by Nick Cooke

Tourism investment: a BIT better

Tourism investment took off in Nicaragua at the turn of the century with $76 million being invested in 2000. The rate of investment, however, suffered a downswing starting in 2003 due to a lack of incentives for the sector and total investment in 2004 was only $9.6 million. An upswing has begun. By mid-2006, $12 million in investments had been approved and another $36 million was in the midst of the approval process. The recent legislative go-ahead for Bonds for Investment in Tourism (BITs) should result in a major upsurge, particularly of mid-size to large projects.

The upcoming elections and their unpredictable aftermath are already having an effect. While some people continue to plough ahead with their plans, others are holding back their investments a bit, alleging uncertainty for the future. Yet no matter what the electoral outcome, it is more than likely that the country will continue to see an increase in the number of visitors and the amount of foreign exchange earned by Nicaragua. The Nicaraguan Tourism Institute reported at mid-year that just fewer than 714,000 tourists came in 2005 and the projection is for the figure by year’s end to reach 800,000.

Popoyo: #5 for world surfing

Well, if it was on CNN, then it must be true! The Pacific beach of Popoyo in the Department of Rivas was rated by the program Destinos on the TV station CNN en Español as the fifth best in the world for surfing. There are enormous waves and many reefs and points that create good breaks almost all year round. That they say, in addition to Nicaragua’s natural beauty making it a paradise. This assessment is backed up by the Lonely Planet, which last December listed Nicaragua as the third best destination in the world.

Surfing is on a rapid rise in Nicaragua. Just check out the number of surfboards coming off the luggage carousels at the airport or tied to the rooftops of vehicles along the Pan-Am Highway. Popoyo is not the only good spot by any means, but we won’t give away the location of other hidden paradises here. Check out the surfers’ web sites and blogs.

Bike the lane fantastic

As part of a plan to have orderly passenger transport in the capital in the future, Metrovia (a joint City of Managua – Central Government firm) recently announced that it has obtained $4.1 million from the Global Environment Fund to design bicycle lanes that would complement a proposed modern metro bus system along the capital’s lakeshore. Such a system is foreseen to begin operation by 2008. At present, due to the brazenly reckless manner of many drivers, especially those behind the wheels of buses and taxis, riding a bicycle in Managua is right up there with the most adventurous of sports: a little less safe than diving into a shark pool with slabs of fresh meat wrapped around your waist.

Taiwan on or off?

Which China is the China to have diplomatic relations with? The Peoples Republic, otherwise known as Big China, or Taiwan? FSLN Presidential candidate Daniel Ortega has announced that if he wins, his government would reestablish diplomatic relations with the former and maintain commercial relations with the latter.

The ambassador for China Taiwan, Ming-ta Hung, has declared that they would not accept just trade relations and that Taiwan is a sovereign and independent government. The Beijing government, on the other hand, maintains its position that Taiwan is a breakaway province from the mainland and no one in the world should recognize two Chinas.

When the FSLN was in power in the ‘80s, Big China had a diplomatic representation here. That all changed in the ‘90s and the Taiwan government was quick and generous in firming up ties between Taipei and Managua. Programs to support Nicaragua in different fields were established, especially in agriculture. Most visibly, there was financing for the construction of the new Presidential Palace and the building housing the Ministry of Foreign Affairs.

Investment from Taiwan surged with the opening of numerous facilities around the country under the regime of the Free Trade Zone or Zona Franca that offers several juicy enticements for manufacturers and assemblers to set up shop in Nicaragua. A spin off from that has been the opening of a good number of Chinese eateries, much to the delight of gourmands throughout the land, along with a flood of cheap plastic toys, metallic tools and spare parts made in Taiwan.

Big China, being no slouch, persisted with improving trade relations, resulting in another source of low-priced consumer goods for Nicaraguan buyers. With Wal-Mart now having a major share of the regional supermarket chains Pali and La Unión, we can expect more such items from their rapidly growing manufacturing sector.

Both Chinas can be of benefit to Nicaragua and both can benefit from Nicaragua. The next government will have to exercise political savvy in working around this situation.

Drilling to the depths for dollars

As worldwide oil prices climb to heretofore unseen heights and likely to go higher still, prospecting for oil in Nicaragua is looking more and more like a good idea. It has long been suspected that there are considerable reserves of petroleum along both coasts. On the Pacific at San Cayetano crude oil literally seeping up to the surface has fueled such speculation. After years of negotiating concession parcels followed by years of gas spectrograph testing, an exploratory rig will begin working its way down to a suspected trap in October. Watch for a’bubbling crude.

Black(out)mail

The electricity distribution system was privatized last decade to a lowlife Spanish multinational that tries to squeeze every drop of profit out of the national energy distribution system. Government regulatory authorities turn a blind eye to open thievery by Union Fenosa. Light bills are ever increasing, although service is down to less than 50 percent. It’s not yet daylight robbery, but it probably will not be long before we receive bills for the amount of sunlight coming our way, the same charge for overcast as for sunny days.

Nicaragua has dramatically increased its potential for power generation since the energy crisis of the early 90s, but for some reason, that electricity does not get to the people. Is it being sold to free trade zones in neighboring countries?

An energetic protest is needed. Power to the people! Light on!

People production: crossing the line

Results from the 2005 National Census came as a surprise to many. Statisticians expected that the population would be up around 5.5 million, basing themselves on projections that took the results from the 1995 Census forward using estimates of the birth rate and other factors. Turns out the population is closer to 5.3 million and the growth rate is slower than thought.

Such news would be welcomed by the powers-that-be most everywhere. Fewer people means having to spend less to attend to them with social programs. Not so in Nicaragua. Concerns were expressed about having finally climbed out of “poverty” as arbitrarily defined using statistical parameters.

Many aid programs that benefit Nicaragua are based on it being a “poor” country as defined by the average annual per capita income of its population: roughly the amount of money produced by the economy divided by the number of inhabitants. With its recent upswing in economic activity and concomitant greater earnings, there is more income generated. More money divided by a lower number of persons means that the per capita income here is now just slightly above the critical line for being classified as poor.

By crossing that line into the range of slightly less poor, it is possible that a large chunk of foreign aid would no longer be available, which in turn would mean less funding for projects to help the poor and less money overall. The probable end result would be a lowering of per capita income to under that deciding line and Nicaragua would classify as “poor” once more, making it again eligible for anti-poverty funding. It’s almost as if an incentive has been created to maintain poverty at a certain level.

On the bright side, however, it looks like that with a slower population growth rate, Nicaragua overall is gradually becoming less poor. And who can argue with that?

CENIs-cism: Paying for broken banks

Nicaragua still has a financial hangover from the party celebrated by unscrupulous individuals who deliberately abused the banking system, causing several banks to break around the turn of the century. No one has been able to put the finger on those behind it all, which means they have gotten off scot-free. Hundreds of millions of dollars were involved.

As it turned out, many loans were made with improper or fraudulent guarantees. How so? You have a contact in a bank and want a loan for $500,000. You have an appraiser value the collateral you are putting up at $1 million when, in fact, it is worth much less than that, much less even than the loan. Then when it comes time for the bank to collect, they would only get what the property is actually worth. To complicate matters further, many properties put up as collateral as supposedly appraised, did not even exist in reality, only on falsified or altered papers.

The State backed up the deposits in the broken banks to the tune of $450 million. Some faith was maintained in the remnants of the banking system. The savings and loans portfolios of the four broken banks were evaluated and all loans from them were assessed and reclassified, laying the basis for the bidding process between the remaining banks of the system to take over the portfolios of the defunct banks.

Confused enough yet?

In order to induce the remaining banks to “buy up” the assets and liabilities of the four banks that were the culprits at the center of this grand scam, the government of the day authorized the issuing of $332.2 million in Negotiable Investment Certificates or CENIs as they are known here, with an annual interest rate of 14.5%, far above any other banking investment being offered.

Stability returned and the financial system began to reconsolidate and grow. But the question remained of just how the government was going to honor payment on these certificates with all the accumulated interest. The State’s internal debt was mounting. A couple of years after the issue, government authorities renegotiated the interest rate with the banks down to 8.2%, a significant saving as it would appear.

The certificates are about to mature and the government has to come up with cash on hand to pay out. Even with further renegotiations, payment on these papers will represent a significant drain on national funds for some time that could otherwise go towards development and poverty reduction efforts. It represents a major problem for anyone who takes over government office with the upcoming elections.

To pay or not to pay

Some have suggested in a populist vein not to honor the CENIs, arguing that it will only make the banks richer. Others note that not paying will discredit the Nicaraguan State, making it nigh on impossible to ever be able to raise funds through issues of bonds, certificates, or other monetary papers.

The country already paid once with Central Bank funds to honor the deposits people had made in the national financial system. What would appear to be a logical step, is to seek out and prosecute those who were behind the bank breaking scams. That step, however, is not being taken. Why?

Rather than doing that, the CENI issue is being used to try to discredit presidential candidate Eduardo Montealegre who leads the breakaway Liberal party, ALN. Montealegre was Finance Minister for a time after the CENIs were issued. His former party colleagues in the PLC are attempting to put him on trial for anything he may have had to do with the issuing of the certificates. That is much like prosecuting the firefighter because the house burned down after the arsonists had fled the scene.

The Sandinistas meanwhile have gone on record as saying that the issue of the CENIs should not be politicized, though they cannot but otherwise enjoy the bloodletting among their Liberal opponents.