ThirdWorld Quarterly, Vol. 17, No. 2, pp. 329± 348 1996 Makingthe economy scream: US economicsanctions against Sandinista Nicaragua WILLIAMM LEOGRANDE From1981 to 1990,the USA engaged in a concertedand multifaceted campaign tooverthrow the government of NicaraguaÐ a policythat was highlycontro- versialdomestically and culminated in the Iran± contra scandal. In the history of USattemptsto destabilise other governments, the effort against Nicaragua stands outas oneof the most intensive and long-lasting. The covert paramilitary dimensionof Washington’ s policyis wellknown and quite comprehensively documented,in partbecause of theinvestigations resulting from the Iran± contra affair.1 Theeconomic dimension of the policy has receivedless attention,even thoughit was arguablymore effective. The `contra’ war failed to achieve its aim ofoverthrowing the Sandinista government by military means, whereas econ- omicsanctions, combined with the costs ofthewar, succeeded in devastatingthe economy.Amid widespread privation, the Sandinistas’ popular support fell severely,and they were soundly defeated in the 1990 elections. 2 Theweight of scholarly opinion holds that economic sanctions are notan effectiveforeign policy instrument. 3 Evenamong scholars who have recently triedto rehabilitatesanctions, most agree that they can only be successful under alimitedset ofcircumstances. Hufbauer, Schott and Elliot, for example, offer a listof nine conditions that determine whether or not sanctions will bring about thedesired policy change by the target country. One of their conclusions, interestingly,is thatthe use ofeconomic sanctions by the USA to destabilise governmentsin LatinAmerica has beenmore successful historicallythan the use ofeconomic sanctions for various other aims. 4 Theexample of Nicaragua is a case inpoint. Carter’s aid policy On19 July 1979, the Marxist Sandinista National Liberation Front (Frente Sandinistade la Liberacõ ÂonNacionalÐ FSLN)tookpower in Nicaragua after an 18-month-longinsurrection against the dynastic dictatorship of Anastasio Somoza.During the ® nalmonths of the revolution, the USA tried, unsuccess- fully,to ease Somozaout of of®ce infavour of moderateoppositional ® guresin WilliamM LeoGrandeis atthe Department of Government, American University, Washington, DC20016,USA 0143-6597/96/0329-20$6.00 Ó 1996Third World Quarterly WILLIAMM LEOGRANDE orderto prevent the radical Sandinistas from coming to power. In the wake of Somoza’s defeat,however, President Jimmy Carter adopted a policyof cautious acceptanceof the new Nicaraguan government. Both Nicaragua and the USA hadan interest in maintaining friendly relations. Nicaragua desperately needed foreignassistance tohelp rebuild its shattered economy, which Washington pledgedto provide. Moreover, other international assistanceÐ from Latin America,Western Europe, and the international ® nancialinstitutionsÐ would tendto follow the lead of the USA. ForWashington, maintaining cordial relations with Nicaragua was ameans of salvagingsomething from the failure to keepthe Sandinistas out of power.From Washington’s perspective,the struggle to control the succession to Anastasio Somozahad been `lost’ , butperhaps Nicaragua itself need not be. The Carter Administrationset out,quite consciously, to avoid repeating the errors of 1959±60, when US hostility contributed to the radicalisation of the Cuban revolutionand its alignment with the USSR. Inthe immediate aftermath of the insurrection, the USA provided $10.5 millionin emergency relief to help feed and house the thousands of people displacedby the war. This was followedin September 1979 by $8.5 million in `reprogrammed’economic reconstruction assistance, ie money reallocated to Nicaraguafrom other foreign aid accounts. 6 Inaddition, the State Department drewup an $80 million supplemental foreign aid request for Central America for® scal year( FY)1980,$75 million of which was forNicaragua. 7 Despite intenseopposition from conservative Republicans, the $75 million aid package eventuallypassed Congress,albeit with 16 conditions restricting how the funds forNicaragua could be used. 8 Oneof theseconditions required that aid be terminatedif the president found thatthe Nicaraguan government was aidingor abetting acts ofviolence in anothercountry. Despite some intelligencereports that arms were¯ owingfrom Nicaraguato the guerrillas in nearby El Salvador,Carter gave the Sandinistas the bene®t ofthe doubt, concluding that this was notgovernment policy. 9 By January1981, however, new intelligence left no doubt that the Sandinistas were directlyinvolved in smuggling arms toEl Salvador. As aresult,Carter sus- pendedeconomic assistance. `I hadno alternative but to cut off aid to the Sandinistasbefore I leftof® ce’ , Cartersaid, `because there was evidencethat was clearto me thatthe Sandinistas were giving assistance totherevolutionaries inEl Salvador, and the law required me tostop the aid.’ 10 Thesuspension of aid was the® rst stepin dismantling the constructive relationswith Nicaragua that Carter had tried to maintain for 18 months. By only suspendingaid rather than cancelling it, Carter left open the possibility that it mightbe resumed if Nicaragua ceased itssupport for the Salvadoran guerrillas. Butthat determination would to fall to Ronald Reagan. Halting bilateral assistance PresidentRonald Reagan came toof® ce ill-disposedtowards Carter’ s policyof tryingto maintain friendly relations with Sandinista Nicaragua. Two days after 330 USECONOMIC SANCTIONS AGAINST SANDINISTA NICARAGUA inauguration,Secretary of StateAlexander Haig recommended that the president rea® rm thesuspension of economic aid to Nicaragua, and Reagan agreed. Two weekslater, the US Agency for International Development ( US AID) announced thata $9.6million shipment of wheat was beingdelayed pending a reviewof Nicaragua’s supportfor the Salvadoran guerrillas. 11 Thesemoves surprised no one,since Congressional Republicans had bitterly opposed Carter’ s Nicaraguan aidpackage, and the Republican Party Platform explicitly called for ending it. ButUS Ambassadorto NicaraguaLawrence Pezzullo, one of thearchitects of Carter’s strategyof wooing the Sandinistas with economic assistance, was not willingto give up so easily.Pezzulo argued forcefully that the proper mix of diplomaticpressure andthe threat tocut off badly needed economic assistance couldpersuade the Sandinistas to curtail their material support for the Sal- vadoranguerrillas. If USaid was actuallystopped, Pezzulo pointed out, the Sandinistaswould no longerhave any incentive to limittheir role in ElSalvador ormaintaina moderatedomestic policy. The only instrument Washington would thenhave to modify Sandinista behaviour would be military pressure. Pezzulo convincedHaig and Reagan to delay a ®nalcut-off of aid for 30 days while he explainedWashington’ s terms tothe Sandinistas. 12 Pezzullo’s strategybegan to show results almost immediately; the arms ¯ow fromNicaragua to El Salvadorstopped. 13 SeniorUS of®cials met in mid-March toreview Nicaragua’ s compliancewith Washington’ sdemands.Hard-liners in thenew administration sought to repudiate Carter’ s (andPezzulo’ s) strategy, replacingit with a policyof hostility towards Nicaragua. Led by National SecurityAdviser Richard V Allen,they advocated a permanentcut-off of aidto Nicaragua,pointing to theRepublican Platform as theirrationale. They acknowl- edgedthat intelligence reports indicated the arms ¯owto El Salvador had stopped,but they interpreted this as merely`seasonal’ , aresultof theguerrillas’ reducedlogistical needs; thesmuggling might resume. There was noway to disprovesuch speculation, and the hard-liners carried the day. Aid was perma- nentlycut off. 14 TheUS action prevented the shipment of $9.6 million of food aidand cancelled disbursal of the ® nal$15 million of Carter’ s $75million aid package,except for a fewmillion dollars destined for the Sandinistas’ opponents inthe private sector. TheSandinistas described the aid cut-off as `interventionism,blackmail, and Yankeeeconomic aggression’ . Withina fewweeks, the USSR had offered to provideNicaragua with 20 000tons of wheat to make up for the cancelled US shipment,Libya had offered a $100million loan, and Cuba agreed to provide $64million in technical aid. 15 OnCapitolHill, liberal Democrats lamented the new Nicaragua policy, noting thatit was inconsistentwith the evidence that the Sandinistas had, in fact,halted aidto the Salvadoran guerrillas. Congressman Tom Harkin (D-Iowa) saw the decisionas somethingmore sinister: `There are elementsin this administration thatare gearedup tocreateeconomic chaos in Nicaragua’, Harkinwarned. `[The aidcut-off] is nomorethan the ® rst stepin thisdestabilization process, the same destabilizationprocess our CIA engagedin [in] the Dominican Republic, in Guatemala,and in Chile.’The real objective of thepolicy, he predicted,was `to overturnthe Nicaraguan revolution’ . 16 331 WILLIAMM LEOGRANDE Harkinproved to be right. During the ® rst ReaganAdministration, of® cials weresomewhat divided over the ultimate aim of US economic sanctions and paramilitarysupport for the contras.Hard-liners,like Allen, his successor as NationalSecurity Adviser, William Clark, and CIA DirectorWilliam Casey, soughtfrom the beginning to depose the Sandinista government. The `pragma- tists’(as theyreferred to themselves), like Chief of Staff James Bakerand Secretaryof StateGeorge Shultz, doubted that the contras hadthe capability of overthrowingthe Nicaraguan regime, but they nevertheless supported Reagan’ s policyof