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Privatization and the Private Sector

To win the February 1990 election, Violeta Barrios de Chamorro promised to represent all sectors of Nicaraguan society, including the small but powerful private sector with which she was closely identified. Nicaragua's private sector, mostly organized under the Superior Council of Private Enterprise (Consejo Superior de la Empresa Privada--Cosep), was instrumental in President Ortega's electoral defeat. Private industry had suffered heavy losses during the struggle to overthrow the Somoza regime and then fared even worse during the decade-long administration of the Sandinistas.

Nicaragua's private sector also was gravely affected by the five-year United States trade embargo directed at destabilizing the government of President Ortega. One year after the trade embargo began in 1986, the government had already shifted much of its economy away from dependence on trade with the United States. The private sector, which in 1985 produced 56 percent of the GDP and 62 percent of Nicaragua's most important exports, suffered from diminished credit and from cost increases and delays for essential supplies.

The private sector had led the political and military opposition to the Sandinista government. By election day 1990, the Nicaraguan private sector held high expectations that it would benefit from a change in government and that it would be compensated for the injustices it felt it had suffered during the Sandinista years. Privately owned factories and land had been confiscated, abandoned, or shuttered or had suffered war damage during the Sandinista era. Private industry looked to exercise the political and economic power it had enjoyed under the Somoza administrations. The private sector also hoped for a return of nationalized property and privatization of government assets still dominated by representatives of the Sandinista government.

In some cases, rehabilitation of the factories and firms required only reactivation of idle capacity; other assets, however, including both agricultural and industrial machinery, had frequently deteriorated beyond repair. In some cases, assets had been deliberately destroyed or sold. Much of the Nicaraguan private sector remained on the sidelines in 1990, waiting for the government to lure it with promises of security for its investments and of repair of private property at public expense. The Nicaraguan industrial sector showed only a mild 3 percent recovery by the end of 1990, mostly as the result of renewed access to overseas markets (see fig. 10). Threats of urban labor unrest, renewed hostilities in the countryside, poor infrastructure, political tensions, and delays in passage of property laws returning private property to previous owners continued to discourage most investment. A leery and still belligerent private sector stood ready to turn its political struggle against the new Chamorro government and to do battle with labor unions and other groups identified with the Sandinista revolution.

In 1990 the government initiated a privatization effort to transfer more than 100 of Nicaragua's 350 state-owned companies to private ownership. The process included the outright sale, devolution, or liquidation of assets. The government holding company established to privatize state-owned assets initially identified forty companies to be sold within six months and an additional fifty to be returned to their previous owners or liquidated at a later date. Industrial workers would later negotiate retaining 25 percent ownership of enterprises sold, based on a claim of value added, or "sweat equity," during the Sandinista period.

State-owned enterprises contributed about 40 percent of the gross national product (GNP--see Glossary) in 1991. Most state- owned enterprises were former Somoza properties, although some had been confiscated under agrarian reform from absentee owners or from the Contras (short for contrarevolucionario--see Glossary). The government also agreed to give back 50,000 hectares of fifty-six rural properties provided that owners pay for improvements made during the revolution. Another 70,000 hectares went to workers, former army officers, and demobilized Contras.

By mid-1992, the government of Nicaragua had also returned two slaughterhouses to their previous owners and sold a third. The government privatization company tendered bids for the administration of two of the largest shrimp processing plants in the country, one located in Corn Island and the other in Bluefields. A bid was also sought for the sale of a ship manufacturing and maintenance plant in Bluefields.

Data as of December 1993

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