a grim gray cloud in the form of a post

RBA – as I am going to call the collective authorship of How to Help Poor Countries – begin their article with a comparison between Nicaragua and Vietnam.

This is a clever comparison. Both countries were majorly fucked with by the U.S., both were Cold War hotspots, and each went a separate path – the Vietnamese went supposedly left, with the victory of the communists, and the Nicaraguans went supposedly right, with the victory of the anti-Sandinista forces.

So what has happened to these two countries? The small summary goes like this:

“Vietnam faced a U.S. embargo until 1994, and it is still not a member of the World Trade Organization (WTO). Despite these obstacles, it has found markets for its growing exports of coffee and other agricultural products and has successfully begun diversifying into manufacturing as well, especially of textiles. Nicaragua, on the other hand, benefits from preferential access to the lucrative U.S. market and had several billion dollars of its official debt written off in the 1990s. Yet its coffee and clothing export industries have not been able to compete with Vietnam's.”

The large summary would emphasize a couple of other features. For one thing, Nicaragua has never had the resources, size, educated population, or leadership that Vietnam has had. For a while, under Somoza, the most flourishing export industry in Nicaragua was, literally, blood. The largest blood bank in the world was located in Managua, and through that blood bank, as sloppy and corrupt affair as everything else Somoza touched, was diffused little gifts to the world – HIV, hepatitis C, syphilis.

Douglas Starr, in Blood: An Epic History of Medicine and Commerce,
penned that little history, although few economists have pondered the fact that paying for blood significantly increases the chance that the blood will be infected. (But see CT’s Kieran for an interesting paper here ). I could go on with another depressing tale from Central America that mingles magical realism and fact – for instance, the fact that the revolution against Somoza, which is usually dated to the assassination of the editor of the one opposition newspaper in Nicaragua, could be laid at the feet of the plasma center, since the assassination was carried out by “Pedro Ramos, a Cuban American entrepreneur whose business had been attacked by La Prensa. Mr. Ramos owned a plasma processing clinic—Plasmaferesis—which used to buy blood from any Nicaraguan and then send the plasma products to the United States. Plasmaferesis was commonly known by the people as the "House of the Vampires."

In any case, the situation of Nicaragua, looked at from the view point of the international economy, is, to say the least, challenging. Besides blood, what can the country export? And is it the case that export is its only hope? These questions are generally not asked when people write about Nicaragua, since the concern is with land reform, free markets, democratization, and the whole NGO neo-liberal nine yards. But as so often, cutting to the chase is sorta difficult, since the chase is in a maze of economic jargon and agendas that are developed for constituencies far from Nicaragua. The chase for this post is measured by whether the average citizen is getting richer or poorer. By that standard, according to the EU, Nicaragua is in bad shape: the average person has gotten poorer since 1993. But you wouldn’t know that if you read a gung ho Country report about Nicaragua. The latest one, issued in June, 2005, reads:

“According to the latest revision of official data, the Nicaraguan economy grew 5.1% in 2004; a remarkable recovery when compared with the sluggish 2.3% rate recorded in 2003. The Central Bank explained that one-third of the economic growth was due to public and private construction, and was fueled by the tourism sector. We forecast economic growth of 3.9% in 2005, backed by public and private investment,
consumption stimulated by family remittances, and an expanded supply of private credit. Political conditions, however, prevent a faster recovery. During the rest of the forecast period, we foresee continued growth driven by DR-CAFTA (assuming that the National Assembly approves the treaty).

We foresee a larger trade deficit in 2005, due mainly to the faster growth of imports related to higher prices and volumes. In the medium term, the reduction of interest payments on external debt tied to the debt relief and faster disbursements of external loans would offset the trade imbalance. Therefore, we can expect a drop-off of the current-account deficit in 2005 and beyond, which would strengthen international reserves, and comfortably manage the exchange-rate path toward its continued deceleration.”

You can access the current stats on Nicaragua here.

That the GDP growth rate can be divorced entirely from the average person’s own average person domestic product is the result of the usual policy of squeezing the orange. The Country Report is bubbling with enthusiasm that the government is cutting its deficit. In fact, many of the loans out to the government, which it is paying back, are tied to the government cutting its deficit. Now, do you wonder where the burden of that deficit reduction miracle is falling? Do you think the government is raising the amount it applies to education, and cutting any construction program that is merely graft, shunting money to a corrupt elite? Do you want to buy a bridge I own in Brooklyn?

We’ll end this post – a sort of laying out the problem in the style of Tristam Shandy, as it were - with a quote from RBA’s article, citing the experience of another country:

“Witness the case of Mexico. It has the advantage of sharing a 2,000-mile border with the world's greatest economic power. Since the North American Free Trade Agreement went into effect in 1994, the United States has given Mexican goods duty-free access to its markets, has made huge investments in the Mexican economy, and has continued to absorb millions of Mexican laborers. During the 1994-95 peso crisis, the U.S. Treasury even underwrote Mexico's financial stability. Outside economic help does not get much better. But since 1992, Mexico's economy has grown at an annual average rate of barely more than one percent per capita. This figure is far less than the rates of the Asian growth superstars. It is also a fraction of Mexico's own growth of 3.6 percent per year in the two decades that preceded its 1982 debt crisis. Access to external markets and resources has not been able to make up for Mexico's internal problems.”