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BY RICHARD FEINBERG

Winner of the last two presidential contests, the Liberal Constitutional Party (PLC) is now badly split. The dominant wing, firmly controlled by former president and convicted embezzler Arnoldo Aleman, is fielding a seasoned politician, Jose Rizo.  Breaking with the PLC elders, US-educated financier Eduardo Montealegre is running as a pro-business, clean government alternative.  Similarly, the left is split between the perennial Sandinista (FSLN) candidate, Daniel Ortega, and a dissident social democratic campaign begun by Herty Lewites who fell victim to a heart attack on July 2, and now spearheaded by former Inter-American Bank economist, Edmundo Jarquin. 

With four presidential hopefuls and the elections still months away, public opinion polls are volatile.  Prior to Lewites’ sudden death, polls gave Ortega a slim lead but without sufficient force to win in the first round: a minimum of 35 percent and a 5 point margin.  In a run-off, Ortega will almost certainly lose to any other single contender – most probably Montealegre.  At this point, both Jarquin and Rizo must be considered underdogs.

ECONOMIC VOLATILITY

In the wake of the 1979 popular uprising against the Somoza dynasty, the young Sandinista revolutionaries seized political power, but after a decade of gross economic mismanagement and renewed civil war, voters chased them from office in 1990.  Since then, 16 years of pro-market governments have stabilized the economy but have failed to markedly improve the living standards of most Nicaraguans.  Modest growth rates in the 3 percent range barely exceed high fertility rates.  With per capita income of $800-1000, Nicaragua remains the second poorest country in the Western Hemisphere, after Haiti. Almost half of the population still falls under the World Bank definition of poor. Recent data suggests that after some improvements in the 1990s, some social indicators have started to deteriorate once again.

The economy remains heavily dependent on worker remittances from abroad and on foreign assistance.  Annual merchandise imports at $3 billion are twice export earnings and the current-account deficit (including official transfers) is an exorbitant 13 percent of GDP.  Recently, significant increases in revenues from coffee, livestock, meat, apparel assembly and tourism have been offset by the heavy dependence on imported energy.  Indeed, the skyrocketing oil import bill devours a lion’s share of export earnings, and frequent blackouts have forced the government to close offices after lunchtime.  Despite improvements, the fiscal deficit (before grants) hovers around 5 percent of GDP.  Clean-up from a pervasive banking scandal is taking a big annual hit out of the national budget.

GOVERNANCE FLAWS

Government corruption and inefficiencies have certainly contributed to the economies’ mediocre record.   A characteristically understated December 2003 joint report of the International Monetary Fund and World Bank noted the importance of “improving financial management, through creation of a unified registry of public investment, and better monitoring of all public spending.”  The same report laments other government failures: “….progress in education is mixed, productive infrastructure has been virtually stagnant since the early 1990s, basic water and sewerage infrastructure has progressed very modestly, and diarrhea and upper respiratory infections for children under five show little progress since the early 1990s.”  The Bank-Fund team adds that reducing tax evasion and increasing revenue collection will be key to future progress.  Finally, “The absence of a well-functioning judicial system undermines private sector confidence and limits the impact of efforts to reduce poverty through faster growth.”

International efforts to spur growth and build institutions have been undercut by the endless machinations of Nicaraguan politicians—on both left and right—who have been more interested in personal power and enrichment than in political development. This has been particularly true of efforts to clean up the judicial system and the Supreme Electoral Council, both of which have been carved up and politicized by an unholy alliance (known as “the pact”) between Aleman’s PLC and Ortega’s FSLN.  Nicaraguans now assume as a matter of course that resolving a major court case requires making sizeable payments to cronies of Ortega or Alemán; indeed, legal prosecutions are often nothing more than financial extortions in the first place.

CONTRASTING CAMPAIGNS

Despite trailing Ortega in early polls, Eduardo Montealegre, 51, is considered the most likely winner by most analysts.  The scion of a leading landed family, Montealegre earned an undergraduate degree in economics from Brown University and an MBA from Harvard. During the 1980s he worked for Shearson Lehman Hutton and then set up his own financial firm in Miami. Returning to Nicaragua, he worked in banking before entering government service as a senior adviser and then as minister of foreign relations for Aleman and later as minister of finance and chief of staff for the incumbent president, Enrique Bolanos.

Montealegre’s campaign is expected to receive strong financial backing from Central American business elites.  He seeks to project the image of an intelligent, experienced administrator, an honest leader capable of breaking with the corrupt politics of the past, and the candidate best positioned to defeat Ortega.  So far, however, his lackluster campaign suffers from his stiff, aloof style.  But if Ortega continues to rise in the polls, rumors circulate that the PLC might dump Rizo and throw their political machine behind Montealegre.  

The smart money is betting that Ortega, with his high negatives and record of three successive loses, will again fall short.  However, the right is still divided, the Sandinista political machine scored 40 percent in the 2004 municipal elections, and younger Nicaraguan voters may be more cognizant of their current poverty and unemployment than of the failures of the Sandinistas in the 1980s.  To pre-empt an anticipated anti-communist media barrage, Ortega is presenting himself as the candidate of reconciliation; his vice presidential running mate is a former anti-Sandinista fighter.  If Ortega can peal off some former supporters of the late Herty Lewites and attract some undecided younger voters, the gold ring might just be within his reach in the first round.

Whatever the outcome of the presidential contest, the PLC and FSLN will retain significant strength in the legislature.  It will take big wins by the splinter factions of Montealegre and Jarquin to break the hold of “the pact” – the PLC-FSLN marriage of convenience - on Nicaraguan politics.

IMPLICATIONS FOR BUSINESS

Montealegre promises continuity with the IMF-certified policies of the past 16 years.  With generous assistance from its Millennium Challenge Account and the market openings of the US-Central American Free Trade Agreement (CAFTA), the US would do what it could to help a Montealegre administration succeed.  Indeed, with its low costs of labor and land, Nicaragua could be poised to attract significant foreign investment inflows.  But Montealegre would have to do more than his pro-market predecessors to remove serious obstacles to investment – inadequate infrastructure, sub-standard education, an unreliable legal system.

Ortega has long indulged in a double discourse – at times reaffirming his revolutionary socialism and anti-imperialism, at times asserting his allegiance to democracy, private property and foreign investment.  Despite hostile public pronouncements, Sandinista congressional deputies facilitated CAFTA ratification. Certainly, many Sandinistas have become wealthy entrepreneurs or have become more interested in political positions than in radical transformations.  But popular expectations of higher wages and more social spending would place severe pressures on Sandinista macroeconomic stability.  In the event of an Ortega return, most investors would probably adopt a wait-and-see attitude.  Brave money might bottom-fish during a post-election dip in asset prices.

Jarquin, 59, headed the IDB department focused on public sector modernization and popular participation in social service delivery.  Of all the candidates, he most represents a modern social democratic alternative, attuned to the requirements of globalization and democratic governance.  For his part, Rizo, a coffee grower, advocates market liberalism tempered with a social awareness, but his PLC candidacy inhibits him from pressing hard for cleaner government.

GEOPOLITICAL GAMES

The Bush administration has made it abundantly clear that it dislikes Aleman’s Liberal clique and, of course, Daniel Ortega.  When Assistant Secretary of State Tom Shannon visited Managua in late June, he held high-profile meetings with Montealegre and Lewites, declaring both “options for the future, for modern leadership,” while shunning Rizo and Ortega.

Ortega does not hide his friendship with Venezuelan president Hugo Chavez.  They confer regularly and publicly with their mentor, Fidel Castro, and Chavez has promised Sandinista mayors deliveries of subsidized oil and fertilizer.  In a close election, Chavez’ largesse could make a difference. Yet, Venezuelan intervention might backfire; Jarquin is positioning himself as an independent nationalist, answering neither to Washington nor Caracas.

The Bush administration is breathing somewhat easier now that populist challenges have been turned back in Peru and, most probably, in Mexico.  Still, US officials cringe at the thought of a Sandinista redux. By chance, Donald Rumsfeld will be in Managua in October, just one month before the vote, to attend a hemispheric-wide meeting of ministers of defense.  The blunt-speaking Rumsfeld once likened Chavez to Hitler; the US Secretary of Defense may have some colorful words for candidate Ortega.

Richard Feinberg is professor at the Graduate School of International Relations and Pacific Studies, University of California, San Diego. Previously, he served as President Clinton’s Latin American expert on the National Security Council.  He wrote this report for  Latin Business Chronicle.  

© Copyright Latin Business Chronicle.

Originally published July 31, 2006