Making the Economy Scream Us Economic Sanctions Against Sandinista Nicaragua Review
DECEMBER 1989 - Volume 10 - NUMBER 12
E C O North O Chiliad I C S
Making the Economy Scream
U.Southward. Economical Warfare Against Nicaragua
by William I. RobinsonOn May 1, 1985, then-President Ronald Reagan solemnly declared that the United states of america was facing a "National Emergency." According to the president, an impoverished country of some 3.5 million people, roughly the size of New York State, with a GNP smaller than the economic output of most mid-Western U.South. towns, constituted "an unusual and extraordinary threat to the security and foreign policy of the Us." Taking the unusual step of invoking the International Emergency Economic Powers Human action, Reagan imposed a comprehensive economic embargo on Nicaragua.
In the more than than four years since, the United States has been severely criticized for the embargo. Latin America chided Washington for its punitive measures, Western Europe defied pressures to bring together in and the International Court of Justice ruled that the sanctions were illegal and ordered the United States to indemnify Nicaragua for damages. Each year, the United Nations General Assembly has voted to condemn the U.S. measure, equally has the Non-Aligned Motility. Participants in the General Understanding on Tariffs and Trade (GATT) have likewise criticized the embargo as contrary to the principle of costless trade. Even Washington'south allies in the Nicaraguan individual sector and harsh Sandinista critic, Cardinal Miguel Obando Y Bravo, have chosen on the United States to lift the sanctions. Despite the extensive condemnations, Reagan'south successor, George Bush-league, decided to renew the economic embargo confronting Nicaragua terminal May 1 (and again on Nov. 1).
The embargo and U.S. economic warfare
Economic warfare has long been used by Washington as a political instrument against countries considered unfriendly or threatening to U.Due south. interests, and is normally aimed, equally Henry Kissinger once put it with regard to Allende's Chile, at "making the economic system scream."
Yet what makes Nicaragua unlike from other countries embargoed by Washington is that the Usa has historically had no meaning straight economical stake at that place; no more a couple dozen U.S. companies have ever maintained substantial investments in that location, and Nicaragua does not supply the United States with any strategic resources. Washington's interest in that land has always been geo-political, stemming back to the mid-1800s when the prospect of edifice an inter- oceanic canal through Nicaragua commencement excited U.Due south. business interests.
The Reagan/Bush sanctions are one component of a complex war strategy directed against the Sandinistas including a range of armed services, political, diplomatic, ideological and economical aggressions. In the wake of the 1979 war of liberation confronting the Somoza dictatorship, U.Due south. strategists were quick to identify the underdeveloped, disarticulated and shattered Nicaraguan economy as the "weak underbelly" of the Revolution. "Information technology takes relatively few people and little support to disrupt the internal peace and economic stability of (that) small country," noted then-CIA Director William Casey.
The economic state of war was designed to grind away at the country'southward productive infrastructure by means of contra attacks and as well such CIA actions as mining the harbors and blowing up underwater oil pipelines. This physical devastation was to be complemented by external economic pressures, including the trade embargo, the blocking of multilateral credits and the exclusion of Nicaragua from European and Latin American commerce. In fact, the 1985 embargo merely capped the "creeping" economic blockade which Reagan initiated soon after taking role.
The "creeping" blockade
Reagan's first motion was to suspend final payment on a U.S. loan parcel to Nicaragua canonical by the Carter assistants, which was followed by the counterfoil of all bilateral assistance. In 1983, Washington reduced Nicaragua's sugar quota to the United States past xc pct, then eliminated it birthday the following yr.
Between 1981 and 1985, the The states used its veto ability to cake numerous loans that had been approved past World Bank and Inter-American Development Banking concern (IDB) officials. Although Washington publicly claimed that its vetoes were in response to improper Sandinista economic policy, a confidential report by the U.S. Executive Director to the Earth Bank acknowledged that in fact "project implementation has been extraordinarily successful in Nicaragua and in some sectors, better than anywhere else in the world." In total, more than $400 million in loans and credits which had already been approved as bilateral and multilateral assistance were blocked by the Reagan administration in those four years. Simultaneous to the break of bilateral credits and before the slashing of the sugar quota, Washington cut off the investment insurance offered past the Export-Import Bank and the Overseas Private Investment Corporation. This step was detrimental to the capital-depleted Nicaraguan government because it was forced to pay in cash for all future U.South. imports. It also served as a strong disincentive to U.S. firms exploring the possibilities of trading with, or investing in, Nicaragua.
The loss of multilateral funds hurt the new authorities, as 34 per centum of the land's external financing at the time came from these sources. Inside the land, the funds were earmarked for projects deemed critical to economic reactivation in the wake of the Revolution, which had reduced the gross national product (GNP) by some 30 percentage. Moreover, most of the funding was to go to the private sector, which to this twenty-four hour period accounts for 65 percent of the GNP.
But this was not enough to appease Washington. In 1983, the National Security Council compiled a listing of diverse sanctions and economic measures that could exist taken confronting Nicaragua, including trade cutoffs and pressure on West European allies to stop merchandise and help. By early on 1985 many of these steps had been implemented. First, the Earth Bank declared Nicaragua "ineligible" for whatsoever farther help. That same year, Washington took the campaign to unprecedented heights when then- Secretary of State George Schultz sent a letter to IDB President Antonio Ortiz Mena, threatening to suspend all U.S. funding for the Bank if information technology went ahead with its program to disperse a $58 million agricultural loan to Nicaragua which technical officers had already approved on economic grounds.
Latin American IDB officials were furious: "The gringos remember their money and power gives them the right to turn the Banking concern into an instrument of their foreign policy," i official, in charge of Central American disbursements, told Multinational Monitor. Nevertheless, the Bank Directors succumbed. "The Banking company has completely caved in to pressure from the U.Due south. assistants," complained the Nicaraguan Central Bank President Joaquin Cuadra Chamorro.
The loss of U.South. bilateral and multilateral aid forced Nicaragua to rely heavily on socialist sources for strange assistance. The Ministry of Foreign Cooperation reports the sources of the $5.9 billion in foreign economic assistance that the country has received from 1979-87:
| Year | Socialist | Bilateral Capitalist | Multilateral |
| 1979 | 0% | 38% (mainly U.S.) | 62% |
| 1982 | 48% | 34% (Mainly EEC) | 0% |
| 1985 | 87% | 11% | 2% |
| 1987 | 82% | 11% | 7% (mostly multilateral EEC) |
(Note: The increment in multilateral assistance as of 1987 reflects a heightened Western interest in the region in the wake of the signing of the Esquipulas Accords.)
From "creeping" to full embargo The May 1985 embargo, prohibiting "all imports into the United States of goods and services of Nicaraguan origin, all exports from the United states of america of appurtenances to or destined for Nicaragua, except those destined for the organized resistance (i.e., the contras), and transactions relating thereto," equally well as all air and body of water travel betwixt the two countries, was the culmination of the four-year "creeping" blockade.
The mensurate had disastrous repercussions for the entire process of product and distribution in Nicaragua. The backward, consign-oriented economy had been extremely dependent on the Usa, particularly for applied science and capital goods. Much of the state's farm machinery and industrial base depended on U.South. machinery, spare parts and technology. For instance, the country's agro-industrial complex (slaughterhouses, sugar mills, coffee processing plants, cotton harvesting, fumigation aircraft, etc.) is nearly 100 percent American. Ninety percent of the nation's air fleet was from the U.s., equally was forty pct of its public transportation fleet. Much of its service infrastructure, ranging from the sewage arrangement to telephone lines, depended on U.S. equipment.
Nicaragua was acutely enlightened of the threat its dependence posed to the Revolution and had really embarked on a strategy of marketplace diversification since 1979, as part of a broader policy of not-alignment and the diversification of international relations (what one Nicaraguan leader billed as "diversifying dependence").
Past the time the embargo was imposed, Managua had already significantly restructured its international economic relations. The Sandinista regime had opened up new markets in Western Europe, Latin America and other developing countries, Asia (principally Nippon), Canada and the socialist countries for its traditional agronomical exports of bananas, coffee, sugar, beef, cotton wool and seafood, as well as lumber, minerals and several other non-traditional products. The U.S. share of Nicaragua's imports decreased from 49 percent in 1980 to about 15 percentage in 1985. In the same menses, Nicaraguan exports to the United States decreased from 35 percent to less than 15 per centum of the total.
This restructuring helped Nicaragua weather the U.s.' ongoing force per unit area. The effects of the embargo on Nicaragua'south exports were limited to the initial dislocations resulting from the development and consolidation of new markets and to the greater costs involved in transporting goods to more afar ports. Inside days of the embargo, for example, the first shipment of bananas (the principal U.S. import at that fourth dimension) was re-routed to new markets in Kingdom of belgium, the Netherlands and other European countries. In fact, most hurt were several individual U.Southward. importers, such as Jack Pandol of California, who reported that 25 pct of his total business would be affected past the embargo, adding that "the U.Due south. lost and the Nicaraguans did not lose anything."
Moreover, the importation of majuscule goods from the United States had almost completely ceased by 1985. The Nicaraguan government had already begun to use new technology from other countries, then that the technological and industrial dependence that remained by 1985 was reduced to the maintenance of existing plants and mechanism. Likewise, U.S. subsidiaries in other countries began providing some of the machinery and equipment previously imported directly from the United States.
Contrary to the perception promulgated by Washington that Nicaragua is an economical vassal of Moscow, the Sandinistas clearly achieved their goal of diversifying and balancing the country's trade government without trading one dependency relationship for another. Overall trade with the socialist countries went from zero in 1979 to 11 percent of the total right earlier the embargo. It then shot upward, in the wake of the sanctions, to 32.4 per centum merely has since levelled off at about 40 per centum. Similarly, trade with all capitalist countries currently accounts for about 40 percent of the full, with nearly 29 pct corresponding to the EEC countries and the remainder, to Japan, Canada and others while trade with the U.S. is, of form, nil. The remaining 20 pct of the state's foreign trade is dispersed amongst Latin America and other developing countries, including markets recently opened upward in Communist china, Taiwan, the Caribbean area and the Eye East.
Nevertheless, largely as a effect of the embargo, Nicaragua's GNP, which had been slipping by about 1 percent per year due to the contra war, plummeted past 4.1 percent in 1985, while the merchandise deficit widened past some xl percent. Both were primal factors in sparking the inflationary screw which peaked several years later.
Isolating Nicaragua in Latin America and Western Europe
The 3rd plank in Washington'due south economic destabilization plan was to isolate Nicaragua from international economic intercourse, starting with the country's Central American neighbors and broadening to include Latin America, Western Europe and the rest of the world. The 1985 Bureau for International Development (Assistance) annual report, for instance, recommended that Assist use its funding to Central America to pressure those countries to reduce merchandise with Nicaragua. Although nearly of the Central American regimes subordinated their strange policies to Reagan'southward anti-Sandinista campaign, at least upward until the Esquipulas Accords were signed in 1986, not i agreed to go along with the embargo. The region'south historic interdependence, heightened by the limited integration accomplished through the establishment of the Key American Mutual Marketplace in the 1960s, makes information technology impossible for the Primal American nations to isolate one land without affecting all of them. Latin America also rejected Washington's embargo outright.
Perhaps Washington's biggest disappointment, nevertheless, has been its failure to bring Western Europe into the economic blockade. Implicitly rejecting the Monroe Doctrine, during the 1980s the Europeans developed their own perspective on Central America. Operating with a view towards their future Common Market and expanded international merchandise and investment, the Europeans have defined their interests in Central America as different from those of the United States. In the yearly peak meetings betwixt the EEC and Central American Foreign and Economical Ministers, during which European aid and merchandise with the Isthmus are discussed, political stability and integrated regional development, with the explicit inclusion of Nicaragua, take dominated the agenda.
Ever since the outset of these summits, in San Jose, Costa rica in September 1984, the Country Section has tried to isolate Nicaragua. On the eve of the 1984 meeting, for instance, and so- Secretary of State George Schultz sent a much-publicized letter to each EEC Government minister, urging them to exclude Nicaragua from any EEC economical understanding.
Although certain European governments, peculiarly those of Margaret Thatcher and Helmut Kohl, have held back help to Managua at the behest of Washington, Nicaragua is in fact the main Primal American recipient of EEC multilateral aid, equally well as of bilateral aid from nearly of the Scandinavian countries.
As with foreign aid, the withdrawal of U.Due south. foreign investment has coincided with and possibly stimulated the emergence of Europe and Nippon as the major sources of foreign upper-case letter flowing into Nicaragua. No new U.S. investment has been recorded in Nicaragua since 1979, but European and Japanese companies accept embarked on numerous individual and pint ventures. Several Italian firms constructed Nicaragua's novel "Momotombo" geothermal energy plant, a French company rebuilt Managua'due south phone arrangement and a consortium of Italian and other European firms are involved in a $40 meg tourist projection at the Pacific Coast resort of Montelimar. Japanese interests are financing studies to decide the feasibility of amalgam an interoceanic culvert through Nicaragua.
In 1988 the National Assembly approved a new foreign investment law, drafted with the help of the UN'south Center on Transnational Corporations and advisers from the Mexican and Cuban governments. The legislation guarantees foreign investors repatriation of a per centum of profits and access to national and foreign credit.
Currently, about 36 multinational corporations are active in Nicaragua, including such giants every bit Esso, Coca Cola, Nestle and Nabisco. Most of these companies accept enjoyed what they describe as a cooperative relationship with the Sandinista government, with their chief complaint being the astute shortage of foreign exchange. In fact, co-ordinate to a 1986 Harvard Business Review article entitled "Managing After the Revolutionaries Accept Won," which interviewed managers of xl strange enterprises in Nicaragua, multinational corporations have "survived, grown and generated profits" since 1979.
In an endeavor to encourage new foreign investment, Minister of Foreign Cooperation Henry Ruiz has met with members of the U.Due south. concern community since the drafting of the strange investment law, arguing that the economic occludent does not have to be an obstacle to U.S. foreign investment. Ruiz has cited the fact that no U.S. sanctions take been imposed against Coca Cola or Esso, which ironically throughout the war refined Soviet oil for use in combat shipping and army vehicles.
How much impairment?
Quantifying the harm inflicted on the Nicaraguan economic system past the U.S. economic warfare is difficult because specific losses are inextricably linked with losses accruing from other categories of U.S. assailment, including contra sabotage, and the secondary and tertiary effects of the sanctions. For example, it is impossible to determine how much the GNP might have grown if the country had received the nearly $500 million in multilateral credits blocked by the The states. Nor is it possible to quantify losses in terms of the value of appurtenances not produced due to the embargo.
Nicaragua's instance against the U.Due south. government in the World Court entered the "phase of compensation" in 1988, with initial court hearings on indemnification. The Managua regime has entered claims for damages accrued from the illegal U.S. actions totalling $12.16 billion, including losses of $608 meg directly resulting from the embargo.
Washington claims the economic crisis is due to "Sandinista mismanagement." But, the contribution of U.S. economic warfare to Nicaragua'southward economic trouble is then undeniable that in 1985 the United Nation's Economic Commission for Latin America and the Caribbean (ECLAC) broke with its policy of formulating its state reports on the basis of strictly economic criteria, and began adding special appendices to the Nicaragua land report which assessed the "impact of the economic and military machine siege."
Bush-league follows Reagan'southward lead
The embargo has non only been widely rejected abroad, just has also been repudiated past elements in Nicaragua and in Washington. "The embargo was a mistake from the beginning," co-ordinate to Carlos Huembes, president of the right-wing, anti-Sandinista coalition, "Coordinadora Nicaraguense." Anti-Sandinista business, labor and political groups are united in calling for an finish to the sanctions. In addition, last April some 50 Congressional representatives wrote to President Bush calling for an end to the embargo. (Congress has not, notwithstanding, gone and so far equally to do its authorization nether the National Emergencies Act to nullify the "state of emergency" that provides the legal basis for the sanctions.) Despite these entreaties and the continuing violation of international police force, George Bush has opted to follow his predecessor's pb.
Facing the urgent demand to reactivate the economy after eight years of war, in 1989 the Sandinistas introduced a desperate adjustment programme, following the recommendations contained in a classified report prepared by a squad headed by MIT economist Lance Taylor, which was financed by the Swedish government. The written report concluded that in social club to be successful, the adjustment program would require pregnant liquid foreign resource. The Swedish govemment convened a European-wide briefing concluding Apr to raise these resources, setting a goal of $250 million.
Wasting no time, the Bush White Firm launched a blitzkrieg lobbying effort among the Europeans, the World Bank and the IDB urging them non to send delegates to the Stockholm meeting. U.S. diplomats literally followed Nicaraguan President Daniel Ortega from capital to capital on his tour of Western Europe prior to the conference. According to an administration official, the U.Southward. envoys were instructed "to encourage Western European governments and multilateral agencies not to attend" the conference and if they did go, not to commit themselves to providing whatsoever funds. Ane French Foreign Ministry official complained that "The [U.S.] State Department has been jamming fax'southward in Foreign Ministries throughout Europe with warnings not to promise anything to Ortega."
The conference eventually pulled in some $50 1000000. The Italian Government was planning to organize a follow-upwardly conference in the Fall of 1989, simply after Secretarial assistant of State James Baker met with authorities from Rome in September, informing them that the Usa questioned "the political wisdom of providing high-level bilateral assistance to the Nicaraguan regime," the Italians agreed to postpone the meeting.
Some analysts argue that this continued economic warfare is a part of the Bush administration's broader Nicaragua strategy to influence the elections scheduled for February 25, 1990. Co-ordinate to this theory, Bush is hoping that the severe economical crunch wrought by U.S. policy will lead Nicaraguans, suffering under shortages and economic hardship, to back up the pro-U.Due south. opposition.
While the State Section is making every effort to block international economic support to the Managua government, Washington has already approved the resource allotment of $12.5 million in public funds, and according to some reports, an boosted $v meg in covert help, to raise the balloter prospects of the right-wing opposition coalition.
Perhaps spending the equivalent of $10 for each and every Nicaraguan voter is the Bush assistants'southward last-ditch effort to achieve an anti-Sandinista political victory. Yet the polls show that despite meaning back up for the opposition, the Sandinistas are favored to win with a comfy margin. In all probability, after the February elections Washington will exist facing a Sandinista government broadly legitimized in internationally observed elections. The White House will and then have to decide between continuing the internationally repudiated economic warfare or normalizing relations with the Nicaraguan authorities, which starts with lifting the economical sanctions.
William I. Robinson is the Washington Correspondent for the Agencia Nueva Nicaragua (Nicaragua News Agency) and co-author of David and Goliath: The U.South. War Against Nicaragua (Monthly Review Press, New York, 1987).
Source: https://www.multinationalmonitor.org/hyper/issues/1989/12/robinson.html
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