cycle of debt. At its culmination, the HIPC initiative
will reduce Nicaragua's debt by $3.5 billion dollars. Under HIPC Nicaragua's
debt and debt payments will be made more "sustainable"-in other
words, the IMF and World Bank will keep receiving their payments on time.
To complete the HIPC initiative, Nicaragua will undergo another series
of stringent Structural Adjustment policies, including the completion
of the privatization of state enterprises such as electricity, water,
and telephone service.