Could Bring the Economy “to its Knees”
HAVANA TIMES – “Ignoramuses, envious, meddlesome, a curse,” and accusations that they want to boycott November’s presidential elections. This is how the Ortega-Murillo regime refers to the United States, Spain and Costa Rica, even though for years this government has benefitted from its trade relations with these countries that represent important sources of revenue for the national economy and are the main destinations of Nicaraguans that emigrate. What does Nicaragua stand to lose if these connections dissolve?
On August 14, the regime sent a letter addressed to Carlos Alvarado, president of Costa Rica, accusing their southern neighbor of “meddling” in Nicaragua’s internal affairs. It also accused them of having a “notorious desire to appear superior and diminish their fellow human beings, and treat them like subordinates.”
The letter also accuses Costa Rica of “envy and expressions of historic jealously, adding today the creation of fascade organizations with which they agitate and demand of others what they themselves don’t give to their own people.“
Earlier, on August 10, vice president and regime spokesperson, Rosario Murillo, surprised the nation by lashing out against the Government of Spain during her customary midday talk on the dictatorship’s propaganda media.
Murillo’s response came after Spain said that the Nicaraguan State must urgently provide to the current electoral process, an independent, impartial, electoral authority that is not controlled by the ruling party.
“Spain’s Foreign Office circulated an insulting, offensive, mendacious note to which we are responding. The truth will set you free. The Government of Reconciliation and National Unity regrets and condemns the unacceptable interference by the Government of Spain in the internal affairs that corresponds only to our country and our people,” Murillo said in her discourse.
She also said that she would continue “denouncing the cynical and continuous interference and intervention into our governmental affairs. They call themselves democratic, inappropriate from regimes that continually violate the rights of their people to autonomy or autonomous processes of independence. She added “So much deceit, cover-up, lies, crimes, hate crimes and crimes against humanity, that they don’t admit to, but that everybody knows and condemns.”
And we must not forget when Ortega called the United States “a curse,” the US being his main trading partner. For example, from 2007 until 2020, 35.7 percent of the country’s export earnings came from the US.
“The Yankee empire is a curse on humanity. The empire is a son of the devil from the caverns of evil, delighting in the suffering of the peoples of the world and that of their own people, even the “white” population,” Ortega said during a party event Wednesday, June 23.
But that was not enough. On Sunday, July 25, Ortega lashed out against the United States again, this time accusing it of wanting to “boycott” the November 7 presidential elections, according to him, by again “sowing the seeds of terrorism in our country.”
“The Yankees have no respect. For them, elections are only valid when their puppets win, meaning, the ones they put up as candidates. If their lackeys win, the elections are good. If they lose, the elections are no good, and they do everything possible to destabilize the country, destroy the country, like they’ve done with Cuba, Venezuela, Bolivia and Brazil,” he said in a speech after attending a day of “Citizen Verification.”
All these statements are made in the context of the international community demanding that the Ortega-Murillo regime cease its repressive actions against potential presidential candidates, opponents of their Administration, and political parties, actions that have intensified in recent weeks, in the face of the presidential election.
Despite Ortega’s words, these countries remain important trade partners for Nicaragua, markets on which remittances, exports, cooperation and Direct Foreign Investment all depend, revenues that over the years have been fundamental to the country’s economic growth.
In the case of remittances, when Ortega came to power in 2007, remittances totaled 739.6 million US dollars. In 2020 alone, this figure rose to 1.85 billion, according to data from the Central Bank of Nicaragua (BCN).
Of last year’s total, 1.11 billion correspond to money sent from the United States alone, 271.5 million from Spain, and 131.5 million dollars came from Costa Rica. In other words, 80 percent of the flow of remittances come from these three countries that Ortega is clashing with, when one simple action sanctioning these “life-savers” is enough for the economy to falter in a matter of months.
Remittances have been instrumental in reducing poverty and sustaining consumption. Between 2018 and 2020, and even in 2021, remittances have continued to grow and have been key in holding off a collapse of the economy, as in the last three years of recession unemployment has risen, consumption has fallen, and poverty has increased.
In fact, from 2016 to 2020, the Central Bank says remittances from the United States to Nicaragua totalled 4.32 billion dollars. Whereas in the first half of this year alone, the figure stands at 644.7 million.
In the case of Spain, in the five years referenced, 910.2 million dollars have arrived in Nicaragua, exhibiting significant growth, as the data also indicates that between January and June of 2021, a total of 152.8 million has been sent from Spain.
In the case of Costa Rica, in the last five years remittances totaled 1,42 billion dollars, reaching its peak –306.5 million– in 2019. In the first six months of this year, remittances totaled 131.5 million.
There is no doubt that remittances represent an important source of revenue for the country. Economists consulted by LA PRENSA have explained that remittances have been fundamental in reducing poverty during the period of Ortega’s government, as well as boosting domestic demand, which impacts tax collection and key economic activities in the measurement of the Gross Domestic Product (GDP).
Economist and sociologist Oscar Rene Vargas explained that these transactions represent approximately 17 percent of the Gross Domestic Product (GDP) of Nicaragua,” and that, on average, 90 percent of all the remittances come from the United States, Spain and Costa Rica.
Therefore, not having them would greatly harm Nicaraguans who have experienced the deterioration of their purchasing power after three years of economic recession. The money these people receive they use, for example, to buy food from what is called “the basic basket”, which until July cost around 15,266.04 córdobas (approximately US$434), according to the National Institute of Development Information (INIDE).
Despite the risk that strong economic ties between Nicaragua and these three countries may represent, Vargas does not believe it possible that these countries will restrict remittances sent from their countries to Nicaragua, like what happened with the United States and Cuba.
Late last year, former US President, Donald Trump, banned remittances to the island claiming that they helped fund the military. More than 400 Western Union offices had to close. This measure exacerbated the economic asphyxiation Cuba is currently experiencing, that has had a negative effect on peoples living standard.
Ï don’t believe they are going to use the issue of remittances, because with Cuba it’s been a problem for many years and has other characteristics that don’t apply here. Remittances represent approximately 17 percent of Nicaragua’s GDP, and it would be a heavy blow because approximately 800,000 families receive them, but I don’t see that it is an instrument that these countries are going to use,” he stressed.
Another key source of revenue for Nicaragua’s economy are exports to these countries. Statistics from the Export Processing Center (Cetrex) indicate that in 2020 Nicaragua received a total of 2.95 billion dollars for traditional exports. During that year the United Sates paid 1.40 billion dollars for Nicaraguan products. In the case of Spain, the figure totaled 15.17 million, and Costa Rica spent 132.21 million dollars.
Centrex also indicates that in the last five years, the highest value generated by exports to Spain was in 2019, when 23.25 million dollars were invoiced. In the case of Costa Rica, it was in 2017 (137.32 million).
In Europe, the Spanish market is key for Nicaragua because it is the gateway to Europe. And in Central America, the Costa Rican market is the second most important buyer of Nicaraguan products after El Salvador.
This year alone, between January and July, exports generated USD 2.17 billion in revenue. The United States continues to be the main destination with 1.03 billion USD. Meanwhile, Spain paid 7.86 million and Costa Rica 90.69 million dollars.
Vargas said that approximately 50 percent of Nicaragua’s foreign trade is with those three countries, and to break ties with them would provoke a huge economic crisis for the country.
“There would be no way to find alternative places for these products. For example, the main importer of meat from Nicaragua is the United States. All of this would have repercussions, not only for the volume of money in revenue, but also for jobs,” he said.
The United States is also the main destination for exports from the free trade zone. More than 90 percent of the products sold under this special tariff regime are sent to the largest market in the world, which allows the generation of more than 120 thousand jobs in Nicaragua.
A measure aimed at sanctioning trade between Nicaragua and these trade partners would be devastating. “These would be the two most important factors: the loss of income and the loss of jobs. This implies that it would have negative consequences such as a decrease in the GDP, in the internal market, meaning domestic consumption. At the same time, poverty would increase due to lack of work, and so on. It would be catastrophic for the country,” he stressed.
“But I don’t think that this will be a mechanism these countries are going to use, it being a last resort political measure. I don’t see it in the short-term scenario, or in the medium term,” he concluded.
However, it is worth mentioning that in the United States, Congress is advancing the process of approving the Renacer Law, which includes among its clauses reviewing Nicaragua’s participation in the DR-Cafta, the main support for local exports, allowing businesspersons to sell in these countries free of tariffs, making them competitive.
3. Source of Revenue
These countries are also key sources of investment for Nicaragua, although presently, foreign investment is virtually paralyzed as a result of three years of increased uncertainty due to state repression.
But the numbers updated to 2016 revealed, according to the Nicaraguan Investment Promotion Agency, that in 2016, 1.44 billion dollars entered the country, and of that amount, 9 percent came from Spain, 13 percent from the US, and 4 percent from Costa Rica.
At the level of Central America, in 2016 only Panama surpassed Costa Rica with 22 percent of the total, followed by the United States. In the case of Spain, it was the main one from Europe, however, since 2016, various Spanish investments have left Nicaragua.
4. Main Migration Destinations
Three years of economic recession, a sociopolitical crisis, a health crisis, and the continued repression that the Ortega-Murillo regime has been employing to stay in power, has driven many Nicaraguans to migrate, searching for better living conditions and employment opportunities.
According to the website Datos Macro, up to 2019 Nicaragua had 682,865 emigrants, in other words 10.46 percent of the total population).
In this period, the main destination was the United States with 302,845 Nicaraguan emigrants, which represents 44.35 percent of the total, followed by Costa Rica with 296,541 emigrants (43.43 percent). Spain stood at 25,969 (3.80 percent).