Not long ago, around about the turn of the century, Nicaragua’s financial system was collapsing. Several private banks failed and depositor confidence was at an all-time low. That was when Arnoldo Alemán presided over the country. The country’s coffers were flush from aid pouring in after Hurricane Mitch in 1998 and many were grasping to get their share by hook or by crook. It was almost like the watchword in the government and unscrupulous private business was “corruption, the more the merrier.” Several private banks were basically looted.

Savings deposits, very important for the well-being of a nation’s economy, were threatened and so the government was forced to step up, offering what are called Negotiable Investment Certificates, or CENIs. The money brought in from their purchase would be used to guarantee deposits, thereby assuring continued public confidence in the country’s banking system.

The next government and the one now in power inherited an untenable situation created by these bonds. The original interest rates promised were very high, far above any other rate paid for similar negotiable papers. These attractive bonds were snapped up and traded on Nicaragua’s nascent stock market or Bolsa de Valores.

Naturally, the government would have to honor the certificates, but after a couple of years, it became obvious that an inordinate burden was being put on the national budget, with yearly payments eating up a huge portion of it.
Most of the certificates eventually ended up in the hands of the few private banks that emerged from the bank breaking unscathed. The government of past president Enrique Bolaños sent in its Finance Minister, Eduardo Montealegre, to strike a new deal to renegotiate terms with the certificate holders. A new schedule of payments at reduced interest rates was worked out. The annual amounts that it has to pay out though, still represent a considerable burden.

Last year during the elections and in the wake of the FSLN victory, grumblings were heard about this onerous burden of debt and the morality of having such a poor country pay out scarce funds to rich private banks, funds that could well be used to develop necessary infrastructure for the development of the country, for example, or even to educate and provide healthcare to the population.

Newly elected President Daniel Ortega, however, has found himself penned into pledging respect to the rule of law and honoring financial commitment, both of which are building blocks for the system for support to the country worked out with the International Monetary Fund. This brings in a considerable amount of fresh foreign assistance to Nicaragua (not to mention the forgiving of billions of dollars in foreign debt).

It is said that the first thing to get fixed in a bad situation is the blame and so a scapegoat had to be found. Montealegre – the finance minister who had succeeded in getting the interest rates for the bonds reduced – had broken from the Alemán branch of the Liberals to run for president last year. He was fingered as the kingpin behind it, though all he had done was renegotiate the CENI debt. The hounds of the Office of the Auditors-General have been loosed, the court system has started its motors, and investigations have begun to prove his guilt in selling out the country.

Then reality stepped up to the plate. Now the FSLN has to run the country, which includes preparing the national budget. Hurricane Felix hit northeast Nicaragua in September and in the northwest, torrential rains fell for more than a month, resulting in the need for massive spending to rebuild. Where to get the money?

Right away, some began calling to stop payment on the CENIs. Daniel Ortega with his ever-promising populism was expected to declare the debt “immoral” and stop payment. But he took a different tack and has offered to “renegotiate” the debt, including a possible moratorium on payments. He explained that the country would see a lot of its foreign aid cut off, with many donors (but not Cuba and Venezuela, Ortega noted) conditioning disbursements on compliance with the plan worked out with the International Monetary Fund.

So now we have the President wanting to do what Montealegre is accused of having done: debt renegotiation. It’s yet another hairpin turn along the tortuous road of national politics.