The Nicaragua Constitution allows an individual to serve as president only twice in his/her lifetime. It look like Mr. Ortega is running for a third term. Already, large posters are up with his image and the slogan “Let’s continue changing Nicaragua 2011″. In order for him to run legally the National Assembly (and only the National Assembly – not the Supreme Court or the election commission) must change the country’s Constitution, a process that takes at least two years.

It appears that the law is being ignored and with very little overt protest from civil society. Why? Several reasons:

1. Large business, politicians and banks are making money. They have access to hundreds of million of dollars from Chavez to Ortega. This money, unlike any normal “investment” or “development” fund is used with virtually no accountability or transparency. Corruption is rampant at all levels.

2. Ortega is taking more and more control. Example – radio and TV MUST show his speeches – remind you of anything?

3. The FSLN actively and consistently uses intimidation to discourage opposition. When an opposition demonstration is planned, they immediately announce a counter demonstration. The counter demonstrations are almost always violent.

4. There is little organized opposition and it has limited funding — see points above!

There was almost instant international outcry when Honduras acted to avoid a similar occurrence. Where are they now? Where will they be later this year?

Banks and others (mostly external and associated with donor institutions) who provide original funds used to finance micro-enterprises face losses on from loans that have to be rewritten by the micro-finance system at a loss. Consider the following: a micro-finance organization likely borrows money at 12%, add 5% for devaluation and the cost, without operating expenses, is already at 17%; add operating costs and the new loans would be written at a substantial loss! Look it up on the web – average interest rate for sustainable micro-finance loans is about 25% because it is very expensive to manage a lot of small loans. A bank would certainly never loan money to a micro-finance firm expected to lose (at least) 8% on every loan!

It is true that a lot of the money for these loans is subsidized by the donor community. Just remember that someplace, someone is paying for the loses.

No real change since September, 2009. The political climate continues to discourage new investment and the government’s problems with donor countries over election fraud continues to block badly needed external support. President Ortega refuses to move on election reform (even nominating the old head of the Election Commission for a new term). He and his people say he will run for re-election in 2012, even though the Constitution prohibits a third term (his first term was in the 1980’s). Any questions about why he wants to keep the existing system in place?

The business environment continues to be handicapped by massive corruption (and business is not exempt!) and the FSLN continues to use the legal system to intimidate both political and business opponents. The opposition has even introduced an “Amnesty Law” that would protect former government employees from any charges (ever!) for acts committed between 1990 and 2007, with the idea that this would prevent the FSLN from using the legal system as a weapon. Clearly something needs to be done, but “approving” past corruption hardly seems like a solution. Most likely, this process is part a strategy meant to relieve pressure on political leaders who are accused of crimes by the current government. To my knowledge, there is not a major opposition figure who has not been accused of something!

Update September 2009

Nicaragua’s economy is now at the worst level since 1988. Pretty bad, considering that a civil war was going on at that time! Expectations are that per capita GDP (gross domestic product – the value of goods and services produced per person in the country) will show a negative growth of around 3.5% for 2009-2011. This means a big increase in unemployment and in poverty. One local development foundation expects that between 230 and 270 thousand additional people will joint the poverty ranks (generally considered to be people who have less that $2/day to spend).

The poverty data had been showing some improvement – it dropped from over 50% of the population in 1993 to to about 46% in 2001. This stayed in about the 45% range through 2005, and probably even into 2006. But, all indicators have been negative since. Note also that while the percent of people may have declined, the number of people in poverty has not — population growth is the reason.

Look at it like this: total population about 5 million = 2.5 million in poverty. Add 250,000 people to the numbers and you have an additional 5% of the population living in poverty!

Numbers like this often lead to significant political and security problems! Chances are that it will get worst before it gets better.

Why?

International support has been withdrawn because of unhappiness over the honesty of the last elections. Investors were already having problems and they take this as a big NO in their decision process.

Nicaragua does NOT a very business friendly environment. Most recently, the government has begun squeezing those few businesses who actually pay taxes for more — rather than trying to expand the base. Overt corruption, an uncertain legal system, the political and social structure, and related negatives all contribute.

Nicaragua is still a great place to live — as long as you stay out of the courts and are as self-sufficient as possible.

Update: July 2008

Inflation as of June 2008 hit just over 23% (year-over-year), compared to 9.5% for the same period in 2007 — bad news for the economy because it means that real wages have declined and poverty levels have increased.

Update: May 2008

Protests about high fuel prices have led to extended strikes in public transportation– buses, taxis and to some degree truckers. While the unions and cooperatives in Nicaragua are traditionally Sandinista supporters, many of them are now calling for President Ortega’s resignation.

This coupled with increasing pessimism among businessmen, is not good news for the economy. In fact, according the the Heritage Foundation, over the last year, Nicaragua has had one of the largest drops in “economic freedom” in the world! I have copied two of the most serious issues below. See the complete report here….

“Property Rights – 25%

Protection of property rights is weak. Contracts are not strongly enforced, and the judiciary is politicized and subject to corruption. Protection of intellectual property rights is almost nonexistent. Estimates of optical media piracy range from 70 percent of DVDs sold to almost 100 percent of music CDs sold. Weak land title registries and the many unresolved land expropriation cases from the 1980s seriously undermine the security of real property interest.

Freedom from Corruption – 26%

Corruption is perceived as widespread. Nicaragua ranks 111th out of 163 countries in Transparency International’s Corruption Perceptions Index for 2006. Corruption and political deal-making, especially in the National Police and the judiciary, are viewed as pervasive.“
Older Post: Nicaragua’s economy has taken a serious turn for the worse in recent months.

Real wages continue to fall: The index of real wages in the private sector (1996=100) fell to 83.6 in August, down 6% from January 2007 and 17 points below it’s year-earlier level. ¹

Cost of basic commodities increasing: Year-over-year, the cost of purchasing a basic basket of commodities (in Managua) increased 11% in September, 2007. ¹

Employment down: One good indicator is the decline in “free zone” employment from 8 thousand to only one thousand now.2 A lot of free zone activitiy is manufacturing clothing for export markets. Many of the firms are moving their activities to other parts of the world (some to other countries in Central America). You can assume that this is a reaction to what is seen as an “anti-business” government.

Construction Drop: Estimated 30% of construction workers are out of work – compared to last year.

Relative to other countries it is getting harder to do business in Nicaragua: According to data collected by the world Bank, Nicaragua’s ranking as a country in which to do business got worse over the last year. Major concern for all of us is the rankings for property, taxes and licenses.

Summary Doing Business 2008 data for Nicaragua. The table lists the overall “Ease of Doing Business” rank (out of 178 economies) and the rankings by each topic. (Taken from World Bank Data: Click here to see original report.)

¹Source: Nicaragua Central Bank November, 2007.
²Source: La Prensa October 25, 2007.

No improvement! My Enitel (Claro) internet system has been out of operation for 3 months with no attempt by them to fix the problem. There appears to be absolutely no way to contact someone in a responsible position. All I get is service staff who promise that someone will arrive to fix the problem — I even know that the problem is a modem that needs to be replaced, which cannot happen without one of Claro’s people doing it! I asked for a “reclamo” (refund) for the 3 months that I have been without service and as was told a technician had to first verify that the service was no working! Catch 22 of the worst kind.

Update Sept. 2009

Enitel recently centralized most of its management in Guatemala. The result has been an almost complete breakdown in customer service. It is as if there is no one in Nicaragua who cares about service. I have recently experienced an entire month without telephone or internet service (and I have 2 internet services from them!). What you get is a call from Guatemala saying “I hear your system is not working?” I have asked for technical help on at least 5 occasions and have gotten:

1. A visit from two technicians who executed a few pings, then said it was my cable — no check to see it it was connections — for example!

2. A call from Guatemala a week ago asking who was the manufacturer of the modem on my phone — nothing else!

I wrote the statements in the rest of this post when there was at least some administration in Nicaragua — no longer relevant!

I have opted for a satellite based internet system that, so far, has been fast and reliable — but as always, it is expensive.

Previous statements:

Internet is provided by the telephone company (Enitel), by the cable TV company (Estesa), by IBW (sorry, I have to get more info about them), and by Satelinet – via satilite.

Enitel provides service by phone and a radio based system (TurboNet). I have Turbonet, which has been excellent, relatively stable and I have found their service response to be quite good — but it is not cheap!

I have recently subscribed to the phone based internet system (which provides a wireless connection in the home via the phone line) and find it to be excellent (once the problem with basic phone service was resolved).

The biggest problem has been basic phone service because of line theft and/or old and badly maintained wire. Enitel has been upgrading the system and (for me at least) it now works quite well! So good in fact that I an going to cancel my radio based system.

I am also told that Enitel plans to introduce a satellite-based connection via a plugin card.

Why the big increases? Increasing poverty is probably a major contributor, along with the low status of women.

Note: Original data have been converted to an index with 2005 as the base. Data are numbers reported by authorities, which would certainly under count the actual.

Security of land titles is probably the major issue facing buyers and investors in Nicaragua. Hardly a day passes without a new item in the press about corruption and/or extortion in the land titling system. Before you buy, you MUST get a good lawyer to check the property title and occupation history. Even then, there are problems.  A lot of property was confiscated in the 1980’s (farms, houses and businesses) and many of those claims are still unresolved, which means you must be very careful not to buy property that is already in dispute. (Payment for confiscated property started in 1994 when the FSLN lost power;  some cases have been resolved (according to the Government, as of mid-2009, over $200 million has been paid) but there are many, many more claims outstanding.

Squatters are a big problem in the rural areas, both as a means of taking land and extorting owners:  someone will form a “cooperative”, move people onto the land, then offer to move off for payment.  Another scheme is to claim ownership, threaten a legal battle, then request payment to abandon the claim. Recently the newspaper La Prensa has been reporting an attempt by a national assemblyman to extort $4 million from investors planning a development in Tola (Arenas Bay – on the Pacific Coast). It looks like the investor is going to drop the project. And, now, it appears that the government is going to confiscate the land on the grounds that the land was acquired illegally in the beginning.

This has been a problem which investors have hoped to solve via a new law that would establish clear rules about private and public ownership along coastlines (both ocean and lake). The law appears to be stuck in the National Assemble (as of July, 2008), but the idea is to set between 30 and 50 meters of public land along beaches and to assure public access to that land. The law is badly needed because without a clear law everything gets in the court system — which many believe is corrupt and highly politicized. The consequence is that a lot (maybe as much a $1 billion) in construction is on hold.

Wrong Again
By Oliver North

Columns icon
Friday, 3 July 2009

WASHINGTON — It took the Obama administration eight days to figure out whether Iranians being gunned down for   protesting a fraudulent election and demanding basic civil liberties deserved to be acknowledged by the president of   the United States. It took the O-Team less than eight hours to side with Cuba’s Fidel Castro, Venezuela’s Hugo Chavez and Nicaragua’s Daniel Ortega over the ouster of Manuel Zelaya in Honduras.

As we now have come to expect, Mr. Obama got it wrong again, but this time, nobody noticed. The U.S. news media,  preoccupied with the sudden demise of Michael Jackson, ignored the event in Central America. For those who care about things more important than the passing of a “pop music legend,” here’s the rest of the story:

Manuel Zelaya, a wealthy rancher and agribusiness executive and a self-described “poor farmer,” won a four-year term as Honduran president in November 2005, with 49.8 percent of the vote. Article 374 of the Honduran Constitution bars the nation’s chief executive from serving consecutive terms. Apparently, one term wasn’t enough for Zelaya, a protégé of Venezuela’s strongman, Hugo Chavez, and Nicaragua’s phobic anti-American leader, Daniel Ortega.

Late last year, as the Honduran economy tanked and unemployment grew to nearly 28 percent, Zelaya forced Elvin Santos, the country’s elected vice president, to resign and began holding conversations with Chavez and Ortega on how to hold on to power. In lengthy Chavez-like populist speeches, he denounced the U.S. and wealthy landowners and linked himself with leftists in the Honduran labor movement. On March 23, he issued an executive decree directing a national referendum on a Venezuela-style constituent assembly to rewrite the country’s constitution in time for presidential and legislative elections in November. The Obama-Clinton State Department was mute about all of this.

Unfortunately for Zelaya’s aspirations, the Honduran Constitution requires that amendments be passed by a two-thirds vote of the country’s unicameral Congress during two consecutive sessions. By late May, the Honduran Congress, the Honduran Supreme Court, the commissioner for human rights, and the Honduran electoral tribunal all had overwhelmingly declared the referendum unconstitutional. Zelaya ignored the people’s representatives, had ballots printed in Venezuela, and announced that the vote would take place June 28. Again, the O-Team was silent.
In keeping with the rule of law, Honduran Attorney General Luis Alberto Rubi took the case to court. The Honduran Supreme Court ruled the referendum to be illegal and ordered the ballots to be confiscated. Late on June 23, Zelaya countermanded the court order and directed the army to distribute the ballots. Gen. Romeo Vasquez, the chief of staff of the Honduran military, sought legal opinions and decided not to distribute them. The following day, Zelaya accepted the resignation of the minister of defense, Edmundo Orellana, and fired Vasquez.

The Honduran Supreme Court unanimously ruled the Vasquez firing illegal and reinstated him June 25. That prompted Zelaya and a group of supporters to seize the ballots and issue another executive decree, which directed government officials to set up 15,000 polling stations at schools and community buildings across the country. In response to a request from Attorney General Rubi, the Honduran Congress — controlled by Zelaya’s own Liberal Party — opened an investigation into the president’s mental stability and fitness to govern. Zelaya replied with a two-hour broadcast harangue, in which he claimed: “Congress cannot investigate me, much less remove me or stage a technical coup against me, because I am honest. I’m a free president, and nobody scares me.”

On Sunday, just hours before the referendum was to begin, the Honduran army, acting on a warrant issued by the Honduran Supreme Court, arrested Zelaya and sent him, in his pajamas, into exile in Costa Rica. The Honduran Congress affirmed Zelaya’s departure and, in accord with the constitution, named Roberto Micheletti, who had been president of the Congress, as interim president of the country.

It has been downhill from there. Chavez, Ortega, Castro and Bolivia’s Evo Morales immediately condemned the “coup” and demanded that Zelaya be restored to power. Chavez went so far as to threaten military action. When asked about these events Sunday, the O-Team punted the issue to the Organization of American States, calling for “all political and social actors in Honduras to respect democratic norms, the rule of law and the tenets of the Inter-American Democratic Charter.” Now there’s a powerful statement of support for a constitutional process and the institutions of democracy. Meanwhile, the Clinton State Department is said to be looking at cutting off aid to the impoverished country.

The O-Team doesn’t seem to grasp that simply holding an election does not guarantee a democracy. Adolf Hitler was elected. Hugo Chavez was elected. The Castro brothers were “elected.” When potentates decide that the rule of law does not matter, that constitutional restrictions on power can be overcome by executive fiat, the people inevitably  suffer. It’s a point to remember as we celebrate our own nation’s 233rd Independence Day.

Opinion on to critical current issues were overwhelmingly against many of the changes that President Ortega wants to implement.

• Eliminate term limits for the President: 61% NO.
• Change from a presidential to a parliamentary system: 59% NO
• Require at least a 50% plus 1 vote to win a presidential election in the first round (Orgeta won with around 30%): 62% YES
• Put independent individuals (not affiliated with the government or political parties) on the election commission (this commission is accused of backing voter fraud in the last elections and is controlled by the FSLN): 79% YES
• Create an independent organization to manage civil registration (voter) and national identity cards (which a citizen must have to vote and work, among other things): 83% YES

The “pro” opinions on the questions dealing with presidential succession and/or retaining power coincides closely with the number of FSLN voters — around 33%.

[Data taken from La Prinsa, 8 July, 2009]

It is certain that there is an active resistance movement in the eastern coast of Nicaragua (the Mosquito Coast). This area is composed of two geographic political units – the RAAN (the Northern Atlantic Autonomous Region) and the RAAS (the Southern Atlantic Autonomous Region) — meaning that the Indians there are to have autonomous control of their governments. In reality, they have had little control, as the national government actually appoints a governor to both Regions.

A separatist movement has formed (the Moskitia Community Nation) and there have been some violent confrontations with the government (police), with reports of at least 6 deaths on the separatist side. Many of the Moskitia Indians fought the Sandinistas in the 1980’s, so they have some experience with resistance.

Most of longstanding issues revolve around control of natural resources in the Regions (mining, oil, logging and fishing). The current conflict is over lobster divers: their pay, faulty and inadequate equipment and working conditions in general. Recently, pay for divers was reduced to $1.50/lb (from $3.50/lb last year), then, due to pressure from the “Nation”, pay was increased to $2.50/lb. [note: US lobster fishermen are getting between $4 and $5/lb] Divers say the new pay rate covers only about 50% of their living expenses (they must pay boat owners for food, lodging and anything else they may consume while on the boat (usually 11 days). They want an additional $5.00/lb, which the owners say they cannot pay due to reduced demand (prices) for lobsters.

Gringo comment: The owners are probably right. Any data I can find suggests that a wholesale price of $5.00/lb, less transportation to markets is about the best they can do.There has been a massive worldwide exploitation of lobsters, with the result that supplies are high, and have been for some time. Even a non-economist knows that constant or lower demand with increasing supplies means lower prices.

Bad news! there is some expectation that wholesale prices will drop to $2 to $3/lb later this year. The unfortunate lobster men (who have been striking) may find that the owners are inflexible — more unrest!

Anyone have a suggestion – comment.