IMF Ignores Dismantling of Private Sector by Ortega

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By LatAm Reports Editor

Although the International Monetary Fund (IMF) was long one of the multilaterals that praised the private sector alliance with the Government, the agency decided to completely ignore in its assessment of Nicaragua’s 2023 economy the dismantling of the organized private sector that Daniel Ortega’s regime ordered last year, as reflected in the full Article IV report, released by the agency last week.

In March last year, Daniel Ortega’s regime ordered the closure of the 18 business chambers and the Higher Council of the Private Company (Cosep) by removing their legal personality, which meant the dismantling of the entire private sector, which also included eliminating the Nicaraguan Council of Micro, Small and Medium-sized Enterprise (Conimipyme), the two main blocks that sat at the table to negotiate with the Orteguista regime.

And although the break-up of the private sector occurred in 2018, following the social uprisings that left more than 300 Nicaraguans killed, the truth is that it was until March 2023 that the organized private sector was dismantled, something that the technical mission has been visited in November last year decided to ignore in its report, where an analysis on migration is collected.

Before they met with the private sector

Until before the disappearance of the Cosep, the IMF delegations visiting Nicaragua to assess the state of the economy, used to meet with the Cosep and each of its business chambers to know on the ground the health of the Nicaraguan economy, however, now the source of trade union information has disappeared completely.

Despite this, the Fund welcomed the efforts of the authorities to sustain medium-term growth through continuous investment in infrastructure and human capital, and recommended the implementation of policies to increase the labour force, participation and improve the business climate by strengthening government institutions and frameworks in the areas of contract performance, property protection and insolvency resolution.

In the area of business climate improvement, he adds: To ensure that the current observed increase in private investment is maintained or increased, including: (i) strengthening government institutions and frameworks in the areas of contract performance, protection of property rights and insolvency resolution; (ii) strengthening dialogue with the business community to ensure that their comments are taken into account before making changes affecting them; and (iii) strengthening anti-corruption and governance frameworks, including the rule of law.

More than 500 thousand outside Nicaragua

What was not left out by the IMF Board was the impact of migration, where they indicate that between 2019 and 2022 the country lost 8.7 percent of its population because of that phenomenon – which is relatively new.

According to Nicaragua’s report in Bank figures, in 2022 the population was 6.7 million, the labor flight is 582,900 national, not including the people who left in 2023.

While the rapid increase in emigration from Nicaragua is a relatively recent phenomenon (which began in the summer of 2021), understanding the drivers of emigration are crucial to assessing their trends and their impact on growth. The data show that about 8.7 percent of the Nicaraguan population migrated during 2019-22, mainly to the United States and Costa Rica, the report says.

They expect the labour market to adjust

And while the Fund warned the government that migration would take its toll on economic growth, regime delegates minimized such a point. Authorities do not see migration as an important burden for long-term growth, as they expect the labour market to adjust given the high rate of underemployment (estimated underemployment is estimated to be 40 per cent). In the medium term, the authorities see the China Free Trade Agreement as an opportunity for export growth and foreign direct investment in the country, the Government replied to the IMF.

Despite this, the agency insisted that in the medium term there will be economic growth, albeit at a slower pace than historical averages. In 2024 and in the medium term, real GDP is expected to increase by about 3.5 per cent, mainly supported by private consumption, below the historical averages (2000-17) of 3.9 per cent, given the cautious recovery of investment, limited new approved official financing and the lower contribution of the labour force to growth due to recent emigration.

Article IV is a comprehensive and comprehensive assessment that an IMF mission applies to the economy of each of its member countries. It makes observations and recommendations to the Government to improve the performance of indicators. Once the evaluation is completed, it moves to the Board of the Fund, which is responsible for giving its last approval and then the full report is disclosed. It reflects all the aspects that the technical mission addressed with the Government during its visit and its response to the comments.

The alleged factors

In the report for 2023, the Fund said that given the rapid rapid increase in emigration in Nicaragua, there are no studies that explain the current causes of emigration in Nicaragua – that is why it suggests taking a look at the “literature,” leaving aside that the migratory explosion in Nicaragua originated as a result of the resurgence of the state repression against the population after 2018.

The IMF is inclined to attribute Nicaragua’s migration to factors collected in studies to the countries that make up the Northern Triangle (El Salvador, Honduras and Guatemala). The literature shows that economic conditions, particularly income and job opportunities in both the country of origin and the United States, represent the strongest attraction and push factors for undocumented migration, and that the unemployment rate in the country of origin has the highest explanatory coefficient in a panel.

In this regard, it indicates that in Nicaragua, the unemployment rate jumped from 3.3 percent in 2017 to 5.9 in 2020, due to the prolonged recession and multiple shocks, and although it has decreased since to about 3.5 percent, underemployment remains high.

Climates affectations have been recurrent

Real wages have declined steadily from their pre- 2018 peak and remain well below historical levels. At the same time, the unemployment rate of Hispanics in the United States. and real wages in the U.S. The U.S. also plays an important factor, and during 2020-22 these attraction factors have performed well as well as to historical and prepandious levels, in particular real wages in the lower quartiles (associated with lower educational levels). In addition, natural disasters, as well as climate change (increased temperatures that negatively affect coffee producers and rural agricultural employment) are also strong drivers of emigration.

It should be mentioned, however, that the unemployment rate in Nicaragua for years has remained in the ranks mentioned by the Fund, in addition since 2007, when Ortega came to the presidency, the purchasing power of wages has remained stagnant and the effects of climate change have been recurrent. Still, the level of migration in Nicaragua to the United States was one of the lowest in Central America.

There is an urgent need to know impact

Despite this, the IMF pointed out to the Government that it is important to better understand the net joint impact of remittances and emigration on long-term growth. It is difficult to estimate the net joint effect of emigration and remittances on real GDP growth due to endogeneity issues.

He indicated that knowing the real impact will require knowing the skills of migrants; the impact of emigration on productivity and, therefore, the wages of the remaining workers in the country; and the propensity to invest the income received from remittances.

However, he points out that studies in Latin America and the Caribbean (LAC) on the effect of migration have shown that this – curbs economic growth, although remittances provide some mitigating factors, and the joint effect appears slightly negative in LAC. Emigration negatively affects participation in the labour force, especially young people; and in LAC, individual effects differ, and in some countries larger remittances help mitigate the adverse impact of emigration.

Migration and remittances

What is clear to the IMF is the impact of migration on remittances. Nicaragua is experiencing a very large and sustained increase in remittances. Before 2022, the growth rate of remittances in Nicaragua followed a trend and similar developments to those of other CAPRD countries (Central America, Panama and the Dominican Republic) .

In 2022, total remittances increased by more than 60 percent compared to the end of 2021 in Nicaragua. In 2023, the level of monthly remittances to Nicaragua remained high, even as the growth rate slowed (to about 50 percent year-on-year from January to September).

This increase is also highlighted in the CAPRD region, which receives large remittances, particularly in the northern countries of the triangle (El Salvador, Guatemala and Honduras). Remittances in CAPRD increased as well as the pre-pandemia trend in 2022-23, while remittances to Nicaragua increased exponentially, the IMF said.

In numerical terms: Remittances in Nicaragua have increased from approximately $100 million in 2016 to more than $400 million in 2023. More than 90 percent come from the U.S. U.S.

This article has been translated from the original which first appeared in La Prensa NI