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Contra War Fuels 'Crazy' Nicaraguan Inflation

September 20, 1987|RICHARD BOUDREAUX | Times Staff Writer

MANAGUA, Nicaragua — Early last year, the four tellers at a Managua neighborhood branch of the state-owned Banco Inmobiliario counted 100 million cordobas in cash deposits by hand in a month.

Now, the same volume of cash pours into the bank every day. A new computerized bill counter has relieved the tellers' overworked fingers, and a second guard has been hired to watch the growing piles of currency that won't fit in the vault.

Sonia Lopez, the 22-year-old head cashier, collects 500,000 cordobas a month for supervising these mountains of money. Her salary, equal to $38 at the official exchange rate, has quadrupled in cordoba terms since January, but she says that prices for the food and clothing she needs have risen more than sixfold.

"Never in my life have I seen so much money!" she exclaimed the other day. "Never in my life did I dream of earning so much, or spending it so fast. In two or three days after payday, it's all gone. It's crazy!"

To some Sandinista officials, this inflationary explosion is the most worrisome consequence of the six-year-old contra war. According to the Central Bank, consumer prices will rise this year by 1,000%, a rate exceeded only in Argentina and Bolivia in the recent history of Latin American financial collapses.

Although the U.S.-backed insurgency has not seriously threatened Sandinista military supremacy, it has combined with Managua's mismanagement, Moscow's reluctance to increase aid and Washington's trade embargo to bury the economy in a seemingly endless wartime slump.

"President Reagan dreams every day of the collapse of the Nicaraguan economy, and we cannot deny that it has been seriously battered," President Daniel Ortega said in a recent speech. "If it weren't for the ideological consciousness of the revolution, Reagan would certainly have won this battle years ago."

Support Slipping

In interviews, however, Sandinista officials admit that support for the revolution may be slipping among urban wage earners, one of its natural constituents, because of what is essentially an inflation tax to finance the costly war effort.

"If we cannot contain it quickly, inflation is going to become unmanageable, like a boy who grows up and defies his parents," said Joaquin Cuadra Chamorro, president of the Central Bank. "The danger at that point is that the revolutionary program, which is supposed to ease the people's burdens, would have failed."

The grim economic outlook is thought to have prompted Ortega last month to sign a Central American peace agreement that will require major political concessions to the Sandinistas' unarmed opponents as the price of a cease-fire with the contras.

The sponsor of the accord, Costa Rican President Oscar Arias Sanchez, said the Nicaraguans need peace to rescue their economy from "disaster."

Although Sandinista leaders reject that explanation as simplistic, they have begun to speak optimistically about an economic revival if the cease-fire takes effect as called for on Nov. 7.

The way Nicaraguans are complaining, things could hardly be worse. There are shortages of home-grown food, imported medicine and spare parts, bus transport, and just about everything else but cordobas.

Harvests of cotton and coffee, the country's dollar-earning staples, have declined sharply in eight years of Sandinista rule. Imports now cost three times what exports earn. A small industrial sector runs at 30% capacity. National production per capita, shrinking for the fourth year in a row, is down to levels of the mid-1950s.

With no output to back them up, the Central Bank prints cordobas to subsidize essential imports and to cover a deficit created by the 85,000-man Sandinista army, which consumes half the national budget.

Exchange Rate

The soaring volume of money pushes up consumer prices almost weekly. The cordoba's rate of exchange with the dollar has plunged from 70 to 1 in 1979 to 3,700 to 1 at the start of this year to 13,000 to 1 today. The largest bill, a 5,000-cordoba note, is worth 38 U.S. cents.

Some officials argue there is no choice but to live with hyper-inflation for now.

"The objective here is to guarantee the defense of the country and the revolution," Finance Minister William Huper Arguello said in an interview. "If this has an inflationary impact, then it is a necessary evil."

Politically, the Reagan Administration has proved an easy target for blame by the Sandinistas as they ask Nicaraguans to bear up.

In a July speech, Ortega said U.S. "aggression" has cost Nicaragua $2.8 billion since 1980. His calculation included direct damages and production losses caused by the war as well as favorable trade opportunities and dollar credits cut off by the 2-year-old U.S. embargo.

But complaints of Sandinista inefficiency and corruption are widespread.

Black Market Complaints

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