In the first 67 days of 2019, the Government of Daniel Ortega has promoted the approval of laws, ministerial agreements and loans that negatively impact the economy of Nicaraguans, because they promote unemployment, informality, the reduction of the purchasing power of the population and the illiquidity of companies, in a crisis in Nicaragua since April 2018.
On February 1, through Presidential Decree 06-2019, published in La Gaceta Diario Oficial, the Government made official the reforms to social security that increased the contribution of workers from 6.25% to 7% and that of employers from 19 % to 21.5%, for companies with less than 50 workers; and 22.5% for companies with 50 or more employees.
The reform to the social security also originated changes in factors for the calculation of pensions that, finally, reduce it an average of 35%.
It was the announcement of increases in payments and reductions in benefits in April 2018 that prompted Nicaraguans to rise up against Daniel Ortega. Despite the quick retraction by government, it plunged the country into what is now 11 months of violence and repression that has left more than 325 dead and thousands jailed.
The reform that was announced on January 28 of this year forced business owners to lay off employees or renegotiate contracts to deal with new payments to social security and keep businesses afloat.
On the same day that the government announced the social security reform initiative, it also disclosed the tax reform bill, which was approved in the National Assembly and came into force on February 28 of this year.
As a result of these reforms, the list of popular consumer products exempted from Value Added Tax (VAT) was reduced, such as toilet paper, matches, soaps, toothpaste, pork and beef ribs, beef tongue and chicken fillets, to mention some.
The fiscal reform exempts productive items destined to agriculture and raising cattle, pork and poultry as long as the producers receive the endorsement of the Ministry of Finance and Public Credit (MHCP).
Representatives of the agricultural sector point out that it is difficult for small producers to access these benefits, due to cumbersome bureaucratic procedures that require time and money to be able to meet, due to mobilization expenses, among others.
Increase in Income Tax
In addition, the final minimum payment of Income Tax (IR) for large taxpayers contemplates an increase of 1% to 3% for large taxpayers and from 1% to 2% in the case of the main taxpayers.
The Nicaraguan Foundation for Economic and Social Development (Funides) explained that social security reforms, tax reforms, the issuance of treasury bills and a loan from the Taiwanese bank for US$100 million are intended to finance the public resources for the operation of the Central Government and the Nicaraguan Social Security Institute (INSS) in 2019.
On March 7, the National Assembly approved the Law creating the Banco Nacional (National Bank), which also authorizes the purchase of Banco Corporativo S.A (Bancorp) that was included in the US sanctions linked to PDVSA (Venezuela state oil company) and Albanisa.
Legislator Alfredo César expected the purchase will put the State of Nicaragua in the spotlight of the United States Department of the Treasury, explaining that the purchase of Bancorp could cause contamination of the State. For César, the acquisition will be questioned internationally.
In addition,, given that the Bancorp purchase was made through bonds, the country would incur greater internal public debt, which aggravates the financial situation of the State.
Minimum Wages Frozen
Last Thursday, a minimum wage freeze was announced. The commission that negotiates the Minimum Wage agreed to stay in permanent session and meet the last Thursday of each month until August, to review the economic behavior of the country.
Gasoline and Electricity
Although the prices of fuels in Nicaragua are not regulated by the State, they are taxed with a selective consumption tax and the Nicaraguan Energy Institute conducts a weekly monitoring of price fluctuations.
The increases registered so far in 2019 are justified by the variations in international prices of these products. On Sunday, gasoline prices rose to more than 32 cordobas per liter.
And with the approval of a package of reforms to the country’s electricity sector in mid-February of last year, the subsidy was reduced to many Nicaraguan households.
Households registering a consumption between 101 and 125-kilowatt hours will have only a 40% subsidy in the social rate and those who consume between 126 and 150-kilowatt hours will receive only 30%.