US cancels transparency waiver

(posted June 21, 11:00 a.m.)- The U.S. Embassy today confirmed what many already suspected: the U.S. fiscal-transparency waiver for Nicaragua—and the $3 million in bilateral aid attached to it—will not be renewed this year.

Embassy spokeswoman Lillian Nigaglioni confirmed this morning that the Government of Nicaragua has been notified of the decision. Sandinista officials have remained characteristically silent.

The suspension of the transparency waiver—a more symbolic than financial blow to the Sandinista government—now sets the stage for Washington’s decision on the property waiver, and the whopping $1.4 billion in multilateral loans that’s tied to it. Given the tense campaign season in Washington, some analysts say it’s not unlikely the U.S. will cancel the second waiver as well—a move Nicaraguan businessmen have likened to an “atomic bomb” dropped on the country’s budding economy.

“Just a few months before a critical and tight presidential election, the Obama campaign team wants to make sure it is not vulnerable on foreign policy, including on Latin America,” says Michael Shifter, president of the Inter-American Dialogue in Washington. “It will want to show that it has been tough on anti-American leaders like Ortega. So for political cover, the administration may want to cancel both waivers to shield itself from the critique of the Romney campaign.”

Business leaders hope that’s not the case. They are urging the U.S. government to let Nicaragua sort out its own internal problems without turning the screws on the country’s economy, as it did with the trade embargo in the 1980s.

“We have the capacity to resolve our own institutional issues, but it’s going to take some time,” says Nicaraguan businessman César Zamora, vice president of the Association of American Chambers of Commerce in Latin America (AACCLA). “In the meantime, the U.S. can’t drop a nuclear bomb on Nicaragua and say, ‘You pick up the pieces and then you’ll win back the support from U.S. government’.”

José Adán Aguerrí, president of COSEP, Nicaragua’s largest federation of business chambers, agrees. “American authorities aren’t going to make Nicaragua more democratic by impoverishing the country even more,” he says. “It’s not the Nicaraguan government that is going to be the big loser from the loss of the waivers.”

Defending the property waiver

Though Sandinista officials—hopelessly entangled in and frightened by the First Lady’s fuzzy-brained gabble—have a hard time explaining their own case in terms anyone can understand, Nicaragua’s business leaders have taken it upon themselves to herald the Ortega administration’s achievements on the property issue. The problem is that no one in Washington seems to be listening anymore.

“Our position is that there has been a technical response from the Government of Nicaragua on the property issue,” Aguerri told The Nicaragua Dispatch. “If the U.S. government considers its decision on the property waiver a political one and not a technical one, then that’s the U.S.’ decision to make. But from the technical point of view, we think that the conditions are there for the property waiver to be approved.”

On the other hand, Aguerri says, it’s up to Nicaraguans to return some semblance of institutional health to their country’s bedridden constitutional democracy.

“The waiver and institutionalism are both fundamental to the macroeconomic stability of the country; and if we don’t have those, we won’t have continued economic growth,” Aguerri says. “So this is an issue that has to be viewed from both sides, what the Americans do with the property waiver and what Nicaraguans do politically.”

The cancelation of the property waiver would jeopardize Nicaragua’s ability to get much-needed development and budget assistance loans from multilateral institutions where the U.S. has a strong voice and vote. The possible cancelation of those loans could mean the loss of $1.4 billion in rural electrification, health and infrastructure projects that are fundamental to the government’s plans to combat rural poverty over the next five years, Aguerri says.

“The cancelation of these development projects would mean that people who have never had energy would remain without that opportunity for the rest of their lives. They have always lived that way and they will die that way, and we think that wouldn’t be fair,” Aguerri said. “It would be a very high cost that the government would have to pay.”

Collateral Damage

The rich would suffer too. Aguerri says the cancelation of both waivers would cause significant “collateral damage to all the work we have done over the years to try to attract foreign investment and local investment here in Nicaragua.”

The symbolism of the transparency waiver whack is already worrisome enough, Aguirre says. The decisions by the U.S. to cancel the Millennium Challenge (MCC) funding in 2008 and now the transparency waiver in 2012 is a clear signal that the U.S. no longer considers Nicaragua a place where it wants to put its money.

If that sentiment carries into the private sector, it could be devastating for Nicaragua, which gets 25% of its foreign direct investment from the United States.

“This could act as a firewall against future investment,” Aguerri worries. “It [will] definitely have a negative effect on our image.”

On the other hand, the cancelation of the MCC aid four years ago does not seem to have deterred growth in U.S. private-sector investment in Nicaragua. While it’s impossible to know how much investment didn’t come here because of the MCC pullout, U.S. dollars and tourism continue to flow into the country, so it’s hard to argue Nicaragua has suffered much as a result.

Falling down at the finish line?

Both the MCC and transparency waiver are insignificant compared to the property waiver. If that gets canceled next month, it will be like Nicaragua falling down—or, more accurately, getting shot in the kneecap (or perhaps shooting itself in the foot, depending on your political optic)—right before the finish line of a marathon it started running in 1993.

Over the past 19 years, Nicaragua has forked over nearly $1.28 billion in compensations to thousands of U.S. and Nicaraguan citizens whose properties were confiscated by Sandinistas in the 1980. Less than 200 cases remain, meaning Nicaragua could finally be done resolving every last property claim by 2015, given the government’s current clip.

On the other hand, if the property waiver gets suspended next month, it will have cost Nicaragua a total of $2.6 billion—the sum of $1.4 billion in lost multilateral aid and the $1.28 billion Nicaragua has already spent on indemnifications.

That would be an expensive and unfortunate face-plant with the finish line in sight.

It would be particularly unfortunate given the very distinct possibility that the waiver cut would make no different to President Ortega, who continues to plod forward with his political project with complete indifference to everything that goes on around him.

“Politically speaking, the suspension of the MCC in 2008 didn’t do anything to prevent what happened in the 2011 elections,” Aguerri notes. “So in practical terms, it didn’t affect the government at all, it only affected other Nicaraguans who were suddenly left without those resources.”

Reporting for this story was funded by a grant from the Pulitzer Center on Crisis Reporting.