Globalization Economy Nicaraguan

Globalization has had a great impact in the modern world, and has even come to affect the economy of several Latin American countries. However, has globalization affected the Nicaraguan Economical panorama? In order to answer this question, it is important to take Nicaragua’s history into account, a history that has been smeared with endless corruption. Another idea that must be kept in mind is the term “globalization” has numerous amounts of definitions, so in order to identify the answer; a proper definition must be structured.

Within the context of globalization, it is trivial to identify if the key treaties like the ALBA and the CAFTA have had any significant effect on the Nicaraguan economy. Through a careful evaluation, it will be noticed that Globalization has not had an impact in the Nicaraguan Economy yet; however the roots of globalization can already be traced to the economy.

One of the limitations found in this research paper was the gathering of different sources from the rural sectors of the country, as the rural perspective of this essay is of much importance to define if globalization has affected Nicaragua or not.

Introduction

Globalization has started to influence the Nicaraguan economic scheme from the beginning of the 21^st century. The Nicaraguan population should ask themselves if globalization would aid the economic stance they are in. Another question that must be asked is if the new trade agreements will benefit or harm the private sector of the rural Nicaraguan farmers. The last question to be answer is, “Globalization from what side?” as the American Hemisphere seems to be structured with a strong Capitalist giant on the top, The United States of America, and numerous amounts of underdeveloped Socialist countries, which can be said to be most of South America, consisting of Brazil, Chile, Argentina, Ecuador, Venezuela, and Bolivia, Uruguay all have socio-democratic governments, that exercise populist tendencies.

Another point that should be kept in mind is the choice between the ALBA and the CAFTA, as the socio-democratic alignment that Nicaragua currently has should be kept in mind. Both treaties should be considered in the “global” sense as there are currently four enlisted countries in the ALBA agreement, which are Venezuela, Cuba, Nicaragua, Bolivia and Ecuador; while the CAFTA is conformed of The United States, Guatemala, El Salvador, Nicaragua, Honduras, Dominican Republic and Costa Rica.

The main concern in regards to globalization may not even be of an economic impact, but rather on of an ideological degree. The Nicaraguan population’s view on globalization is of a loss of national pride, as if the United States would take over the country’s economy; which to some extent is true. The ideological conflict, however, stands on whether to be a nationalist, a socialist or a capitalist. Nicaragua’s preferences must be examined in order to determine if globalization will have an effect in the Nicaraguan economy.

Nicaragua has a long history of corruption that can be traced back to the 1930’s with the Somoza dynasty, and can then be followed along the list of Somoza family members onto the Sandinista Mandate and then into the 21^st century with the newly elected “liberal parties”. It is important to recognize Nicaragua’s background in order to determine if Globalization will benefit or harm the economy. In order to truly define the “sort” of globalization that suits Nicaragua best, a definitely structured definition must be established, as “globalization” is wide in the range of it meaning.

Definition of Globalization

The definition of globalization can be branched into three main concepts. The first of the concepts can be referred to as the “broad” point of view, in which globalization is interpreted without inclinations towards the foreign or domestic perspectives. In this notion, we call “globalization” when a company or multi-national industry invests capital in a usually underdeveloped economy such as Nicaragua. The other two perspectives stray apart when the question of “why would the companies invest in underdeveloped countries?” is asked.

The “Imperialist” perspective bases itself on the moral principal of stimulating under developed country’s economies. In this lay out, a corporation such as Nike sets out a factory in the under developed country in order to provide jobs for the grand unemployed population. By providing such work, the corporation is thus permitted to pay low fees to its new employees. If a company does not wish to set up a factory in a new location, they can still enter the local markets through Commerce treaties.

In Nicaragua there are two possible treaties, the CAFTA (Central America Free Trade Agreement) and the ALBA (Alternativa Bolivariana), the CAFTA being the most suitable, as it permits United States owned companies to compete in local markets. Taking the Imperialist point of view, the local population is given new choices in the market from which to buy from, choices that are sometimes less expensive and thus more economically feasible for a greater part of the population.

The “Anti-imperialist” perspective, otherwise known as the down side to globalization, regards globalization as “Economic terrorism”. This point of view focuses on the injustices that these corporations bring upon the under developed countries. The first injustice is the claim that these companies pay a misery of a fee to the employees thus only keeping them busy instead of “feeding them”, reason for why this low pay condition is usually referred to as a “Sweat-Shops”.

The most impacting injustice would be the fact that these corporations are allowed to compete in local markets. The reason for this claim is that the foreign companies offer products of a cheaper nature, and therefore encourage the local merchants to buy foreign products instead of local ones. Once the local products are not consumed, the national domestic companies thus run out of business placing people out of work.

The only form of globalization encouraged in Nicaragua, is one through the ALBA agreement, as the conditions in this treaty are of Self-Growth concepts between allied Latin American countries Venezuela, Bolivia, and Nicaragua.

Nicaragua’s Economic Background during the Somoza era and the Sandinistas.

In the 1936, the Nicaraguan population elected Anastasio Somoza Garcia to power. At this moment, the Nicaraguan economy is on the rise. The main exports were cattle and coffee, settling Nicaragua as one of the richest countries of Central America in the first half of the 20^th century. Somoza Garcia, however set Nicaragua’s faith by providing the United States with raw materials during World War Two for the Allied war effort. This close association with the United States set the Nicaragua’s economical and political dependence to the will of the United States. During his presidency; however, he did not increase the Nicaraguan Economy to a significant degree, instead he’s main dedication was of a personal extent.

Somoza Garcia’s tactics consisted of diverting government funds to his own accounts, and purchasing government lands at ridiculously low prices. While the Nicaraguan economy remained at a flat constant, Somoza Garcia’s personal Bank accounts were at an all time raise. During the wartime, he attained numerous facilities to which income was due, facilities such as a cement factory, the national railroad, a cement factory, most textile plants, several electric power companies, the national airlines, and an extensive control over the banks. His personal income, after World War Two, was estimated to have been of 60 million dollars.

After Somoza Garcia’s death in 1956, his younger son Anastasio Somoza Debayle took control of the presidency and succeeds his father in power. A few years later, after a rigged election, Luis Somoza Debayle, Anastasio Somoza’s older son, took control of the Nicaraguan presidency. During Luis Somoza’s presidency, the Nicaraguan economy was hit with a drop in Coffee production, as now the competitions for their main product had been expanded onto other locations and were purchased at even lower prices, causing Nicaragua to drop prices as well.

It wasn’t the coffee drop, however, that caused many grievances to the Nicaraguan Economy, it was the 1972 Earthquake that caused $15 million in damages. Richard Nixon, however, aided the Nicaraguan government with a donation of $50 million. The Nicaraguan Treasury only reported $17 million of that donation, while the other $33 million was believed to be in Luis Somoza’s personal bank accounts abroad. It was until 1980 that the Somoza dynasty was replaced by another sort of mandate, a leftist government.

In 1980, the United States lifted its “protective shield” over the Somoza family and allowed internal social conflicts to rise out of control. Luis Somoza was then pressured by the United States to leave Nicaragua with the threat of freezing bank accounts that were located in United States banks. The country was therefore left in the hands of the Revolutionary party F.S.L.N (Frente Sandinista de Liberacion Nacional, which is translated to “Sandinista Front, for National Liberation”), which was commanded by Daniel Ortega. At the moment the F.S.L.N gained presidential authorities, the economic situation had an incredible deficit as major loans were issued from the World Bank.

The F.S.L.N, or the Sandinista party for short, did not play a significant role for the Nicaraguan Economy, as their main intentions remained to “restore the social injustice”. Governmental and private lands were both confiscated and given to the Nicaraguan population as a sort of Land Reform. Not all the land was given to “the people”, most of it was kept by the high ranking officers such as Daniel Ortega, his brother Humberto Ortega, his right-hand man Tomas Borge and several other Sandinista generals.

The country’s economic status dropped from being one of the richest countries in Central America, to being the poorest in the American Hemisphere, preceding only Haiti on the list. It is said by the Director of the Nicaraguan Economic Institute during the 1980’s, father Xabier Golostiaga, that “the Sandinista government, when they took power, found a country with no financial resources”, and also stated that only 3.5 million dollars were found from the 19 banks that were nationalized; however, according Father Golostiaga, Nicaragua inherited a debt of $1.6 billion dollars, while more than half of that money was never used on the Nicaraguan grounds. Even though the Sandinista government is still regarded as a group of “bandits” in Nicaragua, they did relieve a great percentage of the external debt that Nicaragua had attained during the Somoza dynasty.

At the beginning of the Sandinista mandate, influences shifted from the United States the Soviet Union. Nicaragua would engage in trade with the USSR instead of the United States, as the United States had placed Nicaragua in a sort of Financial Boycott. Once the Cold War was over, and ties with the USSR started to shed, the Sandinista government seemed to lose its grasp over the governmental panorama. In 1990, the Sandinista government accepted elections to go forth, losing to candidate Violeta Barrios de Chamarro of the U.N.O party (National Opposition Union).

The Nicaraguan Economic panorama (between 1991 and 2007).

In 1991, after the Nicaraguan Revolution and the decline of a communist dictatorship, finally, the first liberal government was established during the globalization era. The UNO mandate, cleared much of the economic rubble that the Sandinista dictatorship had left behind. During Violeta Barrios’s presidency, she was denied compensation by the United States for damages during the “Contras” period. After this, donations from European countries were effected, as Nicaragua still remained the world’s second poorest country. It can be said that Nicaragua was institutionalized in a sort of rehabilitation for 7 years in order to get on its feet again.

Seven years later, elections were carried out and the Nicaraguan , where people elected Arnoldo Aleman as president from the Liberal Constitutional Party (PLC). At this moment the economy was “up and running”; and was receiving donation from developed countries, receiving the most from Spain. Besides the flow of income, due to chronic corruption during his government, a 50 million dollar deficit was filed. Arnoldo Aleman had been diverting governmental funds to a private bank account in Switzerland and was arrested for corruption, and money laundry. Corruption had once again been in the hands of a single man.

In 2001, Nicaragua saw yet another election, in which Arnoldo’s vice-president was elected president, president Enrique Bolanos. Nicaragua’s economy suffered a stalemate, as president Bolanos’s presidency served to “clean the corruption of the political panorama” and to pay off most of the debts that Nicaragua has inherited during the Sandinista’s regime and the Somoza dynasty.

The Economic effects of the ALBA and the CAFTA agreements.

The CAFTA and the ALBA treaties share similarities within their texts; however, both treaties are approached from different perspectives. The ALBA treaty, is not just considered a treaty, according to Hugo Chavez, it is a bond between Latin American countries, and as Chavez stated: “Latin America will save itself alone”. So far, there are only 5 members to the ALBA treaty, which members are: Cuba, Nicaragua, Ecuador, Bolivia and Venezuela.

The CAFTA on the other hand is seen as simply a “treaty” between the United States and Central America and the Dominican Republic. This approach by the United States has “scared off” most of the trust among the population, as it suits the symptoms of an economically manipulative doctrine. The points of the CAFTA are expressed as follows:

President Hugo Chávez in his intervention in ALADI has summarized the principals

ALBA as the following topics:

1. To promote the fight against the poverty

2. To preserve the autonomy and Latin American identity

3. The transference of technology, the technical assistance

4. The formation of human resources

5. To prioritize national companies us public beings suppliers

6. The agreements could not be obstacle to the diffusion of the scientific and technological progress

7. To face the abuse of the monopolies and oligopolies through effective mechanisms that assure fare competition

8. The foreign investors will not be able to demand the countries by the handling of state monopolies of public interest

9. Treatment special and differentiated to unequal economies to open opportunities to the weakest

10. Process of wide social participation, which can be characterized like democratic

11. Economic, social, cultural and civil rights should be interdependent, indivisible and can not be waived

12. The commercial interests of the investors will not be able to have supremacy over the human rights or over the sovereignty of the States

13. Creation of founds of structural convergence for the correction of asymmetries

The different definitions of Globalization must be kept aside when comparing the ALBA and CAFTA, as the goal of a foreign agreement is to aid Nicaragua’s economy regardless of ideological opinion. The CAFTA is regarded as the treaty that puts forth the “Americanization” of a country, as on the contrary, the ALBA encourages Nationalistic growth.

The CAFTA agreement encourages United States corporations into investing their capital in underdeveloped countries in exchange for tax liberation, lower employee costs, and a guarantee in case of corporate loss due to a social instability. The preamble of such documents states:

“The CAFTA is designed to eliminate tariffs and trade barriers and expand regional opportunities for the workers, manufacturers, consumers, farmers, ranchers and service providers of all the countries.”

The CAFTA, however, interferes with the local market thus damaging the economy anyway, as the bankrupted domestic companies are fully taxed and pay proper salaries to their employees, when I the other hand the foreign corporations pay miserable fees and when in regard to domestic re-investment, the it is unclear of how much of the company’s profits are to be invested.

Nicaragua has approved the CAFTA; however it has not been publicly accepted, as in Nicaragua, the CAFTA can be understood in the context of a US strategy to divide opposition in negotiations for other larger trade agreements. Instead of aiding US companies, the objective of the ALBA agreement is to promote cooperation and collective development of the region with an emphasis on fighting poverty and social exclusion. The general feel of the can be appreciated in Venezuelan president Hugo Chavez’s opening remark at the United Nations:

“ALBA is not an agreement of the elite. ALBA is born from down below, from the grassroots of the population, without the people no union would be possible and that is one of the criticisms that we have always made of other integration efforts. The objective is not necessarily to maintain high economic statistics or attract investment, but rather to benefit our populations, so that they have health care, education, jobs, and so they can get out of poverty.”

Another factor about the ALBA and the CAFTA that must be kept in mind is the alignment is the political alignment that Nicaragua maintains of a socio-democratic regime that owes alliances to Venezuela and Cuba, as the Sandinista party owed much of their existence to Cuba during the Cold War. Due to these populist tendencies, it could be said that, the ALBA is the more appropriate treaty to sign.

Socio-Economic Perspective of Globalization

It is of public knowledge in Nicaragua that most of the populations regard Globalization as “not welcome”. The socio-economic perspective of Globalization can be seen from two lights the rural and the industrial perspectives. The rural perspective of globalization can be expressed as the lower class’s point of view, while the industrial would affect the middle and upper classes. In short, both of these perspectives contain the entire range of the Nicaraguan society.

The people that constitute the rural perspective, also known as the Nicaraguan Farmers, do not welcome globalization because of the economic impact that it will cause society. For most farmers in the outskirts of Managua and on the borders of the country, the prices set by the CAFTA are below the prices they have been used to deal with, meaning that there will be an economic impact for that sector of society. The rural branch of society represents about 70% of the Nicaraguan population, meaning that to off-set an economic pendulum from this side will affect the country’s economy greatly.

The industrial perspective of the socio-economic side to globalism might actually benefit from the “no tariff” agreements as machinery and foreign goods might be less expensive to ship in, and national products will be easier to export. The industrial sector of Nicaragua can be said to constitute by 30% of the population, however, even though it is a minority in regards to the rural sector, the industrial sector represents about 50% of the Gross domestic Product in Nicaragua.

The choice between which treaty to chose seems to be the more difficult question as the ALBA benefits the rural sector with its standard wages, while the CAFTA would cause a significant impact in the economy. The industrial sector on the other hand would benefit from both the CAFTA and the ALBA, as the free commerce agreement of “no tariffs” would mean that the import export of Nicaragua will of a wider range. The issue in mind however, remains on the ideological alignment concern.

The rural sector of the Nicaraguan population belongs to a new mix of ideologies, a mix of neo-socialistic liberalism, where a sense of national pride and populism makes the number one goal to push on the Nicaraguan economy. The CAFTA is not appreciated in this perspective as it is seen as an agreement that binds Nicaragua to the will of the United States’ prices and tariffs, therefore permitting the Unites States to have a sort of control over the Nicaraguan Economy. Nicaragua has already felt the United States’ economical grasp in the 1970’s during the Sandinista government, where the United States employed a boycott on Nicaragua. The sense of resentment has not left the Nicaraguan panorama yet, which means it might take a long time for the CAFTA to be approved by the population. The ALBA in the other hand, is more widely accepted as it involves direct proposals by Venezuelan president Hugo Chavez.

In current times, Nicaragua has approved both the CAFTA and the ALBA, the differences, however, are only visible in regards to the material “gifts” provided by Hugo Chavez. On the Economical perspective, both the ALBA and the CAFTA have not made and impact. Both treaties have rendered the Nicaraguan economy with the same Gros Domestic Product than the year before their signing.

Conclusion

Nicaragua has been a signatory of the CAFTA for over 3 years now and has also been a signatory of the ALBA treaty for over 1 year now; however both these treaties have not saved Nicaragua from the enormous deficit that it faces. In conclusion, it can be said that Globalization will have an impact in the Nicaraguan Economy in the long-run; however, in regards to Globalism of the Socio-democratic sphere, the Latin American countries should remain united and try to roll back influences from the United States in order to be financially dependent on its own.

Nicaragua needs to be financially independent, however, in its current economical state; it cannot stand on its own two feet, which means it should have the temporary support of a greater power. The choices are obviously dived between the CAFTA and the ALBA, which are obviously a reflection of the United States and Venezuela. In the wider-picture, the choice between the ALBA and the CAFTA is the choice between Capitalist democracy and a socio-Populist democracy.

The relationship between Nicaragua and the United States has not been as strong as the 1930’s in the time of Anastasio Somoza Garcia. The constant intervention from the United States in Nicaragua has rendered a sense of mistrust. In actuality, the CAFTA seems like another brick to the wide and high wall that the United States has been building over Latin America, the first brick being the Monroe Doctrine, which guaranteed the United States right to intervene in any Central American nation if its freedom was being threatened.

Even though Nicaragua is a signatory of both the ALBA and CAFTA treaties, so far the ALBA has aided the Nicaraguan economy more than the CAFTA, due to the multiple “gifts” given by Hugo Chavez to the Republic of Nicaragua, gifts such as Oil Plants. The bottom line, nevertheless, stays the same; Globalization will have an increasing effect on the Nicaraguan economy.

Bibliography

http://www.ustr.gov/Trade_Agreements/Bilateral/CAFTA/CAFTADR_Final_Texts/Section_Index.html

http://www.venezuelanalysis.com/news/2360

Ministro de Estado de Venezuela para la Bancoex, Integración y Comercio Exterior

http://www.globalization101.org/What_is_Globalization.html

http://www.newdream.org/consumer/globalization.php

http://www.country-data.com/cgi-bin/query/r-9212.html