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CIA-RDP86T00589R000400440002-4
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October 1, 1985
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REPORT
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Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Directorate of Intelligence Nicaragua: Shifting International Economic Linkages --- ALA 85-10101 October 1985 Copy 3 5 3 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Directorate of Secret Intelligence Economic Linkages Nicaragua: Shifting International Office of African and Latin Directorate of Operations. Division, ALA, Comments and queries are welcome and may be directed to the Chief, Middle America-Caribbean Secret ALA 85-10101 October 1985 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21 : CIA-RDP86T00589R000400440002-4 Scope Note This research paper is the first in a two-part series on Nicaragua's general economic situation and outlook. This study examines the shift in Nicara- gua's international economic ties since the Sandinistas seized power in 1979 and the country's growing dependence on the Soviet Bloc. In setting the scene for a subsequent intelligence assessment on Nicaragua's domestic economic problems, this Research Paper provides a statistical base that allows analysis of both the structure and pace of evolving financial and commercial ties. The statistical estimates in this study are derived from several-often conflicting-sources. In reconciling the data, we gave precedence to those reported by the United States and OECD nations. Official statistics for the Soviet Union and Nicaragua were necessary for many estimates and were also used for a cross reference. iii Secret ALA 85-10101 October 1985 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Summary Information available as of 15 September 1985 was used in this report. Economic Linkages Nicaragua: Shifting International partners. After coming to power in 1979, the Sandinistas began to fundamentally shift Nicaragua's foreign economic relations away from the West and toward the Soviet Bloc. Trade data show that nonmilitary transactions with the Bloc, which were negligible before the revolution, began to rise in the immediate aftermath of Somoza's fall. By 1984 Bloc trade had climbed to $280 million, accounting for nearly one-fourth of Nicaragua's trade. Trade and financial trends so far this year indicate that Bloc countries have supplanted Nicaragua's Latin neighbors as Managua's key trading intensified by funding difficulties with the West, anti-US motivations, the marked shift in trade linkages was further Even before the US embargo, Nicaragua's trade with the West was on the wane. According to Embassy reporting, since the revolution the Sandinis- tas' policy has been to reduce trade with the United States because of ideological differences. After the United States cut off aid to Nicaragua in 1982, the Sandinistas redoubled their efforts to redirect trade and reduce their economic dependency. In addition to any conscious policy driven by From a country and regional perspective: ? US companies cut back on trade as debts piled up and Managua's ability to repay came into question. ? Some of the sharpest drops came in Nicaragua's trade with its Central American neighbors, which fell from $400 million in 1980 to $100 million last year, largely because of renewed regional turmoil and Managua's lack of creditworthiness. In addition, Mexico and Venezuela have cut trade because of Managua's credit problems. one-third of total trade. ? Of Nicaragua's Western trade, only that with Western Europe, Japan, and Canada has held ground at prerevolution levels, accounting for about Managua's foreign aid linkages have also been dramatically altered since 1979. Before the revolution, official financial support to Nicaragua came largely from the Western-controlled multilateral lending organizations that supplied nearly half of Nicaragua's total borrowing. The United States provided another third, and West European and Latin donors made up the balance, with no Bloc support being provided. Immediately Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 following the revolution, large amounts of concessional funding came from all corners including the Soviet Bloc, and the share of total funding from the United States and the multilateral organizations fell, despite increases in the dollar value of that aid. By 1984 the Bloc's share was up to nearly 45 percent of economic assistance, primarily in the form of credit lines for Bloc exports. Indeed, by last year the Bloc's importance in relative terms exceeded that of both the United States and Western Europe on the eve of the revolution. Looking ahead we believe Nicaragua's overall trade and financial situation will increasingly depend on the depth of Moscow's pockets. Extrapolating from past trends, and given Managua's limited ability to market exports to its newfound trading partners, we expect Nicaragua's dependence on Soviet Bloc assistance to continue to grow over the next 12 months. Because of large new credits granted by the Soviets and their allies during the first half of 1985, we expect to see a continued rise in economic support, though probably not at levels sufficient to offset the decline in Nicaragua's economy. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret The Changing Trade Patterns The Opening to the Soviet Bloc 1 The Changing Pattern of Foreign Aid Flows 7 Mushrooming Soviet Bloc Economic Support 8 The Cuban Angle 10 The East European Connection 10 Help From Oil-Rich Sympathizers 10 Eroding Aid From the West 11 Appendixes A. Nicaragua's Soaring Debt B. Nicaraguan Trade From 1975 Through 1984 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Figure 1 North Pacific Ocean Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Nicaragua: Shifting International Economic Linkages The Changing Trade Patterns During the past six years, the Sandinistas have funda- mentally changed the structure and patterns of Nicar- agua's foreign trade. As far as the level of trade is concerned, official Nicaraguan statistics indicate that exports-mostly agricultural products-are off dra- matically, down 50 percent in volume from their 1975-77 average level, while nonmilitary imports have also shown a slight decline over the same period. In addition, the direction of trade has shifted. Long before the imposition of the US embargo on trade with Nicaragua last May, official statistics from both the United States and Nicaragua showed a sharp fall in bilateral trade. Statistics published by Nicaragua and the Soviet Union indicate that, as trade with the United States and other traditional partners dwindled during the past six years, the Soviet Bloc has steadily supplanted the West. The Opening to the Soviet Bloc During the years just before the revolution, trade statistics show that Nicaragua had virtually no trade with Cuba or the USSR and only a few minor deals with East European countries. Within nine months of the Sandinista victory, however, Managua had signed trade pacts with Moscow and Havana, according to diplomatic and press reports, and had received trade missions from East Germany, Bulgaria, and Czecho- slovakia. The Soviet Union and Cuba have been Nicaragua's most important new trade partners. Nicaraguan and Soviet bilateral trade grew to $14 million in 1981, to $70 million in 1983, and to $171 million by 1984. The Soviet decision to begin supplying crude oil to the Sandinistas in late 1983 has accounted for much of the recent acceleration. According to Soviet trade statistics, bilateral trade has continued to mushroom since the end of 1984. Soviet exports to Nicaragua alone surpassed $70 million during the first three months of this year. If this pattern continues, as we believe likely, total Soviet-Nicaraguan trade for 1985 would reach $300 million, 75 percent above last year's level. Oil would account for about one-third of the total. The growth of bilateral trade with Cuba has shown a similar rise. Within a month of the takeover in mid- 1979, Havana trumpeted new bilateral trade ties. Growth in Cuban-Nicaraguan trade started slowly but hit $19 million in 1981, $32 million in 1982, and has averaged $50 million annually during the past two years. Nicaraguan trade statistics indicate that commercial exchanges with Eastern Europe have also grown rapidly. East Germany, Bulgaria, and Czechoslovakia have become key new trading partners. During the last two years, trade with East Germany has averaged about $25 million per year, Bulgaria $21 million, and According to official statistics, trade with the Soviet Bloc began to grow rapidly soon after these new trade pacts were in place. US Embassy and press reporting indicates that much of this trade increase was based on generous concessional credits. Trade between Nic- aragua and the Soviet Bloc jumped to $60 million in 1981, doubled in 1982, and grew by 50 percent each year during 1983 and 1984. By 1984, trade with these countries reached $280 million, one-fourth of the total Nicaraguan trade. Czechoslovakia $13 million. The Sandinistas have been much more successful in arranging for imports from the Soviet Bloc on credit terms than they have been in selling their products to these countries. According to Soviet and Nicaraguan 25X1 25X1 __ Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Figure 2 Nicaragua: Shifting Trade Partners, 1975-84 a Values shown are cumulative, top line indicates total trade. b Includes USSR, Cuba, and East Europe except Yugoslavia. Figure 3 Nicaragua: Trade Volume, 1975-84 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Figure 4 Nicaragua: Imports and Exports From the US and Soviet Bloc, 1975-84 Soviet Bloc 25X1 306558 10-85 trade data, between 1980 and 1984 Managua's im- ports of nonmilitary goods from the USSR, Cuba, and Eastern Europe grew steadily from less than $1 million to about $250 million. On the other hand, Nicaragua's exports-mostly agricultural products- to Cuba, the USSR, and Eastern Europe expanded from almost nothing to $60 million by 1983, then fell back to $30 million in 1984. While we believe that the rapid runup in Soviet Bloc sales to Nicaragua was largely a result of increased financial aid commit- ments, the reason for the recent reduction in Nicara- guan export sales is less clear. Part of the falloff was almost surely caused by Nicaragua's poor harvests and declining industrial output, but other factors were also probably at work. in some cases initial export deliveries to Cuba, the USSR, and Eastern Europe were rejected because of poor quality. Other difficulties probably include the similarity of Cuban and Nicaraguan exports, and the costs and difficulties in transporting perishable agri- cultural products over large distances. Trade With Traditional Partners Nicaragua's trade with its traditional partners for the most part has fallen during the past six years, accord- ing to official OECD and Latin American trade statistics. The decline in traditional trade, in our view, has been not only the result of a deliberate tilt toward the East, but also the erosion of Nicaragua's interna- 25X1 tional credit rating. nearly all Western businesses that de- pended on commercial credits to finance trade have stopped shipping merchandise to Managua during the past few years after it built up large debts and after international bankers refused to issue new trade cred- its. While the Sandinistas have rescheduled all com- mercial debt owed prior to the revolution, they have been slow to meet new obligations. In these circum- stances, most foreign firms have increasingly insisted on hard currency payment up front, a condition that Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Figure 5 Nicaragua: Import Market Shares Non-US OECD____________ Non-US OECD Non-US OECD Other Figure 6 Nicaragua: Export Market Shares 1975 465 million US $a Non-US OECD 42 1980 508 million US $e Non-US OECD 40 1984 443 million US$ Non-US OECD 65 Other 6 Latin America 21 Other I Latin America 17 Latin America 31 S 42 10 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Figure 7 Percent of Nicaraguan and Cuban Total Trade With US Before and After Revolutions Managua-and particularly Nicaraguan private busi- ness-has found very difficult to meet, according to US Embassy reporting. In addition to these normal financial considerations, trade has been further dis- rupted as some Western capitals have reduced trade credits for political reasons. Among Nicaragua's erstwhile traditional partners, trade with the United States has fallen the most. According to US Embassy reporting, the Sandinistas early on sought to diversify trade away from the United States for ideological reasons. After US- Nicaraguan relations deteriorated beginning in late 1981, Managua stepped up efforts to redirect trade to reduce economic vulnerability. Similar to the Cuban experience 20 years earlier, bilateral US-Nicaraguan trade had been cut substantially, even before the announced embargo. Prior to the revolution, accord- ing to US and Nicaraguan trade statistics, the US accounted for about 30 percent of all Nicaraguan trade, some $375 million per year. In the year follow- ing the revolution, generous new US trade credits boosted bilateral trade to $460 million-its highest level ever. Since then, however, the level of bilateral trade has fallen substantially. By 1984 US-Nicara- guan commerce had shrunk to $169 million, about 35 percent of the 1980 level and just one-seventh of total Nicaraguan trade. Trade with Nicaragua's traditional Latin partners has fallen by similar amounts. Now barely one-sixth of Nicaragua's trade is with Latin America compared with over 40 percent of trade during the first two years following the revolution. Some of the sharpest drops came from declining trade with members of the Central American Common Market (CACM).' Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Figure 8 Nicaragua: Oil Imports, 1984-85 Feb Mar Apr May Jun 1984 Aug Sep Oct Nov Dec Jan Feb Mar Apr 1985 CACM statistics show that Nicaragua's Central American trade averaged more than $250 million per year during 1975-79. By 1980 CACM trade with Nicaragua increased to over $400 million, as the CACM countries-following the example of the Unit- ed States and many other Western nations-initially expanded trade in a show of support for the new regime. Since 1980, however, Nicaragua's Central American neighbors have become increasingly disillu- sioned with Managua's role in regional turmoil and with the accumulation of nearly a half billion dollars in commercial arrearages to its CACM partners, according to US Embassy sources. As a consequence, intraregional trade has plunged. By 1984 CACM trade had fallen by nearly 75 percent to about $100 million. The reduction of Venezuelan and Mexican oil ship- ments to Nicaragua also contributed to the dramatic decline in Nicaraguan-Latin trade. Before 1980, Ven- ezuela supplied the vast bulk of Nicaragua's oil. Beginning in 1981, Mexico began supplying major amounts of oil to Managua. By 1982 Nicaragua's debt problems began to move the Venezuelans further out of the supply picture, but Mexico offset the decline with new concessional credits and increased shipments-largely for political reasons, according to Embassy reporting. Since late 1983, we believe Mexi- co City's reluctance to meet all of Managua's oil needs without substantial compensation has been a key factor influencing the Sandinistas to turn increas- ingly to the Soviets for a steady oil supply, even though Mexico's political commitment to the Sandi- nistas has prevented a complete shutoff in oil aid. Of all the Latin American countries only Argentina, Brazil, and Colombia have shown slight increases in trade in the past few years. Of all Nicaragua's trade outside the Soviet Bloc, only trade with the non-US OECD-Western Europe, Japan, and Canada-has not fallen. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Figure 9 Nicaraguan Imports of Crude Oil and Petroleum Products by Supplier, 1974-84 Others USSR 0 Netherlands Antillies Mexico 14 12 10 8 6 4 2 continued high levels of official government credit guarantees have kept non-US. OECD private businesses from substantially scaling back sales to Nicaragua. At the same time, the Nicaraguans have worked hard to redirect at least a portion of their traditional exports from the United States to West European and Canadian markets. While overall trade levels have hardly changed since 1979, the share of Nicaragua's trade with Western Europe, Canada, and Japan has risen somewhat be- cause of the erosion in Nicaraguan export base. During 1975-79, trade with these countries averaged $380 million each year, and accounted for approxi- mately one-third of all Nicaraguan trade. By 1984 the trade reached $465 million, equal to 37 percent of the total. The most important trade partners in this group have been Japan, West Germany, France, Spain, and Canada. The Changing Pattern of Foreign Aid Flows Before and immediately after the revolution, accord- ing to OECD and IMF data, the United States and multilateral lending organizations contributed the bulk of Nicaragua's economical support. Within three years of the Sandinista takeover, however-as the Sandinistas' hostility to democracy, private enterprise, religion, and personal and political freedoms became evident-financial support from the West also began to erode. At the same time, Soviet Bloc financial support in the form of trade credits and grants began to grow rapidly. Burgeoning financial support from the Soviet Bloc has more than offset the decline from the West. As a result, overall financial support for the Sandinistas and the Nicaraguan foreign debt are growing at unprecedented rates. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Figure 10 Nicaragua: Sources of Official Foreign Financial Support 1975 1980 Multilateral Multilateral 45 27 Western Europe IO Latin America a 15 Mushrooming Soviet Bloc Economic Support Within a month of the Sandinista victory on 19 July 1979, Managua reached "technical aid" agreements with Cuba, the USSR, and Bulgaria, setting the framework for economic assistance. During the last week in July, Castro publicly promised wide-ranging support to top Sandinista policymakers visiting Ha- vana. New accords with the USSR and Bulgaria were announced by Planning Minister and Commander of the Revolution Henry Ruiz, upon his return from his early August visit to those countries. Managua con- tinued to seek pledges of aid from other Bloc states, and major commitments for specific new projects came from East Germany and Cuba in 1979 and 1980 and from the USSR and most of the rest of Eastern Europe by 1981.1 During the past six years, Bloc economic assistance has continued to grow. Bloc commitments totaled some $1.2 billion between 1979 and 1984. Actual disbursements during the same period were roughly $800 million and represent- ed about one-fourth of total economic help. Disburse- ments of economic assistance have tended to lag agreements by one to two years, in part because of the long-term nature of some of the development projects. The bulk of the Bloc's support for the Sandinistas has been in the form of machinery and equipment for development projects. We calculate that by last year, Bloc economic assistance exceeded $280 million, or nearly 45 percent of total foreign economic support. This year the Bloc has continued to up the ante. In May and June alone the Bloc provided over $200 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Figure 11 Nicaragua: Estimated Value of Communist Economic Disbursements and Military Deliveries, 1979-84 Million US S 600 500 Military deliveries 400 300 Economic disbursements 200 100 a Includes $60 million in oil deliveries, which the Nicaraguans have promised to repay with future commodity shipments. million in new commitments for financial support, Moreover, the US embargo may have changed the character of the relationship further. for the first time the USSR and East Germany have provided nearly $80 million in hard currency balance- of-payments assistance. Based on these trends so far, we judge that overall Bloc financial disbursements to Managua during 1985 probably will exceed 1984 levels by at least $100 million. The Soviet Role. While initial Bloc economic assis- tance came largely from Cuba and East Europe, more recently the Soviet Union itself is providing an in- creasing share of the support. We calculate that disbursements for capital goods from the USSR have averaged about $50 million annually during the last three years. Much of this is accounted for by Soviet involvement in port construction at San Juan del Sur, a large hospital in Chinandega, mining, prospecting and mapping, and the construction of technical train- ing centers. Soviet Bloc Support for the Sandinista Military Buildup Parallel to the rapid growth in economic assistance, there have been the already well documented in- creases in Soviet Bloc arms deliveries.a While not publicly announced, new arms deals with Cuba and the Soviet Bloc were concluded within months of the Sandinista takeover. Soviet-made hardware began arriving in 1980, as first the Cubans and then the Bulgarians made substantial arms deliveries. Direct Soviet military shipments occurred by 1981, but not until late 1984 did a Soviet ship deliver major weapon systems directly to the Sandinistas. Deliver- ies of promised arms have generally lagged new agreements by about one year. Despite initial willingness of several regional govern- ments to provide military and security help, the Soviet Bloc has provided some 95 percent of total foreign military assistance to the Sandinistas since the revolution. Bulgaria and the USSR have each delivered about $200 million worth of military sup- plies. More recently East Germany has stepped up arms supplies. While Cuba provides large numbers of military advisers, Havana generally has only provid- ed small arms rather than heavy weapons. A major stimulus to the Soviet's aid program has been Moscow's expanded oil support. The Soviets began supplying oil in December 1983, and, based on ob- served deliveries, provided half of Nicaragua's oil in 1984 at a commercial value of $60 million. Moscow promised to supply up to 90 percent of Managua's oil needs this year, although actual deliveries may amount to only 80 percent because Mexico continues to supply some 25X1 25X1 25X1 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 oil. While Soviet officials publicly claim that the oil shipments are handled on commercial credits, foreign exchange shortages prohibit the Sandinistas from making a substantial payment for the deliveries any time soon. Moreover, we believe that the Soviets will be willing to put up with indefinite delays in Nicara- guan payments.' The Cuban Angle. The Cubans were the first to deliver large-scale economic support to the Sandinis- tas. Numerous press and diplomatic sources report that the key role Havana played in financing and giving technical and military support to the Sandinis- tas during the final offensive continued unbroken once the Sandinistas took power. Press reports indicate that eight days after the revolutionary victory hundreds of Cuban doctors, nurses, and teachers arrived in re- sponse to Castro's promise of providing broad-ranging support for the Sandinistas. By November 1979 the same sources indicate 700 Nicaraguans were on schol- arship studying on the Isle of Youth, and 1,000 Cuban teachers were redesigning curriculums and providing technical advise to the Sandinistas' radio and television programing. Castro quickly expanded economic support, largely through highly publicized technical cooperation agreements, and has kept direct and indirect aid at high levels since. Indeed, we calculate that the $310 million in economic support that Cuba gave Managua between 1979 and 1984 was modestly higher than either the contribution for eco- nomic development from the Soviet Union or from Eastern Europe. According to US Embassy and press reporting, most of Havana's support focuses on economic and social development projects. For example, much of Cuba's economic assistance has focused on building sugar refineries, including the large Victoria de Julio facili- ty inaugurated in January by Fidel Castro. Other major Cuban projects widely publicized in the Nica- raguan and Cuban press include road construction from Matagalpa to Puerto Cabezas, building port and rail facilities in the El Bluff area, and the airfield construction at Punta Huete. Havana has also provid- ed large amounts of agricultural equipment, medical supplies, and consumer goods. This past July, Havana and Managua signed an annual assistance agreement that indicates Cuban aid will continue at about the same levels during the next 12 months as in the previous year. The East European Connection. Eastern Europe has also been generous to the Sandinista regime. East Germany has been a major economic donor, providing large quantities of machinery and equipment for development projects. Although Bulgaria's contribu- tion has largely been focused on the military buildup, Sofia is also providing financial and technical assis- tance for hydroelectric, mining, and agricultural pro- jects and to expand Nicaragua's port at El Bluff. Numerous Nicaraguan press releases indicate that Poland and Czechoslovakia have also been important economic donors. While Romania and Hungary have also signed well-publicized aid agreement protocols with the Sandinistas, they have delivered only small amounts-largely, we believe, because of their own economic problems. In part because East European economic donors have concentrated on long-term agri- cultural and mining projects, disbursements from them have generally been slower than those from Cuba and the Soviet Union. 25X1 Help From Oil-Rich Sympathizers We believe stated revolutionary affinity for the Sandi- nistas has led Libya, Iran, and Algeria to offer generous credits to Nicaragua. Unlike the Soviet Bloc, these countries have tended to offer financial help that the Nicaraguans could use for imports from the West. In 1981 Qadhafi loaned Managua $100 million and since then has contributed additional money, in part pegged to agricultural projects,) Libya, Iran, and Algeria have each provided roughly $25 million in hard currency each year to Nicaragua by allowing Managua to resell crude oil to third parties with long-term deferral of repayment. For example, Iran in late 25X1 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret 1982 agreed to deliver 2 million barrels of oil to a West European country during 1983 and 1984. The West European country paid cash for the oil and sent the funds to Managua. Even though Managua is behind on its obligation to repay this loan, the Sandi- nista official newspaper announced in April 1985 that Iran had agreed to repeat the deal during the next two years. Such oil deals have provided foreign exchange that has helped the Sandinistas buy crucial imports and service troublesome debts. Despite the generous aid, thus far new trade deals with these three have been minor. According to Embassy and press sources, Algeria and Iran have taken some shipments of several agricultural commodities, and Libya is dis- cussing other possibilities. Eroding Aid From the West While Bloc assistance has continued to grow, aid from the West has ebbed as Managua has moved to align itself with the East. The initial large increase in Western financial support for the Sandinistas- offered as support for national reconstruction follow- ing the civil war-proved short lived in most cases. In 1980 and 1981, financial aid from the West more than quadrupled from prerevolution levels. The Unit- ed States tripled its already large assistance program to Nicaragua during 1979 and 1980. In April 1981, however, Washington cut off aid after determining that Nicaragua was supporting international terror- ism by arming and abetting Salvadoran insurgents. While no new US money has been committed to the Sandinistas, a small amount of funding from projects already in the pipeline was delivered to the Sandinis- tas during 1982 and 1983. Within a few years of the Sandinista victory other regional donors also began reducing their financial support. Immediately after the revolution, the CACM countries, Venezuela, and Mexico opened their check- books to the Sandinistas, providing credits for oil and other commodity imports that soared to nearly $300 million by 1981, according to US Embassy and press reports. Since then Latin aid for the Sandinistas has fallen back to levels near $100 million per year. US Embassies throughout the region report that this reduction has been caused by a combination of Nicar- agua's nonpayment of debt and a growing frustration with the Sandinistas' unwillingness to moderate harsh Outside the hemisphere, other Western countries have continued to provide financial assistance, although there too support is beginning to erode. Disbursements from Western Europe jumped from less than $10 million per year before the revolution to near $60 million by 1980. Financial support from these coun- tries gradually increased to near $100 million by 1983, before sliding to about $90 million last year. In our view, the non-US OECD countries have largely maintained aid levels because of residual sympathy for the revolution, especially among strong social democratic constituencies; moreover, according to diplomatic traffic, officials from a number of these countries say they believe that only by maintaining financial support to the Sandinistas can they retain enough influence to moderate the regime's policies. As Nicaragua's domestic economic problems continue to mount, with industrial and agricultural production falling, the Sandinistas are likely to look for ever larger foreign aid commitments to cover needed im- ports of machinery, spare parts, industrial chemicals, and food. With continued depressed exports, Nicara- gua will remain unable to meet its debt service obligations, and probably will see further erosion of its credit lines with Western nations. Prospects for in- creased intraregional trade are not favorable, because the other Latin American countries also face growing debt problems and we see no near-term letup in the region's turmoil. The extent to which Western Europe and radical Islamic nations continue to lend financial support will depend on their perception of shifts in Nicaraguan policies-toward moderation or radicalization-and the status of Nicaragua's debt delinquency. Assuming no sharp swing in Sandinista policies, trade and aid with the non-US OECD probably will stay close to current levels. Several countries, such as France, Sweden, and Netherlands have announced that they will marginally boost trade and aid levels with the Sandinistas to offset some of the impact of the US economic and political policies. 25X1 25X1 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 embargo. At the same time, other countries such as Spain and West Germany, have reaffirmed cutbacks because of both economic and political factors. West Germany froze its aid package, except for some technical assistance, in 1983 in reaction to Managua's domestic policies. While the Soviets and East Ger- mans have recently provided some hard currency to the Sandinistas to cover overdue trade credits, we expect that the small debt payments that Managua makes will only allow it to maintain, and not expand, Western credit lines. Islamic nations probably will maintain at least current levels of support. We believe Nicaragua's overall financial situation will continue to depend on the depth of Moscow's pockets. Extrapolating from past trends, we expect Nicara- gua's dependence on Soviet Bloc assistance to contin- ue to grow over the next 12 months. Because of large new Bloc credits granted during the first half of 1985, we expect to see a continued rise in financial support, though probably not at levels sufficient to halt the decline in Nicaragua's economy. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Appendix A Nicaragua's Soaring Debt The $1 billion debt-including just medium- and long-term obligations-that the Sandinistas inherited has expanded nearly threefold during the past six years. Since the revolution, Managua has taken large new loans for economic development projects and to support the military buildup. At the same time, it has consistently delayed repaying the bulk of its financial obligations, arranging instead for generous reschedul- ings. Largely because of Managua's failure to make debt service payments, commercial bankers have re- fused to extend new credits, and the great bulk of the increase in debt has come from official sources, including governments and multilateral lending orga- nizations. By the end of 1984, the share of total Nicaraguan debt held by commercial banks had fallen from 40 percent to just 20 percent of the total. Preliminary trade and financial data from a number of sources indicate that by the end of this year Managua's medium- and long-term debt will hit $4.8 billion. Since the revolution, in part because of the large growth in debt arrearages, Managua's short- term financial obligations have also nearly doubled to about $650 million. When short-term obligations are included, Managua's total debt will amount to about $5.5 billion by the end of this year. Although the financial obligations for servicing this debt have also soared, Managua thus far has been able to delay most debt service payments by resched- uling the bulk of its obligations. Partly as a result, overall debt service obligations are now beginning to increase rapidly. During the years immediately before the revolution, Nicaragua's annual debt payments totaled slightly less than $100 million per year and were largely serviced on time. During the last several years, by contrast, Nicaragua has faced debt service obligations of nearly $500 million each year. Press reports, however, indicate that Managua has been Figure 12 Nicaragua: External Public Debt,' 1975-85 a Yearend, medium- and long-term. b Projection. able to reschedule two-thirds or more of the amounts coming due. Because the Sandinistas have gone to commercial bankers and official creditors with empty pockets, the creditors have had little choice but to agree to token payments and favorable rescheduling arrangements. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Secret Appendix B Nicaraguan Trade From 1975 Through 1984 Table 1 Nicaraguan Total Trade by Partners Latin America 30 0 360 450 530 290 645 581 415 355 279 United States 30 1 365 422 411 351 460 324 209 229 169 Non-US OECD 29 4 340 557 403 293 305 342 331 355 465 a Defined in this paper as USSR, Cuba, and Eastern Europe except Yugoslavia. Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; Nicaraguan Ministerio De Comercio Exterior; and Soviet trade statistics. Note: All trade figures have been rounded to the nearest million US $. Table 2 Nicaraguan Exports by Destination Total 46 5 593 756 792 674 508 539 406 469 443 Soviet Bloc 1 5 6 1 0 1 27 23 60 30 Latin America 97 130 154 196 93 87 86 66 41 45 United States 145 196 199 227 251 211 140 90 97 57 Non-US OECD 196 218 336 262 244 205 233 199 225 288 Other 26 44 61 106 86 4 53 28 46 23 Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; Nicaraguan Ministerio De Comercio Exterior; and Soviet trade statistics. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Table 3 Nicaraguan Imports by Source Total 467 526 754 673 349 915 830 714 707 795 Soviet Bloc 6 2 1 4 NEGL NEGL 33 100 124 252 Latin America 203 230 296 334 197 558 495 349 314 234 United States 156 169 223 184 100 249 184 119 132 112 Non-US OECD 98 122 221 141 49 100 109 132 130 177 Other 4 3 13 10 3 8 9 14 7 20 Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; Nicaraguan Ministerio De Comercio Exterior; and Soviet trade statistics. Note: All trade figures have been rounded to the nearest million US $. Table 4 Nicaraguan Exports to Soviet Bloc Total 1 5 6 1 0 1 27 23 60 30 USSR 0 0 0 0 0 0 8 8 13 1 Cuba 0 0 0 0 0 0 11 1 18 12 Bulgaria 0 0 0 0 0 0 3 4 11 4 Czechoslovakia 0 0 0 0 0 1 0 5 9 4 East Germany 0 0 0 0 0 0 4 5 7 9 Hungary 0 0 0 1 0 0 1 0 2 0 Poland 1 5 0 0 0 0 0 0 0 0 Romania 0 0 6 0 0 0 0 0 0 0 Sources: United Nations Bilateral Trade; IMF Direction of Trade; Nicaraguan Ministerio De Comercio Exterior; and Soviet trade statistics. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Table 5 Nicaraguan Imports From Soviet Bloc Total 6 2 1 4 0 0 33 100 124 252 USSR 0 0 0 0 0 0 6 50 57 170 Cuba 0 0 0 0 0 0 8 31 42 34 East Germany 0 0 0 0 0 0 18 12 14 19 Hungary 0 0 0 0 0 0 0 0 0 0 Poland 1 1 0 0 0 0 0 0 0 2 Sources: United Nations Bilateral Trade; IMF Direction of Trade; Nicaraguan Ministerio De Comercio Exterior; and Soviet trade statistics. Note: All trade figures have been rounded to the nearest million US $. , Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Table 6 Nicaraguan Exports to Latin America Total 97 130 154 196 93 87 86 66 41 45 Costa Rica 37 44 48 72 37 39 34 25 18 14 Guatemala 22 31 35 45 21 17 16 14 11 15 Mexico 0 5 8 1 1 0 9 14 8 7 Cam Nes a 13 15 17 22 13 14 11 7 0 4 El Salvador 21 28 34 48 18 11 9 5 3 3 Panama 1 2 2 4 1 6 5 1 1 1 Colombia 0 0 0 0 0 0 0 0 0 1 Venezuela 1 3 9 3 1 0 1 0 0 0 Peru 0 0 0 0 0 0 1 0 0 0 Brazil 0 0 0 0 1 0 0 0 0 0 Dominican Republic 0 2 0 0 0 0 0 0 0 0 Jamaica 1 0 0 0 0 0 0 0 0 0 Netherlands Antilles 1 0 0 1 0 0 0 0 0 0 Trinidad and Tobago 0 0 1 0 0 0 0 0 0 0 a "Central America-Not Elsewhere Specified"-a trade term that includes Belize, Honduras, and the Panama Canal Zone. Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; Nicaraguan Ministerio De Comercio Exterior. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Table 7 Nicaraguan Imports From Latin America Total 203 230 296 334 197 558 495 349 314 234 Mexico 10 13 15 15 6 19 119 155 169 80 Costa Rica 37 48 58 57 39 127 80 46 41 19 Guatemala 36 42 52 67 36 113 77 45 56 29 Venezuela 64 57 87 90 66 172 87 40 0 5 El Salvador 29 36 38 41 23 55 34 18 16 12 Panama 6 6 8 13 6 14 18 12 1 8 Netherlands Antilles 3 5 11 12 4 13 7 9 0 0 Cam Nes e 11 15 16 26 13 33 20 8 0 14 Brazil 2 2 5 5 1 5 37 8 12 14 Argentina 1 1 1 2 1 4 9 3 19 28 Colombia 3 3 3 4 2 3 6 2 0 16 Peru 0 0 0 0 0 0 1 2 0 4 Chile 0 1 1 0 0 0 0 1 0 0 Dominican Republic 0 0 0 0 0 0 0 0 0 1 Caribbean 0 0 0 0 0 0 0 0 0 4 Jamaica 1 1 1 2 0 0 0 0 0 0 a "Central America-Not Elsewhere Specified"-a trade term that includes Belize, Honduras, and the Panama Canal Zone. Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; and Nicaraguan Ministerio De Comercio Exterior. Note: All trade figures have been rounded to the nearest million US $. ?t,r?T,,~___ Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Table 8 Nicaraguan Exports to OECD OECD 34 1 414 535 489 495 416 373 289 322 345 United States 14 5 196 199 227 251 211 140 90 97 57 Japan 6 4 82 90 62 40 16 62 48 73 105 Germany 4 2 48 115 79 74 52 36 37 38 33 France 5 6 12 14 14 24 21 26 28 40 Canada 6 15 15 13 8 30 48 24 25 39 Italy 1 1 8 14 22 35 20 20 14 15 12 Spain 1 0 9 10 5 5 17 10 11 17 23 Switzerland 2 6 15 9 10 11 5 9 7 7 Netherlands 6 10 12 12 11 8 4 7 10 9 Austria 4 7 13 12 13 9 9 6 6 7 United Kingdom 2 4 2 2 3 2 4 2 6 3 3 Finland 1 3 3 2 4 2 2 4 0 4 Belguim/Luxembourg 1 1 14 23 14 13 9 7 4 3 4 Norway 1 2 3 2 1 0 1 1 0 0 Denmark 8 5 6 11 10 2 4 1 0 1 Australia 0 0 0 1 0 0 1 1 0 1 Ireland 0 0 0 0 0 0 1 0 0 0 Greece 0 0 0 0 1 0 0 0 0 0 Sweden 1 1 3 1 3 1 0 0 0 0 Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; and Nicaraguan Ministerio De Comercio Exterior. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Table 9 Nicaraguan Imports From OECD OECD 254 291 444 325 149 349 293 251 262 289 United States 156 169 223 184 100 249 184 119 132 112 Spain 5 9 40 28 4 5 7 21 19 31 Italy 12 7 8 5 5 6 10 20 12 14 West Germany 21 29 46 27 11 16 25 14 13 18 Canada 4 5 9 8 3 13 14 13 13 18 Japan 25 39 73 27 7 20 12 9 9 13 United Kingdom 12 15 15 14 7 6 4 9 4 6 Switzerland 5 5 7 6 1 7 7 5 8 11 Netherlands 3 2 4 6 5 6 13 5 8 8 Ireland 0 0 0 2 1 1 3 4 1 2 Belgium/ Luxembourg 3 2 3 3 1 3 2 4 2 3 Austria 1 0 1 0 0 1 1 3 6 7 Norway 0 0 2 1 0 0 0 1 0 2 Greece 0 0 0 0 0 0 0 0 0 0 Australia 0 1 1 2 0 0 0 0 0 0 Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; and Nicaraguan Ministerio De Comercio Exterior. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Table 10 Nicaraguan Exports to Other Countries Others 26 44 61 106 86 4 53 28 46 23 China 0 4 21 46 64 2 21 20 8 8 Taiwan 8 21 6 44 16 0 17 8 7 0 Hong Kong 11 12 11 9 3 0 6 0 0 0 South Korea 0 0 0 3 0 0 4 0 0 1 Thailand 2 1 7 3 3 0 2 0 0 0 North Korea 0 0 0 0 0 0 1 0 0 0 Syria 0 0 0 0 0 0 1 0 0 0 Indonesia 1 0 1 0 0 0 1 0 0 1 Malaysia 0 0 1 0 0 0 0 0 0 1 Philippines 0 3 1 1 0 0 0 0 1 0 India 0 0 8 0 0 0 0 0 0 0 Algeria 0 0 1 0 0 0 0 0 30 12 Morocco 4 3 1 0 0 0 0 0 0 0 Iran 0 0 2 0 0 0 0 0 0 0 Yugoslavia 0 0 0 0 0 2 0 0 0 0 Tunisia 0 0 1 0 0 0 0 0 0 0 Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; and Nicaraguan Ministerio De Comercio Exterior. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Table 11 Nicaraguan Imports From Other Countries North Korea 0 0 0 0 0 0 1 0 0 1 China 0 0 1 2 1 1 1 0 0 0 Hong Kong 1 1 1 1 0 0 1 1 0 0 Israel 1 0 0 0 0 0 0 1 1 1 India 0 0 1 0 1 3 0 0 0 0 Yugoslavia 0 0 1 0 0 0 0 0 0 5 South Africa 0 0 1 2 0 0 0 2 0 0 Thailand 0 0 1 0 0 0 0 0 0 2 Sources: United Nations Bilateral Trade; IMF Direction of Trade; US Embassy Managua; and Nicaraguan Ministerio De Comercio Exterior. Note: All trade figures have been rounded to the nearest million US $. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Appendix C Financial Assistance Since the Revolution Table 12 Soviet Bloc Commitments to Nicaragua 1981 128 2 18 148 1982 12 45 11 68 1983 18 67 12 97 1984 59 182 10 251 Total 217 301 56 574 1979 20 20 1980 17 50 67 1981 84 89 64 237 1982 163 84 80 327 1983 16 255 60 331 1984 110 25 40 175 Total 373 490 294 1,157 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Table 13 Summary of Economic Aid Disbursements to Nicaragua, 1979-84 85.1 139.8 82.3 94.8 99.0 90.0 0.2 0.7 0.7 8.7 8.1 Belgium 0.9 0.3 0.8 0.6 0.5 Canada 0.3 5.6 2.3 6.2 Denmark 0.9 0.1 1.4 0.3 1.6 Finland 0.1 0.6 2.5 1.6 0.5 1.3 8.5 8.7 West Germany 18.2 13.3 14.2 10.3 16.7 Italy 1.1 1.1 5.0 2.5 1.9 Japan 5.5 2.3 0.2 0.3 0.1 Netherlands 6.4 14.6 15.8 23.9 17.6 Norway 0.9 0.5 0.4 2.1 2.3 Spain 10.0 15.0 15.0 15.0 15.0 Sweden 8.1 7.7 3.9 9.3 12.1 Switzerland 2.3 0.5 0.8 1.4 2.5 United Kingdom 0.5 0.3 0.2 0.1 0.1 United States 30.0 82.0 17.0 7.0 4.0 Latin America b 50.0 150.0 294.0 225.0 220.0 120.0 OPEC Countries 100.0 100.0 125.0 130.0 Total Soviet Bloc 17.0 37.0 78.0 154.0 237.0 281.0 USSR 10.0 34.0 79.0 101.0 d Eastern Europe 2.0 2.0 18.0 50.0 88.0 110.0 Cuba 15.0 35.0 50.0 70.0 70.0 70.0 Total bilateral 152.1 326.8 554.3 573.8 681.0 621.0 Multilateral 51.3 118.4 120.9 63.6 83.2 30.0 Total Loans and Grants 203.4 445.2 675.2 637.4 764.2 651.0 a Country breakout is not available for 1984. b These data are compiled from a number of sources and should be considered as estimates, not actual data. c Algeria, Iran, and Libya. d Includes $60 million of oil delivered on current account that probably will be converted to long-term credits. Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 Secret Table 14 Summary of Military Aid Disbursements to Nicaragua, 1979-84 Bulgaria 0.8 21.0 49.0 134.2 Soviet Union 27.5 31.0 43.7 79.4 East Germany 3.5 0.1 26.3 7.5 21.5 Cuba 2.5 11.0 10.0 12.3 10.0 North Korea 3.0 3.0 Other NA 0.1 Total 205.0 181.6 58.9 45.8 6.0 0.1 fill, ter, Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86TOO589ROO0400440002-4 II 1 Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4 Secret Secret Sanitized Copy Approved for Release 2011/04/21: CIA-RDP86T00589R000400440002-4