The War And The Nicaraguan Economy
The War And The Nicaraguan Economy
The contrast between the effect of the war on the Nicaraguan economy and the effect it has on the U.S. economy is striking, even apart from the vast differences in the level of economic development of the two countries. In Nicaragua- where there are labor shortages in key sectors and drastic shortages of critical manufacturing and agricultural inputs - every person-hour, every dollar of foreign exchange, every bushel of grain and acre of land used for the war effort represents a loss in some other area.
by Thea Lee and Mark Weisbrot
Fighting a war is always costly, but for a tiny, underdeveloped country like Nicaragua, fighting a prolonged war can be economically devastating. According to recent estimates, the economic loss to Nicaragua from 1980 to 1985 totals a staggering $1.23 billion. Eight years after the overthrow of Somoza, and six years into the U.S.-directed contra war, the country is facing desperate and difficult choices over how to allocate its limited resources.
The contra war imposes a constant drain on the Nicaraguan economy. Apart from the direct costs of the war, such as the replacement of destroyed crops, roads, buildings and other parts of the infrastructure, there are numerous indirect losses. The war pulls scarce skilled workers into the army, taking them away from productive work such as farming or construction. The war also reduces the country's future productivity by indefinitely delaying many young people from completing their education.
The contras have made many remote rural agricultural areas unlivable and thus unfarmable by terrorizing the population there. For example, some portions of the Atlantic Coast that used to be subsistence farms, now lie fallow because of the war. Those communities are now dependent on food flown in from other parts of the country.
On the Pacific Coast, the war has dislocated hundreds of thousands of rural citizens, many of whom come to Managua seeking employment. One million of the country's three million inhabitants now live in Managua. This is far more than the city's infrastructure can support. Housing, transportation, and water are all inadequate to serve the swelling population. Many of those who move to Managua drift into the growing informal sector, "watching" cars in parking lots, shining shoes, and selling food or drink on the street.
Inflation is now more than 800% per year. As the war-produced inflation worsens, more people leave productive employment for the informal sector. This flight from productive labor creates further supply shortages, causing more inflation and thus, a vicious cycle. Perhaps one of the most disturbing effects of the contra war is that t has distorted the country's long term perspective. The government labels ts present economic strategy a "survival economy," and has indefinitely suspended work on most major long-term investment projects. This is caused in part by the uncertainties of war. For example, when the CIA mined Nicaragua's harbors in early 1984 there were serious disruptions in the flow of exports. The risk of business loss due to the war has led the private sector to steadily reduce its share of investment to the point where more than 80% of new investment is now undertaken by the state. Also, some private capitalists have deliberately refrained from investing in Nicaragua, in order to support Reagan's efforts to destabilize the economy.
The contrast between the effect of the war on the Nicaraguan economy and the effect it has on the U.S. economy is striking, even apart from the vast differences in the level of economic development of the two countries. In Nicaragua - where there are labor shortages in key sectors and drastic shortages of critical manufacturing and agricultural inputs - every person-hour, every dollar of foreign exchange, every bushel of grain and acre of land used for the war effort represents a loss in some other area. It means that future production is lost, or that children have less to eat
In the U.S., on the other hand, money spent on war rarely leaves the country. Most of the dollars given in aid to the contras are spent purchasing weapons or supplies made in the United States. In general, military expenditures are a stimulus to an economy which suffers from a chronic lack of aggregate demand (i.e. high unemployment and excess productive capacity). The U.S. economy is buoyed by the war, while the Nicaraguan economy is drained by it.
The bleeding of the Nicaraguan economy is central to the Reagan administration's strategy of "low-intensity warfare." They know that a military victory by the contras is impossible, and further U.S. military involvement carries tremendous political costs, both internationally and domestically. The White House hopes that the economic effects of the war will continually erode popular support for the FSLN, perhaps to the point where direct U.S. military intervention is more feasible. If not, they can at least prevent Nicaragua from providing a positive example for other Latin American nations aspiring to achieve economic sovereignty.
The most important thing that the U.S. solidarity movement can do to sustain the Nicaraguan revolution is to cut the flow of funding to the contras. As the Contragate scandal has amply demonstrated, no vote of Congress can be expected to accomplish this entirely. Nonetheless, a defeat of Reagan's upcoming request for aid to the contras would be an important, perhaps decisive step towards ending the war.
As this article goes to press, the unexpected agreement by the five Central American nations on the "Arias plan" has weakened Reagan's position, at least temporarily. Progressive forces are gearing up for the biggest counter-offensive to date. There will be intensive phone-calling, lobbying, protest and civil disobedience, as well as a million dollars of television ads. Our local actions could contribute significantly to this national effort.
Thea Lee and Mark Weisbrot are graduate students in economics at the University of Michigan and work with the Latin American Solidarity Committee. They have recently returned from three months of research in Nicaragua.