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Bailing Out the Sadinistas By: Jaime Daremblum
FrontPageMagazine.com | Friday, April 03, 2009

The countries of Central America are being hit hard by the global economic crisis, and Nicaragua is no exception. Last week, at a meeting of the Central American Integration System in Managua, Nicaraguan President Daniel Ortega, the Sandinista party leader and close friend of Hugo Chávez, proposed a remedy: The United States should give the region an economic bailout. Ortega argued that since Central American countries "are part of the crisis," and since many have signed a free-trade pact with the United States (CAFTA), the U.S. government is obliged "to give resources to the region."

As Tim Rogers reported in the Miami Herald, "None of the other Central American leaders at [the March 25] meeting--attended by the presidents of Honduras, El Salvador, and Panama--seconded Ortega's motion. And Panama's President Martín Torrijos, who is trying desperately to finalize a U.S. free-trade agreement for his own country, appeared to slouch deeper into his chair during Ortega's intervention."

Whatever else he lacks, Ortega has no shortage of chutzpah. This is a man who during the 1980s turned Nicaragua into a Soviet client state and has rarely hesitated to flaunt his anti-Americanism or embrace radical anti-U.S regimes. Since his return to power (this time by democratic means) in January 2007, Ortega has denounced the "tyranny of global capitalism," argued that "imperialism and capitalism should be removed" from the world, cozied up to Iran, joined the Chávez-led Bolivarian Alternative for the Americas (ALBA) trade bloc, and sought to weaken U.S. influence in the region. But now, amid a harsh economic downturn, Ortega is turning to the United States for help.

Why not ask his ideological soul-mate in Caracas? If crude oil were still trading above $100 a barrel, Chávez would be in a much better position to aid the Nicaraguans. As it is, even with the small rise in oil prices over recent weeks, the Venezuelan economy is in terrible shape. Morgan Stanley economist Boris Segura has projected that it will contract by 4 percent in 2009.

Venezuela "has run into the buffers," says the Economist. It ended 2008 with a 31 percent inflation rate, which has come down only slightly in the first few months of 2009. Chávez recently announced major spending cuts, a sales-tax hike, and an increase in domestic debt from $5.6 billion to $16 billion. As Reuters reports, Toyota's Venezuela division has warned that it may be forced to leave the country due to "chronic labor problems."

Chávez was riding high after winning a referendum in mid-February--Venezuelans voted to abolish term limits, which means Chávez can run for president indefinitely--but his country still has huge problems with inflation, food shortages, corruption, and violent crime. (Caracas is now a global murder capital.) The referendum took place on February 15. A day earlier, Edward Schumacher-Matos wrote in the Washington Post that, even if Chávez got his way, the vote "is mostly irrelevant. Barring an oil miracle, the former army paratrooper is slowly being undone by his economic mismanagement and corruption, like any of a number of populist strongmen before him."

With Venezuela's economy crumbling, ALBA members such as Nicaragua and Honduras won't be able to rely on huge packages of Venezuelan aid to address their own economic woes. Instead, their best hope is for the U.S. economy to recover swiftly. "Sometimes I pray more for the U.S. economy than our own," Honduran President Manuel Zelaya said at the recent Central American Integration System meeting.

Nicaragua and Honduras are the two poorest countries in Central America; in all of Latin America and the Caribbean, only Haiti is poorer. Ortega and Zelaya have not helped matters by cultivating an unhealthy dependence on low-cost oil and other handouts from Chávez. Now that the Venezuelan economy is collapsing, Ortega and Zelaya are deeply concerned, as they should be. Chávez has much less money to shower on his ALBA allies.

There is a lesson here, not only for Nicaragua and Honduras, but for also for other Latin American and Caribbean nations that may be considering whether to join ALBA. Chávez has ruined the Venezuelan economy. The combined effect of plunging oil prices and a global financial crisis has exposed the failure of his policies and the rickety foundations on which recent Venezuelan growth was built. Rather than gravitate toward ALBA and Chávez, poor countries should seek to boost economic cooperation with the United States and other regional democracies. Teaming up with Chávez may have seemed like a good economic strategy in 2007 and 2008, but not in 2009.

Jaime Daremblum is director of the Center for Latin American Studies at the Hudson Institute.

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