Contra War Fuels ‘Crazy’ Nicaraguan Inflation

Early last year, the four tellers at a Managua neighborhood branch of the state-owned Banco Inmobiliario counted 100 million cordobas in cash deposits by hand in a month.

Now, the same volume of cash pours into the bank every day. A new computerized bill counter has relieved the tellers’ overworked fingers, and a second guard has been hired to watch the growing piles of currency that won’t fit in the vault.

Sonia Lopez, the 22-year-old head cashier, collects 500,000 cordobas a month for supervising these mountains of money. Her salary, equal to $38 at the official exchange rate, has quadrupled in cordoba terms since January, but she says that prices for the food and clothing she needs have risen more than sixfold.

“Never in my life have I seen so much money!” she exclaimed the other day. “Never in my life did I dream of earning so much, or spending it so fast. In two or three days after payday, it’s all gone. It’s crazy!”

To some Sandinista officials, this inflationary explosion is the most worrisome consequence of the six-year-old contra war. According to the Central Bank, consumer prices will rise this year by 1,000%, a rate exceeded only in Argentina and Bolivia in the recent history of Latin American financial collapses.

Although the U.S.-backed insurgency has not seriously threatened Sandinista military supremacy, it has combined with Managua’s mismanagement, Moscow’s reluctance to increase aid and Washington’s trade embargo to bury the economy in a seemingly endless wartime slump.

“President Reagan dreams every day of the collapse of the Nicaraguan economy, and we cannot deny that it has been seriously battered,” President Daniel Ortega said in a recent speech. “If it weren’t for the ideological consciousness of the revolution, Reagan would certainly have won this battle years ago.”

Support Slipping

In interviews, however, Sandinista officials admit that support for the revolution may be slipping among urban wage earners, one of its natural constituents, because of what is essentially an inflation tax to finance the costly war effort.

“If we cannot contain it quickly, inflation is going to become unmanageable, like a boy who grows up and defies his parents,” said Joaquin Cuadra Chamorro, president of the Central Bank. “The danger at that point is that the revolutionary program, which is supposed to ease the people’s burdens, would have failed.”

The grim economic outlook is thought to have prompted Ortega last month to sign a Central American peace agreement that will require major political concessions to the Sandinistas’ unarmed opponents as the price of a cease-fire with the contras.

The sponsor of the accord, Costa Rican President Oscar Arias Sanchez, said the Nicaraguans need peace to rescue their economy from “disaster.”

Although Sandinista leaders reject that explanation as simplistic, they have begun to speak optimistically about an economic revival if the cease-fire takes effect as called for on Nov. 7.

The way Nicaraguans are complaining, things could hardly be worse. There are shortages of home-grown food, imported medicine and spare parts, bus transport, and just about everything else but cordobas.

Harvests of cotton and coffee, the country’s dollar-earning staples, have declined sharply in eight years of Sandinista rule. Imports now cost three times what exports earn. A small industrial sector runs at 30% capacity. National production per capita, shrinking for the fourth year in a row, is down to levels of the mid-1950s.

With no output to back them up, the Central Bank prints cordobas to subsidize essential imports and to cover a deficit created by the 85,000-man Sandinista army, which consumes half the national budget.

Exchange Rate

The soaring volume of money pushes up consumer prices almost weekly. The cordoba’s rate of exchange with the dollar has plunged from 70 to 1 in 1979 to 3,700 to 1 at the start of this year to 13,000 to 1 today. The largest bill, a 5,000-cordoba note, is worth 38 U.S. cents.

Some officials argue there is no choice but to live with hyper-inflation for now.

“The objective here is to guarantee the defense of the country and the revolution,” Finance Minister William Huper Arguello said in an interview. “If this has an inflationary impact, then it is a necessary evil.”

Politically, the Reagan Administration has proved an easy target for blame by the Sandinistas as they ask Nicaraguans to bear up.

In a July speech, Ortega said U.S. “aggression” has cost Nicaragua $2.8 billion since 1980. His calculation included direct damages and production losses caused by the war as well as favorable trade opportunities and dollar credits cut off by the 2-year-old U.S. embargo.

But complaints of Sandinista inefficiency and corruption are widespread.

Black Market Complaints

A favorite target is the Internal Commerce Ministry, which tries to control food prices and monopolize distribution. Its employees are widely accused of diverting food into the black market for personal profit.

At a July meeting with Agriculture Minister Jaime Wheelock, members of both the pro-Sandinista and independent farmers unions joined in denouncing continuing land confiscations by the state and rustling of their cattle by Sandinista soldiers.

“The Sandinista bureaucracy does not create wealth, it only consumes and pilfers,” Enrique Bolanos, president of the Superior Council of Private Enterprise, told a rally of businessmen this month in a speech criticizing state control over most economic decisions.

Surprisingly, frustration with the Sandinistas is shared in public by their main aid donor, the Soviet Union.

This year, Moscow balked at increasing Soviet Bloc oil shipments, for which Nicaragua pays virtually nothing, until the Sandinistas doubled gasoline prices this month and tightened rationing for private consumers.

Docking Fees

The Soviets were also dismayed when Nicaragua delayed the unloading of Soviet oil tankers in the port of Corinto, then charged them docking fees in dollars. At least one shipload of Soviet oil was reportedly re-exported by the Sandinistas for cash at the market price.

A broader criticism of Nicaragua’s economy, published in June by the Soviet government newspaper Izvestia, concluded that “the crisis is being exacerbated by bad management.”

“The Soviets have made it clear they cannot finance every revolution that knocks at the door,” said Mario Arana, a U.S.-trained Nicaraguan economist who is sympathetic to the government. “If the Sandinistas thought they were getting a blank check from Moscow, perhaps they understand differently now.”

Despite their limitations, Soviet Bloc countries will provide more than $425 million in grants and credits to Nicaragua this year, including 695,000 metric tons of oil, according to Nicaraguan government figures.

This is 65,000 tons more oil than the Soviet Bloc delivered last year, but 55,000 tons short of Nicaragua’s growing wartime needs, Sandinista officials said.

Subsidized Gas

And although gasoline at 14 cents per gallon is still heavily subsidized, economists say the recent price doubling will multiply throughout the economy and accelerate inflation.

The impact on wage earners will be cushioned by an indexing system set up last June to peg government-mandated wages to the prices of 54 commodities such as food staples, soap and shoes.

But labor leaders complain that the system merely maintains wages at the poverty level, putting anything resembling a worker’s paradise further and further out of reach.

At state stores, for example, the price of a small imported refrigerator has doubled since June, to 5,720,000 cordobas. Before the revolution, a factory worker needed six months’ wages to buy it. Today, he needs 4 1/2 years’ wages.

“They call this a government of the workers, but the gap between wages and prices has put us in a desperate situation,” said Alejandro Solorzano, a Marxist Socialist union leader.

Support for Regime

While the Sandinistas worry about growing discontent, they sound confident that it is not about to erupt in serious political unrest.

“It’s unthinkable to imagine people assaulting supermarkets or staging massive strikes or burning buses like they do elsewhere, because here there is still a voluntary consensus behind the revolution,” Vice President Sergio Ramirez said in an interview.

Part of the explanation is that so many workers, at least half those in Managua, have turned their energies to black market enterprise, selling unlicensed food and clothing to stretch their families’ wage incomes.

Many also get relief in the form of small dollar contributions sent via travelers from relatives living in the United States. By one official estimate, $40 million in family remittances will trickle into the economy this year.

Patricia Chavez, 23, and Mauricio Dubon, 26, earn 400,000 cordobas a month--about $30--between their government jobs, barely enough, they say, to feed themselves and their daughter.

Money From U.S.

But once every few months, they get $100 or so from one of Chavez’s brothers in the United States. And every payday, Chavez takes black-market jeans, cosmetics, shoes and purses to the office to sell to co-workers in her typing pool. This earns her an extra 200,000 cordobas a month, an income that rises faster than her wages.

“It’s technically illegal, but my boss understands,” Chavez said. “She even bought one of my purses.”

Although black market opportunities allow for some political stability, they work to undermine the formal economy.

A factory owner in Managua said that so many workers leave to sell pilfered merchandise on the street that he has had to double the payroll to keep production from falling.

And with so many people buying and selling, rather than producing, some economists believe the sheer velocity at which the cordoba changes hands these days is speeding its demise.

“Buying and selling is out of control because nobody wants money,” said Ramiro Gurdian, president of the Nicaraguan Union of Agricultural Producers. “The cordoba has cancer and nobody can save it.”