Civil Society, Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean, Poverty & SDGs

MILLENNIUM GOALS: Nicaragua Can’t Afford to Cut Poverty Rate

José Adán Silva

MANAGUA, Jun 9 2009 (IPS) - The global recession, internal economic contraction and loss of vital international aid are further distancing Nicaragua, one of the poorest countries in the Americas, from the Millennium Development Goals (MDGs).

In late 2008 the president of the Central Bank, Antenor Rosales, forecast three percent GDP growth for 2009. In January he revised the estimate downward, to between one and two percent.

The non-governmental Nicaraguan Foundation for Economic and Social Development (FUNIDES) predicted in March that GDP would shrink by between 0.4 and 1.7 percent. It also estimated that between 30,000 and 50,000 people would lose their jobs, and between 33,000 and 64,000 people would sink into poverty this year.

In this Central American country of 5.7 million, 47 percent of the populations live on less than two dollars a day, according to the United Nations.

This month the Central Bank confirmed a fall in exports in the first quarter of the year.

Rosales said exports from January to March were worth 355 million dollars, 11 percent below exports for the same period in 2008. “The hardest-hit product is coffee,” he added.

The Nicaraguan economy is based on agriculture and livestock, and its main sources of revenue are exports of grains, meat and meat products, textile manufacturing, tourism, and remittances from workers living abroad.

According to the Nicaraguan Civil Society Network for Migrations, one million Nicaraguans are working outside the country, and they send home between 750 million and 850 million dollars a year.

Exports from duty free zones make up 37 percent of total exports in Nicaragua. In the first quarter of 2009 they brought in 243 million dollars, 15 percent less than in the same period last year.

Textile factories in the free zones are among those hit hardest by the crisis. Two companies closed down in May, bringing to 131 the number of firms that have gone under since 2007. A further four may close their doors in the coming months.

The textile sector provides close to 90,000 direct jobs and another 10,000 indirect jobs, equivalent to 30 percent of available formal employment in the country.

According to official figures, closures of foreign companies have already left some 27,000 people jobless.

The government forecasts 28,900 job losses this year in the formal and informal sectors of the economy. According to the International Monetary Fund (IMF), as many as 52,600 jobs could be lost. Unemployment at present is about nine percent, according to government figures, and 14 percent according to private estimates. (These figures do not take into account the large proportion of the labour force working in the informal sector).

A study by the U.N. Development Programme (UNDP), the U.N. Department of Economic and Social Affairs, the Economic Commission for Latin America and the Caribbean (ECLAC) and the World Bank into the economic resources needed by 18 Latin American countries in order to fulfil the MDGs warned that Nicaragua is lagging in the region and has serious economic problems that could exacerbate poverty.

Even in the most positive possible economic scenario, this country will not be able to halve by 2015 the level of extreme poverty it had in 1990, says the study titled “Políticas públicas para el desarrollo humano: ¿Cómo lograr los Objetivos de Desarrollo del Milenio en América Latina y el Caribe?” (Public Policies for Human Development: How Can the MDGs Be Met in Latin America and the Caribbean?).

The study’s chapter on Nicaragua was presented in Managua in late April by co-author Marco Vinicio Sánchez, an economist at the Development Policy and Analysis Division in the U.N. Department of Economic and Social Affairs in New York.

The other countries studied were Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Paraguay, Peru and Uruguay.

According to Sánchez, the state needs to spend an additional 3.5 to 4.5 percent of GDP on combating poverty if the country is to make progress towards some of the MDGs. At present about six percent of GDP is devoted to this purpose.

More than assessing the performance of the policies Nicaragua has implemented to achieve the MDGs, Sánchez said, the study looks at what financial strategies can be recommended in order to meet the MDGs by 2015.

“We propose four options for financing the achievement of the MDGs: increasing taxes, foreign aid, domestic debt and foreign loans,” he said.

According to ECLAC, government social spending as a percentage of GDP rose in Nicaragua from 6.6 percent in 1990-1991 to 8.8 percent in 2002-2003.

The study measured spending per person on poverty reduction, and concluded that spending on health, education, nutrition and housing increased from 68 dollars per person in 2002 to 110 dollars per person in 2006. According to the official budget, it was to have reached 131 dollars per person per year in 2007.

But despite the increase, this represents one of the lowest levels of social spending in Latin America, according to ECLAC.

“The MDGs are attainable, but additional efforts must be made,” said the deputy resident representative of the UNDP in Nicaragua, Claudio Tomasi.

Progress has been made in access to improved sanitation and to primary education, in terms of overall coverage as well as in equality of opportunities for girls and boys.

The MDGs are a set of quantifiable and time-bound targets adopted by the international community in 2000, aimed at drastically cutting extreme poverty, hunger, inequality and pollution all over the world.

The chairman of the parliamentary Economics Committee, lawmaker Wálmaro Gutiérrez of the governing Sandinista National Liberation Front (FSLN), rejected the study’s proposals for financing the achievement of the MDGs. “I don’t agree with the idea that the more we invest in reducing poverty, the more it will decline, in a directly proportional way, because poverty continues to climb” despite the steady increase in spending, Gutiérrez told IPS.

The U.N. study recommended that Nicaragua form a strong alliance with donor countries willing to finance part of its social spending.

As a highly indebted poor country, “Nicaragua will continue to depend on donations from abroad, and foreign aid in general, for the attainment of its development goals,” Sánchez said. Nicaragua needs foreign donations amounting to around 3.5 percent of GDP per year.

That is equivalent to half of what the country received, on average, per year between 2000 and 2005, when donations and “soft” loans reached some 550 million dollars a year.

But European Union donor countries and the United States cut their aid when the opposition and sectors of civil society accused the FSLN of fraud in the November 2008 municipal elections.

Economist Adolfo Acevedo, an adviser and analyst for the non-governmental Coordinadora Civil, said the country’s political and economic situation prevents it from undertaking the actions proposed by the U.N. study.

“Our context, global economic conditions and the internal political situation all prevent it. Nor is the government (of President Daniel Ortega) open to outside recommendations for rectifying the causes of the suspension of international aid because of reports of fraud,” Acevedo told IPS.