A new beginning in Nicaragua

Nicaragua is the hemisphere’s second-poorest country for a reason. Despite promises from every new president and the Nicaraguan government, high levels of poverty persist, and most Nicaraguans continue to be excluded from free and open markets.

Maybe it is time to consider an entirely new approach. With a presidential and legislative elections set for 2006, it is time to disregard failed policies in favor of free-and-open-markets strategies and institutions that will rejuvenate our stalled economy.

Since Nicaragua turned to democracy in 1990, the United States and other friendly nations have supported current policies with tens of millions of dollars. This foreign aid notwithstanding, fundamental change has been blocked in Nicaragua. This is why, in spite of their record, the Sandinistas have a real chance of winning the 2006 general elections.

Most of the legal, political and economic institutions essential to prosperity are absent. The ability to enforce contracts and property rights has been seriously compromised by both the Nicaraguan government and rogue elements of the private sector.

It’s no wonder Nicaragua suffers from a dearth of capital formation. Why would any foreign corporation prefer Nicaragua to other Central American countries? With so many other business opportunities in our region, most foreign corporations opt for not taking the risk of investing in Nicaragua.

Unfortunately for many Nicaraguans, they must not only endure these hardships, but also the exclusion from the special judicial, tax, regulatory and tariff privileges bestowed by the government on the politically well-connected few.

We need a new approach that is founded on truly pro free and open-market strategies and institutions.

First, the new Nicaraguan president needs to work with our congress to pass new laws that fully and equally protect private property and the sanctity of contracts. With full and equal enforcement of these new laws, it will be easier to persuade foreign investors and long-term lenders to take a fresh look at our country.

Second, we need to ensure full transparency in the Nicaraguan government. A new and strong ethics law for those serving in the executive, legislative and judicial branches of government is also required. Conflicts of interest and influence peddling cannot be tolerated.

Third, Nicaragua needs to develop a true market economy. Needed economic reforms include the dollarization of our economy, which would be far preferable to the “crawling peg” now being used by the central bank to debase the currency.

Fourth, our tax system must undergo dramatic changes. All import, production, distribution and export taxes must be eliminated, since they are arbitrary. They conceal abuse and they distort market signals. Just as important, a well-functioning final consumption tax and a low flat tax are needed in order to finance our budget and have everyone pay his or her fair share.

Fifth, the government needs to encourage small businesses and micro-enterprises.Many Nicaraguans who are graduating from our universities are unable to find jobs in our country, which means they emigrate to the United States or elsewhere.

With these institutional changes, the Nicaraguan economy would be revitalized, private investors and long-term lenders would return and new opportunities would be created for everyone. And finally, with the stability and institutional future of our country no longer a concern, the United States and other allies will be able to concentrate on trade and other growth initiatives in their dealings with Nicaragua.

Haroldo J. Montealegre, a University of Chicago-trained economist and a former investment banker, is running for the Liberal Party nomination in the 2006 Nicaraguan presidential election.

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