The Economist: Nicaragua Shows a Dramatic Economic Decline

Economic recession threatens to become a depression

British publication warns that a high risk of fractures within the regime exists, if the economic and political conditions worsen.

 

By Juan Carlos Bow (Confidencial)

HAVANA TIMES – The price of Ortega’s repression of citizens civic demands has been “extremely high,” said The Economist Intelligence Unit (EIU), in its latest report on Nicaragua. The analysis unit of the British group The Economist also warned that such a situation has “led to a dramatic deterioration of the economy” and that the current recession threatens to become a “depression.”

The publication, which specializes in providing country analysis and forecasts, pointed out that in the case of a significant escalation of political and economic pressures, President Daniel Ortega’s control over power “will be determined by the role played by the security forces of the country.”

In that sense, it stressed that Ortega “exerts a significant influence” on the Police and the National Army. “Senior military officers have been placated with access to commercial assets,” it underlines.

“Although this has been sufficient to ensure the loyalty of the security forces, there is a high risk of fractures within the regime if economic and political conditions worsen,” according to the publication.

On the road to economic depression

The EIU economic warning coincides with recent reports from the Nicaraguan Foundation for Economic and Social Development (Funides) and the Superior Council for Private Enterprise (COSEP), which show that between January and April there is a persistent fall in production and sales of at least 26 formal activities.

Nicaragua entered into economic recession last October when it joined two consecutive quarters without the Gross National Product (GDP) showing signs of growth. The last time the country fell into recession was in 2009.

As in previous analyses, the British center predicted that Ortega or anyone he designates will remain in power until 2022—when the change of Government takes place–, although it warned that this prediction may fail before the hardening of US sanctions.

“The political scene is highly volatile and there are substantial risks in our projection. One of the main vulnerabilities of the Ortega regime is the exposure to actions of the United States,” it affirms.

A negotiated solution

“The political turmoil along with a series of international financial sanctions have led to a dramatic deterioration of the economy,” asserts the EIU report, which adding that the “pressure has increased for the regime of (Daniel) Ortega to find a negotiated solution to the crisis.”

However, despite the alarming economic scenario, Ortega “shows no willingness to forge a negotiated solution to the crisis,” according to the publication, which added that the presidential couple “has adopted an increasingly authoritarian approach.”

“The limits of presidential power have been eliminated and the Government exerts a strong influence on all public institutions. The FSLN has used its legislative majority to strengthen presidential powers, as well as (the already strong) state security apparatus,” it explains.

Insufficient measures

The influential British publication highlighted that the Government has implemented “important tax changes” to increase its tax revenues, although it clarified that the reform to the Tax Law, will not bring the results expected by the regime.

“The fiscal measures will only aggravate the already weak consumer and investor sentiment, effectively offsetting the scope that these fiscal reforms will help to bring new revenues,” the document stated.

Anticipating that possibility, presidential economic adviser, Bayardo Arce, announced in June that the Government is already evaluating the results of the fiscal reform, which came into effect last March. “Right now we are inviting the business chambers, companies, to see how they are doing with the reform, what experience have they learned and what contributions they give to guide it,” he said.

Independent economists revealed to Confidencial, last May, that despite its collection goal, the fiscal reform did not generate more resources, but less. During the first quarter of 2019, fiscal revenues were 11.2% less that in the first quarter of the previous year.

Without external funding

EIU pointed out that insufficient tax collection has been added to the government’s inability to sell government bonds, or to increase external financing.

“New international assistance and multilateral loans under concessionary conditions, have been considerably reduced since the political crisis of 2018,” the British publication stressed.

In addition, it revealed that in February of this year the regime announced a loan of 100 million dollars from Taiwan; however, “the central government’s first-quarter execution figures do not reveal any disbursement from that country, suggesting that those funds are currently suspended.”

The analysis underscored that the government’s inability to secure funding from non-traditional sources, “will worsen” imbalances in macroeconomic indicators.