SEPTEMBER 1996 · VOLUME 17 · NUMBER 9

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I N T E R V I E W

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Multinational Monitor: Why do poor countries like Nicaragua adopt World Bank and IMF policies?

Francisco Laínez: For one simple reason -- we are all highly indebted. They tell us, "I'll help you if you follow the economic policies that I dictate: Convert yourself into a consumption country." They loan us money to consume their products. In exchange, they get to govern our countries.

Tomorrow, if we Nicaraguans decided, for example, that it's not a good idea to use scarce resources to import expensive cars and we slapped a high tariff on cars with more than 2,000 ccs, our commercial allies would protest and tell us to eliminate the tariff. The automobile-exporting countries would pressure us through the IMF. The IMF is nothing more than an institution, in which the United States has a majority, that acts as an executioner. The same goes for the World Bank. They have a global vision determined by the G-7 countries. They come to our countries and neither the Inter-American Development Bank, the International Development Bank or the World Bank will make a loan to Nicaragua if it doesn't do as it is told.

The IMF comes to this country like a delinquent in hiding. They hold private meetings with the government, but never come out in public.

They are not interested in people -- just certain macroeconomic numbers. The IMF, for example, insists on supply and demand, that the market rules. But this has led to interest rates in Nicaragua under which it is impossible to turn a profit and to producers selling their products on the international market at a loss. Coffee producers, for example, can't compete with African producers.

The Chamorro government did something similar with the exchange rate. They introduced a new córdoba with a one-to-one exchange rate with the dollar, as if we were equals with the American dollar. Then they had to move to an exchange rate of five-to-one and then down to six. At this point, they said that to avoid sudden devaluations they would devalue the currency 1 percent a month until we arrive at an equilibrium.

But what's happening? The patient is dying because there is no production, there is no employment and there is widespread hunger. Meanwhile, they're trying to find an equilibrium! Once we're all dead, they're going to exclaim, "Eureka!" What is the result of these policies in Nicaragua? More poverty. This country has only two roads. It can suffer through it and end up like people in Africa -- barefoot, without food and with protruding ribs. This is the IMF road.

MM: And the other road?

Laínez: We can fall back into a war between the rich and poor. The gulf between them is so great in Nicaragua that we are in an explosively dangerous situation.

MM: That was also the situation in the late 1970s. Why did you resign from Nicaragua's Central Bank in 1978?

Laínez: I resigned as a result of differences I had with the president -- the last Somoza. I had told him, for example, that as long as I am president of the Central Bank no Somoza would be allowed to have a commercial bank. The reason was quite simple. The day that one of them had a bank, they would run monetary policy because I would have to do what they said. So he saw me as an obstacle.

Before it came to a confrontation -- in which, although he was my friend, I would be at a disadvantage because he was also the president -- I preferred to remove myself from his administration, which was the most corrupt of the Somoza dynasty.

MM: But you had been in the government for 18 years. Did the corruption of the Somoza regime suddenly reach a head in 1978?

Laínez: I wrote a book about the earthquake of 1972 [that destroyed downtown Managua, which has never been rebuilt]. After the earthquake, a lot of money flowed into the country for reconstruction. Until 1976 or 1977, the aid was flowing and there were business deals and reconstruction. When Somoza saw that this aid flow was dwindling down to the last piece of this cake, he said, "This last piece is mine." But the monied interests around him said, "No."

This began the distancing that occurred between the big business community and Somoza. The business community began to look for another candidate and to call for Somoza to step down. Somoza thought that his senators and all his friends in the United States would have enough influence to see him through. But President Carter became obsessed with getting Somoza out. So a momentary alliance of big business with the largely unknown guerrillas and with Carter pushed Somoza out.

MM: There wasn't widespread corruption prior to the earthquake?

Laínez: I would call it influence peddling. It wasn't so much out-right robbery as it was exploiting your position to make business deals. Of course, that is also corruption.

You have to understand an important detail. In Nicaragua, the big money has always been tightly wound around power. In this case it was intertwined with Somoza, as it was with the Sandinistas and as it is now with Antonio Lacayo [son in law and chief adviser to President Violeta Chamorro]. Big business made many deals with the Sandinistas, too, but there has never been as much influence peddling as there is now in this government. Now the capital is controlled by approximately five families and never have such fortunes been made in this country as are being made now.

MM: What is an example of the influence peddling?

Laínez: In come the cellular telephone systems, pop, pop, pop, and the families know they're coming. Bam, bam, bam, they discuss it at the highest levels and when the licensing comes along, they win it.

MM: What about the privatizations?

Laínez: This has been a disaster. Enormous deals and fortunes have been made. And it's worse because we don't have any controls or regulators to oversee it. There is no institutionalization here. These countries are almost savage. State enterprises have also been signed over to Sandinista union leaders on credit. They are not businesspeople and they don't know how to administer these businesses.

MM: What would you do if you were Nicaragua's economic czar again?

Laínez: I would follow a very painful policy. I would take us independent so that we could make our own decisions. I would suspend debt service, which would invite an economic blockade from the United States. Then, I would seal off this country to all superfluous imports so that the few dollars that I had would go for petroleum for energy. I would try to rationalize the consumption of energy. I would seek credits -- and I think they would be available because the Europeans would not cut me off -- to buy tractors and agricultural tools. I would try to buy from whoever came along selling capital goods, which would be my top priority. There would be an inflationary process that would not necessarily have to be extreme but which would permit wide employment, including of the peasantry. This is an agricultural economy that needs to find a way to put the peasant back to work in the countryside.

I don't think that the policies being applied [by the Chamorro government] are adequate medicine for Nicaragua. The Sandinista years left this country in an absolute state of bankruptcy. Nicaragua is not ready for a laissez-faire system. The government should have helped rebuild the economy. Under the Sandinistas, rural property, the basis of our economic system, was destroyed and needs to be reconstructed. The aid [that Nicaragua has] received has been about $350 million, of which half has been used to pay the IMF, the World Bank and the IDB. I think that 80 percent of the aid should have been channelled into production and 20 percent dedicated to improve social conditions, principally health care. This would have created a considerable number of jobs.

My criticism is that this government has followed the scheme of the developed countries -- the monetarist scheme -- to the letter. Monetarism has had two great conquests. It says, "We are going to eradicate inflation and maintain a relatively stable dollar-córdoba exchange rate. They have basically accomplished these goals -- at the cost of the hunger of the people.

But what do low inflation and a stable exchange rate mean to the unemployed beggar on the street? He is going to make fun of these accomplishments because what he wants is a job and a tortilla. The official unemployment rate is around 60 percent. It is absolutely incredible. When you visit the marginal neighborhoods, you see people living in phenomenal poverty because they don't have anywhere to go to earn an income.

MM: Are officials of the World Bank and IMF completely blind to these unemployment and hunger problems?

Laínez: They have some brilliant economists who graduated from Harvard, Yale and Cambridge. But they studied under the orientation of the United States and Europe. They have learned what is being done there but they are incapable of doing here what needs to be done. The Asian Tigers did not develop on the basis of laissez-faire or free trade. The state protected strategic markets. The city-state of Singapore has an annual per capita income of $12,000 or $15,000, while ours here is $450. We are earning on average something like $40 a month. It's nuts.