Without a Political Agreement, Nicaragua’s Economy goes into Free Fall

The weight of the higher prices will be felt by families that have to pay more for food and hygene products, notes economist Nestor Avendaño. Photo: Carlos Herrera / Confidencial

 

Ortega’s refusal to advance elections, liquidates the confidence of economic agents

Funides estimates fall between -7 to -11%, Copades projects -20%. Construction, agriculture, commerce, tourism and financials, see their numbers worsen month by month.

 

By Ivan Olivares (Confidencial)

HAVANA TIMES – With its refusal to reach a political agreement to advance the presidential elections, the regime of Daniel Ortega is giving a “coup de grace” to the Nicaraguan economy—which slides into depression—after the country fell into recession last year.

“The recession in the Nicaragua economy since the second quarter of 2018 is deepening, and it risks becoming a depression in the short term,” without measures being taken to prevent an economic collapse, affirms Nestor Avendano, President of Consultants for Business Development (Copades) of Nicaragua.

Of all the forecasts, the most amiable is that of the economist Mario Arana, whose calculation predicts a fall close to -5%. Then there is the Nicaraguan Foundation for Economic and Social Development (FUNIDES), which places it between -7% to -11%, depending of various factors.

“That -7 to -11% is a range. Not having an agreement leaves our prognosis the same,” maintains Juan Sebastian Chamorro, Executive Director of the Foundation, and one of the Civic Alliance leaders and a member of its negotiation team. Beyond that, is the -20% to where the calculations of the team of economists working with Avendano leads.

Before talking about his own analysis, Arana prefers to validate those of Funides, which if fulfilled in 2019, “would be more than double the contraction observed in 2018,” which seems “quite dramatic,” although the basis of the calculation for this year started from a lower base.

“The risk factor is the contraction of credit, which was not seen in 2018, but will be felt in 2019, and will slow down all economic activity, whose effects will be seen in the agricultural cycle and commerce,” says Chamorro, of Funides.

Even poorer

In the case of an economy of 13 billion US dollars, a contraction of 10% implies that the gross domestic product (GDP) will be reduced by 1.3 billion dollars more this year, says Arana, who estimates that, the implications for companies will be determined by the sector of the economy in which each one operates. As an example, he points out that those in the area of internal consumption (such as automobiles, or luxury goods), suffer more than those who sell food.

“The tourism industry is also suffering a lot: there is some tourism, but it is small-scale. The construction sector suffers from the lack of financing, and in fact the financial sector itself is suffering. Those of the agroindustry sector faces both the problem of low international prices, and the lack of financing,” he specified.

Confronted with the possibility that nothing will stop a fall that touches the level of -20%, Arana admits that it is possible, although for this, he believes that perhaps a bank failure would come first, a tragedy that no one predicts yet.

Avendano assesses especially “the impacts of the political uncertainty and the tax reform in force since March 1st,” to indicate that “there is a risk of the paralysis of the 2019-2020 agricultural cycle, coupled with the fall of the agro-exportable production on the agricultural cycle 2018-2019.”

Meanwhile, “construction collapses and commercial activity continues to be depressed, aggravated by rising unemployment and the deterioration of the purchasing power of wages,” he warns.

In this probable scenario, “the production of goods and services tends to fall 10.6%, the open unemployment rate plus the equivalent unemployment rate related to unemployment approaches 36% of the economically active population,” that do not generate income, while annual inflation reaches the barrier of 8%, he warns.

Cancel the difficulties

By the different business associations, sectors like the agro-business and housing construction find that the lack of an agreement means quite an uphill battle companies and the producers must transit while the country returns to the path of growth.

Alvaro Vargas, Vice President of the Agricultural Producers Association of Nicaragua (UPANIC), explains that both the permanent crops, as well as the annual crops and livestock, face a combo of difficulties in this 2019, which does not seem to recede, and much less when an agreement was not reached.

That “combo” includes a drop in the international prices of our export products, the possibility that this is a year of drought, if El Nino is declared; the decrease of credit, (and that which is available, will be at high interest rates), plus the tax reform, the Social Security contribution increase, the rise in the price of fuels, and of electricity, etc.

In addition, a member of the Nicaraguan Chamber of Housing Developers (CADUR), told Confidencial that “for us it is not an option that the dialogue be fruitless,” given the collapse of construction activity in general, which in their case has materialized in a fall in the number of houses placed on the market, especially, those that depend on bank credit.



9 thoughts on “Without a Political Agreement, Nicaragua’s Economy goes into Free Fall

  • All because the people would NOT accept a needed and proven adjustment to social security. Now this! What a short sighted group of citizens. This is worst as social security is now doomed 100%

    Reply
    • I don’t think they are short-sighted at all. Once they oust the “leader” they need someone smart enough to drag them out.

      Reply
    • Do you even know what on the hell are you talking about?. Social security was Ortega’s piggy bank to finance his family’s life style, this is not about adjusting anything. This son of a bitch has been in power since 1979 enriching himself, family and friends, apart from killing those whom do not agree with him. Quit pulling crap out of your ass and do some research.

      Reply
    • If ortega would have TALKED to them about why the lower social security….instead he followed his socialist instincts and repressed.. killed .
      Kidnapped etc etc…he forgot the World can see his every move ……not like the old days when he and other dictators could get away with much of their repression..

      Reply
    • Very simplistic response to a very complex social-economic problem. I am not sure what the genesis of the unrest might have been but the social security issue was the catalyst.

      Reply
    • Kenny Williams! You have no idea what you are talking about! get your head out of your ass..

      Reply
  • Absolutely correct, Xavier. I love this country and have been visiting for a long time. I bought property there that I love. I admire the young people of Nicaragua. Good luck and my heart is with you.

    Reply
  • It is sad, long and short the young ones will be and is suffering. They’re not even thinking about our future generation. Nicaragua is a beautiful place. It’s just a poor economy. And yes, the ortegas n his friends and families who is benefiting the richness for years needs to be removed permanently and have someone who cares about their people and country

    Reply
  • Everyone should have seen the bad omens when it was agreed to elect a president with only 35% of the vote and Ortega’s opposition ran 2 candidates against him. The 2nd set of bad omens was when he changed the constitution to allow him to run again. He continued to consolidate power. The good people of Nicaragua should not have elected him in the first place.
    Look what the Hondurans did when Zeleya tried the same thing there. The Supreme Court, the legislature, and the military threw him out.
    Venezuela allowed Chavez to change their constitution so that he could run again, and where are they now.
    Only in Ecuador where Rafael Corea changed the constitution to run one more time has there been a peaceful change of government.

    Reply

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