Wednesday, March 4, 2009


During the campaign, candidate Barack Obama’s Web site stated that “George Bush’s policy in the Americas has been negligent toward our friends, ineffective with our adversaries… creating a vacuum for demagogues to advance an anti-American agenda.”

As a member of the former administration, I’ll admit there is some truth to this claim, which is why I wish the new secretary of state, Hillary Clinton, had made Latin America, not Asia, the focus of her first trip.

Consider Nicaragua, where Daniel Ortega, like his friend Hugo Chavez in Venezuela, is using the trappings of democracy to impose more and more authoritarian control.

Mr. Ortega’s Soviet-backed regime ruled Nicaragua from 1979 to 1990. His Sandinista Party failed in comeback tries in 1996 and 2001, but, at age 60, he gained success two years ago, winning with just 37 percent in a disputed vote. Then, last November, his party won municipal elections with the help of millions of dollars from Mr. Chavez and what the Wall Street Journal called the use of “violence [as] a key campaign tactic.”

Nicaragua is a basket case, with GDP per capita barely above $1,000. The economy is propped up by loans from the International Monetary Fund, budget support from Europeans, oil from Mr. Chavez, and, surprisingly enough, significant help from U.S. taxpayers through the federal Millennium Challenge Corporation (MCC), whose funds are supposed to go to countries “based on their performance in governing justly, investing in their citizens, and encouraging economic freedom.”

Nicaragua, which Freedom House rates only “partly free” with a “downward trend arrow,” would hardly seem to meet these criteria. After the fall election, even the MCC threw up its bureaucratic hands and suspended the remaining $64 million of its grants to Nicaragua.

The president of the Nicaraguan-American Chamber of Commerce called the MCC cutoff a “nuclear bomb on the economy,” but Ortega shrugged it off, saying that he can get more aid from Russia and Venezuela, perhaps overlooking that both those countries rely heavily on a commodity whose price has dropped by three-fourths in a year.

Much of the world has lost patience with Ortega, with possibly dire consequences. Francisco Aguirre, president of the National Assembly’s Economic and Budget Commission, says that 2009 “looms catastrophic for Nicaragua. Our ills are compounded by our severe governance problems. All of this political uncertainty is … turning off the donor community that sees democracy, transparency, and rule of law as important to development.”

Donors aren’t alone. Nicaragua is also chasing away foreign investors, who could be the nation’s salvation. The cost of doing business and committing capital in a country so lacking in the rule of law is an exposure many businesses see as too steep a price to pay.

A good example of the problem is explained in a new paper by Hal Scott, director of the Program on International Financial Systems at Harvard Law School. He showed how Nicaragua concocted Law 364 to the severe detriment of foreign businesses. It “establishes enormous advantages for local plaintiffs - such as an irrefutable presumption of causation based on minimal standards of proof - as well as disadvantages for the foreign defendants - such as requiring them to deposit large bonds with the court just to gain access to the proceedings.”

The result is that these cases end up burdening U.S. courts, which is precisely what the Nicaraguan authorities seem to want. “In essence, the foreign operations of companies with U.S. parents are subject to U.S. legal standards that are very different from those governing the conduct of purely domestic foreign firms,” writes Mr. Scott.

It’s not just U.S. businesses that are targeted. In a sensational rape and murder case in Managua, a young American, Eric Volz, was imprisoned for a year in what the New York Times called “a political spectacle,” then finally exonerated. “Nicaragua’s justice system has found itself on trial,” wrote Marc Lacey of the Times.

While rule of law may sound arcane or incidental to the outside observer, it is vital to the foreign businesses that will help Nicaragua ultimately prosper. And a prosperous Nicaragua - both as a trading partner and a stable democracy that doesn’t play footsie with the likes of Venezuela - is, absolutely, in the best interest of the United States.

James K. Glassman traveled to Latin America as the Bush administration’s undersecretary of state for public diplomacy and public affairs.

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