John Perry, Which country spends nearly two-thirds of its budget on tackling poverty? When I met Nicaragua’s finance minister, Ivan Acosta, he had just presented his 2024 budget to its National Assembly, and he made clear that a large part of it is aimed at doing just that.
In cash terms, Nicaragua’s government will spend about 24% more in 2024 than in the current year, which includes a huge increase (43%) in public sector investment. Acosta explained how the country would continue its recent advances in health, education, transport, energy, water supply, housing and local government services. Less than 3% of spending is for defense, and in any case Nicaragua’s army has mainly civil duties such as dealing with frequent natural disasters and preventing deforestation.
Nicaragua’s per capita income is one of the lowest in Latin America, so poverty alleviation is a high priority. It might be expected that the World Bank and other international institutions would be helping the country to achieve this goal. And yes, they were, but now they aren’t. This isn’t because of corruption or poor accounting.
Acosta tells me that Nicaragua has an excellent reputation globally for completing projects and accounting for the money it receives. When the revolutionary Sandinista government regained power in 2007, only $70-80 million was arriving from institutions like the World Bank: a decade later, it had reached $300-400 million, because the banks knew the money would be wisely spent.
But then Nicaragua was hit by an attempted coup in 2018, and the economy ground to a halt for three months (the Morning Star has four articles on the coup, starting here and NicaNotes has several eBooks on the attempt including here and here.) It had been several years since the country had needed economic support from the International Monetary Fund, but suddenly it needed it to avert the risk of money flowing out of the country. Acosta told me that IMF officials, happy with the government‘s track record, were ready to approve emergency loans.
However, coinciding with the coup attempt, legislation was passing through the US Congress imposing sanctions on Nicaragua. These would require US officials to block any funding by international bodies where they have the power to do so, such as within the IMF. Acosta was therefore quietly asked by the fund’s officers not to request any loans as they would be turned down once the request reached IMF directors.
The sanctions imposed by the US on Nicaragua in 2018 and again in 2021 were the first since the economic blockade that destroyed the country’s economy in the 1980s. This led to the Sandinistas being voted out of office in 1990. The US has still not paid the $17 billion claimed in reparations by Nicaragua when it took the US to the International Court of Justice and, in 1986, won its case. Washington, undeterred by this past ruling, had sponsored the coup attempt and intended it to devastate Nicaragua yet again. Hoping to ease the Sandinistas out of office for a second time, Washington had no intention of allowing the IMF to bail the government out. However, by 2018 Nicaragua was better prepared, saw out the violence, restored order and launched a public investment program to bring life back to the economy using its own resources.
Not only was there no help after the coup attempt, but the answer was virtually the same when Covid-19 hit the country in 2020. By the middle of that year, when the pandemic was at its most severe, Nicaragua had received almost no help from the US or its allies. This contrasted with its neighbor, Honduras, to which the US quickly sent $8 million in cash plus large amounts of medical supplies. When help for Nicaragua eventually arrived in December from the International Financial Institutions, following two devastating hurricanes, it came in much smaller quantities than had been requested.
Nicaragua has succeeded in cutting the proportion of its people living in poverty to 24.9%, a lower level than all its neighbors apart from Panama. But more could have been achieved with international help: Ivan Acosta estimates that the country has been denied funding worth between US$2.5 and US$3 billion in total since 2018, all of which would have been earmarked for social programs. As he puts it, a country whose income per head is about $2,500 annually is being penalized by countries (the US and its allies) whose per capita income is as much as $70,000.
Nevertheless, Acosta is optimistic: he points out that Nicaragua is enjoying the fastest economic growth in Central America since the pandemic – 15.9% over three years compared with the regional average of 12.1%. Nicaragua successfully fought Covid-19, largely by itself, and its recovery since then meant that government income was increasing. Smaller amounts of funding are still provided by the Central American Bank for Economic Integration (CABEI). Acosta notes that since the US has no control over how CABEI disburses it funds, these should continue. In addition, the country’s new relationship with China has already led to investment in projects such as affordable housing (China has just granted funding for more than 700 new homes). Nicaragua maintains a close relationship with many other countries such as Russia, Japan and South Korea, many of which also provide development funding.
A recently published chart shows that Nicaragua has the most public hospitals in Central America – 77 in total, while much wealthier Costa Rica and Panama have just 29 and 18 respectively. A third of these hospitals are new ones, built in the last 16 years. But Ivan Acosta wants to build more. He points out that a 450-bed hospital costs $130 million to build. How many more could Nicaragua have, he asks, if Washington hadn’t stopped the World Bank and other international institutions from financing them?