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Under The Volcano

Structural Adjustment

new internationalist
issue 312 - May 1999

[image, unknown]

Under the volcano
Hurricane Mitch carved a swathe of destruction across Central America.
Tim Gaynor wonders whether its effects are any harder for the Nicaraguan
people to endure than the damage caused by foreign debt.

Months have passed since Hurricane Mitch roared through Nicaragua, but the physical scars of the disaster remain etched into the landscape. The large gouge cut into the slope of La Casita volcano by last October’s landslide is still visible from the western coastal plain. The seven-mile-long slip, now baked to hard clay in the intense heat of the dry season, attracts a steady stream of weekend visitors who come to remember the 1,400 people who died in the hillside villages.

In the weeks immediately after Mitch, the Government recorded a total of 2,400 dead and 850,000 homeless. In addition, more than 30,000 homes, 8,000 kilometres of highway and 70 bridges were destroyed, at a cost of nearly $1.5 billion.

Largely left out of this reckoning, however, were campesinos (peasant farmers) living on marginal lands, like those so brutally swept away at La Casita. Tens of thousands of campesinos still live in makeshift refugee camps scattered across western Nicaragua. Most of the survivors are now landless and without the modest funds needed to start over again. Since they contribute little to export earnings their plight tends to be overlooked. But in the months to come it will be acutely felt by all Nicaraguans, who rely on them to provide up to 70 per cent of the staple foods that make up the country’s daily diet – such as rice, maize and beans.

Hurricane homeless: a family shelter at Nueva Vida camp, Ciudad Sandino

For these small farmers, says the Nicaraguan monthly magazine Envío: ‘The rains were simply the straw that broke the camel’s back. Those who already had little now suddenly have nothing other than the muddy clothing they had when they fled their flimsy shacks. The difference between what they had before and what they have now is not much. What has changed is that the cameras of the world’s media are temporarily focused on them, so they can’t be easily disguised behind figures of economic growth or stability.’

Many Nicaraguan commentators welcomed the rapid international response to Hurricane Mitch, but they contrasted it with the continued reluctance to support any change that might bring lasting benefits to Nicaragua’s large rural population. Such structural change, Envío noted, would ‘make development in peace possible for all’.

While working in Nicaragua in 1997 I saw how debt was crippling agriculture, the mainstay of the economy. As a part of my job I had regular meetings with a small Nicaraguan non-governmental organization that lent money to campesinos with holdings of less than four hectares. Passing by the office one day, I was shocked to find the computer, telephones, desks and chairs missing. Everything portable had gone.

The director told me that, in the absence of available bank credit, the project had been forced to borrow from a prestamista – a private lender. The lender had called in the loan at short notice, arriving with a warrant to take away whatever collateral would fit in the back of his Toyota Landcruiser. The campesinos’ land, held by the project as security, was also under threat.

Nicaragua’s external debt repayments stood at $341 million in 1997 – roughly half of all export earnings. As a result there was little credit left over for small farmers. Coupled with a devaluation of the country’s national currency, the cordoba, this boosted interest rates to between 30 and 40 per cent. It didn’t help that the price of cotton, the traditional export crop, was at record lows and that wacky weather from El Niño was also cutting into harvests.

However, an already difficult situation was made worse last February when the International Monetary Fund (IMF) required bank credit to be privatized as a condition of its structural-adjustment loan. A few months later the National Development Bank (BANADES), which had funded rural producers for decades, was closed. Credit contracted further, pushing many smaller producers into the arms of prestamistas who charged upwards of 20-per-cent a month on loans. The Government’s Rural Develop-ment Fund, which was supposed to fill the gap left by BANADES, has yet to come on stream.

Cobbler's complaint: few new shoes are bought from Ramiro Muguia

Other sectors of the economy were badly effected too. My old friend, Victor Martínez, is a bus driver in the western city of León. I found him at home, pensively fanning himself with the gentle back-and-forth arc of his rocking chair. The small bus that he and his brother Sergio jointly run takes passengers on the cross-town route. But it’s been a bad year. Daily turnover fell from $130 in the early 1990s to less than $40 last year. ‘More people are walking,’ he told me. ‘And the passengers we still have tend to pay in small change. They don’t have the money to spend on bus travel now.’ The drop in earnings cut the brothers’ income as well as essential maintenance to the bus. ‘We are,’ Victor remarked, ‘eating the machete.’

Victor’s neighbour, Ramiro Munguía, is a cobbler. Normally bright and positive, today he is clearly worried. ‘The demand for new shoes has fallen,’ Ramiro explained. ‘We used to sell forty pairs a week ten years ago. Now we’re lucky if we sell five. Customers are either buying cheap imports or they just want repairs.’

Even though he now makes belts – which his wife Patricia sells in the street markets of nearby Chinandega – the once-successful business no longer earns enough to make ends meet. The Munguías have just one light on in the evening and they leave the refrigerator unplugged to save money. The family gets by on less than $100 a month, which Ramiro earns as a night watchman at a warehouse in town.

For many Nicaraguans the fall in income during the 1990s was accompanied by an increase in the cost of living. This was caused partly by the scarcities that followed El Niño and partly by tax changes imposed by the IMF. For example, a 15- per-cent value added tax (VAT) was added to a range of goods and services in an attempt to shift government revenue from direct to indirect taxes. VAT impacts directly on the poor, since they have to spend a much greater proportion of their income than the rich.

Structural adjustment has been paring away at the income of families like the Martínezes and the Munguías in other ways, too – what the economists call ‘cost recovery’. Basic education was previously free in Nicaragua, but parents are now charged around $10 a month for each child – a sum equivalent to the entire weekly income of the poorest. Attendance rates began to decline for the first time at the start of the new school year in February.

What Nicaragua owes Last year, state hospitals started to charge $30 for hospital admissions, together with fees for x-rays, biopsies and a range of laboratory services. While the Health Ministry insists that the charges are ‘voluntary’, many people are beginning to question whether they can afford to be sick. The total health budget for 1998 was $88 million – more than four times that amount was spent on debt servicing.

Nicaraguans have also seen their home-care costs rise sharply as state utilities – notably telephone, water and electricity – are readied for privatization. To make the state electricity company’s balance sheet more attractive, street lighting was added to consumers’ monthly electricity bill. When a bulb is broken, residents have to chip in for a replacement which costs around $10. The poorer barrios (neighbourhoods) of Nicaragua’s cities are now only intermittently lit.

Doctors, teachers and government employees face an increasingly uncertain future as the IMF calls for the dismissal of some 6,000 state employees. The Health Ministry proposes to ‘decongest’ the health service and has suggested cutting the number of doctors by more than a third this year, from 1,685 to 911.

Addressing the intimate misery caused by Nicaragua’s $6 billion debt will require a wholesale reassessment of priorities. In January 1999 the Latin American section of Jubilee 2000 began to campaign for just this – including the immediate cancellation of Nicaragua’s outstanding loans.

What is happening to Nicaraguans now is not the result of either climate or geography, but part of an historical process. As Honduran Archbishop Oscar Andres Rodríguez told the Latin American Jubilee 2000 meeting: ‘We must put aside purely economic criteria and look for human solutions. We cannot have a world run solely by the logic of profit.’

Tim Gaynor is a freelance writer based in Central America.
Source: Envio magazine, December 1998

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