The president of Nicaragua, Daniel Ortega, in the middle, embraces the Venezuelan leader Diosdado Cabello under the watchful eye of the First Lady Rosario Murillo during a celebration of the Sandinista Revolution in Managua, July 2013
This article forms part of the series "Persistent inequality: the controversial legacy of the pink tide in Latin America" produced in partnership with the Institute of Latin American Studies of the Institute of Sociology of the Freie Universität Berlin
In 1979 a popular uprising led by the Sandinista National Liberation Front (FSLN) overthrew the US-backed Somoza-family dictatorship which had ruled Nicaragua since the 1930s, and in 1984 the Sandinistas and their presidential candidate, Daniel Ortega, decisively won the country’s first free elections in decades.
The Sandinistas introduced a major programme of land redistribution and a significant expansion of public health care and education services.
However, initial gains were undermined under the impact of an armed opposition (“the contra”) organised and promoted by the US, a collapse of international raw material prices in the early 1980s, and Sandinista policy errors, including an over-ambitious programme of large-scale investments.
In 1990, a war weary population voted for a broad coalition led by Violeta Chamorro, the widow of a distinguished journalist murdered on Somoza’s orders.
Chamorro’s government pursued a policy of national reconciliation but, in order to obtain much needed finance, was required to adopt exceptionally austere economic policies by the International Monetary Fund.
Following a resumption of economic growth in the mid-1990s, elections in 1996 were won by a right-wing populist, Arnoldo Alemán, who was subsequently convicted to 10 years’ jail for corruption, and Alemán was followed in 2001 by his former vice-President, Enrique Bolaños, a fiercely anti-Sandinista business leader.
Following the Sandinista’s electoral defeat in 1990, many activists left the party as a result of dissatisfaction with Ortega’s leadership and the lack of internal party democracy.
Some formed the small breakaway Movement for Sandinista Renovation (MRS), while others became involved in local development projects and in building an independent women’s movement.
In 2006, however, the fractious liberal and conservative parties were unable to agree on a joint candidate for the presidential elections and this made it possible for Ortega, who had stood at every election since the 1980s, to win with a minority of the vote.
Despite a constitutional prohibition on consecutive terms in office, the electoral commission allowed Ortega to stand again for the presidency in 2011, and he was elected for a further term.
The Sandinista-dominated National Assembly subsequently voted on a constitutional change allowing consecutive terms, and in 2016 Ortega stood for the presidency yet again, this time with his wife, Rosario Murillo, as vice-presidential candidate.
Shortly before the election, the main opposition candidates were disenfranchised, leaving Ortega and Murillo with a sure victory.
Since resuming the presidency in 2007, Ortega has governed on the basis of a close alliance with Nicaragua’s business groups. COSEP, the main private business organisation which had a highly conflictual relation with the Sandinista government in the 1980s, has enjoyed very close relations with the current government.
The American Chamber of Commerce, which includes the major US companies in the country, has also worked closely with the government, although after a heavily contested election in early 2018 the head of Cargill’s Nicaraguan subsidiary became president after campaigning for a more independent path.
Ortega himself makes relatively few public appearances and there are unofficial reports that he is in poor health. Murillo, who was already playing an important role in coordinating the work of different government ministries, has come to play an increasing role in managing the day to day government of the country.
Virtually all ministerial announcements are now made by Murillo, usually during a regular mid-day radio broadcast, and the mayors of the FSLN-controlled municipalities are required to attend regular meetings with her in Managua.
Strong economic growth but rising inequality
Nicaragua, with a population of 6.2 million in 2017, has the second lowest per capital income in the Americas. Its economy has grown strongly in recent years, although output fell in 2009 as a result of the deep recession in the US and other major markets.
Between 2010 and 2017 economic growth averaged just under 5% a year, the third highest in Latin America after Panama and the Dominican Republic.
The economy remains dependent on primary commodity exports, the most important of which are coffee, beef, gold and sugar. In addition, there has been a significant growth of production in export-processing zones since the 1990s, primarily involving textile products and, more recently, the assembly of electrical harnesses for cars produced in Mexico.
However, there is still a large sector of subsistence farmers, particularly in the more mountainous areas in the north of the country, and a very large commercial sector in the towns, much of it based on informal labour.
Nicaragua’s export revenue increased strongly up to 2014, although since then growth has slowed down due to weaker world prices. In 2017 exports of goods amounted to 4.1 billion dollars, but imports were considerably larger: 6.6 billion dollars.
Deficit has been partly covered by family remittances, which have increased considerably in recent years. Because of the employment situation in Nicaragua, many families have at least one member who has gone abroad to look for a job, principally to the United States or neighbouring Costa Rica. In 2017, remittances amounted to 1.4 billion dollars.
Nicaragua has also received substantial foreign direct investment in recent years, attracted by the low wage levels and relative security compared with neighbouring Honduras and El Salvador.
Net direct investment amounted to 816 million dollars in 2017, principally in manufacturing, telecommunications, commerce and energy. Its biggest source in 2016 was Panama (22%), followed by the United States (13%) and Mexico (12%).
Until recently, Nicaragua benefitted from oil provided on very favourable terms by Venezuela. This was organised through a company called Alba de Nicaragua SA, or Albanisa, 51% of which is owned by Venezuela’s state oil company, and 49% by Nicaragua’s Petronic.
Under the terms of the deal with Venezuela, Nicaragua was supposed to pay half the cost of the imported oil; the other half was a long-term low-interest credit which provided Albanisa and a web of subsidiaries with funds to invest in a wide range of projects in Nicaragua.
Between 2008 and 2014 Nicaragua is estimated to have benefited from some 3.5 billion dollars in this way but, controversially, this major source of external finance was not registered in the government’s official figures.
As the economic situation in Venezuela deteriorated, the supply of oil declined and none was received in Nicaragua in 2017. There were plans for Venezuela to build a major new refinery in the country, but these have been scrapped. Nicaragua has since has had to purchase oil in the international market and social expenditures have been cut.
At the same time, Nicaragua – strongly pressured by the International Monetary Fund – has begun to include the amounts owed to Venezuela in the country’s official debt figures.
In 2013, Nicaragua’s parliament granted Wang Jin, a Chinese investor, a 100-year concession to build and run an inter-oceanic canal through Nicaragua, a mega project which could accommodate even larger ships than the Panama Canal, and which was viewed as a means of fast-tracking the country’s economic development.
The 50-billion-dollar project was strongly opposed by environmentalists and gave rise to a significant opposition movement among peasants whose land was targeted for compulsorily purchase and whose demonstrations were harshly restricted by the police.
Work on the canal has been delayed amidst reports that Wang Jin suffered big losses at the Chinese stock market when it crashed in 2015-16. From being a centre-piece of the government’s development plans, the canal was not even mentioned by Ortega in his address at the start of the new presidential term in 2017. It now seems unlikely that it will ever get built.
In recent years there has been considerable investment in communications and infrastructure. This is particularly noticeable in the condition of many roads: the main ones are being widened and resurfaced, while the network of all-weather roads in rural areas is being steadily expanded.
There has also been a notable expansion in access to electricity, especially in rural areas. According to official figures, coverage increased from around 70% of households in 2010 to 94% in 2017. The state-owned distribution company was privatised in 2000, but sold again in 2014 to a company which is registered in Spain, but is widely believed to be linked to the government.
The supply of water has remained in the public sector and here too investments have been made to expand its reach. But while some 90% of households have now access to drinking water in urban areas, the figure is just over 30% in rural areas.
There is a programme for building low income housing, but housing construction has been declining since 2015. According to the Association of Housebuilders, around half of the new homes built in 2017 were for low income households, but this amounted to a mere 2.500 units.
Investment in public spaces, however, has provided citizens with many play grounds and seating, and widely-used free internet access in many city squares.
Sustained economic growth has led to a rise in the number of people working. The official unemployment rate fell to a low of 3.5% for men and 3.8% for women in 2017, but this is a rather misleading picture, since workers without a formal job have little options other than taking up some sort of informal employment. Even according to official figures, informal employment accounted for 42% of the workforce in 2017.
The number of people who are formally employed and enrolled in the social security system has increased, from 534.881 in 2010 to 914.196 in 2017. It provides workers with a pension on retirement, but membership growth has slowed down, and coverage is very uneven.
While some 75% of workers employed in the electricity and water supply are insured, the figure is only around 45% for workers in manufacturing industry and under 10% in agriculture. In any case, the social security system is seriously under-funded and, as the IMF has repeatedly warned, it will face a crunch and place a further financial demand on the central government in 2019.
The employment situation has contributed to poor peasants in central regions of the country pressing towards the Caribbean in search of land to farm, a process exacerbated by the growth of large scale investments in capitalist agriculture which have displaced many small farmers.
This migration of ladino farmers has led to serious confrontations, some resulting in fatalities, with members of indigenous groups who, under the Nicaraguan constitution, are guaranteed exclusive rights to farm the land in Nicaragua’s autonomous Caribbean regions.
The limited employment opportunities in Nicaragua explain why so many workers seek work in other countries. Many of these migrant workers are unskilled, but skilled workers, including university graduates, have also been forced to emigrate.
It is estimated that some 20% of the population lives abroad. The remittances which they send back to their families in Nicaragua have played a decisive role in maintaining living standards in the country.
On returning to office in 2007, the Ortega government launched an anti-poverty programme entitled Zero Hunger. This provided the poorest households with some basic agricultural support and, crucially, zinc sheets which enabled them to waterproof the roofs of their shacks.
However, as the financial resources from Venezuela have declined, the Zero Hunger programme has been wound down, and subsidised electricity prices for low income households and for pensioners, which were also financed with Venezuelan resources, are to be phased out between 2018 and 2022.
According to independent annual surveys carried out between 2009 and 2015, the proportion of the population living in poverty registered some decline, from 44.7 to 39.0%, and those in extreme poverty from 9.7 to 7.6%. Poverty is highest in rural areas, but it has also registered the largest decline.
After resuming the presidency in 2007, the Ortega government raised the official minimum wage significantly. However, for the great majority of workers, wage rises lagged behind inflation and it is only since 2010 that real wages have begun to rise.
According to official figures, between 2010 and 2017 real wages for workers in formal employment increased by about 10% when converted into dollars, or just over 1% a year. By 2017, the average wage was equal to around 340 dollars a month.
In the financial sector and the mines, the figure was somewhat higher, at just over 500 dollars a month, but in the manufacturing sector the average was just 230 dollars, while the average for agricultural workers was a mere 130 dollars. For the government, low wage costs have clearly been an important part of its strategy for attracting foreign investment.
Nicaragua also has a prosperous commercial middle class and a very wealthy upper class. According to CEPAL figures, the top 10% receives some 33% of the national income and, together with the next 10%, almost 50% of the national income.
This group includes traditional land-owning families, many of which have also branched out into commerce or industry; it also includes newly rich traders who have profited from the boom in commerce.
According to the CEPAL report, while inequality declined slightly in the period from 2002 to 2008, as in virtually the whole of Latin America, Nicaragua was the only country where inequality increased between 2008 and 2014 (more recent figures are not available for Nicaragua).
According to an Oxfam study published in 2016, there were 210 multi-millionaires in Nicaragua, each with net assets of over 30 million dollars.
Nicaragua’s wealthiest businessman, Carlos Pellas, is estimated to have accumulated a fortune of 2.4 billion dollars, one of the largest in Central America, but some Sandinista leaders have also acquired wealth more recently, albeit on a lesser scale.
The beginning of the end?
The Nicaraguan government faced a difficult economic outlook for 2018, with the threat a US initiated limit on its access to international financial institutions, together with the need to adjust to the end of financial support from Venezuela.
In the face of these challenges, growth projections for 2018 and 2019 were reduced by both the International Monetary Fund and the Nicaraguan central bank. Then, in April 2018, Ortega was confronted with the most serious political challenge to his rule since returning to office in 2007.
The government announced that, in order to address the Social Security System’s large deficit, pensions would be cut by 5% and pension contributions would be increased for both workers and employers.
A demonstration in Managua by pensioners against the reduction in their pensions was supported by students from the public universities, but the student demonstrators were confronted by riot police and members of the Sandinista youth organisation.
Over the next three days the scale of the street confrontations increased, spreading to several other cities, and resulting in the death of over 40 people and many more injured.
After four days, Daniel Ortega appeared on television, flanked by his wife and the chiefs of the police and the army, and decried what he described as the manipulation of innocent students by political opponents with ulterior motives.
But his failure to condemn the deaths led to yet further criticism, and in a second broadcast on the same day he announced that the pension reforms would be cancelled and that the government would enter a dialogue with the country’s business organisation on how to reform the pension system.
The business organisations, which until then had enjoyed close relations with the government, said they would not enter negotiations until police violence against demonstrators ended, and supported calls for a major peaceful demonstration the following day. They also insisted that any negotiations should include all sectors of Nicaraguan society.
On Monday, April 23, tens of thousands joined a peaceful march in Managua and there were large demonstrations in many other cities. The authorities did not intervene and the demonstrations remained peaceful.
But the demands of the demonstrators had by now gone beyond the issue of mere pension reform and broadened to include expressions of deep dissatisfaction with the Ortega family regime. In the absence of any serious political opposition, however, it was not clear what the alternative might be.