Ian Goldin and Roberto Pizarro Between 1950 and 1977, the proportion of land Introduction devoted to food production fell from 75 per cent to 50 per cent and the domestic terms of trade moved The July 1979 revolutionary triumph of the Frente sharply against domestic food producers [Gibson Sandinista Liberacion Nacional (FSLN) carried with 1987:20]. Small food producers were consistently it a promise to transform economic relations to the neglected by thestate and excluded from the advantage of ordinary working people. The economy favourable credit,tariff and technical assistance which the Sandinistas inherited was characterised by a programmes which pampered the development of dependence on agro-exports and a virtual absence of a agro-exports. By 1979, land, labour, technical inputs domestic manufacturing base.It was a classical and other scarce resources had been directed towards example of a peripheral, underdeveloped country, in production for the international market. which the growth of agro-exports reproduced the The main elements of the FSLN's post-revolutionary power of an oligarchy, undermining the position of the economic programme were outlined in their first majority of the population. major economic document - the 1980 'Plan for The Sandinistas'revolutionary programme was Reactivation for the Benefit of the People'. The premised on a continuing foreign exchange require- objectives of the external sector were: ment. Imported basic foodstuffs, medicines, tractors to initiate a programme to stimulate and increase and thousands of other imported items were integral the supply of revenue from the international to the transformation of social relations. Furthermore, market, while reorientating the utilisation of these commitments to electrification and the expansion of revenues in theservices of thepeople, and transport and agricultural services presupposed a contributing to the process of eliminating all forms supply of fuel and capital good imports. The nature of workers' exploitation in the generation of these and origin of imports changed with the revolution, but revenues [Ministerio de Planificación 1980]. the dependence on imports continued; the FSLN from theoutsetimplicitlyrecognisedthateconomic The nationalisation of foreign trade and the banks was isolationism would be followed by a collapse of the seen as a key which would provide the means to economy and a dramatic decline in living standards. redistributesurplus away from the bourgeoisie. Simultaneouly, by gaining control of the foreign trade Notwithstanding the success of efforts to solicit loans sector, the state was empowered to diversify trade and and aid, agro-exports remained the principal source of to rationalise imports in line with the new economic foreign exchange. In this sense, coffee, cotton, sugar imperatives. and bananas were as important in securing the FSLN economic base as these agro-exports had been to The continuing need for imports of food, fuel and successive Somoza regimes. Yet the FSLN was only other essentials meant that the reorganisation and too aware that these agro-exports are characterised by rejuvenation of the structure of trade was given destabilising price cycles, had been the economic base priority.Withintheforeigntradesector,the of the Somocista dictatorships and were rooted in abandonment or disruption of many essential tasks' exploitative labour systems. Not surprisingly, the and the lack of Sandinista expertise in international question of foreign trade provided one of the greatest commerce and finance posed a serious challenge for challenges facing the revolutionary government. the new government. Almost overnight, a system which for decades had been controlled and staffed by Strategic Directions an oligarchic private sector, was nationalised and These being the jobs necessary to maintain exports, for example, Between 1950 and 1977, a ninefold increase in agro- contacts with buyers, monitoring of the markets, securtng of export production had provided the base for capital contracts for sale and shipping, organising producers' deliveries, accumulation within Nicaragua. This accumulation warehousing, quality control. was dependent on the state guaranteeing resources for All traditional exports were nationalised. Non-traditional exports were largely left in private hands as were about 50 per cent of the agro-export sector, at the expense of peasants and imports, but the state had a monopoly on disbursement of foreign other members of the domestic agricultural sector. currency. IDS Bulletin,vol 9 no 3, tnstitule of Development Studies, Susses 24 managed by thestate.2In an environment of improvement in export earnings. Subsequently, as uncertainty and destabilisation, the leadership set Table 1 shows, there has been a virtually uninterrupted their immediate goal as the defence of existing exports. deterioration in foreign trade. This structural decline The principle of non-alignment was central to the has advanced to the extent that trade imbalances now Sandinista programme. From the outset, the new exerciseastranglehold,distortingthe national government attempted to reflect this policy in its trade economy, and providing one of the most intractable relations; it began to search for new markets and to obstacles to the Sandinista revolution. reduce its historic dependence on the US. According After hovering between $350 and $500 mn dollars in to the 1980 plan, Nicaragua aimed to diversify its the period 1980 to 1984, the trade deficit in 1985 dependence. grew to $593 mn and $535 mn in 1986. Between 1977 Today, the aims of the foreign trade sector remain the and 1986, the ratio of import to export values grew maximisation of export earnings and the rationali- from 1.2 to 343 The main causes of this crisis in sation of imports. These aims reflect an underlying foreign trade are outlined below. pragmatism which recognises that Nicaragua is a small peripheral economy which is open to the world (a) International Finance market and whose economy is heavily dependent on At the time of the Sandinista victory, Nicaragua's imported products. The foreign tradesectoris foreign debt stood at about $1.6bn, bolstered by a responsibleforimprovingexportvaluesand $65 mn package provided by the IMF only five weeks rationalising imports, while diversifying international before the collapse of the Somoza dictatorship. When economic relations and defending the economy from the Sandinistas entered the Central Bank on 19th July destabilisation, both as a result of commodity price 1979, they found only $3 mn in foreign currencies, falls and attempts by the USA to damage the barely sufficient to cover two days of imports Stahler- Nicaraguan economy by attacking its foreign trade. Sholk 1987]. The experience of the past eight years has shown that Over the period 1979 to 1983, Nicaragua paid over the shortage of foreign exchange is a critical obstacle $563 mn in scheduled interest payments on the debts totheimplementationof plansfor economic of the Somoza government, but received only $12 mn development for the benefit of the mass of the in commercial bank finance (on 90 day terms). Debt population. In maximising export earnings, the state, servicing as a percentage of exports amounted to while encouraging the longer term development of l6percentin 1980,3lpercentin l98land38percent non-traditional exports, was dependent on improving in 1982, 18 per cent in 1983 and about 28 per cent in the value and volume of traditional exports. Its initial 1984 [Stahler-Sholk 1987]. Despite these payments, goal was the recuperation of pre-revolutionary export the IMF refused to provide further finance, and after levels. In rationalising imports, the aim was to seek the election of Reagan, US finance ended in 1981, better value and to diversify sourcing, while moving World Bank assistance in 1982 and Inter-American from imports of non-essential consumption goods to Development Bank funding in1983. Despite the essential capital and productive items. drying-up of commercial and multilateral credit, Nicaragua has managed to extend its trade deficit by 3. Frustrated Ambitions strengthening its financial relations with Comecon, Latin American and certain Western European The new direction in foreign trade in the year following the revolution was vindicated by a sharp Ministerio Commercio Exterior (MICE), Managua. Table I Terms and Balance of Trade (millions of US$ and Index) 1977 /980 1981 1982 1983 1984 1985 /986 /987* Exports 637 450 508 408 449 385 299 253 292 Imports 762 887 999 776 807 826 892 761 791 Balance (125) (437) (49!) (366) (358) (441) (593) (508) (499) Terms of Trade - loo 79.4 69.7 68.2 73,5 65.4 68.4 Source: Foreign Trade Ministry * Preliminary 25 countries. By the end of 1986, the foreign debt burden cent. This decline roughly matches the growth in the exceeded $6 bn. trade deficit over the corresponding period, so that the The withering of multilateral financial assistance was widening of the trade deficit may largely be attributed associated with a decline in commercial bank credit to adverse price movements, rather than a growing for imports. Whereas in 1980, liquid credit accounted imbalance between the volume of exports and for 80 per cent of foreign imports, in 1986 less than imports. 25 per cent of imports were paid for in convertible The deterioration in the terms of trade has been currency [MICE]. Faced by a mounting burden of accentuated by an increasing reliance on traditional debt, Nicaragua has been forced to rely increasingly exports