Nicaragua and the international financial institutions - An interview with the country’s finance minister *
October 25th 2023
John Perry: Minister, thank you very much for agreeing to the interview. Perhaps we can start by discussing institutions such as the International Monetary Fund and its relations with Nicaragua. Maybe you can explain how the relations between these international financial institutions and the Sandinista government work, and how they are affected by sanctions.
Ivan Acosta: Thank you very much for this interview. Nicaragua is a member country of the main financial institutions, in this case the International Monetary Fund, the World Bank, the Inter-American Development Bank, the Bank for Central American Economic Integration, among others.
These are banks which have been fundamental to the development of our country since the 1940s when they were originally founded. And we have followed the principles of these development banks, which are to mobilize resources to fight poverty and extreme poverty, and to mobilize and invest resources in economic infrastructure, in productive infrastructure and for social investment.
That is the original logic. But we must be aware of the new approach taken by these banks since 1990, based on the Washington Consensus: the disaster of neoliberalism obliged these institutions to create cushions for economies, to attenuate the impacts of the terrible years of neoliberalism in the 80s. This was the case globally, and above all in Latin America, especially in Nicaragua itself in 1990, as you remember. After the structural adjustments in the 1990s, and the great flood of privatizations, the banks paid more attention to using their resources to address these issues because people became poorer more quickly and more deeply, and in the case of Nicaragua, very deeply, during its three neoliberal governments.
John Perry: And how has the relationship with the IMF developed in recent years? Because the relationship with Nicaragua is not the same as it is with other countries, and I'd like you to explain this a little.
Ivan Acosta: Before addressing the relationship with the IMF, I must point out that during the years of President Ortega's government, Nicaragua has been recognized as one of the countries with the best performance in the use of international funds.
We have probably gone from mobilizing US$70 or US$80 million annually to US$300 or US$400 million. That is why you can see the great changes in infrastructure that have taken place. And this has fundamentally been a result of our high technical ability in the formulation of projects, in the design of programs and policies, so that we have been able to present high-quality projects to the boards of these institutions. We also implement them in ways that make us among the best global executors of funding. If you design, manage, and execute projects well, then you can successfully account for the use of resources. And that becomes a virtuous circle that has allowed Nicaragua in recent years to have more and more resources to fight poverty, to build rural infrastructure, economic infrastructure, more rural roads, more electrification, more drinking water and sanitation, more schools and a large hospital infrastructure.
This is has required a constant effort since 2007, with particular success since 2010 or 2011, recognized by the international financial institutions, recognition which has appeared in public documents. It reflects the basis on which we have worked: to be effective and to create a good partnership with these institutions.
Secondly, we have been working since 2007 with the International Monetary Fund (IMF), an institution which exists to solve balance of payment issues, and we have achieved a good technical relationship, which has allowed us to improve our performance in macroeconomic, fiscal and monetary matters. With technical assistance we have created a really sound economic base, taking into account an element that perhaps is not mentioned widely, that we were able to persuade the IMF that we should not only review financial and economic adjustment issues, but that what we call the "social pillar" is also very important. There can be no financial adjustment, there can be no reforms that do not take into account the impact on citizens, the impact on the population. And we saw this agreement take shape in the programs and I believe that it is now being applied at international level: we must consider the human part of any economic adjustment, that is, how to mitigate the damage to the population, how to avoid destroying the survival prospects of the Indigenous community and the rural peasant communities, in other words the poorest, because history has been basically been about economic changes that have destroyed the livelihoods of the poorest to save the macroeconomy.
We do not agree that macroeconomics is an end in itself, rather it is a means to strengthen the country’s economy, based on the financial stability of the public sector, the monetary sector via the Central Bank, and the macroeconomic position. Macroeconomic policy is a means to attract investment, to raise private investment, to improve the conditions in which businesses operate so they are able to develop and hence reduce poverty. Finally, the country’s principal objective, set out in speeches by President Ortega, is to reduce poverty, to eliminate extreme poverty, above and beyond financial issues. In other words, macroeconomics is a means to obtaining these results.
John Perry: Yes, that's interesting, and with the IMF does the country have access to special drawing rights, and how does the relationship with them work now?
Ivan Acosta: Yes, fundamentally until 2013-2014, we had considerable assistance, and then at the end of this period, the IMF resolved that the Nicaraguan economy was very stable and that it could proceed without further assistance or intervention: these were their recommendations. Therefore, it was a matter of simply evaluating the position under “Article Four”: the formalities that the fund has to get updated information on the state of the economy, its fiscal and monetary state and the other indicators they use to monitor the economic situation. That is, we did not need resources from the IMF, just technical assistance: it was a normal, rather formal relationship.
The situation became much more complex for us in 2018 [the year of the attempted coup in Nicaragua]. 2018 was the first time when we required resources to be able to maintain and give greater stability to the economy and contribute to its rapid recovery. We met with different IMF officials, but in the end, much to their regret, they confided to us that they had a problem. This was that in order to have a special program to support the economy, and to give assistance at a time when there was a danger of a run on Nicaragua’s currency, they had to go to the IMF Board of Directors and there were some big stakeholders who did not want to support the Nicaraguan government or the Nicaraguan state.
So they very reluctantly said that we should not put a proposal to the Board of Directors because they did not want to be overruled solely because of Nicaragua, and we very proudly replied that if it was going to have a negative impact on the administration, then we would not put a proposal forward. It is clear that the United States and some European and other governments were blocking measures to guarantee the stability of Nicaragua’s economy, the stability of its public finances, which were measures available via the IMF.
The IMF administration was clear that it was necessary to bring in resources to quickly address the impact of any losses. But those stakeholders who were undoubtedly investing a lot in aggression towards Nicaragua were not willing to vote for them, and that shows that they were aligned with the failed coup attempt. They were fully committed to the coup. Therefore, they had no wish to support the people of Nicaragua, let alone its government.
John Perry: Something similar happened with the World Bank and the Inter-American Development Bank?
Ivan Acosta: The World Bank and the Inter-American Development Bank also had similar attitudes because the boards are a reflection of the IMF, in the case of the Inter-American Development Bank (IDB), the key player even has a veto. The one that has the veto is the United States with its 30% holding. That is to say, there is nothing that can be promoted via the Board of Directors if the United States is strongly opposed, because it is easy to find the other 20% and the project’s approval is paralyzed, and it can also have a lot of influence because it is one of the most important financiers.
The World Bank said in a meeting that already-approved projects would continue, but any new ones could not go ahead. Despite the efforts made by its administrative staff, this is shameful for that institution, in which there are very important people such as its director, representing different countries . It is very embarrassing for its administration to handle a situation where the U.S. representatives are ignoring their responsibility to the Bank's charter, which is to mobilize resources for projects that directly impact the poorest people, that is, education, health, drinking water and sanitation.
In the case of the United States, which is a big player in this, they say that they will never vote against projects that are for basic needs. This is a very important promise, but they seek to avoid this responsibility and instead, in the legislation they passed long before 2018, probably starting originally in 2015, such as the Nica Act and other initiatives such as the Renacer Act [‘Reinforcing Nicaragua's Adherence to Conditions for Electoral Reform Act of 2021’], they have always striven to make the maximum effort to prevent resources from reaching Nicaragua.
It is shameful, particularly, because they do not distinguish between the administration of the government and meeting the needs of the majority of Nicaragua’s population. This is a country with a modest economy, an economy whose GDP per capita is around US$2,500, compared with the countries that have the veto which have a GDP per capita between US$50,000 and US$70,000. It is an injustice. But in any case, we can see now that it was a very painful injustice, and that behavior in 2018 was then repeated in 2020, even more shamefully, during the pandemic.
The international institutions had to mobilize global resources to address the pandemic when in January and February 2020 it was still not known what global impact it was going to have. We took the necessary steps, as all countries did, and we took the necessary steps before the different international organizations, including the IMF, and found that some officials were making considerable efforts to delay sending resources. Surely this is not Christian, is it? We were facing the risk of death among a population and they did their utmost not to deliver the resources, failing to comply with the promises of the global leaders to support all countries in the face of the global pandemic that was approaching
So Nicaragua had to mobilize its own resources, to secure and establish the necessary capacity and infrastructure in our country’s medical care to face this pandemic. In February and March 2020, when we did not yet know what the impact would be, arrangements were made, medical equipment was imported, we mobilized resources to ensure house-to-house visits could take place, mass vaccination of the population against influenza could be achieved, and all the rest. So we mobilized the resources and, eventually, the promised international resources arrived in the country after the pandemic. In the end that was the decision of the boards of directors, the decision of the member governments of these banks. That is why they delayed, and in a way it is tragic and comical at the same time that while the pandemic had had a very strong impact in May, repeated in August 2020, the resources eventually arrived in December and began to be used only in 2021.
John Perry: And, despite the pandemic and the hurricanes [two major hurricanes hit Nicaragua in November 2020], I imagine that the relationship with the World Bank has not yet returned to how it was before 2018.
Ivan Acosta: Yes, we have not been able to return to the best relationship that we always had with its administration because although we have a very solid record and a very strong relationship, with many results, we have not resumed the position we had in 2017, because of this irrational policy by the bank’s main partners.
The European countries act with the United States to prevent the approval of new projects. I am going to give you the data because no doubt that is what you want. Between the Inter-American Development Bank and the World Bank, back in 2016 to 2017 we had projects that could add up, between the two entities, to about US$500 million per year. That is to say, over the five years from 2018 to 2023 we should have more or less been promised resources of between US$2,500 and US$3,000 million. This is an important figure for a ‘high performance’ country that has achieved excellent results in terms of infrastructure and health. For example, in terms of the pandemic, we were one of the countries with the best outcomes or, to give another example, we managed to electrify the whole country with programs from these banks. Therefore, we have done excellent work as both a member state of these institutions and as one of their client countries. Yet these banks have not managed to mobilize more in these last five years - in new projects, not in the execution of old projects - than US$78 million from one and probably US$200 million from the other. That is to say, a figure that does not exceed US$300-US$320 million versus a possible total of US$3 billion. So the resources have been just 10% of what they should have been over this period.
However, the good news is that the people of Nicaragua, even though these outside resources are important, have still managed with their own efforts, to keep the country on its feet, to build more highways, to guarantee and finance social investment, education, health, to continue building important infrastructure. That work has not stopped. However, if those resources that the people of Nicaragua deserve had been given to us, the impact would have been much greater.
I see it like this, say we need to build a hospital in Siuna, and one in Masaya: for each 450 bed hospital, the average cost is approximately US$130 million. So if we had had US$3 billion available we would now have built the hospital in Siuna, the hospital in Masaya, and many more, and we would also have further strengthened our education programs for children and young people.
We must remember that the best opportunity to educate children occurs between the ages of 3 and 12 years old. If we don't do it at that time, we are going to see a negative impact when these children become teenagers. Then, they will say, these children have migrated to neighboring countries or massively to the United States and this was due to inadequate education, because it was not taken care of at the time.
We have made great efforts, but we could have done much more if the banks had remained loyal to their charters. That is to say, the banks' charters have been violated. We have not completely addressed poverty, we have not completed rural water supplies and sanitation or met all the needs of the Indigenous communities. We have not been able to, because when we have offered these projects or programs to them, the bank administrations, with much regret, say that the bank’s stakeholders do not want to finance them. That is the way it is. We have always told the banks that we have very good proposals for them, for example in Nicaragua's Dry Corridor, which is part of the Dry Corridor of Mesoamerica and could be highly productive if we could mobilize US$500 million in 4 to 6 years. We could be a much more productive and less impoverished country.
But the absence of these resources delays programs of high value in the fight against poverty and in creating food security. For example, we could have a better drinking-water system for the entire Pacific side of Nicaragua by bringing water from Lake Nicaragua: a US$200 million program, offering better service, greater continuity of water supply. In other words, the quality of service would increase exponentially. These financial organizations have these projects, we formulate them jointly. They are convinced of the quality of the projects, but they do not finance them. Who are these programs for? For the poorest people in the country, who do not have water, because no doubt those watching these program themselves buy bottled water. But poor people have to use “ground water”.
Nevertheless, we have managed to overcome the impact of the unilateral coercive measures [i.e. sanctions] in terms of the country’s management and in terms of growth. I believe that we are the country with the highest growth [in Latin America] since the pandemic, 15.8%, but we could have been growing by 20 points and it would be much better for the poorest. Because when this growth is lost, it’s like inflation, the first to lose is the one who does not have resources. So the first one to lose in this aggression using unilateral coercive measures, the abuse by a strong state of a smaller state, is not the one they would probably want to lose. It is not the Minister of Finance. I am not going to lose first. It's going to be somebody who requires help right now, because the help will come to them much later than it should.
John Perry: Yes, and that is an important issue. Regarding the Bank for Central American Economic Integration (BCIE), have you had a better experience with them, in recent years?
Ivan Acosta: As the Mexicans might say, “it's far from the United States”. The United States does not have shares, the majority owners of BCIE are the Central American countries. We own 52% of the bank, that is, the majority of the bank. It is a much smaller bank, but it is fundamentally under the administration of the Central American states, accompanied by Asian countries, by other countries in the region, and this gives it strength because there is no impact of the aggressive policy of unilateral coercive measures. Of course they get visits from the State Department, from the US embassy, they do so constantly, but this does not have any effect, because here there is a pact that we made in the 1960s, that the Central American countries act together in economic integration and in social programs, because an imbalance in one country can have a severe impact on another.
We agree because we are small and very interconnected countries. Thirty percent of our trade, our economy is with Central America. Therefore the Bank for Central American Economic Integration has played a key role and has fulfilled it. Of course, it works as a bank, we must put forward projects of the highest quality and they are approved only if their requirements are met.
With all the financial institutions we are regarded as the best in Central America. The country is undoubtedly one of the best globally and in Latin America too in terms of accountability. The most important message we have for the taxpayers who fund these banks, is that one can see that our roads [for example, funded by BCIE etc.] are of high quality and built at lower costs. That is very important, to build good roads and at a more competitive cost. To have electrified 50% of the country in only eight years, when the previous 50% took all the time from when electrical energy first arrived in Nicaragua. From 1930 to 2006, just 50% of the country was electrified. We are talking about 75 years. And the remaining 50%, covering the homes of the poorest peasants in the most remote areas, has been done since 2006. The government of President Daniel Ortega has tripled electricity generation in eight years, with the support of the national community and these international organizations.
The best “letter of introduction” about these projects is the hospitals. I am going to give you a very hard fact: in 16-17 years, the neoliberal governments built only two hospitals and started one more. In contrast we have built 17 hospitals, among them three much more advanced ones, and we are finishing the construction of four more. So that is a huge difference in the same period of 17 years. In total we have 77 public health facilities, including hospitals, health centers and primary hospitals, and if we include smaller health posts we are talking about more than 1,500 health facilities. As the British say, “it's arithmetic”, there is no way to argue with these figures.
Equally important, after cement was first invented, 2000 kilometers of highways were built in Nicaragua and when we look at the quality of the highways in 2006, only 30% were in good condition. Out of 2,000 km, there were only 600 kilometers in good condition. Today I am very happy to say that we are already close to 4,500 kilometers of highways with 85% in good or excellent condition. We are talking about 4,300 kilometers of highways in good condition versus 600 (built since cement was invented here in Central America).
Therefore, it is important for the taxpayers in the countries that are members of the international financial organizations, the IMF, the World Bank and the IDB, that the resources are used effectively to finance development. All countries should have good accountability and the best way to express it is with programs and projects of the highest quality that have a strategic impact in transforming people’s lives.
John Perry: Speaking of the effect of unilateral coercive measures [sanctions] in general, how could you summarize the effect of these on the economy, on sectors such as sugar, the gold market and so on?
Ivan Acosta: Unilateral coercive measures have effects, and we can quantify them. I put the opportunity cost at US$3,000 million of the finance that the international banks wanted to provide, or the receipt by Nicaragua from the IMF of 50% of the special drawing rights compared with the 100% that was given to all other countries. These are clear impacts and we quantified them: we should have received more, but we received less, and the impact was in works or in programs and projects that the population is not receiving, or is not receiving at the right time.
However, when we look at sectors such as sugar, gold or the electric energy sector, we can clearly say that the impact intended by these countries, mainly the US and some European countries, did not occur, first because in respect of sugar the measure only affected a very small amount, that is, exports of between 80,000 and 100,000 quintals were lost. The sugar market is very open to Nicaraguan production, which is about 8.5 million quintals sold annually, and we are always looking for new markets.
On January 1st [2024] we are going to have a new trade agreement [with China], you are going to see more of our products exported. Nevertheless, all these attacks do have an impact. For sure, losing money is important in any sector, but it does not stop the development of the sector, the sugar sector continues to function very well. They continue to look for more and better markets and get good prices. This year sugar attracted very good prices.
Regarding gold, this is a private business, like sugar, financed by foreign direct investment. This year investment grew and now producers are enjoying prices that are above $1,900 per troy ounce and they are mainly operations in Canadian, U.S. and Colombian hands. So they have been looking for ways to resolve the market issue. Sanctions have not really had the intended effect; as in the case of sugar, markets have functioned normally.
The difficulty, taking into account that the economy is working rather well, is that certainly there could be more investment, as well as more development financing, because there is an opportunity with the macroeconomic stability that we have been able to build in these years. Also, with the level of citizen security that the country has, we are now the safest country in Central America, one of the safest in Latin America, despite people saying that this is a small, poor country.
There are statistics relating to three types of crime that show if one has a good program of citizen security. These are homicide, kidnapping and theft of vehicles, because these are mandatory reportable crimes, they cannot be hidden, they are crimes that the population necessarily hands over to the public authorities. In homicides, we are falling below seven per 100,000 people, when the Central American average is about 30 per 100,000.
And kidnappings have been practically zero since 2007 [apart from the period of the attempted coup], and the theft of vehicles is also at an impressively low level. For example, when vehicle theft went up in the entire Central American isthmus, especially in Guatemala and Panama, here in Nicaragua people did not buy GPS systems [to locate stolen vehicles], those who sell GPS arrived but there was no market.
This is a sign of stability, but we are not an island, that is, we are a hyperconnected country. Problems related to gangs, drug trafficking, etc can move across borders if they are open. We are not a country at war, borders are not porous, but the problems stop at the northern border, and we often talk about the “containment wall” we have created on the northern and southern borders.
All this is only possible because of the success that President Daniel Ortega has had in public policies: achieving greater social cohesion, achieving income redistribution for the population through health, education, rural programs, financing programs and, definitely, putting the citizen, the ordinary person, at the center of public policy.
Because we are not different from any other Central American country, in terms of culture, language, religiosity and social behavior. So, when one wants to understand these statistics, one has to look at two roots, in the strength of social and public policy and in the revolutionary base created in 1979. Obviously there was a revolution here and a big change in social, institutional and political behavior patterns.
John Perry: Speaking of sanctions, they want to impose more sanctions on trade between Nicaragua and the United States, for example in the sale of meat or coffee and other important export products.
Ivan Acosta: Yes, there are definitely more conservative and irrational sectors that have always been asking for sanctions; well, there are some who want to put a bomb in their own house, indeed there are always people who are beyond rationality. What you are noting is what they have been asking for since 2006, proposals that have all been put in writing. But I think nevertheless there is an appeal to rationality in a small country, a country that really is on the road to development, a country with a market economy, where the economy is in the hands of the people, of the population, and therefore, I think that is a great deterrent, because sanctions cannot destroy the productive will of the country or the productivity of the people, purely in the name of something insubstantial, what the main opposition leaders term 'in the name of democracy', or 'in the name of transparency'. No, there is nothing to justify sanctions, although sometimes I wonder when I see the latest claims - no? – that sanctions are “on account of poverty”.
I believe we need to appeal for rationality. We are a people with a very small economy, where the GDP per capita is small, where we work very hard within each family, each community. In Masaya, for example, the family and the community work very hard to get results, to be successful, to succeed in life. We are a very religious country, very religious, because as you can see, it is a country committed to the best values.
So any irrationality is going to be met with national repudiation, Central American repudiation, a repudiation by the vast majority of people in the rest of the world, because it's not right.
John Perry: The Central American Free Trade Agreement (CAFTA) offers a degree of protection in this regard.
Ivan Acosta: Yes, in Central America because of the level of connectivity, of exchange and also of a history of cultural rapprochement, at no time in history... there have been moments that were somewhat complex, when there were ideological currents that led to military action but trade was never interrupted. That is a very important issue, because the region is very interconnected via families, via businesses, and through political will.
On the other hand, we as a government have a great responsibility to always look for more markets, especially to diversify and also to expand our possibility of development. Because a bigger market is always needed, because if a market can absorb US$8 billion a new market might absorb another US$8 billion, because the country requires it, the economy requires it, businesses demand it and the people deserve it. That the country grows. So that also becomes a great obstacle for those who want to act irrationally. In other words, we are not static, we are always looking for more and better markets for businesses. The government does not produce, the government does not sell, the government does not own the logistics. The entire economy is in the hands of private economic actors.
John Perry: Yes, I think it may be convenient to finish on this point, because we have now covered more or less all the effects of sanctions and the response from the government. Is there anything else you want to add?
Ivan Acosta: What I think is always good to point out to the international community, to the people who know or follow very closely the issues of Nicaraguan politics and the politics of foreign agents or countries that have had an impact on the Nicaraguan state, that the most important thing that we want to remind you of is that we are a country that has managed to absorb massive 'shocks': fierce attacks from elsewhere, hurricanes, earthquakes and war. Yet there is always a great spirit that keeps the country on its feet. Nicaraguans will always work to achieve the best outcome.
There are the constant efforts of Nicaraguan workers, peasants, for example the efforts of the 150,000 meat and milk producers, those of the 50,000 coffee producers, of the more than 350,000 agricultural producers, producing coffee, meat and milk. We are in the hands of these entrepreneurs, the vitality of the economy depends on them.
Therefore, we should never, never accept the impact of the coercive measure, we are not going to mobilize in favor of coercive measures that impact so many people who are not politicians, who are producers, farmers, workers, ordinary people. Because that would be the greatest injustice there could be and, above all, the Nicaraguan people, the government of Nicaragua, are huge advocates of peace, sovereignty, respect for other countries and efforts to strengthen human dignity.
* This is a translation from Spanish of an interview with Compañero Iván Acosta, Nicaragua’s Minister of Finance and Public Credit, on October 25, 2023. The interviewer is John Perry, a writer from the UK who lives in Nicaragua. Photos by Camila Escalante.