In light of the passions stirred by Nicaragua's leftist revolution in 1978 and the subsequent U.S.-sponsored "contra" counter-revolution, it's striking how little attention is now paid to this tiny republic laid waste by the last proxy war between the United States and global communism. My guess is that few of the outsiders who once viewed the conflict as a grand struggle between the forces of good and evil even know that the Sandinistas, along with their leader, Daniel Ortega, have been back in power since 2006. And those who do know seem more concerned with Ortega's flirtation with Hugo Chavez than with Nicaragua's post-war transition.
That's ironic, because there's an interesting economic story here that transcends the country's political travails. For Nicaragua is attempting to reconcile a neo-liberal, market-driven development strategy with a state-centered, populist agenda -- an approach adopted in varying degrees by Latin American countries ranging from Venezuela to Brazil to Argentina. Its success (or failure) will help clarify the degree to which fervent Latin populism is consistent with economic growth and stability.
In the wake of their defeat of the autocratic Somoza dynasty that ruled Nicaragua from 1936 to 1979, the Sandinistas introduced Cuba-inspired agricultural, health and education reforms designed to increase the living standards of the rural poor -- and to secure their allegiance in the teeth of American and domestic opposition. Given the ongoing civil war, U.S. sanctions and an economic boycott by multilateral lending agencies -- not to mention inexperience in economic management -- it is not surprising that the initiative was largely ineffective. Agricultural output tanked, while budgetary and trade deficits ballooned. Inflation spiraled out of control, reaching 38,000 percent in 1988.
We don't know how far the economy fell. But we do know that in 1994, the first post-revolution year for which reliable data is available, GDP was just 40 percent of its level in 1977. By the end of the experiment in socialism, Nicaragua was the second poorest country in the Western Hemisphere.
The Sandinistas were voted out of power in 1990 in favor of a broad coalition. And pressed by both the International Monetary Fund and conservative domestic elites, the emphasis on rural development was tempered in order reduce the budget deficit and stabilize prices. The coalition government also opened the door to greater foreign trade and investment, gradually becoming more dependent on the U.S. markets for its exports. Later, in 2004, they joined joining Costa Rica, El Salvador, Guatemala, Honduras and the Dominican Republic in a new regional trade group, the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR).
But in 2006, Ortega (shown above with Chavez and Ahmedinejad) and the Sandinistas returned (by election) to power. Although Ortega campaigned on the Christianity, socialism and solidarity platform of Venezuelan President Hugo Chávez's Alianza Bolivariana (ALBA), his regime has few of the trappings common to other ALBA countries such as Cuba, Venezuela, Bolivia, Ecuador, and several Caribbean islands. His actions to date suggest he is politically authoritarian, economically pro-business, socially populist -- and, above all else, pragmatic. This mix translates as an eclectic set of policies that can best be characterized as Orteganomics.
The Marxist slogans of the revolutionary period are gone, as is direct government involvement in production. In fact, Ortega's economic model retains many of the legal and regulatory underpinnings of his predecessors' policies. In its October 2007 reconciliation with the IMF, the Sandinista government pledged to implement policies linked to targets on fiscal discipline, along with spending on poverty and energy regulation.
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