Nicaragua - Nationalization and the Private Sector

The Issue of Land Ownership

The expropriation of lands owned by the Somozas in 1979 left the new Sandinista administration holding about 20 percent of the country's arable lands. At first, these holdings were turned into state farms. In 1981 the administration passed the Agrarian Reform Law defining the process of nationalization and stating what could be done with expropriated land. The law guaranteed property rights to those who continued to use their property, but land that was underdeveloped or abandoned was subject to expropriation. Land could also be declared necessary for agrarian reform and purchased from its owners at a price set by the government. The Agrarian Reform Law gave free title to land, mostly in eastern Nicaragua, that was occupied by homesteaders. Bank foreclosures in the event of default on a bank loan were prohibited.

Farmland that had been bought or expropriated could be turned over to agricultural cooperatives. The farmers who constituted a cooperative were then given title to the land. These "agrarian reform" titles could be inherited, but the title or any part of the land could not be sold. The process of turning state farms into cooperatives with the transfer of title began slowly at first. The process picked up steam in 1984 when rumors began circulating that the government would use a lack of clear title on state farms as an excuse to remove farmers from state farms. In 1985 it was estimated that 120,000 families were farming lands redistributed by the Agrarian Reform Law, half on state farms and half in cooperatives.

In its last months in office, the Ortega government awarded additional land to Sandinista supporters as payment for government service. Nicknamed the Pi�ata, after a children's game in which a hollow papier-m�ch� animal filled with candy is broken open and the candy falls out, the property giveaway consisted of more than 5,000 houses and hundreds of thousands of hectares of land.

The new administration of President Chamorro promised to compensate the large landowners whose land had been taken over by the Sandinista government. President Chamorro also issued two controversial land decrees: one provided for temporary rental of idle state farmland to those willing to work the land for a year, and another established a commission to adjudicate more than 1,600 claims on land confiscated by the former government. Bank foreclosures were allowed again, and the government indicated that it favored changing the titling provision of the Agrarian Reform Law to allow for sale of property.

Combined opposition forces would soon force the Chamorro administration to ease some of its new policies. The critical issue of land ownership would, in fact, prove to be the most contentious issue confronting the new government. The Sandinistaled opposition derided the rental decree, which primarily benefited former Contras, as a return of land to supporters of the Somoza family. Threatened by a major strike, President Chamorro agreed to suspend the rental land decree. Former President Ortega called the revocation of the degree a major victory, while critics assailed it as an abrogation of power. Because Chamorro's plan did not take back property given away in the pi�ata, the powerful private-sector umbrella group, Cosep, refused to participate in her economic plan. Henceforth, Nicaragua's private sector would prove to be an intractable opponent.

Nationalization and the private sector

Despite initial fears that the Sandinista government would nationalize the economy as was done in Cuba after the revolution, the Sandinista administration pledged to maintain a mixed (privately and publicly owned) economy. All property and businesses owned by the Somoza family or their associates were immediately taken over by the government. Farm workers were encouraged to organize under cooperatives on appropriated land. However, private businesses not previously owned by the Somozas were allowed to continue operations, although under stringent new government regulations.

The Sandinista administration held the right to further nationalize any industry or land that it deemed was underutilized or vital to national interests. Exercising this right, the government made a few "showcase" nationalizations, such as the takeover of the Club Terraza, a nightclub in Managua. In general, however, nationalization was concentrated in the banking, insurance, mining, transportation, and agricultural sectors. During the eleven-year tenure of the Sandinistas, the private sector's contribution to the GDP remained fairly constant, ranging from 50 percent to 60 percent.

Privatization and the Private Sector

To win the February 1990 election, Violeta Barrios de Chamorro promised to represent all sectors of Nicaraguan society, including the small but powerful private sector with which she was closely identified. Nicaragua's private sector, mostly organized under the Superior Council of Private Enterprise (Consejo Superior de la Empresa Privada--Cosep), was instrumental in President Ortega's electoral defeat. Private industry had suffered heavy losses during the struggle to overthrow the Somoza regime and then fared even worse during the decade-long administration of the Sandinistas.

Nicaragua's private sector also was gravely affected by the five-year United States trade embargo directed at destabilizing the government of President Ortega. One year after the trade embargo began in 1986, the government had already shifted much of its economy away from dependence on trade with the United States. The private sector, which in 1985 produced 56 percent of the GDP and 62 percent of Nicaragua's most important exports, suffered from diminished credit and from cost increases and delays for essential supplies.

The private sector had led the political and military opposition to the Sandinista government. By election day 1990, the Nicaraguan private sector held high expectations that it would benefit from a change in government and that it would be compensated for the injustices it felt it had suffered during the Sandinista years. Privately owned factories and land had been confiscated, abandoned, or shuttered or had suffered war damage during the Sandinista era. Private industry looked to exercise the political and economic power it had enjoyed under the Somoza administrations. The private sector also hoped for a return of nationalized property and privatization of government assets still dominated by representatives of the Sandinista government.

In some cases, rehabilitation of the factories and firms required only reactivation of idle capacity; other assets, however, including both agricultural and industrial machinery, had frequently deteriorated beyond repair. In some cases, assets had been deliberately destroyed or sold. Much of the Nicaraguan private sector remained on the sidelines in 1990, waiting for the government to lure it with promises of security for its investments and of repair of private property at public expense. The Nicaraguan industrial sector showed only a mild 3 percent recovery by the end of 1990, mostly as the result of renewed access to overseas markets. Threats of urban labor unrest, renewed hostilities in the countryside, poor infrastructure, political tensions, and delays in passage of property laws returning private property to previous owners continued to discourage most investment. A leery and still belligerent private sector stood ready to turn its political struggle against the new Chamorro government and to do battle with labor unions and other groups identified with the Sandinista revolution.

In 1990 the government initiated a privatization effort to transfer more than 100 of Nicaragua's 350 state-owned companies to private ownership. The process included the outright sale, devolution, or liquidation of assets. The government holding company established to privatize state-owned assets initially identified forty companies to be sold within six months and an additional fifty to be returned to their previous owners or liquidated at a later date. Industrial workers would later negotiate retaining 25 percent ownership of enterprises sold, based on a claim of value added, or "sweat equity," during the Sandinista period.

State-owned enterprises contributed about 40 percent of the gross national product (GNP) in 1991. Most state- owned enterprises were former Somoza properties, although some had been confiscated under agrarian reform from absentee owners or from the Contras. The government also agreed to give back 50,000 hectares of fifty-six rural properties provided that owners pay for improvements made during the revolution. Another 70,000 hectares went to workers, former army officers, and demobilized Contras.

By mid-1992, the government of Nicaragua had also returned two slaughterhouses to their previous owners and sold a third. The government privatization company tendered bids for the administration of two of the largest shrimp processing plants in the country, one located in Corn Island and the other in Bluefields. A bid was also sought for the sale of a ship manufacturing and maintenance plant in Bluefields.

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