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Nicaragua is about to negotiate its fifth programme with the IMF. This programme will be decisive to determine whether Nicaragua manages to achieve the MDGs and national goals in the areas of education, health, water and sanitation, housing, etc., and whether it manages or not to recover basic prospects for future development. However, IMF policies aimed at constraining public spending and domestic demand have a depressing impact on the economic activity and employment, and their excessive focus on inflation control ends up sacrificing growth possibilities.

While the literature on conditionality places great emphasis on privatization and deregulation, these indeed are part of the “first generation” reforms that were launched in the 1980s in Latin America (in the 1970s in some Southern Cone countries) and as a result there remains increasingly less to be deregulated and privatized. Therefore, a progressive reduction in conditionalities related to these reforms is to be expected. These conditionalities – to a large extent – have already become part of the economic institutionality in place in our countries.

That which is completely strangling Nicaragua, as well as other countries, is the growing IMF tendency towards an increasingly tight control over each aspect of the fiscal policy, that is to say, the so-called “macroeconomic conditionality”, which is imposed through profound reforms in the legal and constitutional framework. In this field, the recessive character of IMF policies has been strongly insisted upon; that is, policies aimed at constraining public spending and domestic demand have a depressing impact on the economic activity and employment, and their excessive focus on inflation control ends up sacrificing growth possibilities.

But, beyond this, emphasis should be placed on the fact that the public sector plays a major role in our countries with regards to the provision of human capital and basic infrastructure, which represent fundamental requirements and elements for development, apart from the fact that having access to them is a human right, and therefore, an end in itself. It is here where the IMF macroeconomic conditionality and total control over fiscal policy has its most perverse impact, particularly the approach that aims at completely subordinating the fiscal framework of our poor countries to the necessity of generating the primary fiscal surplus (both present and future) required to ensure – at all costs – the strict fulfillment, both present and future, of public debt liabilities (debt “payability”, according to EURODAD).

It is worth disclosing that by exclusively focusing on the need to ensure primary (and even global) surplus at the present time in order to ensure public debt service payment according to agreed terms, as well as Central Bank transfers, this conditionality is totally myopic with regards to the future effects of drastically constraining investment in human capital and public physical capital, thus leaving the country and most people living in it, without basic prospects for future development.

This further confirms that said conditionality, rather than being concerned about the future and effective (comprehensive) sustainability of fiscal policy, is exclusively focused on ensuring public debt “payability” at all costs (in the case of Nicaragua, a major part of the domestic public debt is illegal, and its origin is highly irregular).

As for the rest, in countries with extreme levels of social and distribution inequalities, the public sector faces the responsibility of counteracting the huge inequalities, thus aiming at ensuring access to social and essential public services – which represent themselves rights that cannot be taken away from human beings – for the vast excluded and marginalized sectors.

It is when the debtor government can only pay for its debts at the expense of sacrificing social spending, that the human rights of the population are violated and huge inequalities cannot be possibly bridged.

The persistence of a massive inequality in terms of income distribution, which fails to be bridged by the public sector, implies that vast population segments will have no chance whatsoever of being endowed with a minimum level of human capital that may allow them to break the vicious circle of the so-called “intergenerational reproduction of poverty”.

As a result, the country’s average human capital endowment will be exaggeratedly low, thus irreversibly compromising its possibilities for future development.

With regards to the number of conditionalities, it is important to consider their implications, rather than their actual number which in fact continues to be excessive.

In the case of Nicaragua, just ONE conditionality – the implementation of the Fiscal Responsibility Law – implies SEVEN reforms to the Political Constitution of the Republic, all of them being quite sensitive:
1. Elimination of the constitutional autonomy of Universities
2. Elimination of the constitutional autonomy of Municipalities
3. The budget allocated to Universities and Municipalities will be PASSED by the National Assembly, as is the case with the budget of any Ministry
4. Elimination of 6% budget allocation to Universities
5. Elimination of 4% budget allocation to the Supreme Court
6. Elimination of budget allocation to Municipal Transfers
7. Elimination of the constitutional power of the National Assembly to modify the allocation of salaries and public debt service from the General Budget of the Republic submitted by the Executive Power.

At the same time, said conditionality imposes everlasting chains on the fiscal policy (practically the only policy tool that has been left to the government), thus leaving it tied forever hand and foot and to be enforced by law: annual fiscal deficit at zero, which implies the generation of annual fiscal primay surpluses to cover debt interest payments; substitution of internal for external debt, and central bank transfers to improve reserve status; payment of public debt service in due time and proper form, and at all costs; the freezing of total government salaries in real terms, which determines the impossibility of increasing the wretched real salaries earned by teachers and health staff, and of hiring the staff required to achieve MDGs; to deprive Parliament of the constitutional power to change the allocation of salaries and debt service from the budget bill; to exclusively allocate revenue surpluses to domestic debt payment, etc.

IMF conditionality prevents essential investments needed to provide the country with basic future prospects and affects energy configuration and policies, social security, investment in housing, drinking water, health care, investment in children, the possibility of addressing the huge shortfall in teachers’ and nurses’ salaries; the possibility of ensuring the maintenance of rural roads, which account for 73% of the country’s road network; the decentralization and fate of millions of human beings, particularly of those that are being “left out”.

This is not an strictly economic issue, but rather a strongly political one, and has to do with the right of citizens to freely question and decide their future options by means of democratic and discussion processes, instead of facing the external imposition of an “only future” without options.

The absolute prioritization of domestic public debt service and Central Bank transfers are contrasting the fact that while expenditure per secondary school student in Nicaragua barely stands at 5% of per capita GDP, in Bolivia it stands at 13% and in Zimbabwe at 24%. ECLAC estimates that the minimum threshold of schooling a person needs to fulfill in order to have 90% probability of not falling into poverty is 12 years (i.e. to complete secondary school). The empirical evidence from Nicaragua confirms that, in order to have 80% probability of not having to survive the rest of their adult life under the threshold of poverty and extreme poverty, children must reach, at least, 11 years of schooling. However, in our country, most children under 18 just reach approximately 2-3 years of schooling in rural areas and 4-5 years in urban areas.

With these levels of schooling, the absolute majority of children under 18 are being already doomed, without any alternative, to exclusively find precarious jobs, of extremely low productivity, mostly classified as self-employment, which will provide them with extremely low income, thus maintaining them under the threshold of poverty and extreme poverty for the rest of their adult life. With regards to the secondary school net enrollment rate, while in Nicaragua in 2006 barely 41% of young people of secondary school age were enrolled in that school level – which means that practically 6 out of 10 young people of secondary school age were left out of the education system -, in Bolivia, a country as poor as Nicaragua, 74% of all secondary shool age young people were enrolled in that same school level.

A country whose youth mostly has no possibility of getting access to the minimum threshold of shooling required so as not to be doomed to survive in the most abject poverty for the rest of their life, least of all to quality education, nor therefore to jobs with a minimally decent income, is bound to increasingly strengthen the processes of social decomposition and anomia as well as to experience the fracture of solidarity bonds and social cohesion. On the other hand, the fact that an extremely low level of average schooling is already being determined for the workforce of the next decades – often placing it below the thresholds of functional illiteracy – is a truly unfortunate piece of news for the future prospects of the country and most people living in it.

It is worth highlighting that these policies are not so much being imposed by the IMF alone since this institution would not have enough strength to do so. Nicaragua completed the HIPC Initiative two years ago and no longer owes any debt to the IMF (it was cancelled by the MDRI). The country has international reserves amounting to 80% of the government’s primary spending, its fiscal deficit after grants is practically non-existent and therefore, theoretically, no major indebtedness is required to finance it. Notwithstanding this, within the framework of the so-called “alignment” of External Cooperation, a Group of Donors has been set up to provide budget support, being mainly made up of European donors (the European Union, Denmark, Sweden, Switzerland, Norway, the Netherlands, apart from the World Bank and IDB), which have established that in order to be granted assistance a country must have a programme with the IMF. Thus, their disbursements are subjected to the strict observance of World Bank and IMF conditionality, apart from establishing their own long list of conditionalities.

In this way, a huge blackmail is imposed upon the country: if such and such laws – which often affect aspects that are extremely sensitive for citizens – fail to be passed or ammended as instructed, there will be no disbursement by donors of this Group and the country will be plunged into crisis. As it is obvious, this huge blackmail by so many donors at once, leaves the country defenseless and without any power of negotiation whatsoever vis-à-vis the IMF.

Will it be possible to establish coordination among those NGOs that attended the Oslo Conference in order to have some kind of influence on these governments and their representatives at the IMF Board, thus allowing Nicaragua to seek new policy alternatives? The IMF is already putting pressure, and I figure it will be followed by pressure exerted by donors in order to make the government resist demands for salary increases being made by teachers, doctors and other health staff and approve the so-called “pending structural reforms”.

The IMF Board has stated the following:

"The new government will need to exercise vigilance with respect to pressures for higher public
sector wages and subsidies, which could adversely affect stability and competitiveness, and should be prepared to implement offsetting measures, if needed. It will also be important to repeal the fiscally unsustainable pension reform Law 539 approved last year.(...) The new administration is encouraged to advance early and quickly with the remaining agenda of structural reforms. Strengthening the regulatory framework for the energy sector should be a priority, in order to bolster financial stability and attract needed new investment in the sector. Road maps have already been prepared for critical reforms of the pension and fiscal responsibility frameworks, as well as draft laws to reform the fiscal decentralization process".

Related Information:

* About the negotiation of the fifth IMF programme with Nicaragua

* Oslo conference finds World Bank, IMF still pushing conditions

* Summary of the conference

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