In the midst of the social and political crisis that has plagued the country since 2018 and increasing repression, now mainly focused on representatives of the Catholic Church, Nicaragua concluded 2023 with at least seven events, which will have future repercussions, for better or worse. In the economy of Nicaragua. These are the most relevant:
1. The end of simple devaluations of Cordoba
On August 9, Central Bank of Nicaragua (BCN) It announced that after thirty years it would put an end to the sliding exchange rate policy, implemented in March 1993 under former President Violeta Barrios de Chamorro, to make way, as of January 1, 2024, for a fixed exchange rate for 2024. It was set at 36.6243 córdoba per dollar.
This policy is based on a system of small, pre-announced daily devaluations of the currency. It has been in force since March 1993 with an exchange rate slippage of 5 percent per year, which in November of the same year, after a strong devaluation of Córdoba, rose to 12 percent.
In July 1999, former President Arnoldo Alemán reduced it to 9%, and in November to 6%. In 2004, former President Enrique Bolaños (RIP) reduced it to 5% and it remained that way for fifteen years. Until 2019, Daniel Ortega reduced it to 3%, in December 2020 to 2%, and in February 2023 to 1%.
Finally, in August, it announced that starting in 2024 it will be 0 percent, and from January 1, a fixed exchange rate will come into effect, which for 2024 will be 36.6243. This has generated confusion and fear, because in the opinion of specialists, although it has clear and easy-to-understand rules, it is set arbitrarily. Therefore, if economic conditions change, currency devaluation may be resorted to.
Read also: Is Córdoba's fixed exchange rate against the dollar that will govern from January sustainable? This is what analysts say
2. The regional crisis in free zone companies
In recent decades, companies operating under the preferential free zone system have established themselves as major job generators. According to figures from the Central Bank of Nicaragua (BCN), the 39 companies operating in 2000 employed an average of 30,199 people. But in 2022, the 187 companies associated with the sector employed an average of 138,027 workers.
But in 2023 they faced a silent crisis at the regional level that left thousands of Central Americans unemployed. Between October 2022 and October 2023, at least 16,128 Nicaraguans lost their jobs in assembly plants. For many of these unemployed people, one remaining option was to join the thousands of immigrants trying to enter the United States illegally.
This crisis arose because textile mills, which constitute the majority in this sector, received fewer orders from brands in the United States, due to falling sales in that market. According to statistics from the Ministry of Development, Industry and Trade (MEFIC), the sector exported $1,595.9 million worth of textiles between January and November, which is a lower amount compared to $1,690.7 million sold in the same months of 2022.
With orders falling, companies have no choice but to close production lines and lay off workers. Sales of cotton fabrics, tools, palm oil and other products offered by manufacturing companies also declined. The sector's total exports during the aforementioned period amounted to 3,159.8 million, which is a lower amount compared to 3,244.9 million in the same months of 2022.
Read also: The silent crisis embraced by export factories in Central America that could lead to a new wave of caravans to the United States.
3. Daniel Ortega creates a historic financial cushion
Four years ago, when at the end of 2019 the state's savings amounted to only 25.326 million cordoba, Daniel Ortega began to replenish these reserves until the formation of a historic financial cushion that would allow him to face difficulties. During 2023, in the face of the end of the mini-currency devaluation policy and the entry into force of the fixed exchange rate, this cushion reached the historic figure of close to 80 billion cordobas. According to official reports, the total money kept in the vaults of the Greek Central Bank as of September amounted to 57,505 million cordobas, while another 19,250.5 million cordobas were deposited in the country's commercial banks.
Specialists believe that a strong financial cushion will allow Ortega, among other things, to ensure the stability of the fixed exchange rate that will be in effect from Monday, January 1, thanks to the correct macroeconomic management, and increased collections. This ensured the 2019 tax reform, increased exports in recent years, and increased remittance arrivals.
But they regret that this cushion has been increased at the expense of sacrificing essential projects to diversify and improve the productivity of key sectors of the economy.
You can also read: Ortega fills BCN and commercial banks with nearly $80 billion CAD
4. Historical increase in remittances
In 2023, while thousands of Nicaraguan families were mourning the absence of one or more of their loved ones who had emigrated, fleeing political repression or in search of better opportunities, the economy benefited at the expense of this pain by seizing, between January and November, a historic sum of $4,239.8 million. . Of this amount, 82 percent, equivalent to $3,504 million, came from the United States, which is also the country's main trading partner and traditionally buys more than 60 percent of the products the country exports.
To the $4,239.8 million that remittances accumulated between January and November, it is necessary to add the amount sent by migrants in December, when it generally exceeds the average of other months, and where Christmas and New Year holiday expenses are added. new. This means that these shipments will approach $5 billion by the end of the year, as experts expected.
In addition to setting a historic record, the accumulated remittances between January and November by $513.3 million exceeded the $3,724.5 million generated in the same months through the export of products. This means that one month before the end of 2023, labor export has replaced traditional products and consolidated itself as a major source of income for the economy.
Read also: A record influx of financial remittances from the United States stimulates the regime’s economy
5. They sign a free trade agreement with China
One of the great economic achievements celebrated by the regime in 2023 was the signing of a free trade agreement with China, an agreement that, according to Daniel Ortega, will “liberate” Nicaraguan exports from any sanctions imposed by the United States in this framework. From DR-Cafta.
The agreement, which enters into force today, Monday, January 1, 2024, according to the system, will attract investments and enhance exports, because it opens the doors to a market that includes more than 1.4 billion consumers to local products. However, exporters, who were not even consulted in the negotiations led by Laureano Ortega Murillo, are not convinced of the usefulness of the agreement. They consider that, in addition to the geographical distance, there are significant cultural barriers that separate Nicaraguan products from that market.
Experience has also shown them that benefiting from free trade agreements takes years, just as happened with DR-Cafta. Although the United States was already Nicaragua's main trading partner, it took a decade to double the volume of exports and 16 years to triple their volume. Reports from the US Department of Commerce show that in 2006, before the agreement entered into force, Nicaragua exported $751.6 million to that country and it was not until 2016 that these sales generated $1,470.9 million and in 2022 reached $2,158.3 million. dollar . .
On the other hand, with China, we have to start almost from scratch, because between January and October 2023, even though the early harvest agreement has already entered into force, only $40.8 million was exported to that market.
You can also read: Why Ortega may suffer a setback in his bid to replace the US with China as Nicaragua's trading partner
6. Bankruptcy of Mercon Group, owner of Cisa Exportadora
After facing a year marked by tax harassment and the closure of all its commercial organizations, the business sector lost in 2023 one of the most prestigious companies, a leader in the cultivation, processing and export of coffee; With growth that has allowed it to consolidate itself under the name Mercon Coffee Group, which has been headquartered in the Netherlands for several years, ensuring its presence in nine countries; Nicaragua, Guatemala, Honduras, Panama, Brazil, Vietnam, Netherlands, United States, Spain;
However, the devastation caused by climate change on farms, market fluctuations affecting prices and other obstacles have made a debt of $363.34 million unpayable. To overcome the crisis, in the first days of December, at the height of the 2023-2024 harvest, the company filed under Chapter 11 of the New York Bankruptcy Law. It is assumed that the open process in the Federal Court will allow them to continue working normally while they find a solution to their financial problems.
However, after the statement issued by the group on December 6, no executives again referred to the problems they face, nor to offer a solution to the approximately four thousand producers who every year hand over their crop to Cisa Exportadora groups and benefits. The company annually exports on average about 1.5 million quintals of grain – that is, about half of the 3 million quintals that have been sent on average to the foreign market in recent years.
You can also read: Four national banks are among the creditors of Mercon, which declared bankruptcy
7. Public sector employees lost their salaries
Around the end of 2023, the Ortega Murillo regime, which declares itself a defender of the poor, robbed public and municipal employees of a right they had acquired nearly thirty years ago. Starting in November, state and municipal officials who stop working due to dismissal will no longer be entitled to severance pay. On the other hand, the resigning person must work three years to receive one month’s salary, up to fifteen years to receive two months’ salary, between fifteen and twenty years to receive three salaries, and more than twenty consecutive years to obtain a settlement of five salaries that he had never before received. instance. The regulations gave them when they stopped working after six years of seniority, as happens in private sector companies.
Secretary General of the Federation of Health Workers (Fetsalud) and coordinator of the National Workers' Front (FNT), Gustavo Porras, in his capacity as President of the National Assembly, promoted this change and confirmed that it was correct.
According to Boras, the mechanism has been in place since 1995, which ordered the delivery of one month’s salary for each year of the first three years of seniority and twenty days for each year of the following three years, with five salaries being settled at six years of seniority. The service was completed, and the continuing work was a “corrupt mechanism” that encouraged officials to resign.
Specialists described the decision as a major setback in terms of workers’ rights, as the trend should be to obtain new benefits, not to lose what we have. But what seems unreal to them is that the union leader was the one who promoted most of the riots and strikes, while Daniel Ortega led the opposition, and he was the one who promoted this setback.
Read also: Gustavo Porras says compensating state employees was a “perverse incentive” and that’s why they reformed the law
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