Can Nicaragua survive crisis in Venezuela?

Nicaraguans rally outside the Cathedral in León waiting for a visit from Venezuelan President Hugo Chávez back in 2009 (photo/ Tim Rogers)

Nicaraguans rally outside the Cathedral in León waiting for a visit from Venezuelan President Hugo Chávez back in 2009 (photo/ Tim Rogers)

As Sandinista faithful mobilize in the streets of Managua to pay homage to former Venezuelan President Hugo Chávez on the one-year anniversary of his death, Nicaraguan and Venezuelan analysts predict the international project he started won’t outlive its founder for much longer.

- payin the bills -

President Daniel Ortega, who is traveling to Venezuela to pay official tribe to his former benefactor, honored Chávez as a revolutionary who “fought for the people, fought for America, fought for humanity, fought for peace and fought for justice.”

Prior to leaving for the airport today, Ortega said that now, “more than ever,” the countries belonging to the alliance created by Chávez will “continue to fight for peace, for justice, for liberty and for the sovereignty of our people.”

But just a year after the loss of Chávez’s charismatic leadership, and amid the ruin of Venezuela’s economy, the Bolivarian Alliance for Our Americas (ALBA) —Chávez’s brainchild for regional integration — appears to be collapsing under the weight of its own ambition.

And some economists warn that the unraveling of ALBA could be devastating for Nicaragua’s economy.

Venezuelan economist Ricardo Hausmann

- paying the bills -

photo/ Tim Rogers

Venezuelan economist Ricardo Hausmann

“I think that ALBA has all the likelihood of bankrupting Nicaragua,” economist Ricardo Hausmann, director of Harvard’s Center for International Development and former Minister of Planning of Venezuela, told The Nicaragua Dispatch.

Though Nicaraguan exports to Venezuela grew by a whopping 7,000% during the first six years of ALBA (from $6.2 million in 2007 to $437 million in 2012), it was growth based on a “an artificial market — and that artificial market is in the process of collapsing,” according to Hausmann.

In addition to nearly 60% inflation, basic shortages, an underperforming oil industry, and a runaway black market, Venezuela is accumulating billions of dollars in new debt for unpaid imports.

“Venezuela has arrears to the tune of $56 billion in unpaid bills; that includes all the imports that Venezuela has done in the past eight months, which have not been paid,” Hausmann says. In addition, the economist says, Venezuela owes $3.5 billion to the airline companies.

- paying the bills --

Chávez’s vision of a socialist alliance in the Americas might not disappear overnight, but ALBA’s fate is not looking good, Hausmann says.

“ALBA is not an economic system; it’s a preferential agreement for Venezuela to buy stuff from its friends. Venezuela is buying less and less, it’s collapsing,” Hausmann says. “It owes too much money to too many people, and it’s going to default on many people; so its not an exactly super sexy market to be tied to.”

Indeed, the decline of ALBA has come faster than many would have guessed. After six years of steady trade growth under Chávez, Nicaragua’s exports to Venezuela dropped by $31.7 million last year, according to Nicaraguan government figures.

The Sandinista government's tribute to Hugo Chavez in Managua

photo/ Valeria Espinoza

The Sandinista government’s tribute to Hugo Chavez in Managua

Nicaragua’s oil imports from Venezuela continued to increase; but Nicaragua is a paying customer. Venezuela, on the other hand, increasingly is not.

“The Venezuelan market is a temporary thing; it is already shrinking and it won’t be there (forever), so smart Nicaraguans are not going to want to bet on that horse,” Hausmann says, adding that Nicaraguan exporters who are currently owed money from Venezuela will probably not get paid.

On the other hand, Hausmann notes, Nicaragua was smart to not abandon its free-trade agreements with the U.S. and other countries. The United States remains Nicaragua’s main trade partner, purchasing $592 million in Nicaraguan exports last year — nearly $200 million more than Venezuela purchased.

“Nicaragua has all the disciplines of a free trade agreement, so from a business point of view it’s a much more open economy; there is a part of Nicaragua that has a set of economic rules that is infinitely healthier than those of Venezuela,” Hausmann says.

The challenge for Nicaragua will be to make sure its exports meet the stricter standards of quality required by other countries, so they can find new markets when Venezuela ceases to be a viable option. Even if the South American oil giant can pull it together economically, any political change of the guard in Venezuela would most likely end Nicaragua’s sweetheart trade deals.

Trying to keep it together: Venezuelan President Nicolas Maduro

presidencia

Trying to keep it together: Venezuelan President Nicolas Maduro

“The likelihood that the politically allocated market shares that Nicaragua has in that market are going to survive (any political change) is very unlikely,” Hausmann says.

Nicaraguan economist Francisco Aguirre is also skeptical about the future of ALBA. He says the unsustainable nature of the project was baked in from the beginning.

“With or without Chávez, ALBA — as originally conceived — was not sustainable,” Aguirre says. “Although Venezuela is potentially a very wealthy nation with the world’s largest petroleum reserves, Chávez also espoused what he called XXI Century Socialism which was one part populism, a second part economic mismanagement, and a third part corruption.”

Ortega, however, is more savvy than Chávez was, Aguirre says. Wisely, the Nicaraguan president never jumped into XXI Century Socialism with both feet.

“Daniel Ortega milked the Venezuelan cash cow while he could, but he’s smart and experienced, so he’s aware that Venezuela’s ‘aid’ to Nicaragua is diminishing; hence his rush to firm up special relations with other nontraditional donors such as Russia,” Aguirre says.

Ortega’s challenge moving forward, the economist says, will be finding a way to manage Nicaraguans’ expectations and keep his grip on power amid a deceleration of economic growth due to lower commodity prices and the diminishing role of Venezuelan largess.

A $40 billion Chinese canal, perhaps?

 

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