11. The Contra War, the Economy and the Arias Plan (1986-87)¶
Core Argument¶
Chapter 11: The Contra War, the Economy and the Arias Plan (1986–87)¶
By mid-1986, the Contra war had inflicted severe damage on Nicaragua’s productive base, creating acute shortages of machine parts and raw materials. The FSLN responded by transferring skilled personnel to the front, leaving inexperienced managers in their place. This provoked sackings, strikes, and police intervention, to which the government replied by integrating selected union representatives into management. In June 1986, the state temporarily took control of the Julio Martínez group after workers alleged union-busting and black marketeering. Yet the draft constitution, modelled on the Swedish bourgeois parliamentary system, gave mass organisations no direct role, confirming that the FSLN had become a radical reformist government operating firmly within capitalist limits.
The US Congress approved $100 million in Contra ‘aid’ in June 1986. The FSLN retaliated by suspending La Prensa and expelling Bishop Pablo Antonio Vega for supporting the Contras. Meanwhile, the ATC launched a campaign to increase coffee production and recruit members, but working conditions in the private sector remained unchanged since 1979. By 1987, the CST was implementing state policies, with members forgoing wage increases. The mixed economy had clearly failed; Soviet aid plummeted from $1 billion in 1985 to $400 million in 1986. The Arias Plan, signed on 7 August 1987, complemented the Contra War by forcing concessions from the FSLN. Gorbachev pressured the Sandinistas to sign, temporarily suspending oil supplies. The Plan was a first step toward overthrowing the government.
By 1988, real wages had fallen by ninety per cent. The government devalued the currency, cut subsidies, and laid off workers. Private producers received favourable prices while workers faced starvation wages. Strikes broke out, but the CST attacked them as counter-revolutionary. Ortega announced that wages and prices would be determined by market conditions, marking the end of the mixed economy. State and private companies were freed from paying the minimum wage; ‘patriotic producers’ could export directly. Hurricane Joan struck in October 1988, killing hundreds, destroying 30,000 homes, and leaving 250,000 homeless. Total damage approached US$1 billion, and the resulting inflationary pressure cancelled out previous devaluations. The US sent no aid and pressured allies to do likewise. The hurricane caused the final collapse of the Nicaraguan economy. The government simultaneously imposed fifty per cent cuts in social programmes while granting privileges to large agricultural exporters and state bureaucrats, including free housing, household goods, dollar-store coupons, and Toyota Cressidas. This embittered pro-government unions and long-time Sandinista supporters. CST officials’ support for government policy drove workers toward more militant alternatives. The FSLN and CST responded by refusing elected union officers entry to workplaces, breaking up union meetings with strong-arm gangs, denying secret ballots, and barracking opponents. Strike leaders were slandered and sacked. In January 1989, as hyperinflation destroyed living standards, Ortega launched an austerity plan laying off one-third of public-sector workers and freezing wages.