ECONOMIC SANCTIONS AGAINST NICARAGUA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R001802770023-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 142
• Document Creation Date: December 22, 2016
• Document Release Date: August 18, 2009
• Sequence Number: 23
• Publication Date: May 8, 1985
• Content Type: MEMO

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STAT
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EXECUTIVE SECRETARIAT
ROUTING SLIP
STAT
X ecutive Secretary
1 May 85
Date
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United States Departuirut of State
Washington. D.C. 20520 J
1817/2
May 8, 1985
ROM: S/ LPD - John D. Black
SUBJECT: Economic Sanctions Against Nicaragua
Enclosed are the following materials:
1. Talking points on the economic sanctions;
2. Talking Points on Nicaragua's Economic Crisis;
The statement announcing the imposition by the United
States of economic sanctions against the Government of
Nicaragua;
4. The Executive Order imposing the economic sanctions;
5. The notification to Congress of the economic sanctions;
6. "The Sandinista Economic Failure" - a short overview of
how Sandinista policies have led Nicaragua into a severe
economic crisis;
7. "The Nicaraguan Economy Five Years After the Revolution" -
a more detailed report on the state of the Nicaraguan
eccnomy since the Sandinistas seized power in 1979;
8. Tables providing statistical information on the Nicaraguan
economy.
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.CONUMIC SANCTIONS - TALKING POINTS
The White House has announced the imposition of economic
sanctions against Nicaragua under the International Emergency
Economic Powers Act (IEEPA), the National Emergencies Act and
other applicable legislation.
-- We will:
declare a trade embargo, banning all imports into the
U.S. of goods and services from Nicaragua and all
exports of goods from the U.S. to Nicaragua;
terminate air transportation to the U.S. by Nicaraguan
air carriers and close our ports to all Nicaraguan flag
vessels.
-- We are also notifying the Government of Nicaragua of the
termination of our Treaty of Friendship, Commerce and
Navigation.
-- We are taking these measures to help deal with the unusual
and extraordinary threat created by the aggressive actions of
the Government of Nicaragua in Central America.
-- Nicaragua's unceasing efforts to subvert its neighbors, its
destabilizing military buildup, its close military ties to our
adversaries, and its imposition of Communist, totalitarian rule
constitute a clear threat to the security of Central America
and therefore to the United States.
-- There has been no change in our basic policy toward
Nicaragua. We do not seek a military solution or want to
overthrow that country's government. We do require that
Government make certain changes that we regard as essential for
peace in Central America and for constructive relations between
our two nations, specifically:
o to halt its export of armed insurrection and subversion;
o to end its military ties with Cuba and the Soviet Bloc
and send home their military and security personnel;
o to stop its arms buildup and help restore the regional
military balance; and
to respect, in law and in practice, democratic pluralism
and observance of full political and human rights in
Nicaragua.
-- These are not goals we have set unilaterally. They are
compatible with those which the Central American countries,
including Nicaragua have agreed upon in the Contadora process
as essential elements of resolving the conflict in the region.
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-- We have repeatedly urged the Government of Nicaragua,
publicly and in private bilateral contacts, to respect its 1979
promises to the-OAS and its commitments to the 1983 Contadora
Document of Objectives. To date the Sandinistas have ignored
our appeals and those of their neighbors.
-- There has been a cumulation of Nicaraguan behavior,
amounting to a serious threat to regional and U.S. security,
and incompatible with normal commercial relations. The threat
to our security and foreign policy has been heightened by
Ortega's visit to Moscow. Our actions are necessary to signal
Nicaragua that we will continue to apply pressure until they
modify their behavior.
-- The announcement of Ortega's visit to Moscow, at the very
time Congress was denying the Administration effective leverage
to influence GON behavior, illustrates the Sandinistas'
determination to move still closer to our adversaries and their
belief that the U.S. lacks the resolve to respond effectively.
-- It is clear that last month's debate on Nicaragua in
Congress and the country contributed to an increased awareness
of Nicaragua's threatening behavior and obduracy to all appeals
from its own citizens and other concerned governments. Both
supporters and opponents of the President's policy called for
economic sanctions.
-- The measures announced by the Administration have three main
objectives:
o To underscore vividly and unmistakably our opposition to
Sandinista policies;
o To maintain pressure on the Sandinistas as an inducement
to change; and
o To signal friends and adversaries of our determination
to resist subversion and protect our own security and
that of our friends.
-- We are under no illusion that the new steps we have taken
will, by themselves, bring about the changes on Nicaragua's
part that we believe are essential for peace. The need
remains, therefore, for the strong, direct pressure exerted on
the Sandinistas by the Nicaraguan democratic resistance. The
Administration intends to come back to Congress with
recommendations for a resumption of U.S. support for the
resistance.
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-- We have again reiterated to the Government of Nicaragua our
wish for a peaceful political resolution of the crisis in
Central America; we have called on them again to accept the
proposed dialogue with all elements of the opposition, to be
held under Church auspices; and we have reiterated the
President's April 4 proposal to assist that process, urging the
Government of Nicaragua to reconsider its rejection of the
opposition's proposal for dialogue and ceasefire. We strongly
believe, consistent with the Contadora Document of Objectives,
that such dialogue, leading to genuine reconciliation, is a
requisite for peace in Nicaragua and the region as a whole.
-- We have told the Nicaraguans that we will lift the
sanctions to be announced today if they will take concrete
steps on the dialogue and/or other areas of major concern. We
have also reiterated our support for the Contadora process.
-- In sum, this announcement is part of our overall effort to
keep the pressure on Nicaragua to bring about changes that will
help. the peace process in Central America.
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ECONOMIC SANCTIONS AGAINST NICARAGUA
The President has ordered the imposition by the United States of
economic sanctions against the Government of Nicaragua under
authority granted by the International Emergency Economic - Powers
Act and other authorities. The sanctions include a total embargo
on trade with Nicaragua, notification of U.S. intent to terminate
its Treaty of Friendship, Commerce, and Navigation with
Nicaragua, and the suspension of service to the United States by
Nicaraguan airlines and Nicaraguan flag vessels. A report on
these actions is being sent today to the Congress.
The President authorized these steps in response to the emergency
situation created by the Nicaraguan Government's aggressive
activities in Central America. Nicaragua's continuing efforts to
subvert its neighbors, its rapid and destabilizing military
buildup, its close military and security ties to Cuba and the
Soviet Union, and its imposition -of Communist totalitarian
internal rule have been described fully in the past several
weeks. Since the House of Representatives failed to act on the
President's peace initiative, there have been further indications
of this disturbing trend:
? the new ties between Nicaragua and the Soviet Union
announced by TASS in connection with Daniel Ortega's current
trip to Moscow;
? the recent apprehension in Honduras of seven agents of the
Nicaraguan state security service, who admitted that they
had travelled to Honduras from Nicaragua in order to aid and
assist Honduran insurgents;
? delivery last week to Nicaragua by the Soviet Union of
additional MI-8/17 helicopters;
? the delivery last week by East Germany of a large shipment
of military transport equipment to Nicaragua; and
? the rejection by Nicaraguan leaders of any possible
church-mediated dialogue with the democratic opposition cf
Nicaragua.
These events and the recent Nicaraguan rejection of the
President's peace initiative, viewed in the light of the
constantly rising pressure that Nicaragua's military buildup
places on the democratic nations of the region, makes clear the
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urgent threat that Nicaragua's activities represent to the
security of the region, and, therefore, to the security and
foreign policy of the United States. The activities of
Nicaragua, supported by the Soviet Union and its allies, are
incompatible with normal commercial relations.
During the month-long debate on U.S. policy toward Nicaragua,
many members of Congress, both supporters and opponents of the
Administration's proposals, called for the early application of
economic sanctions. It should be understood, however, that the
President does not consider the imposition of these sanctions to
be a substitute for U.S. assistance to the unified democratic
opposition.
The Administration has long made clear that changes in Sandinista
behavior must occur if peace is to be achieved in Central
America. In making this announcement, the President again calls
on the Government of Nicaragua:
to halt its export of armed insurrection, terrorism, and
subversion in neighboring countries;
? to end its extensive military relationship with Cuba and the
Soviet Bloc and remove their military personnel;
? to stop its massive arms buildup and help restore the
regional military balance; and
? to respect, in law and in practice, democratic pluralism and
observance of full political and human rights in Nicaragua.
The Administration has repeatedly urged the Government of
Nicaragua to respect its 1979 commitments to the OAS and more
recently to the 1983 Contadora Document of Objectives, whose
terms closely parallel our own basic objectives. Heretofore the
Sandinistas have ignored or rejected all such appeals. The
American Embassy in Managua has just renewed with the Government
of Nicaragua the President's strong endorsement for internal
dialogue and reiterated his firm intention to pursue U.S.
interests and national objectives in Central America. In this
regard, it should be noted that the measures being instituted W.
the President are easily rescinded if Nicaragua acts to relieve
our concerns.
The President remains convinced that the church-mediated dialc-5,;e
between the Government of Nicaragua and the unified democrat:
opposition, as called for by the resistance on March 1 and in the
President's April 4 peace proposal, could make a major
contribution to resolution of conflict in the region. The
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President continues to believe that direct pressure presents the
only effective means of moderating Nicaraguan behavior and is
using the means available to him toward that end. He urges all
members of the Congress to support future requests for assistance
to the Nicaraguan democratic resistance. He has also made it
clear that the embargo does not apply to those goods destined for
the organized democratic resistance. Nor will it apply to
donations of articles such as food, clothing, and medicine
intended to be used to relieve human suffering.
In the meantime, U.S. application of these measures should be
seen by the Government of Nicaragua, and by those who abet it, as
unmistakable evidence that we take seriously the obligation to
protect our security interests and those of our friends. The
President calls again on the Government of Nicaragua to address
seriously the concerns of its neighbors and its own democratic
opposition and to honor its solemn commitments to non-inter-
ference, non-alignment, respect for democracy, and peace.
Failure to do so will only diminish the prospects for a peaceful
settlement in Central America.
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PROHIBITING TRADE AND CERTAIN OTHER
TRANSACTIONS INVOLVING NICARAGUA
By the authority vested in me as President by the
Constitution and laws of the United States of America,
including the International Emergency Economic Powers Act (50
U.S.C. 1701 et seg.) , the National Emergencies Act (50 U.S.C.
1601 et seq.), chapter 12 of Title 50 of the United States
Code (50 U.S.C. 191 et seq.), and section 301 of Title 3 of
the United States Code,
I, RONALD REAGAN, President of the United States of
America, find that the policies. and actions of the Government
of Nicaragua constitute an unusual and extraordinary threat to
the national security and foreign-.policy-of 'the Unites"States
and hereby declare a national emergency to deal with that
threat.
I hereby prohibit all imports into the United States of
goods and services of Nicaraguan origin; all exports from the
United States of goods to or destined for Nicaragua, except
those destined for the organized democratic resistance, and
transactions relating thereto.
I hereby prohibit Nicaraguan air carriers from engagir.?.
in air transportation to or from points in the United State
and transactions relating thereto.
In addition, I hereby prohibit vessels of Nicaraguan
registry from entering into United States ports, and
transactions relating thereto.
The Secretary of the Treasury is delegated and authorizt?3
to employ all powers granted to me by the International
Emergency Economic Powers Act to carry out the purposes of
this Order.
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The prohibitions set forth in this Order shall be
effective as of 12:01 an., Eastern Daylight Time, May 7,
1985, and shall be transmitted to the Congress and published
in the Federal Register.
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Pursuant to section 204(b) of the International Emergency
Economic Powers Act, 50 U.S.C. 1703, I hereby report to the
Congress that I have exercised my statutory authority to
declare a national emergency and to prohibit: (1) all
imports into the United States of goods and services of
Nicaraguan origin; (2). all exports from the United States
of goods to or destined for Nicaragua except those destined
for the organized democratic resistance; (3) Nicaraguan air
carriers from engaging in air transportation to or from points
in the United States; and (4) vessels of Nicaraguan registry
from entering into United States ports.
These prohibitions will become effective as of
12:01 a.m., Eastern Daylight Time,.May 7, 1985.
I am enclosing a copy of the Executive Order that I
have issued making this declaration and exercising these
authorities.
1. I have authorized these steps in response to the
emergency situation created by the Nicaraguan Government's
aggressive activities in Central America. Nicaragua's
continuing efforts to subvert its neighbors, its rapid and
destabilizing military buildup, its close military and
security ties to Cuba and the Soviet Union and its imposition
of Communist totalitarian internal rule have been described
fully in the past several weeks. The current visit by
Nicaraguan President Ortega to Moscow underscores this
disturbing trend. The recent rejection by Nicaragua of my
peace initiative, viewed in the light of the constantly rising
pressure that Nicaragua's military buildup places on the
democratic nations of the region, makes clear the urgent
threat that Nicaragua's activities represent to the security
of the region and, therefore, to the security and foreign
policy of the United States. The activities of Nicaragua,
supported by the Soviet Union and its allies, are incompatible
with normal commercial relations.
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2
2. In taking these steps, I note that during this
month's debate on U.S. policy toward Nicaragua, many Members
of Congress, both supporters and opponents of my proposals,
called for the early application of economic sanctions.
3. I have long made clear that changes in Sandinista
behavior must occur if peace is to be achieved in Central
America. At this time, I again call on the Government of
Nicaragua;
o to halt its export of armed insurrection, terrorism,
and subversion in neighboring countries;
o to end its extensive military relationship with Cuba
and the Soviet Bloc and remove their military and
security personnel;
o to stop its massive arms buildup and help restore
the regional military balance; and
o to respect, in law and in practice, democratic
pluralism and observance of full political and human
rights in Nicaragua.
4. U.S. application of these sanctions should be seen
by the Government of Nicaragua, and by those who abet it, as
unmistakable evidence that we take seriously the obligation
protect our security interests and those of our friends. i
ask the Government of Nicaragua to address seriously the ccr.-
cerns of its neighbors and its own opposition and to honor i-
solemn commitments to non-interference, non-alignment, resr,
for democracy, and peace. Failure to do so will only dimin:,
the prospects for a peaceful settlement in Central America.
THE WHITE HOUSE,
May 1, 1985.
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THE SANDINISTA ECONOMIC FAILURE
Sandinista policies, which have consistently emphasized
Marxist ideology over economic realities, have thrown Nicaragua
into a severe economic crisis. Nicaragua was a productive
agricultural country with approximately 3 million inhabitants
and more than 29 million acres of land. Since the 1979
revolution, the Sandinista government has sought to implement a
marxist state-controlled economy, while using rhetoric claiming
to favor a mixed economy and a pluralistic society.
After five years of Sandinista rule, the facts speak for
themselves. The Government of Nicaragua in the tradition of
its mentor, Cuba, has secured effective control of the economic
life of the country. Immediately after the revolution, it took
control of 40 percent of the economy by nationalizing all the
Somoza holdings as well as entire industries such as banking
and export marketing firms. To increase their share since
then, the Sandinistas have used a variety of ideologically
motivated means such as confiscation, limitation of access to
credit, and wage and price controls. Although nominally half
the economy remains in the private sector, even that part is
tightly controlled by the government. As Comandante Bayardo
Arce put it, any investment project in our country belongs to
the state. The bourgeoisie no longer invests--it subsists.'
Anti-Private Sector Policies
Sandinista policies and regulations have stifled the
private sector and have been powerful disincentives to
production. The Sandinistas have not respected private
property; they have confiscated whatever firms or lands they
pleased, often merely to punish opponents. They imposed price
controls which made impossible a reasonable profit for
producers, thus discouraging production. They have required
farmers to sell their products to the government at prices so
low that many small producers have been driven completely out
of business. They have used their control of banks, financing,
and interest rates to squeeze out the private sector and for
political purposes. The percentage of loans to the private
sector dropped from 70 percent in 1978 to only 10 percent in
1984.
Nationalization of all export marketing and stringent
controls over access to foreign exchange has thwarted
businessmen trying to develop Nicaragua's export crops. High
taxes imposed by the Sandinistas (the highest in Central
America) ensure slow economic strangulation of private
enterprise. These policies, coupled with the. repressive
political climate created by the Sandinistas, have caused many
of Nicaragua's business executives, managers, farmers, and
professionals to become disillusioned and go into exile.
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Impact of Militarization
As early as February 1981, the FSLN announced that it
would'build a 200,000-man militia (almost 10 percent of the
population). Today the government admits to spending 40
percent of the budget on the military. Regimentation of the
society has also had disruptive effects on the economy. For
example, the obligatory military service has diverted human
resources from production to the military. The impact of
militarization of the society cannot be accurately quantified,
but it is reflected in the areas of transportation,
communication, and education. Fear of conscription into the
Sandinista army has affected labor discipline, with many young,
able-bodied workers and students fleeing the country or hiding
from the authorities.
Economic Decline and Inflation
Sandinista policies have led to economic decline and have
created unprecedented hardships for the average Nicaraguan.
The gross domestic product is 14 percent below
pre-revolutionary levels. The budget deficit is more than 20
percent of the gross domestic product and growing. National
savings is only about 1 percent of the gross domestic product,
one of the lowest rates in the world. Inflation in the price
of many food staples has reached 200-300 percent and continues
to climb. Wages, first frozen by the government in 1981, have
plummeted in real terms. Lower and middle class families are
unable to maintain even their low standards of living. Basic
consumer goods that previously were readily available to the
public have now become scarce, and the long lines typical of
Eastern Europe have become commonplace. Numerous products are
now being rationed through a system administered by Sandinista
'block committees.'
Debilitating Controls
The Sandinistas have moved to take over much of the
distribution system and push out the private sector. As in
other state-controlled economies, a black market has become
active. Domestically produced goods such as meat, sugar, milk,
and eggs are becoming scarce, and imported consumer goods are
virtually nonexistent. Sandinista regulations restrict private
citizens' access to foreign currency, and Nicaraguans wanting
dollars must exchange their money on the black market for only
10 percent of its official value. To discourage people from
leaving, the Sandinistas have set passport and exit visa fees
so high that they are equal to nearly a full month's wages for
the average Nicaraguan.
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Loss of Credit Rating
Sandinista policies have made Nicaragua increasingly
dependent on foreign handouts. Exports have declined 25
percent in nominal terms and 70 percent in real terms. In less
than six years, the Sandinistas have tripled Nicaragua's
foreign debt from $1.6 to $4.6 billion. Nicaragua has fallen
in arrears on many of its debts and it is not considered
creditworthy by commercial lenders.
Initially, Nicaragua received very favorable treatment
from the international community, obtaining hundreds of
millions of dollars a year from Western nations and
multilateral financial institutions. As the Sandinistas have
steered Nicaragua ever further toward communism, support from
the West has been declining.
Role of the United States
From the time the Sandinistas took power in 1973 until
1981, the United States was the largest bilateral donor to
Nicaragua, providing $118 million in-economic and humanitarian
assistance. The United States also supported Nicaragua in its
dealings with multilateral financial institutions and private
banks. For example, by 1983 the Sandinista government had
received more than $250 million from multilateral development
institutions to which the United States is the principal
contributor.
Actions by the United States against the Nicaraguan
economy have not been arbitrary or sweeping. We suspended
government-to-government aid in 1981 only after the Sandinistas
persisted, in spite of repeated warnings, in their support of
armed insurgency in the region. Only in 1983, with the pattern
of Sandinista destabilizing actions even more clearly
established, did we reduce Nicaragua's sugar quota.
The Sandinistas made clear nearly six years ago that they
were committed to a close security and economic relationship
with the Soviet bloc, and Cuba. President Ortega's trip to
Moscow is only the latest visible sign. The economic sanctions
announced in early May cannot be blamed for pushing the
Sandinistas into the Soviets' arms. By the same token, we have
advised the Sandinistas that we are prepared to reexamine the
sanctions at any time they take concrete steps toward a
dialogue and other measures leading to genuine reconciliation,
freedom, and peace in Nicaragua and the region as a whole.
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THE NICARAGUAN ECONOMY FIVE YEARS AFTER THE REVOLUTION
THE ECONOMY: THEN AND NOW
Nicaragua is the largest Central American nation in land
area but has a population of only about 2.7 million people. it
is one of the least developed countries of the region and is
mainly an agricultural country. Gross Domestic Product (GDP)
is $3.1 billion; in real terms, about 14% below 1978 levels.
Nicaragua's key exports are coffee, cotton, sugar, meat,
seafood products, oananas and gold; it has a small industrial
sector based mainly on agricultural chemicals. Population and
economic activity are concentrated on the Pacific coast.
When the Sandinistas took power after a year and a half of
intense struggle, the economy was badly damaged. Capital
flight and lost production amounted to as much as $1.5 billion;
foreign exchange reserves were close to zero. The foreign debt
at the end of 1979 was $1.6 billion. The budget deficit was
over 7% of Gross Domestic Product (GDP). ECLAC, the UN's
Economic Commission for Latin.America and the Caribbean,
estimated that the fighting had caused about $500 million in
physical damage.
After five years in power, the Sandinista government is
still struggling with the same problems, as well as some new
ones created by their ideologically oriented policies. Output
is 14 percent below pre-revolution levels. The foreign debt
now stands at $4.6 billion, and Nicaragua is incapable of
meeting its debt service obligations. The budget deficit is
over 20 percent of GDP and growing. The trade gap has averaged
about $350 million for the past five years. The Sandinistas
rely on foreign assistance to bridge a $500 million balance of
payments deficit.
Recent Government of Nicaragua (GON) economic statistics
are not considered credible by many international observers and
institutions. The Sandinistas claimed a 3 percent growth rate
in 1983, but government officials admit that the standard of
living declined. Even the official statistics reflect the
visible decline in living standards. In real terms, overall
non-military consumption per capita was off 3 percent in 1983,
while real private consumption per capita fell by almost 8
percent. The GON attributed this decline to the effects of
aggression, but increasingly the Nicaraguan people are
beginning to question Managua's economic policies. And for the
first time, the Sandinistas are admitting that they have made
serious mistakes in managing the economy.
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The year 1984 and the first quarter of 1985 have seen an
acceleration in the economic decline of the country. Although
hard figures are unavailable, both the coffee and cotton
harvests for 1984/85 were significantly below projected levels,
coffee possibly 30-40 percent and cotton
at least 20
percent.
Price inflation of many food staples has
been
200-300
percent
and these continue their upward climb.
Real
wages, on the
other hand, have declined and lower and middle class families
are unable to maintain 'even their relatively low standards of
living.
Meanwhile, the Sandinistas have made no significant
changes in any of their policies and programs to respond to the
deteriorating situation or to retreat from the ongoing
transformation to a Marxist style economy. Small price
increases have been given to producers and unrealistically low
wage raises granted to workers at all levels of the economy.
Real prices. for goods and services have risen owing to
shortages unrelieved by these halfway measures. The GON 1984
budget was almost 10 billion cordobas in excess of receipts and
1985 looks even worse. Today the Sandinistas continue to
ignore free market indicators in favor of controlled wages and
prices. Oil from the Soviet Union, now their only regular
supplier, and Soviet and Eastern European shipments of all
kinds of foods, consumer goods, and industrial equipment have
thus far prevented a total collapse of the economy as internal
production declines.
Nicaragua has received very favorable treatment from the
international community since 1980 in assistance grants and
loans. Even the generous amounts of aid received by the
Sandinistas has not permitted a reactivation of the economy.
Much of the assistance received has been in grant form or'
low-interest loans; yet the GON is unable to pay its bills and
remains dependent on external resources to stay alive.
Virtually all of their oil imports have been provided without
payment.
At almost any time at least one Sandinista representative
is abroad seeking economic aid. The Sandinistas generally have
been successful in soliciting support although aid,
particularly from Western Europe, has been falling off since
1983. Since taking power, they have been able to rely on
donations -- primarily from Canada, Sweden, and the Soviet bloc
-- for Nicaragua's entire wheat supply. France and Spain have
also been helpful in certain areas of the economy. While other
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nations under the San Jose Accord 1 were struggling to meet
payment obligations for petroleum imports, Nicaragua was able
to put off payments without losing its oil supply. Venezuela
did cut off deliveries in mid-1982 when Nicaragua failed to
make a payment, but Mexico took up the slack and turned a blind
eye to Managua's failure to honor its obligations until August
1984. Since then, Mexico has been firmer about requiring
payment and has limited shipment of crude. Mexico announced a
cutoff to Nicaragua pending renegotiation of the oil debt which
now stands at over $500 million.
The Soviet Union seems willing to take up part of the
slack in aid. The Soviets, who beginning in 1984 provided
roughly 70 percent of Nicaragua's oil needs, is now expected to
supply nearly 100 percent either directly or through swap
arrangements with other oil producing countries. However, on
more than one occasion, the Soviets have made it clear that the
Nicaraguans should continue to pursue economic ties with the
West because the Soviets are not prepared to fully subsidize
their policies as they do for Cuba.
Cuba has also helped Nicaragua, but at least part of its
aid may be counterproductive. Despite currently depressed
world prices for sugar and slim chances for increased world
consumption in the foreseeable future, Cuba's largest
international development project in Nicaragua is the $74.5
million Timal sugar refining complex near Managua. Operations
at the mill reportedly must be subsidized by the GON. Cuba
likely will remain willing to provide aid also in the form of
Cuban-produced goods and technical assistance and doctors and
teachers. However, pinched for foreign exchange itself, Cuba
will not provide hard currency assistance. Many Nicaraguans
believe that some manufactured goods, such as clothing, soap
and some food products in short supply, are being exported to
Cuba as barter payment for Cuban aid. This is not acknowledged
by the GON.
(1) The San Jose Accord, initiated in 1981, is an agreement
whereby Mexico and Venezuela agreed to supply crude oil to nine
Central.American and Caribbean countries on a concessionary
basis. When Mexico and Venezuela negotiated another one-year
extension of the Accord in August 1984, they made the supply of
crude conditional on strict compliance with the payment
arrangements specified.
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Nicaraguan export earnings traditionally have been and
continue to be based primarily on agricultural products.
Coffee-is the main export product, followed by cotton, sugar,
and beef. Together, these four products make up approximately
70 percent of total exports. Export performance has been
dismal, dropping 25 percent in nominal and 70 percent in real
terms from 1978 to 1984. Private sector analysts dispute
government claims that poor performance is a result of adverse
world market prices and dislocations caused by the war.
Instead, they blame Sandinista attacks on the private sector
and GON fiscal priorities which have effectively denied them
access to hard currency in order for them to purchase needed
pesticides, insecticides, fertilizers and spare parts for
machinery to keep production high. These Nicaraguan analysts
believe many of the problems encountered in the private sector
are part of a deliberate policy of the Sandinistas to build up
the state sector of the economy at the expense of the private
sector.
When the Central American Common Market [CACM) was
functioning well, prior to the onset of regional strife,
Nicaragua also had been able to develop some light industries.
Until 1979, about one-half the export products of these
industries went to CACM countries. In 1979, the percentage
dropped to one-third. Since then, light industries have
suffered declines every year ranging from 7 percent in 1981 to
almost 25 percent in 1982. Since 1981, Nicaraguan trade with
other CACM countries has steadily and sharply declined,
according to IMF figures. Nicaragua has accumulated huge trade
debts to its neighbors, owing Costa Rica almost $200 million
and Guatemala over $100 million. Its total trade debt to its
CACM partners is $400 million.
Nicaragua is actively trying to diversify its markets.
Until April 1985 the United States continued to be one of
Nicaragua's main trading partners, but its share of Nicaraguan
trade declined since the revolution in favor of Mexico, the
Middle East and the Soviet Bloc. Trade with Communist
countries has been increasing since the revolution. The U.S.
maintained its share of the Nicaraguan import market even as
the market was shrinking overall. Nicaraguan exports to the
U.S. declined by nearly half from 1983 to 1984. The
Sandinistas have been moderately successful in obtaining
supplier credit from sympathetic governments, but have
increasingly turned to barter and countertrade agreements.
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Based on.the most generous debt rescheduling terms given
to any third world debtor, the Sandinistas were able to keep up
with obligations to commercial banks on external debt until May
1983, when they failed to make a $40 million payment.
Subsequently, foreign commercial bank creditors negotiated
several payment reschedulings, but Nicaragua has been unable to
meet these limited payments. Nicaragua is also in arrears to
multilateral financial institutions. In late September 1984,
the World Bank suspended credit to Nicaragua because of payment
arrearages. The GON also has arrears to the Central American
Bank [CABEI] and the UN system as well as to the USG and other
governments.
.Nicaraguan economic policy suffers from the overwhelming
emphasis placed by the Sandinista leadership on ideology over
economic realities. Many managers and professionals have fled
in disillusionment with the present government. CONAPRO, the
Nicaraguan National Association of Professionals, estimates 60
percent of managers and professionals in the country have left
since 1979.
The Sandinistas have emphasized social programs in a
political context where possible, to mobilize the population
and to indoctrinate the people in Marxist ideology. The number
of people included in the social security program has doubled,
although agricultural workers are excluded. Improving general
education has been a primary objective of the Sandinistas,
particularly in rural areas. Large numbers of Cubans have
assisted the government. Through its educational material, the
GON has sought to instill Marxist ideology in the next
generation of Nicaraguans. Many parents who are not
Sandinistas, and the Catholic Church have objected to this
process of 'indoctrinal education'. The Ministry of Education
has total control over the curriculum in both private and
public schools. For example, in church-run schools, the
Ministry of Education does not allow regular class-time to be
allocated to religious training. Moreover, government
officials have recently discussed initiating military training
for those eight years of age and above.
The Sandinistas are also proud of their accomplishments in
health,-whete they have increased significantly the number of
hospital beds and doctors. However, medical care has been
handicapped increasingly by the flight of the country's best
doctors and the severe shortage of foreign exchange to buy
medicine and medical supplies. Consequently, while many
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preventive medicine programs funded largely through United
Nations agencies continue to make progress, other areas of
medicine have declined sharply, with hospital care the hardest
hit.
. Consumer subsidies have been a major expense, equaling
approximately 10 percent of GDP in 1983, and contributing to
shortages and production declines. These subsidies were
reduced in early 1985, but their sudden withdrawal has proven
catastrophic to lower income families squeezed by inadequate
wages.
The most damaging aspect of the Government's effort to
control consumer costs is the low prices it pays producers,
thereby discouraging production. According to Sandinista
officials, 93 percent of basic food items are produced by small
growers'. Given the unreasonably low prices (and they are fined
or jailed if they try to sell their produce privately), these
small producers have basically withdrawn as much as possible
from the market economy. Forced to produce at or below cost,
they have limited production to their own immediate needs.
This has brought about a reduction in the production of corn
and beans, for example, of at least 50 percent. As might be
expected, the shortages resulting from price fixing have led to
hoarding and an active black -- or as some would prefer 'free'
market, -- with prices more clearly reflecting economic
realities. This free market has been fought by the government,
but without much success.
There is a general shortage of consumer items in
Nicaragua. Imports are not available because of the foreign
exchange shortage owing to poor export performance.
Domestically produced goods are hampered by price controls,
shortage of imported inputs, lack of investment, and state
control of retailing and wholesaling operations for many basic
goods.
Price controls and control of distribution started in 1979
and were gradually expanded until the present. The growing
distortions and costliness of subsidy programs and price
controls caused the Sandinistas to make some changes in 1985,
but the structure remains in place. The control mechanism most
widely used is the ration card which is issued by the CDS, i.e.
block committee, which is controlled by the FSLN. Thus
shortages are also converted into a means of political
control. Gasoline is rationed at twenty gallons per month, and
coupons are obtained at state banks. Families can go to the
state-run Enabas commissaries to buy basic goods that are
available every two weeks. Typically, there-is poor quality
sugar, rice, soap, edible oil, pasta, and spaghetti available;
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less frequently available are beans, and eggs; and rarely,
dried milk. Prices of these products, when available, are
usually one-fourth the cost of comparable free market
products. Vegetables such as potatoes, radishes and carrots
which are not controlled by the state are in sufficient supply.
The Sandinistas' interest rate policy is yet another
example of faulty economic decision making. Although inflation
is at about 60 percent, the maximum interest a Nicaraguan can
receive on a time deposit is 25 percent. Regular savings
accounts bear much lower rates. Such severely negative real
interest rates combined with the average Nicaraguan's distrust
of the nationalized banking system have led to a savings rate
of only 1 percent of GDP (1983), by far the lowest in Central
America, which underlines the country's dependence on external
savings and investment.
An overvalued exchange rate has been another damaging
Sandinista economic policy. The GON has allowed the
development of a three-tier exchange market system: an
'official' rate of 10 cordobas to the U.S. dollar for some
exports and most imports; a 'special' rate of 15 Qordobas per
dollar for imports of certain capital goods; and a parallel
rate of 28 cordobas per dollar for other transactions. The GON
has progressively transferred transactions to the parallel rate
as the other rates became more and more overvalued. On
February 8, the GON adjusted the parallel rate to a maximum of
50 cordobas to the dollar; multiple rates up to that amount are
being applied by the Central Bank to various categories of
goods. This increasingly complex and unrealistic exchange rate
policy has contributed to the severe shortage of foreign
exchange. The 'black' market rate of over 500 cordobas per
U.S. dollar current today in Nicaragua may more accurately
reflect the cordoba's true.value. -
ROLE OF THE PRIVATE SECTOR
The Sandinista government has consistently proclaimed that
it wants to maintain a mixed economy. 2 Most confiscations
(2) Victor Tirado Lopez, a member of the FSLN Directorate,
gave the following definition of a mixed economy during a
speech on February 10, 1985, 'A mixed economy is one in which
the state assumes a leading role because free enterprise and
the private sector in themselves do not guarantee the people's
welfare. They must be under the control of the state.
Nicaragua has already experienced the free enterprise system.
It brought us backwardness, misery, dependency, and a
dictatorship.'
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occurred immediately after the revolution. Banks, insurance,
mines, forestry, shipping, export marketing firms, and all of
Somoza's holdings were taken over by the state. Also, numerous
farms, businesses and industries of persons accused of being
Somocistas were confiscated - all without due process. Since
then, take-overs of property, including that of U.S. citizens,
have been numerous but more gradual. The private sector today
barely accounts for just over one half of total means of
production.
However, even where the government does not have actual
ownership, it controls so many aspects of the economy that
private enterprise is severely constrained; the private sector
has considerable difficulty obtaining loans and foreign
exchange. The government-owned banks give preference to the
public sector. For example, in 1983 the public productive
sector received over six times as much credit as the larger
private productive sector. High priority sectors get lower
interest rates. Loans to private commercial enterprises carry.
the highest rates.
Fear of further nationalizations and the belief that the
Sandinistas' Marxist orientation is designed to destroy the
private sector has brought private investment to a virtual halt
throughout the country. Businessmen fear that new onerous
taxes and new regulations will be used to carry out further
confiscations, or so increase the debt burden many private
operations carry, that the government-owned banks and credit
institutions can move in and take them over legally. What
businessmen see is a Marxist economic structure which
eventually drains the private sector of all economic vitality.
If indeed the power to tax is the power to destroy, the
Sandinistas have gone the old adage one better: they have
managed to set controls in such a way as to ensure slow
economic strangulation, particularly of the large export
oriented cotton and coffee growers. Nicaraguan businessmen,
both small and large, today believe that the Sandinista
Government can, by regulation, punish its opponents whenever it
wishes. Consequently, without a return to democratic pluralism
and a respect for private property, there is little likelihood
that the movement toward state control of the economy at all
levels will not continue, despite the resistance of those
fighting for a free market economy.
THE AGRICULTURAL SECTOR
Agricultural reform began with the seizure of Somoza's
land holdings and numerous other farms after the revolution.
The state took over their management and put the former tenant
farmers on a wage system. However, an agrarian reform bill was
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not pa.ssed until July 1981. Under the reform, all idle farms
over 260 hectares were to be nationalized. Over 1,000,000
acres were confiscated and converted to state farms and
cooperatives. This policy was initially popular with the
peasants even though they did not get title to the land they
farm. Today many people regard land confiscation as
politically motivated and a means to punish opponents of the
Sandinistas. The absence of clear title to lands 'given' to
many peasant families has brought the program into question.
According to many observers, most of the best Somoza-held lands
have not been distributed but turned into state farms which
remain appendages of the Sandinista Government, ensuring
control of both the land and the peasants who work it.
Nicaragua has excellent agricultural resources and was a
food exporter until about 1977, but the GON has so discouraged
its farmers with low prices, input shortages and.'land reform'
without titles, along with the new forced resettlement program
in which an estimated 700,000 quintales (one quintal equals 100
pounds) of grain was abandoned when the campesinos were moved,
that the country will be unable to feed itself again this
year.
Food prices were raised sharply last year; in the first
quarter of 1985 prices increased 200-300 percent, but a senior
Sandinista official recently said the country will still have
to beg for foreign food donations to cover rice and corn
shortages. Even the plantain crop will be short. The cotton
crop, one of Nicaragua's important foreign exchange earners, is
20 percent smaller than expected for 1985, and much of the
coffee crop has been lost due to the absence of sufficient
pickers, low prices, and transportation problems. Meat
production is up (because of a 200 percent price increase), but
the total number of cattle being raised is declining. Much of
the meat, moreover, is moving into export channels and is not
appearing in the Nicaraguan marketplace. Meat has become a
thing of the past for virtually all lower income families; many
in the middle class now eat meat only two or three times weekly.
Nicaragua is unlikely to get substantial increases in farm
output until it scraps the so-called state cooperative farms
that weaken incentives and encourages private farming through
fair prices. Even then serious shortages of spare parts,
fertilizers and other off-farm inputs will continue to hamper
production. The GON has recently granted small price increases
to producers, but its original program of forcing producers to
sell to the government at arbitrary prices remains in place.
Without a free market
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economy, something which earlier made Nicaragua the largest
food exporter in Central America, a reversal of this decline
will not occur.
The GON also has made wage control an integral part of its
austerity program to reactivate the economy as well as regiment
workers in the economy. The Ministry.of Labor strictly limits
wage increases and has directed pay raises toward the lowest
salaried employees in order to correct the 'unjust' salary
structure inherited from the Somoza regime. In fact what has
been eliminated is a free market mechanism which rewards
skilled workers and managers. The result appears to be a trend
toward the creation of a mass society at the lower end of the
economic scale, and a flight abroad of qualified workers as
well as ingenious methods within the private sector to attract-
and hold skilled workers by using fringe benefits. The
Ministry claims that its control of wages promotes stability in
the job market while eliminating wasteful competition among
employers for skilled workers. The facts are the opposite..
Inflation has destroyed real wages, forcing many workers to the
brink of destitution and employers to risk legal sanctions in
order to meet under-the-table demands or lose their best
workers.
Seven major labor confederations operate in Nicaragua.
The two largest are linked directly with, and are controlled
by, the FSLN. Three others are Marxist organizations and have
ties to Nicaragua's various Communist parties. Of the two
remaining independent groups, one has a Christian Democratic
orientation and the other is democratically oriented but not
aligned with any political party. The Sandinista labor
organizations maintain a high level of contact with sympathetic
labor organizations abroad, in accordance with the FSLN's
overall strategy of using every possible mechanism to promote
international support for its revolution. The Sandinistas have
offered Nicaragua as the venue for numerous international labor
conferences.
The Sandinistas proclaim that the revolution was fought on
behalf of the workers and peasants, and indeed the GON
initially adopted policies that were heavily biased toward
labor. Laws were enacted to protect workers' jobs and wages,,
and the .government almost invariably sided with the workers in
labor disputes. Sandinistas encouraged workers to denounce
'bourgeois' businessmen who were attempting to decapitalize
their firms and sanctioned plant takeovers by workers. These
policies had the predictable effect of seriously eroding labor
discipline and stimulating a rash of strikes and seizures of
firms by the employees.
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These policies also had the intended result of weakening
the private enterprise sector. After the GON had itself
assumed control over a significant portion of the economy,
however, it frequently suffered from the same type of labor
difficulties, i.e. strikes and temporary takeovers, as did
private sector firms. Finally, the FSLN/GON changed its tack
and initiated new policies focused on production. In September
1981, the GON imposed a state of emergency suspending the
rights and guarantees of Nicaraguans to strike.
In September 1983, the GON established a mandatory
national wage scale for all salaried workers. The plan called
for the creation of a 26-step wage scale, with all occupations
allocated to the steps, from level one for unskilled labor to
level 26 for the most qualified professionals.
Discontent with the GON's labor policies, especially the
wage scale system, prompted in mid-February 1984., the first
major labor strike since the 1981 decree banning such
activities. Some 5,000 field workers at Nicaragua's-largest
sugar operation defied the prohibition on strikes. They seized
the estate's refinery to protest rising prices, frozen wages,
and reduced allotments of rationed items. The Sandinistas
criticized the independent union at the refinery for
instigating the strike, but in fact those participating were
field workers who had decided to disregard the leaders of their
Sandinista aligned union and initiate a spontaneous wildcat
strike. At first, the Labor Ministry resisted the workers'
demands for higher wages, arguing that any wage increase would
be inflationary. In the face of worker solidarity, the
Ministry ultimately backed down and approved pay raises.
The state of emergency has been extended nine times and
currently continues in effect. But, in conjunction with the
commencement of the three month election campaign period, the
GON officially lifted its ban on strikes in early August,
1984. Within three weeks, various unions began to test their
restored right to strike. Sporadic strikes began to break out
in various firms in late August, and on September 3, 720 metal
workers walked off their jobs. Within hours, the Labor
Ministry declared the strike to be illegal and said that there
would be no negotiations while it continued.
The Sandinista press blamed the non-Sandinista-aligned
unions for the flurry of labor disputes. It labelled them
"voices that are linked to the bourgeoisie and imperialism.'
It stated that these 'enemies of the working class' were
striving to foment strikes to distract peoples' attention away
from imperialist aggression.
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Comandante Victor Tirado, the member of the FSLN National
Directorate handling labor matters, asserted that 'in the
current situation, strikes make no sense. They diminish
production and weaken the revolution.' Tirado explained that
'the strike as a weapon, as a political instrument of the
working class, has already passed into history. The GON's
experiment with allowing strikes was thus short-lived, lasting
barely one month. While workers now have the legal right to
strike, a de facto ban remains in effect.
Military costs are another major contributing factor to
Nicaragua's economic woes. Somoza's National Guard never
exceeded 7,500 men until 1978 when efforts were begun, largely
unsuccessfully, to double the size of the Guard. There are now
120,000 armed Nicaraguans and the government is planning
further increases. At the beginning of 1984, official
Nicaraguan sources estimated that 25 percent of the budget went
to the military. President Daniel Ortega has admitted that 40
percent of the 1985 budget is earmarked for defense. Many
observers believe that figure to be much higher if indirect
support costs are included.
According to the Sandinistas, arms procurement is not
costing Nicaragua foreign currency. Weapons suppliers, they
claim, have either donated arms or granted generous credit
terms. Major expenditures for the military are for wages and
supplies such as food and uniforms. Nevertheless, the military
is suffering from shortages of basic supplies.
In addition to the direct costs of maintaining the largest
fighting force in Central America, the opportunity costs are
high. For the past two years, Nicaraguan harvests have
suffered because of manpower shortages. Students and foreign
volunteers have been shipped in to assist with cotton and
coffee harvests to help replace more experienced laborers who
are either now in the army, in hiding or outside the country.
Besides creating costly delays, the use of these inexperienced
pickers damages plants and reduces product quality.
It is difficult to assess how much of the current military
expenditure is due to the war against the freedom fighters.
The greatest majority of those whom the Sandinistas fight today
are former supporters of the FSLN or at least of the broad
goals of the pluralistic revolution. FSLN policies have
converted them into enemies. Even in the first years of the
Sandinista regime, when the freedom fighters were not yet
numerous, the army, militia and reserve were much larger than
under Somoza; obviously internal control was the primary reason
for the buildup.
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With the November 1984 election out of the way, the
Sandinistas are.again turning their attention to economic
problems, which they admit are severe. However, the
Sandinistas have been careful not to raise expectations,
stressing that the fighting is a serious and unavoidable drain
on the economy. They continue to falsely blame their problems
on the regional economic downturn and U.S. aggression.
Thus far the Sandinistas have resisted the economic,
political, and social pressures to open the economy. The
halfway measures of raising some prices to producers will not
succeed, however, in revitalizing the economy. Too many
control mechanisms remain in place for the market to operate
efficiently. Moreover, because of their ideological outlook,
the Sandinistas are unwilling to make basic structural changes,
changes which would undoubtedly benefit the economy, but also
assist their democratic-opposition. They appear to prefer a
deteriorating economy to one in which they would lose control.
Aid from the West will likely continue its downward
trend. The Sandinistas' continuing harassment of the
Democratic opposition seems to have dampened enthusiasm even
among their former supporters in Europe. Aside from political
considerations many countries have shied away from extending
credit lines and loans because of Nicaragua's poor payment
record. With production still declining, there is no realistic
way for the country to pay its foreign debts. Nevertheless,
for political reasons it is expected that the Soviet.Union,
ruby and Eastern European countries, along with countries like
Libya and Iran, will seek to keep the country from collapse
through massive assistance. With oil from the Soviet Union and
huge quantities of goods coming into the port of Corinto from
the Sandinistas' friends, the economy may continue to limp
along, but fundamental problems will remain.
Unless significant changes occur, the next five years look
as bleak as the first five years of Sandinista rule. The
government has called 1985 the decisive year in its battle
against the armed opposition and is devoting its resources to
eradicating them. It continues to blame its economic problems,
including shortages of all kinds, on this struggle. It has
also recently stepped up its campaign of condemning smuggling,
speculation and hoarding, attacking small businessmen and
further inhibiting their operations. The Sandinistas continue
to state publicly that Nicaragua is not becoming another Cuba
and that they want to maintain a mixed economy. A review of
policy trends and the private statements of various Sandinista
leaders suggests, however, that the private sector is headed
for a slow death.
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Rather than resort to wholesale nationalizations, the
Sandinistas will continue to tighten the reins on the'private
sector, starving it of what it needs for existence:
remunerative prices, access to a free market, freedom to buy
and sell, access to foreign currency, and, ultimately, the rule
of law, i.e., a true agreement between those in the private
sector and the Sandinistas which will allow them to exist as
free men in a free society. Without these elements,.elements
which do not exist today in Nicaragua under the Sandinistas,
men and women participating in the private sector will finally
either be driven out or drop out, leaving the government to
step in. Present policies guarantee these results. Even after
the individual tragedies of those who lose everything in their
struggle come to an end, the national tragedy of Nicaragua will
go on.
After playing a key role in the ouster of President Somoza
in 1979, the US Government immediately airlifted food to feed
the thousands of persons displaced by the war. The US
continued to assist the GRN with both financial and food aid
until 1981 when new loans were cut back substantially and
obligations continued on only a few projects. The US sought to
provide some military assistance, mainly training, but was
rebuffed and had the same experience when it offered Peace
Corps volunteers. The US supported the favorable treatment
granted by the commercial banks in their rescheduling agreement
and supported loans in multilateral banks based on stated
commitments to a mixed economy and sound policies.
As the arrogance of the Sandinista leadership and its
complete commitment to Marxism-Leninism and alignment with the
Soviet Bloc became increasingly apparent, US opposition to the
regime grew and was reflected in the 1983 decision to
drastically reduce the sugar quota. Preferential access to the
US market and a high price for sugar were deemed inappropriate
for Nicaragua. Opposition to loans in multilateral development
banks was based on the increasingly poor creditworthiness
record of the Sandinista government.
Numerous uncompensated property expropriation cases
against U.S. citizens have dragged on for over five years.
Despite the legal possibility of taking retaliatory action in
connection with these cases, we did not do so. Nicaragua
continued to benefit from GSP and was included in the list of
countries eligible for 'duty free' treatment under the
Caribbean Basin Initiative (CBI). However, Nicaragua did not
meet the requirements to be designated for the CBI.
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Depressed economic conditions in Nicaragua were, of
course, due to disastrous economic policies adopted by the
Sandinistas and not to any actions by the US. Continued
intransigence by the Nicaraguan government in refusing to take
concrete steps toward a dialogue and other measures leading to
reconciliation caused the US Government to impose an embargo on
trade. with Nicaragua at the end of April 1985. The embargo is
directed at the Sandinista regime, itself responsible for the
increasingly depressed economy, and not directed at the
Nicaraguan people who are the victims of that regime. The
primary cause of expected further economic deterioration will
not be the embargo, but rather the economic and political
policies of control and repression that the Sandinistas
continue to follow.
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PUBLIC SECTOR PRODUCTION AS % OF GDP (Nicaragua)
YEAR
1975-77
12%(average)
1978
13.7%
1979
26.1%
1980
33.6%
1981
37.8%
1982
1983
1984
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PERCENT SHARE OF BANK CREDIT THAT GOES TO PRIVATE SECTOR
(Nicaragua)
1975-77
75% (average)
1978
70%
1979
29.1%
1980
23.3%
1981
40.2%
1982
15%
1983
15.7%
1984
10%
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O
00
NICARAGUA: AVERAGE REAL WAGES*
(Annual percentage change)
1980
1981
1982
1983
1984
Average wages
Private sector
-15.0
1.4
-12.7
-12.6
-11.8
Public sector
***
-10.8
-18.7
-11.5
4.4
*Nominal wages are deflated by the consumer price index.
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CONSUMER PRICE INDEX (Nicaragua)
1975-77
7.4%(average)
1978
4.6%
1979
4.82%
1980
35.3%
1981
23.9%
1982
25%
1983
28%
1984
60%
1985*
*estimate
100%
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FINANCIAL SUPPORT TO GOVERNMENT OF NICARAGUA FROM COMMUNIST
COUNTRIES
YEAR
1979
Total
$2 million
1980
Economic
$30 million
Military
$5 million
1981
Economic
$80 million
Military
$40 million
1982
Economic
$150 million
Military
$90 million
1983
Economic
$240 million
Military
$110 million
1984
Economic
$280 million
Military
$250 million
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US ECONOMIC AND MILITARY ASSISTANCE TO NICARAGUA 1962-1985
YEAR
TOTAL ECON TOTAL MILITARY
1962-78(total)
224.7 25.2
1979
16.7
1980
37.4
1981
59.6
1982
6.2
1983
0.0
1984
0.0
1985
0.0
*indicates amounts less than $100,000
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(Nicaragua)
STATE ENTERPRISES
1. Nicaragua Institute of. Energy
(INDE)
2. Nicaraguan Institute of Water
and Sewage Facilities \(INAA)
3. Nicaraguan Institute of
Insurance (INISER)
4. Nicaraguan Institute of
Fisheries (INPESCA)
5. Nicaraguan Institute of
Mines (INMIEH)
6. Nicaraguan Institute of
Post and Telecommunications
(TELCOR)
7. National Lottery
8. National Petroleum Company
9. Enterprise for marketing
of basic grains
10. National Bus Company (ENABUS)
11. National Railways
Generation of Electric Power.
100 percent of sector
Water and Sewage Services.
100 percent of sector
Created in October 1979 with
the nationalization of all
domestic insurance companies.
100 percent of sector
The institute has a monopoly
over the marketing of fish
and seafoods.
After the revolution, the
institute was given a
monopoly over the exploi-
tation of mines.
Transformed into a public
enterprise in 1971; it
operates the telephone and
telegraph network as well as
the post office service. 100
percent of sector.
This enterprise has beer, made
dependent upon the ministry of
welfare. 100 percent of the
sector.
Commercialization of oil. 100
percent of wholesale market.
It purchases and sells basic
grains and other products of
massive consumption. It acts
in some cases (grains) as a
price regulatory agency.
Public enterprise before the
revolution. 50 percent of the
sector in Managua.
Pub&ic enterprise before the
revolution which mainly serves
the Pacific coast.
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o
12. Foreign Trade Enterprises
A. Five enterprises provide
pre-export financing to producers
which monopolize cotton, coffee,
beef, sugar, and banana exports
in addition to marketing the
different export products.
B. Nicaraguan Enterprise for
Agricultural Inputs (ENIA)
C. Nicaraguan Import
Enterprise (ENIMPORT)
D. Enterprises in the area of
public property
100 percent of the sector.
Imports those products and
sells them domestically to the
to the general public. 100
percent of the sector.
Coordinates the imports of
all State-owned APP (AREA
PROPIEDAD DEL PUEBLO)
Enterprises. 100
percent of the sector.
State ownership in these
enterprises varies from less.
than
50 percent to 100 percent.
The major part of these
enterprises were confiscated
immediately following the
revolution.
13.
People's Industrial Corporation
This is a holding company of
(COIP)
about 100 enterprises grouped
into five branches:
1.
Metal-working
2.
Foodstuffs
3.
Construction
materials
4.
Textile and design
5.
Chemicals, plastics, and
pharmaceuticals. 36 percent
of total manufacturing
production in 1980.
14. People's Commercial
Corporation (CORCOP)
15. Enterprises Dependent on the
Ministry of Agricultural
Development
Textiles, automobiles and auto
parts, appliances, general
services, supermarkets, and
popular stores. 20 percent
of the commerce in basic goods
during 1980.
More than 25 enterprises
producing agricultural inputs
and/or agroindustrial goods;
173 production complexes and
2,200 units of state production
generated by these enterprises.
Was 16 percent in 1980.
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0.0 P
U
16. People's Forestry This corporation produces about
Corporation (CORFOP) 10 percent of total forestry
production.
17. Enterprises in the communications The State's radio corporation,
field the Sandinista TV system (2
stations), the Editorial New
Nicaragua (Book Publishers),
the 'Office of Public
Relations,'and the 'Cultural
corporation".
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Nicaragua: Vulnerability to
Economic Sanctions
12 December 1984
S E C R E T
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Table of Contents
Page
Summary .......................................................... 1
Economic Sanctions and Their Possible Impact ..................... 1
The Export Picture ............................................... 2
Potential Embargo Targets ........................................ 3
Bananas ...................................................... 4
Nicaraguan Reaction ..................................... 5
Market Reaction ......................................... 6
Beef ........ .. ...................................... 7
Nicaraguan Reaction ..................................... 7
Market Reaction .............. 8
Seafood ...................................................... 9
Nicaraguan Reacton ...................................... 10
Market Reaction ......................................... 10
Tobacco ...................................................... 10
Nicaraguan Reaction ..................................... 11
Market Reaction ......................................... 11
Other Sources of Foreign Exchange ................................ 12
The International Financial System ........................... 12
Foreign Aid ................................................. 13
The Import Picture ..................................... ....... 13
Dependence on Imports ............................................ 15
Beyond the Simple Economics ....................................... 17
Some Longer Run Effects .......................................... 18
The Collection Gaps .............................................. 19
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Annexes
A. Economic Sanctions: A Historical Perspective
B. Nicaraguan Exports
C. Prospects for Legal Action by Commercial Banks
D. Nicaragua: Declining Levels of Foreign Assistance
E. Nicaraguan Imports
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Nicaragua: Vulnerability to Economic Sanctions
Summary
Based on a review of the Nicaraguan economy and its trading patterns,
US economic sanctions would likely cost Managua $25 million over the first
12 months of implementation in direct foreign exchange losses and impose
even greater indirect costs in terms of disruptions and dislocations.
While the impact would be unlikely to lead to any fundamental policy
changes it would certainly place a burden on the regime. The projected
loss in foreign exchange, for example, equals about eight-tenths of a
percent of GDP and would directly offset about 10 percent of current
Communist economic aid. On the import side, while Managua has already
begun to diversify away from the United States, disruptions in basic
consumer goods and spare parts for machinery could be expected.
The impact of US sanctions would not be limited simply to the pure
economics. Any US action would almost certainly put additional strain on
an already weak managerial structure. As it is, economic activity and
living standards have deteriorated in Nicaragua--not because of lagging
import capacity, but rather because economic mismanagement and
inappropriate price signals have precluded the efficient use of
resources. This has been compounded by a loss of business confidence,
which has derailed private investment and reduced production efficiency.
If the experiences of past economic sanctions are a guide, the
dislocations Managua would face should decline over time. There are, of,
course, a number of key political and strategic unknowns that could alter
the effectiveness of sanctions against Nicaragua. To the extent that US
allies--either in Latin America or in Europe--proved willing to actively
join Washington's lead, the initial impact of economic measures would be
both more severe and long lived. The prospects for US-West European joint
action, however, are doubtful. Indeed, foreign reaction could work in the
direction of offsetting US actions. Another unknown is how sanctions
might affect the relative position of internal opposition to the
Sandinista regime. If the FDN, for example, responded to US moves by
disrupting key export producing areas and interdicting goods being
smuggled out of the country, their tactical position could be
strengthened. At the same time Sandinista actions to batten down the
hatches could also sharply limit the existing flexibility of the political
opposition.
Economic Sanctions and Their Possible Impact
In assessing the potential impact of economic sanctions, it is
important to understand the probable disruptions to the local
SECRET
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economy--both in simple economic terms as well as from a managerial
standpoint--from actions taken against exports, imports and financial
flows. From a purely economic standpoint this means determining the
cutback in foreign exchange a country will face and analyzing the ability
of the economy to both cut imports and line up new markets. From a
managerial standpoint, this involves assessing, even if in rough terms,
the disruptive effects that could occur from overextending talent already
As far as simple economics are concerned, any nation has four major
sources on which it can draw for hard currency. It can get the money it
needs to pay for imports by:
in short supply.
-- Exporting items to other countries.
-- Lining up new loans from the international financial system.
-- Drawing down foreign exchange holdings.
-- Receiving aid, grants, transfers, and the like from foreign
private and official sources.
The Export Picture
Historically, when sanctions have been introduced, most emphasis has
been placed on the trade side. In general terms, Nicaragua exported
about $390 million in goods in 1984, up some from the $370 million pace of
1982.2 Looking at 1982--the last year for which complete reporting is
1 For a description of how economic sanctions have been used
historically, and how successful they have been, see Annex A., For more
detailed information on Nicaragua's export trade see Annex B.
2 The discussion of exports largely ignores services
Even so, we believe
they are small relative to commodities. Based on a review of what
information we do have, Nicaragua's principal export service to the United
States appears to be transportation via the national airline "Aeronica,"
which has five regularly scheduled flights to Miami each week. No US
carriers provide service to Nicaragua. We have no hard information on
Nicaraguan revenues from the service, but rough calculations suggest that
they are probably on the order of about $10-12 million annually with net
hard currency earnings probably totaling substantially less.
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available--nearly 70 percent of Nicaragua's exports went to the developed
world. The United States' share of the total was 22 percent. The
Communist world, led by Eastern Europe and China, accounted for another 12
percent of Nicaraguan sales, with the Central American economies totaling
Zeroing in on specific commodities, Nicaragua's exports are dominated
by foodstuffs. In 1982, food and food-related materials accounted for
two-thirds of all Managua's foreign sales. As far as the specific items
in this single category are concerned:
an additional 15 percent of Managua's export total.
-- Coffee and cocoa totaled 50 percent of total food-related
exports.
-- Meat, especially beef, and seafoods accounted for another 20
percent.
-- Sugar totaled 12 percent.
-- Fruits, mainly bananas, and vegetables accounted for another 5
percent.
As for the remainder of Nicaragua's exports, raw materials and
manufactured goods--largely chemicals--dominate the picture, accountino
for roughly 20 and 10 percent of total foreign sales, respectively.
Potential Embargo Targets
In the event of a US action against Nicaragua, four exports--bananas,
beef, seafood and tobacco--would likely draw the most attention because
they dominate US-Nicaraguan trade. In general Nicaragua would have five
basic ways to respond to any US-directed cutoff in trade. Specifically,
it could:
-- Simply accept the full loss of net foreign exchange.
-- Try to divert previous US purchases to other hard currency
markets, such as Western Europe.
-- Try to increase its sales to the Soviet bloc, realizing that
payment in hard currency would be far less likely.
-- Ask the Cubans to sell the goods through their sales networks.
-- Sell to middlemen in neighboring countries who, in turn, would
try to sell the items in the United States or elsewhere.
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The exact choice or combination of responses would depend both on existing
market conditions and on the specific good involved.
Bananas
According to trade statistics almost all of Nicaragua's banana export
crop is sold to the United States. As of mid-November 1984, Nicaragua was
exporting an average of. 110,000 boxes of bananas per week to the United
States. All Nicaraguan banana exports are shipped from the port of
Corinto on Nicaragua's west coast to Los Angeles. Although Nicaraguan
bananas represent only 4 percent of total US banana imports, they
constitute 19 percent of the West Coast market.
If Managua continues to maintain its banana sales to the United
States at its current pace, gross revenues from these exports in 1984 will
probably total somewhere around $25 million. Recent US Customs Service
data suggest that Nicaragua will earn $26 million from bananas this
year. that the total banana exports will probably
run somewhere around 4.2 million boxes for the year and be sold at an
average price of rouahlv $5-6 ort earnings in the
same ballpark.
A US ban on Nicaraguan bananas would not, of course, lower Managua's
hard currency by the full amount of the gross revenue loss. To calculate
the loss, hard currency costs--that is the amount of hard currency that
Nicaragua must pay out in the process of raising and selling bananas--must
be subtracted from the final sales price.
e country's hard currency costs are presently running about $4 per box
once freight, transportation, brokerage fees, pesticides, fungicides and
fertilizers are all taken into account. If the information is basically
correct, it implies that the hard currency profit realized by Managua is
somewhere around $1-2 per box, or roughly $4-8 million for 1984 as a
whole.
Nicaragua's banana industry,
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TABLE 1
Nicaraguan Banana Profit Margin Per Box
Hard Currency Production Costs
of which:
$5-6.00
$ 4.00
Freight: $1.40
Container rental, unloading and brokerage fees: $1.00
Fertilizers, fungicides, and pesticides: $1.60
$1-2.00
Nicaraguan Reaction. We do not know how Nicaragua would respond to a
banana embargo. At one extreme
lif the United States ever instituted a ban
against Nicaraguan bananas, the country would stop producing them for
export and grow other vegetable products instead. This is exactly what
Rhodesia did in the late 1960s when, because of UN/UK sanctions, it
shifted out of-tobacco--the country's largest export industry--into corn
and wheat production. indicates
it would make more sense for Managua to let the crop rot in the field
rather than giv a price discount or a additional freight charges to
move the crop. sales to other
nations would require substantially greater transport time and costs and
that Nicaragua's best strategy would be to abandon the crop entirely. F_
Nicaragua has already sold two shipments to western urope, Possibly e
Netherlands, and could switch its current US exports to West European and
Soviet and East European markets to offset revenue losses from a US ban.
the switch in markets could also actually reduce
some of Nicaragua's current costs because the new deals would likely be
handled on a government -to -government basis rather than on consignment and
eliminate the brokerage commission
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Europeans, e elimination o ar currency shipping costs is possible
because most CEMA countries have their own ships. Moreover, West European
shipping costs, now higher than to the United States, could also be
reduced somewhat if Nicaragua successfully negotiated cost-saving
contracts on chartered refrigeration ships, an opportunity greatly
enhanced by the current worldwide glut of ships. It is doubtful, however,
according to the same source, that Nicaragua could successfully circumvent
a US embargo by smuggling bananas into Honduras or Costa Rica because both
countries are major banana exporters in direct competition with .
if bananas were sold to the East
Nicaragua.
While we believe it is unlikely that Managua would simply let the
banana industry die, it is also questionable whether a switch to European
markets would reduce costs substantially. the
transportation costs to Europe would add ar un onto the
total hard currency costs. At the same time, the higher costs would
largely be offset by the higher price bananas command in Europe. A recent
FAO study, for example, found that the landed price of bananas per box in
West Germany, the only market where short-term sales could be readily
made, has been running about a dollar above US levels. At least some of
this difference would probably be negated as Managua found itself
pressured to lower its price in order to make initial marketing inroads.
Elsewhere in Europe, sales would depend on the ability of the Sandanistas
to get a political nod since the market is already allocated amon former
colonies and other traditional purchases.
Market Reaction. We have no information at present on whether West
European or Bloc countries would buy bananas from Nicaragua, or if they
would pay on a hard currency basis. In part, this would prove to be a
political decision based on the circumstances surrounding any US
actions. We do know from historical trends, however, that CEMA countries
typically prefer to barter for agricultural commodities. Moreover, West
Europeans already purchase all bananas produced in the eastern Caribbean
under the Lome Convention.
On balance it seems reasonable to assume a scenario under which:
-- Exports are totally disrupted for three months.
-- In the subsequent three months, inroads are made in West
Germany--the only EC country outside the Lome convention--and
sales return to 10 percent of their previous level.
-- During the second six months, Managua is able to raise banana
sales to a third of their previous level.
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from $3-5.5 million at current export levels.
Under these assumptions the hard currency loss to Nicaragua would range
in the size of the herd.
During the final years of the Somoza regime, beef production in
Nicaragua increased steadily. According to press reports, many cattlemen
were concerned about both the stability of the national currency and the
political future of Nicaragua and maintained high slaughter rates. After
the Sandinista takeover, these high rates continued until, in 1981, the
government instituted controls over slaughter to try to arrest the decline
million.
While most of the economy sagged in 1982, the cattle industry began
to recover. We believe the upward trend in production would have
continued in 1983, were it not for inclement weather. An unusually severe
and prolonged dry season caused pastures to whither, even in the
highlands. When the rains did not arrive in May as expected, the supplies
of supplemental cattle feed began to run out, and cattle became very
thin. This led to a suspension of slaughter and exports during June and
July, according to Nicaraguan data. Although the number of cattle
slaughtered in 1983 was greater than 1982, the average hoof weight was
down considerably. This caused meat production to fall to 85 million
pounds. Export volume was down slightly to 31 million pounds. Because of
lower US beef prices, export earnings fell by more, to $29 million.
During 1984, after the USDA temporary ban on meat imports because of
noncompliance with health regulations, export earnings hit a low of $17
million.
Had the USDA not stopped beef imports from Nicaragua from mid-
February until the end of May this year, Managua would likely have earned
about $22 million--$5 million more than we estimate for 1984. Although we
have no reporting indicating how much of this amount would be net hard
currency earnings, it seems that fixed hard currency costs--at least for
feeding and grazing the cattle--would be minimal. Nicaragua, with its low
population density and abundant pasturelands, is ideally suited for the
cattle industry. Indeed, supplemental feed must only be provided during
the dry season, according to industry experts. We also have no reporting
on transport costs for beef, but according to transportation experts, they
should not be too terribly different from bananas, as both would be
transported in similar refrigerated carriers. Taking into account the
fact that beef has a much higher value per pound than bananas and, hence,
lower transportation costs per dollar of final value, we calculate that
Nicaragua would have paid $1.2 million of the $22 million in earnings to
ship the beef to the United States. Assuming supplemental feeding costs
of about $1 million in hard currency, Nicaragua's net hard currency
earnings from the United States would have been on the order of $20
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Nicaraguan Reaction. We do not know precisely how Nicaragua would
react to a US ban on beef, but, we believe, it is unlikely that it would
simply stop exporting. Diverting meat from the United States to Europe is
the most likely possibility, although transportation costs would be
higher. Regional options also exist. Nicaragua's cattle country is
primarily to the north of Lake Managua and the east of Lake Nicaragua.
Beef could be smuggled north along the Pacific coast into Honduras or
south along the coast into Costa Rica on the Inter-American Highway, as
Honduran and Costa Rican beef is virtually indistinguishable from
Nicaraguan beef.
Nicaraguan beef is already being smuggled into Honduras to
pro i rom a advantageous prices and exchange rates in that country.
Moreover, smuggling of beef was a major source of effective capital flight
While the amount of beef that could be moved by smuggling i s l i k e l y 1ow
relative to the volumes now being exported to the United States, the
option exists for at least some transshipment in this manner.
in the last years of the Somoza regime
Certificates of on in can be easily falsified, as has been shown in the
Middle East where the Arab boycott of Israeli
goods has been evaded by simply labeling Israeli goods as Lebanese and
Concealing the smuggling would be made much easier by the fact the
Nicaragua already ships at least $35 million of its export commodities
each year to its neighbors via the trucking routes. For example, in 1983,
Nicaragua exported, mostly by truck, $16 million worth of goods to Costa
Rica, and $23 million to Mexico, Guatemala, El Salvador, and Honduras.
Many additional millions in regional trade also cross Nicaraguan borders,
and full cooperation from Costa Rican and Honduran authorities--including
a willingness to prosecute their own businessmen--would be required to
stop the transshipment of a substantial share of Nicaraguan exports to the
United States. Even then, the ease of falsifying documents, and the
probable willingness of businessmen in these countries to supply falsified
certificates of origin make it most unlikely that all the trafficking
exporting them via Lebanese territory.
Market Reaction. As in the case of bananas, shipping beef to Europe
would logically be the easiest option, from an economical standpoint, for
Managua to consider. We have no idea how Honduras or Costa Rica would
respond to significantly increased smuggling by the Nicaraguans across
their borders. Even if they were very unhappy, it is unclear whether
Tegucigalpa or San Jose would be able to put a stop to any of the
activity. While smuggling is possible from Managua's standpoint, the
problem would be how much beef on the hoof could effectively be moved, to
say nothing about the added costs of fake documentation and middlemen
could be stopped.
services.
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Taking all of these considerations into account it seems reasonable
to assume that in the case of US actions against Nicaraguan trade we could
have a scenario under which:
-- All the beef which would have been exported to the United
States in the first three months following any US action is
completely halted.
-- In the subsequent three months, a quarter of former US imports
are shipped to Europe, and in the second half of the year this
amount increases to between 40 and 60 percent of former sales.
-- Within three months, an additional 5 percent of the herd is
surreptitiously sold to the United States through middlemen in
the region, but only with Managua paying 30 percent of current
profits to the smugglers.
Moreover, taking into account the additional transportation fees to
Europe, which would probably double these costs, and factoring in the
difference In US/European beef prices--the price in London in late summer,
for example, exceeds that in the United States by 15 percent--the total
hard currency loss would run around $12.5-14.5 million.
Seafood
Shrimp is the most important fisheries product in Nicaragua. Even
so, shrimp production and export volume have deteriorated steadily since
1977, according to standard sources of trade data. The shrimp catch of
1981, for example, was down 43 percent from the 1977 level. Partial
figures for 1982 indicate that the catch deteriorated another 17 percent
that year. In 1983, Nicaragua estimates that production again fell, this
time by 45 percent
he declining shrimp catch is caused by the severe parts
s or e e fleet, which shows no clear signs of being resolved in the
near future. Although export volumes have shown a similar pattern to the
shrimp catch, the value of exports has held up remarkably well because
average prices for exports have risen steadily.
Spiny lobster is the second most important fisheries product in
Nicaragua. Lobster production has followed a pattern very similar to that
of shrimp production. The peak catch of nearly 2.9 million pounds was
achieved in 1978, and has declined every year since then until 1983, when
production rose by about 5 percent. Again, the lack of spare parts and
equipment since the revolution is the principal cause of the poor
performance. Like shrimp, rising prices have somewhat offset the output
declines. Industrial fish production is very minor in Nicaragua and is
primarily for domestic use.
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Based on recent trade statistics, we believe Nicaragua will earn $10
million in gross foreign exchange earnings for seafood this year from the
United States. It is unclear how much of this amount is net hard currency
earnings, but since the initial investment for boats has already been
made, direct ongoing costs should be largely limited to spare parts and
petroleum products. Fixed costs should be minimal. Given that the poor
performance of this sector of the economy in recent years has been
attributed to a lack of spare parts and machinery, the amount of capital
investment probably has been very low. As long as the Soviets are willing
to directly supply oil to Nicaragua, the only major hard currency costs of
marketing seafood abroad would be transport costs and possibly brokerage
fees. Although we have no reporting on what actual transport costs are,
according to transportation experts, the calculations would be similar to
those for bananas and beef because seafood must also be transported in
refrigerated vessels. Assuming no brokerage fees, and making the same
type of transportation assumptions we made for beef, but taking into
account an even higher value Der Dound. Managua would net $9.5 million in
hard currency from seafood.
Nicaraguan Reaction. Like beef, we believe it is unlikely that
Managua would stop exporting seafood. If faced with a US ban, West and
East European markets could provide a partial outlet. Transshipping the
seafood might also be considered, but given the difficulty in keeping it
fresh, the odds of successfully smuggling more than a small amount are
Market Reaction. We have no idea how neighboring states might
respond to seafood smuggling by Nicaragua, or if they would even attempt
to stop it. If, however, we assume that the prospects for smuggling
seafood are half as good as for beef, and that the.European sales outlook
is similar, then the net hard currency loss from seafood would be in the
quite low.
range of $6-7 million.
the balance of leaf exports is unknown. Cigar exports reached 1.8
million--$2 million worth--all of which were exported to the United
States. Cigarette leaf exports in 1983/84 were expected to reach only
Tobacco
Nicaraguan exports of tobacco leaf in the 1982/83 marketing year were
approximately 1.3 million pounds, valued at $4.4 million. Of total leaf
exports, $2.8 million worth--about 65 percent--went to the United States,
with at least part of the balance going to Bulgaria. The destination of
638,000 pounds, valued at $1.5 million.
economic health and its inability to import needed inputs. Cigar export
projections for 1983/84 were not known, although most probably went to the
the decline in production is due to the country's overall poor
United States.
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The United States imported $5 million worth of Nicaraguan tobacco
products in 1984. This figure probably closely represents net hard
currency earnings, as there appears to have been little Nicaraguan
investment in the industry in recent years, and transportation costs for
tobacco and its products, according to industrial publications, are
apparently relatively low. While it overstates the case slightly in the
event of a totally successful US ban, Managua would stand to lose close to
$4-5 million in net foreign exchange earnings.
Nicaraguan Reaction. In our judgment, Nicaragua would probably not
abandon tobacco production should a US embargo be imposed, if only because
domestic consumption is heavy and probably could easily absorb most of the
surplus. Moreover, Bulgaria has recently provided technical assistance to
Managua in planting some 695 hectares of new fields, exclusively for
export to Bulgaria, according to press reports. Bulgaria then, may be a
viable alternative to the United States. Moreover, according to US
Customs, Nicaragua could load the tobacco on ships making interim stops in
Central America or the Caribbean before entering US ports. US customs
agents would probably have a very difficult time distinguishing between
the two varieties. Ships carrying falsely-labeled Nicaraguan products to
interim stops before reaching the United States could probably be fairly
easily detected by their unusual pattern of port calls, but proving in a
court of law that products were actually Nicaraguan could be more
difficult. The option of selling to Cuba and letting Havana handle the
tobacoo through its marketing net is also one that Managua would almost
certainly explore.
- Market Reaction. Barring a ban on Nicaraguan tobacco by a broad
range of countries, continuing export sales seem likely to us. Assuming
middleman and transportation costs wiped out 20 percent of net earnings,
and the initial time required to line up new supplies delayed the sale of
another 20 percent, the loss in foreign exchange would total somewhere
around $1.5-2 million
TABLE 2
Foreign Exchange Losses Due to a US Embargo
Bananas: $ 3-5.5 million
Beef: $12.5-14.5 million
Seafood: $ 6-7 million
Tobacco: $ 1.5-2 million
Total: $23-29 million
S E C R E T
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Other Sources of Foreign Exchange
Manauga's ability to get foreign exchange to import goods is not
simply limited to export earnings. Like any other country, hard currency
funds can, at least in theory, be obtained from the international
financial system and in the form of aid and grants from foreign
individuals and governments.
The International Financial System. In our view, the Sandinista
regime would be hard pressed to come up with much, if any, additional
currency through the international financial system. As it is, Nicaragua
has fallen into arrears on interest payments to commercial banks to the
tune of $170 million Despite numerous
debt reschedulings, Managua has been unable to keep current on its
interest payments, and announced a one-year moratorium in June 1984, which
has been since unilaterally extended to June 1985. Managua agreed to pay
10 percent of the postponed interest obligations and carrying fees in
small quarterly payments but has covered no installments since December
1983. Moreover, Nicaragua has consistently stood up bankers in talks
scheduled to normalize the arrears
Bankers are pessimistic about
receiving their money.' that Sandinista strategy is to ma su an iai eff
those institutions that it believes will offer additional financing--which
at present is negligible. There is also concern that if payments are to
be made the commercial banks will come near the end of the queue. For
example, Henry Ruiz, a Directorate member and Minister of Planning
that hen bills for Soviet oil start
railing aue, they will take first priority.
In our view, not only would Managua find it very difficult to line up
any additional new loans through the banking system, but it would also run
into problems with international organizations. During the last two
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IMF. Moreover, the World Bank has recently declared Managua in default
and suspended further disbursements of funds, according to IBRD reports.
years, Managua has fallen $10 million behind on debt payments to the
We believe Managua would also find it difficult to turn to its
foreign exchange holdings as a source of funds to offset any sizable
export losses. If the statistics Managua gives to the IMF can be trusted,
the country probably has around $130 million in total foreign exchange
holdings. At the same time, according to an IMF report, net foreign
exchange reserves--that is foreign exchange less short-term obligations--
were running in the red by around $450 million in 1983. As far as reserve
holdings in the United States are concerned
si.j million in Dan KS in a united States at the end of June 1984, while
Nicaraguan banks--which the government fully controls--held another $4.6
that the Nicaraguan government had
million. In addition, the government had another $1-2 million in overseas
branches of US banks. In addition to government funds, private Nicaraguan
citizens, as of 30 June 1984, held about $132 million in bank deposits in
the United States.
Foreign Aid. From Managua's standpoint, the foreign aid situation is
a bright pot in Nicaragua's overall financial situation.5 Since 1982,
foreign aid and grants have been a principal source of foreign exchange
for Managua. During 1984, we project that Managua will receive a total of
at least $760 million in official loans and grants--more than twice the
amount earned through exports. More than half of this aid--$470 million--
will come from Communist sources. While the Soviet Union accounted for
the bulk, North Korea, Bulgaria, and Yugoslavia also contributed. Of the
$760 million total, we project Managua will receive $510 million in
loans--of which $100 million will finance military purchases--and $250
million in grants--of which $150 will be used for arms. If hard currency
losses caused by a US export ban totaled the $23-29 million we roughly
calculate, the Soviet bloc could offset this loss only if they were
willing to increase total hard currency aid by about 5 percent or non-
military aid by about 10 percent.
The Import Picture
Assuming the Soviets were unwilling to offset more than a fraction of
Managua's hard currency loss, and the regime did not dip into its foreign
exchange, then the direct loss in imports caused by the export dropoff
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would total about ei ght-tenths of one percent of overall GDP. If
Nicaragua were a typical economy with flexible markets and a responsive
manufacturing sector, the total loss, including direct and indirect costs,
could reach something on the order of 1.5 percent of GDP, assuming no
domestic offsets. In Nicaragua's case, however, the odds are that the
loss would be greater both because of the nature of imports from th
United States and non-economic factors that would be set into play.
As far as imports are concerned, the picture is fairly straight-
forward. During 1982, the most recent year for which we have complete
trade data, Nicaragua imported almost $824 million in total military and
nonmilitary meEchandise, with about $150 million of that coming from the
United States. When compared with earlier years, 1982 trade figures
reflect a shift away from purchases from Managua's traditional trade
partners, the United States and the Central American Common Market (CACM),
and toward imports from Mexico, Europe, and Communist Bloc countries.
Favorable trade agreements with these countries--at a time when most US
export credits to Managua were being cut and CALM countries were
experiencing foreign exchange shortages--have been mostly responsible for
the change in import patterns. By 1982, Mexico had already replaced the
United States as Nicaragua's main trading partner, although the United
States still remains Nicaragua's largest single non-oil supplier. If
anything, we expect that this shift away from the United States and CACM
has continued since 1982.
Focusing on Nicaraguan imports, US trade statistics show that US
sales to Nicaragua will probably run about $120 million this year. This
would represent a 13-percent share compared with 31 percent during 1975-
77. If first-half 1984 trends continue, the main categories of imports
from the United States during 1984 wi 11 be :
-- chemicals, drugs, and fertilizers ($12 million)
-- vegetable oils, eggs, and other foods ($8 million)
-- agricultural and motor vehicle machinery and parts
($7 million), and
-- cereals and soybeans ($6 million).
6 For more information on Nicaragua's import trends, see Annex E.
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US firms will also export some services to Nicaragua. We have no hard
information on their Tagnitude but expect their value to be small compared
to commodity exports.
Assuming that the Nicaraguans were determined to continue purchasing
US commodities, we believe that the government could, albeit with some
delay, difficulty, and expense, arrange for middlemen in neighboring
Central American countries or elsewhere to buy and transship most of
them. The Nicaraguans would certainly receive coaching from the Cubans,
who have over 20 years of experience in avoiding US trade sanctions and
already possess an extensive network of front firms through which they
could purchase goods for Nicaragua. Concealing purchases through cutouts
would be eased because the goods Nicaragua imports from the United States
are commonly traded on international markets, and Nicaragua already
imports some $125 million annually from its Central American neighbors.
Dependence on Imports
As far as Managua's vulnerability in specific import areas is
concerned, we believe industrial and consumer goods top the list. Even
with the Sandinista government's policy shift away from industry--which is
generally pro-Western in outlook--manufacturing reportedly still counts
for a little over 25 percent of GDP, according to Nicaraguan data. Thus,
a successful cutback in imports of vital machinery and spare parts could
in time further cripple industry--already operating at only about 40
percent of capacity--as equipment wears out.
Managua would almost certainly consider expanding purchases with
other countries, although this could result in higher prices.
Other Latin countries,
7 Most US-Nicaragua trade apparently takes place via direct contacts of
US firms with companies in Nicaragua. We know of only one firm in the
United States that acts as a trade broker--the Sandinista-owned World
Commerce Corporation located in Miami. We have no information on its size
or assets, but expect that it is small. Nicaragua also has a trade
representative in New York and another in San Francisco. Closing down the
small offices of the World Ccmmerce Corporation would remove one avenue
the Nicaraguans currently use to purchase US goods both for themselves and
for transshipment to Cuba. We think that such an operation could be
rapidly reestablished in Panama, however albeit at some additional cost
and some temporary disruption of supply.
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such as Brazil and Argentina, could rapidly supply Managua's requirements
for vegetable oils, cereals, and soybeans at little additional cost. From
Argentina, Nicaragua could draw on a line of credit set up last March.
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toothpaste and toilet paper.
While Nicaraguan officials continue to stress publicly the need to
reduce consumer imports, Managua remains dependent on overseas suppliers
for basic items such as drugs, cooking oil, and cereals. A cutoff in
imports of any of these essentials could aggravate general grumbling among
Nicaraguans already frustrated by shortages of such "luxury items" as
produced by several Western countries.
Imports of spare parts and machinery compatible with existing
US-manufactured industrial equipment would present some obstacles. This
certainly was the case for Havana when its trade was sanctioned by the
United States and the OAS, according to historical accounts. In
Nicaragua's case, however, Mexico produces a large quantity of
agricultural and transport equipment similar to the older US-made
equipment being used in Nicaragua. Canoatible oil refinery equipment is
making a potential crop failure even more disappointing.
government has boosted acreage planted in cotton 20 percent this year,
Managua so far has managed to insulate most of the domestic
agricultural sector--which accounts for about 25 percent of GDP--from the
need for Western-supplied inputs, such as fertilizer and irrigation
equipment. The Soviet Union and East Germany supply the regime with
tractors, trucks, and other heavy equipment. A cutoff of chemicals and
fertilizer could, however, hurt Nicaragua's rice and cotton crops. The
Table 3
Type of Import Impact of Cutback
Vegetable Oil, Cereals, Soybeans, Increased consumer shortages;
Drugs longer lines; higher costs to
assure timely delivery from
other suppliers.
Machinery and Parts
Strains on managerial staffs
to search for compatible
materials; lost production due
to additional downtime of US-
made equipment.
Could hurt crop performance--
particularly cotton and rice--
which depend heavily on these
inputs.
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Beyond the Simple Economics
The impact of US sanctions against Managua is not simply limited to
the pure economics of hard.currency loss and import cutbacks. The
Sandinista regime is also vulnerable because of the basic nature of its
political-economic system.
Any US action would most certainly put additional strain on Managua's
managerial pool. Export cutbacks would have to be assessed, alternative
markets located, middlemen sought out, prices and terms arranged, shipping
organized, and delivery and export dates coordinated. At the same time,
foreign loans would have to be sought and the distribution of import
reductions would have to be determined and implemented. While coping with
these direct impacts would be a challenge, dealing with the indirect
effects and feedbacks would only add a new level of complexity to the
situation.
Even without any US action, the Sandinistas are having problems
managing their economic base
Production and living standards have deteriorated--not
mismanagement and inappropriate price signals have precluded the efficient
use of resources. This has been compounded by the loss of business
confidence, which has derailed private investment and reduced production
because of lagging import capacity, but rather because economic
efficiency.
In dealing with the managerial complexity of economic sanctions, we
believe Managua would also run the risk of overreaching, and thus
intensifying problems. If history is any guide, most of the trade losses
from sanctions are front loaded and temporary. Nevertheless, the
Sandinistas would see a sudden dropoff in revenue and could respond by
acting as if the losses were permanent. If Managua did this, we calculate
the import cutback would be far greater than warranted, thus intensifying
Likewise, imposition of US sanctions could intensify the Sandinistas'
siege mentality, with important consequences for the populace and the
anti-Sandinista opposition. If this overreaction were to occur the regime
would probably renew measures to mobilize the population to counter a
perceived US invasion threat and would likely direct more manpower into
the military and militia--further curtailing production. The Sandinista
response could of course be even broader. In the past, the government has
publicly used charges of disinvestment to seize private property and
probably would take advantage of sanctions to accelerate
nationalizations. While this would weaken the position of many private
sector leaders, it would also directly increase the managerial problem
facing the regime. At the same time, we judge that any moves that
weakened the private sector would also have political ramifications. The
problems with spare parts and consumer goods.
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political opposition draws much of its top leadership from the ranks of
private sector professional and technical personnel,
As it is, the political opposition lacks depth, and could be
much weakened if a few key individuals were forced out.
How Managua would deal with a sudden intensification of managerial
problems is an open question. It could simply batten down the hatches and
see the storm through. Alternatively, it could turn to the Cubans, asking
for even more economic advisers to man talent-short economic positions in
the ministries.
Some Longer Run Effects
On balance, we judge that the economic disruptions initially caused
will probably ease with time. If the experience of most other embargoed
countries is any guide, circumventing sanctions will probably get easier
as Managua finds avenues around trade sanctions. Indeed, given the
relatively low level of US-Nicaraguan trade, it is possible that lost US
markets could be replaced within two to three years. As the Sandinistas
continue to redirect the economy away from the United States, they will
need fewer embargoed US goods. Moreover, they should find any problems in
getting spare parts eased as US equipment is replaced with machinery from
other countries. The transition would be smoother if Communist patrons
proved willing to offset at least part of the country's economic losses.
Obviously, sanctions would provide more of a problem for Nicaragua if
US allies--both in Central America and in Europe--joined in. As far as
the Europeans are concerned, we judge the odds of any unified support to
be quite low. Although increasingly disillusioned with the Sandinistas,
most West European countries would have real political difficulty
admitting they had been wrong in their earlier support. France, and
Mexico for that matter, have publicly stated that they believe a rapid
radicalization of the regime would occur if they abandon Nicaragua. In
the face of sanctions, it would not be surprising to see at least some
West European and Latin capitals opt to increase, even if quietly, levels
of trade and aid.
In the short run, joint sanctions by the United States, Honduras and
Costa Rica would greatly compound Managua's problems. If illegal export
routes could be successfully closed, transshipments, and much more
importantly normal bilateral trade, would be curtailed. Over time,
Managua could adjust to this by increasing its efforts to shift more of
its trade to Europe, as well as both to and through Cuba.
If authorities in Honduras and Costa Rica were willing to seriously
enforce trade restrictions, they would find the region's geography working
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gain.
to their advantage. Costa Rica, for example, would really only have to
close down the Inter-American Highway. Because of swampy terrain, Lake
Nicaragua would offer few opportunities. Routing material down the
eastern coast would be logistically difficult and time consuming. The
most likely item that would move down the eastern corridor would be
cattle. Honduras, for its part, would have to monitor the westernmost 100
kilometers of its border. This is the region with the most developed road
network. To the east of this area, smuggling would probably be limited by
insurgent activity. Indeed, any attempt to smuggle cattle or the like
through FDN-controlled areas could only be viewed by the FDN as a windfall
targetting economic activity would also have to be taken into account.
A key unknown in any economic sanctions, of course, is how the Contra
would respond. At a minimum, we believe sanctions would certainly boost
the insurgents' short-term morale. If the FDN turned its attention to
action against cattle ranches, banana areas, and the like, the costs to
Managua could escalate. Attacks against the banana growing regions would,
of course, prove difficult, since most growing takes place in the Corinto
area, far from present insurgent operating areas. Cattle, which are
raised just north of Lake Managua and east of Lake Nicaragua, could prove
more vulnerable, although the insurgents would be hard pressed to sustain
any prolonged activities in the region due to supply problems. From an
FDN standpoint, the likelihood of a backlash against the insurgents for
talent, which would already be stretched thin.
Regardless of potential targets, it is clear that the insurgents'
ability to interdict trade would enhance their threat to the regime. To
the extent the Sandinista regime is unable to control the Contras,
countering any economic sanctions would draw on managerial and technical
19
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Land Utilization
and Vegetation
Cultivated area-tree crops; primarily coffee
Cultivated area-field crops; largely intermixed
with pasture, brush, or forest
Dense woodland; mostly broadleaf evergreen
with some pine
Open woodland; mostly deciduous with some
evergreen
Savanna; grassland with scattered cultivated
plots and forest
Marsh and swamps
This particular map is unclassified.
INDUSTRY
Food processing
Beverages
Textiles and clothing
Chemical products
Metal products
Leather products
Petroleum refining
Fishing
Crude oil pipeline
Coffee
Cotton
Q Sugarcane
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 Insurgent Activity
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..' El ;.y ..
Salvador
a... ? d
TEGUCIGALPA,
.ago do`
Managua
Lago de
Nicaragua
Nicaraguan Unity foe Reconciliation (UNIR)
Democratic Revolutionary Alliance (ARDE)?
? Sandino Revolutionary Front-FRS
Eden Pastora
r!n
Nicaraguan Democratic Force (FDN)
Adolfo Calero
Misura Revolutionary Front
Steadman Fagoth
Democratic Revolutionary Alliance-ARDE?
Alfonso Robelo
Both Robelo's and Pastora's groups claim
the name of ARDE. Robelo's faction has joined
UNIR while Pastors's faction has only agreed to
coordinate activities with UNIR.
Costa .Rica-
?r Boundary r.p-entat.on b
not necesuriry tuteordetive
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Economic Sanctions: A Historical Perspective
Economic sanctions have often been turned to as a political tool in
the diplomatic arena. From a broad perspective sanctions have
traditionally been pursued to achieve one of three specific goals:
-- Forcing a major change in a country's behavior or causing a change
in leadership.
-- Inflicting economic punishment for pursuing a given policy.
-- Signaling clear disapproval of another country's conduct.
In general terms, recent history has shown that most nations opted for
sanctions initially in an attempt to change an adversary's policies.
Indeed, in a recent DI study, it was found that this was a stated
objective in 9 of 13 major incidents of sanctions since 1935.* While
governments have generally followed this ,most extreme option, it has at
the same time proved the most fruitless.
If economic sanctions are to affect policy, they must have an impact
on the country being targeted. From an economic standpoint, the impact
can range from minor inconveniences to major economic dislocations. The
degree of economic cost itself will be affected by:
-- The access that exists to alternative sources of supplies or
markets.
-- The ability of the sponsoring country to enforce the sanctions.
-- The ability a country has to adjust internally.
In almost all cases sanctioned countries were able to secure
alternative sources, supplies or markets for their exports. In this
regard, two key studies in which the United States was involved are
particularly enlightening:
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-- When the United States imposed sanctions on Iran in 1979/1980,
Tehran was heavily dependent not only on imports, but also on
goods from the United States. Iran relied on imports to meet most
of its requirements for capital goods, industrial raw materials,
military equipment, and consumer goods. Despite this dependence,
Tehran managed to find alternative sources--albeit at a higher
cost. Increased food shipments from France, Germany and Australia
more than made up the loss in US foodstuffs. Several Western
European, Japanese and even US firms traded embargoed goods
through intermediaries in the UAE and Kuwait. Supplier
arrangements covered a wide range of industrial goods, capital
equipment, and chemicals, all of which were sanctioned. US
involvement included the sale of goods such as engine parts,
tires, appliances and drill rigs.
-- When the Soviets. invaded Afghanistan in 1980, the United States,
in consultation with most of its allies, agreed to impose a
partial grain embargo. As far as the allies were concerned each
was mindful not to take a major stance on sanctions tougher than
its neighbors did. Concerning grain, Moscow was able to line up
all the grain its ports could handle in the 1980-81 period despite
the embargo. The soybeans and soybean meal denied by the United
States was fully replaced by Argentina and firms in Western
Europe. In fact, EC, Canadian, and Australian grain exports to
the USSR all increased in 1980 compared with 1979.
Such an outcome is not simply limited to these two case studies. In
almost all recent sanction situations, alternative sources have been
found, if nothing else than from opportunistic middlemen and suppliers.
For example:
-- When the United States imposed trade sanctions against Uganda in
1979 one-third of Kampala's trade was with the US. Uganda
actively sought out new customers for their coffee and other
products as they saw the sanctions coming. Official data shows
they were quite successful--export receipts during the embargo
were little changed from their level before the embargo was
imposed.
-- When the French suspended their liftings of Algerian oil in 1971,
Paris quickly found that US and British firms filled the
exploration gap. Moreover, Sonatrach--the Algerian oil company--
emerged from the embargo as the tenth most important oil producing
company in the world
The fact that commerical considerations often compromise cohesion
among allies in any prolonged sanction endeavor only makes the trade
barriers that are put up all that more porous. Nations subjected to
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 C F r R F T
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embargoes are also able to adapt to cutbacks in critical goods by
adjusting internally. Increased self-sufficiency and a shift away from
embargo items are the norm rather than the exception.
Focusing on two pertinent case studies--US/OAS sanctions against Cuba
and UK/UN sanctions against Rhodesia--underscore the problems that are
involved with sanctions.
The Cuban Experience. In 1960 the United States took largely
unilateral actions against Cuba--American and British refineries refused
to process Soviet crude, sugar imports were stopped, and US technicians
and specialists were pulled out Cuba. In 1962 the screws were
tightened. The US imposed a total prohibition on imports from Cuba, and
exports to Cuba were banned, except for foodstuffs and medically-related
goods. In July 1964 the Organization of American States (OAS) voted to
follow the US lead by asking members to sever diplomatic and commerical
relations with Havana. In addition, all air and sea services to and from
Cuba were suspended and passport restrictions were imposed. Most OAS
members adopted the measures, though they were not enforced rigorously by
all.
Cuba, in response, turned to the Soviet bloc for a trade outlet. By
1965 the East accounted for 76 percent of Cuban trade--up from less than 3
percent in 1957. This rapid shift, of course, was not without cost.
Probably the single most damaging effect was Havana's inability to obtain
needed spare parts for US-produced equipment. Other problems arose from a
lack of complementarily between Cuban import needs and bloc export
potential.
Over time the enforcement of the sanctions became increasingly
difficult. Not only did OAS members' resolve decline but the costs to
Cuba fell. Cuba's capital base shifted to Soviet, East and West European,
and Japanese equipment and machinery. Consumer goods were being produced
locally and Havana had opened front companies which enabled it to obtain
any needed US products. The political results were also far from what was
originally desired. As the impact of sanctions diminished because of
Soviet help, the Cubans became more of a irritant to the United States
because of their efforts to export revolution and act as Moscow's
surrogate in Africa.
All of these changes, coupled with a shifting political climate, made
it apparent by the mid-1970s that Cuban isolation was no longer
possible. In August 1975 the OAS passed a resolution that allowed each
member to determine the nature of its relations with Cuba. The US voted
in favor of the resolution.
The Rhodesia Experience. The Rhodesia experience is not terribly
dissimilar ram that of Cu a. Both nations turned to patron states--the
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USSR for Cuba and South Africa for Rhodesia--when faced with sanctions.
Unlike the Cubans however Rhodesia had an advantage of multiple borders,
albeit mainly with black neighboring states
After the Ian Smith government unilaterally declared independence in
November 1965, Prime Minister Wilson of the UK imposed economic sanctions
against Rhodesia that banned arms and capital, as well as sugar and
tobacco which together accounted for two-thirds of Rhodesia's exports to
the United Kingdom. The British imposed a second set of sanctions in
December 1965 which, among other things, cut off several minerals (copper,
chrome, asbetos) and foodstuffs (corn and beef), as well as petroleum and
petroleum products. The UN followed suit with sanctions in December 1966
and May 1968 which banned all imports from Rhodesia and all export to the
country save medical and educational supplies. The UN resolutions--232
and 235--included reminders that a failure to comply with the sanctions
would constitute a violation of a member's obligation under the UN
charter. Moreover a Security Council committee war, Pctah1ichad to gather
In many respects Rhodesia appeared to represent a near ideal target
for sanctions:
Exports were concentrated in a small number of primary products--
tobacco, sugar, and a few minerals--and only three markets--the
United Kingdom, Zambia, and South Africa.
Imports were concentrated in one product area--machinery and
transport equipment--and were purchased largely from two
countries--the United Kingdom and South Africa.
Overall foreign trade accounted for a sizeable portion of Rhodesia
GNP.
-- The British economy was not critically dependent either on
supplies of raw materials from Rhodesia or on a Rhodesian market.
Despite these advantages the sanctions quickly turned into shambles.
South Africa continued to trade with Rhodesia and provided critical
imports such as oil. We estimate that two-thirds of the goods moving
between Rhodesia and South Africa ended up in world markets with false
documentation. Other African countries also broached the embargo.
-- Disguised trade channels similar to those through South Africa
were available to Rhodesia from Portuguese Mozambique until its
independence in mid-1975.
Zambia--Rhodesia's largest 1965 export market--continued to trade
with Rhodesia and to use its transport facilities until 1973.
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Then in 1978, after a five-year hiatus, transportation bottlenecks
on the alternative Benguela and Tazara railroads forced Zambia to
resume transshipments via Rhodesia. This probably enabled some
Rhodesian goods--particularly white corn, light manufactures, and
coal--to find their way to Zambian markets.
-- Other black African nations--Botswana, Malawi, and
Zaire--maintained economic relations with Salsbury in spite of UN
sanctions.
On the export side, only agricultural sales suffered badly during the
sanctions. The embargo crippled .tobacco sales, Rhodesia's single largest
foreign exchange item. This was because tobacco was too easily traced to
the source and could not, therefore, be passed through foreign middlemen
to the world market. The sharp decline in tobacco earnings, as well as a
need to reduce dependence on imported foods, caused the government to
From an aggregate standpoint, the impact on the Rhodesian economy was
far from what the British had originally anticipated. Import substitution
flourished. Manufacturing replaced agriculture as the leading sector of
the economy. Total domestic investment climbed from 13 percent of GDP in
1964 to 20 percent of overall economic activity the first half of the
1970s. Overall GDP from 1965 to 1974 registered a healthy 6.5 percent
average annual growth rate. As it turned out, Rhodesia was, in effect, so
encourage growers to switch to corn and wheat production.
successful at internal adjustments that the sanctions left the country
with a much stronger economy than before the sanctions.
While the Cuban and Rhodesian case studies point out the problems of
successfully imposing economic sanctions, this is not to say that
successes have not been achieved. There is at least one major case where
sanctions were imposed with the goal of changing the leadership of a
regime--the Dominican Republic in 1961 and 1962--proved successful. There
are also a number of cases where sanctions designed to inflict economic
As far as the Dominican case is concerned in 1961 the OAS initiated
sanctions against the island because of its aggression against
Venezuela. OAS members voted to break diplomatic relations as well as
suspend trade in arms and military materiel. These sanctions were later
expanded to include petroleum, petroleum products, trucks, spare parts,
and other commodities. Moreover, in addition to joining the OAS
sanctions, the United States unilaterally cut back its import quota of
punishment or underscore displeasure also proved successful.
The sanctions hit the Dominican economy when already sagging economic
performance was hampering adjustment and the Trujillo regime had turned
its attention to survival. The Dominican's were able to circumvent- some
Dominican sugar.
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J L V 1\ L 1
resistance would have followed the same course without OAS/US action
if they play a critical role in building local opposition or whether the
The economic deterioration fostered political unrest in the middle
and upper classes, the army and the church. The regime responded with
increased repression and terror. An underground grew rapidly, and in May
1961 Trujillo was assasinated. By the end of the year his regime was
toppled and the Trujillo family fled the country. Whether the sanctions
were a key is, of course, an open question. It is impossible to determine
percent in nominal terms.
of the sanctions by purchasing arms, vehicles, and petroleum--though at a
higher cost--from Canada, Western Europe, and the Middle East. Trujillo
also managed to ship coffee to the United States disguised in Colombian
bags, and he planned to build a Dominican refinery with French and US
contractors. Even so, the sanctions clearly worsened the economic crisis
as export earnings in 1961 were cut 21 percent and imports fell another 20
In a number of cases, sanctions were introduced, in effect, to
underscore displeasure or inflict economic cost. For example:
-- EC sanctions on Argentina were primarily intended to symbolize
disapproval of Argentina's invasion of the Falklands and the
European Comm unity's solidarity with the British.
-- The Arab League boycott of Israeli serves as a sign of opposition
to Tel Aviv and as a propoganda device.
-- Over time, sanctions against Cuba were seen as a way to punish
Havana and Moscow by making them pay a heavy economic price for
their alliance.
In our judgment sanctions that either punish or symbolize disapproval
have been employed in recent years for two basic reasons:
-- Countries recognize that economic sanctions are unlikely to cause
sufficient distress to change the conduct of the major powers, and
even poor states are usually able to mitigate or withstand their
impact.
-- Mass communications and diplomacy conducted at international
forums have placed a greater premium on adherence to universal
norms of conduct. Sanctions may symbolize a country's compliance
with these norms and highlight the deviation of another.
While the individual cases of economic sanctions are diverse and full
of pecularities, a review of their planning and implementation points out
one key lesson--to be successful, the impact of the actions must be
consistent with the objective being sought. In essence, then, the
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four elements.
policymaking review must potentially consider:
-- The kinds of items to be withheld or markets to be boycotted.
-- The need and desire for multilateral sponsorship and the
willingness of other states to participate.
-- The economic and political effects of sanctions on the offending
country.
-- The degree of the target country's commitment to the action that
triggered the sanctions.
Which of these elements must actually be considered depends heavily on the
precise goals of the sanctions. If the objective is to demonstrate
disapproval, only the first two are pertinent; punishment, in addition to
the first two elements, requires assessment of the economic impact, while
an attempt to change a country's behavior requires consideration of all
sponsor.
While such a view is conceptually simple, in reality it proves
extremely complex. Even the most careful planning process is unlikely to
take fully into account all of the political and economic dynamics
associated with the use of economic sanctions. If nothing else, the case
studies of sanctions revealed that miscalculation, misunderstanding, or
failure to take all of the key elements into account have caused sanctions
to fail, sometimes with serious adverse economic consequences for their
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ANNEX B
Nicaraguan Exports
Table 1
Nicara
guan Exports to the World, 1982
Value ($ million) % of Total
370.0 100.0
Top Ten Partners
299.0 79.1
US
82.0 22.0
West Germany
52.0 14.0
Japan
43.0 11.0
Costa Rica
25.0 7.0
China
20.0 5.0
France
19.0 5.0
Netherlands
16.0 4.0
Guatemala
14.0 3.7
Mexico
14.0 3.7
Spain
14.0 3.7
Nica
raguan Exports to the World, 1975-77
Value ($ million) % of T
otal
514.3 10
0.0
Top Ten Partners
428.1 8
3.1
US
140.0 2
7.2
Japan
63.0 1
2.2
W. Germany
57.3 1
1.1
Costa Rica
43.0
8.4
Guatemala
29.3
5.7
E l Salvador
27.6
5.4
Netherlands
21.0
4.0
Belgium-Luxembourg
20.6
4.0
Honduras-Belize
15.0
2.9
Hong Kong
11.3
2.2
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Table 2
Nicaraguan Exports to the United States, 1982
Commodity
Value ($ million) % of Total E
xports
Meat
31.0 37.0
Fish
16.0 19.5
Sugar
13.0 15.8
Fruit
10.0 12.2
Tobacco
5.0 6.1
Processed Food
4.0 4.8
Coffee
3.0 3.6
Soybeans
1.0 1.2
Vegetables
Less than 1 Less
than 1.0
Chemical Elements
Less than 1 Less
than 1.0
Nicaraguan Exports to the United States, 1975-77
Commodity
Value ($ million)
% of Average Total
Su gar
39.3
28
Me at
32.6
23.3
Coffee
21
15
Fish
20.3
14.5
Tobacco
5.6
4
Fruit
5
3.6
Non-Ferrous Ore
3
2.1
Clothing
2
1.4
Fabrics
1.3
Less
than 1.0
Cotton
1.3
Less
than 1.0
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Table 3
Nicaragua Exports to the World by Commodity Group
Foodstuff Exports, 1982
Value ($ million) % of Total
247.0 100.0
Top Ten Partners
212.0 85.6
US 82.0 33.2
West Germany 46.0 18.6
Netherlands 16.0 6.4
Mexico 14.0 5.7
Spain 14.0 5.7
France 11.0 4.4
USSR 8.0 3.2
Costa Rica 8.0 3.2
Italy 7.0 2.8
Guatemala 6.0 2.4
Top Ten Partners
Foodstuff Exports, 1975-77
Value ($ million) % of Average Total
280.3 100
254.3 90.4
US 127.6 45.5
West Germany 47.3 16.8
Belgium-Luxembourg 19.0 6.7
Netherlands 18.6 6.6
Costa Rica 17.6 6.3
Japan 6.6 2.3
Guatemala 6.0 2.1
France 4 1.4
Italy 4 1.4
Mexico 3.6 1.3
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Top Ten Partners
Costa Rica
Guatemala
El Salvador
Honduras -Belize
Panama
Cuba
Japan
US
West Germany
Netherl ands
Table 3 (continued)
Manufactures Exports, 1982
Value ($ million)
15.0
6.0
4.0
3.0
1.0
1.0
less
than
1
less
than
1
less than
1
less than
1
% of Total
100.0
100.1
50.0
20.0
13.0
10.0
3.3
3.3
less than 1.0
less than 1.0
less than 1.0
less than 1.0
Manufactures Exports, 1975-77
Value ($ million) % of
Av
erage Tota
l
World
82.5
Top Ten Partners
Guatemala
22.3
26.1
Costa Rica
22.0
25.8
El Salvador
21.6
25.3
Honduras -Belize
9.6
11.2
US
6.3
7.3
Venezuela
0.3
less than
1.0
Canada
0.2
less than
1.0
Panama
0.2
less than
1.0
Mexico
less
than 0.1
less than
1.0
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Table 3 (continued)
Fuels Exports, 1982
Value ($ million)
% of Total
4.95
100.0
Top Ten Partners
4.92
Costa Rica
1.88
38.0
Guatemala
1.71
34.5
El Salvador
0.79
16.0
Netherlands
0.19
3.8
Honduras-Belize
0.18
3.6
Cuba
0.13
2.6
Panama
0.04
less than
1
Mexico
less than 0.01
less than
1
US
less than 0.01
less than
1
Fuels Exports, 1975-77
Value ($ million)
%- of Total
1.56
Top Ten Partners
1.56
Costa Rica
1.21
77.0
Honduras -Belize
0.174
11.1
El Salvador
0.09
5.7
Guatemala
0.06
3.8
US
0.02
1.3
Panama
less than 0.01
less than
1.0
Finland
less than 0.01
less than
1.0
France
less than 0.01
less than
1.0
Greece
less than 0.01
less than
1.0
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Top Ten Partners
Japan
China
France
Taiwan
West Germany
Belgium-L uxem bour g
Honduras-Belize
Italy
Guatemala
Table 3 (continued)
Raw Materials Exports, 1982
Value ($ million)
38.1
19.5
8.1
7.5
6.5
3.0
1.5
0.9
0.6
% of Total
100.0
96.6
43.3
22.1
9.2
8.5
7.4
3.4
1.7
1.0
less than 1.0
Raw Materials Exports
Value ($ million) % of A
ve
rage Total
146.8
Top Ten Partners
121.4
82.3
Japan
56.3
38.3
Taiwan
11.8
8.0
Hong Kong
10.9
7.4
West Germany
9.5
6.5
China (P RC)
8.2
5.5
Italy
6.4
4.3
US
6.3
4.2
Spain
5.9
4.0
Thailand
3.5
2.4
India
2.6
1.7
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delivery to the Atlantic coast. Currently, the only way to supply that
coast is by loading f u ' ping it via the Panama Canal
to the Atlantic ports.] 7
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Attaching Nicaraguan merchant ships would be more difficult because
they make no regular calls at US ports. If they were to be seized in a
third country's ports, cooperation from the local government would be
required. Loss of these small freighters would hamper the offloading of
ocean-going vessels on the Atlantic coast. Currently, ocean-going ships
must transfer their cargo to the Nicaraguan ships, which are small enough
to enter the ports. Loss of their one tanker would also impede fuel
already provided by foreign airlines.
The options most costly to Nicaragua would probably be seizure of
deposits and attachment of their planes. The Nicaraguan Government and
bank deposits only totaled roughly $8 million at the end of June.
Attaching Aeronica's jets would reap the banks little money, in view of
their poor condition. One could be seized while it was on a Miami runway,
but after that the Nicaraguans would probably avoid landing in the US.
This would make it substantially more difficult and more costly for
Nicaragua to maintain passenger and cargo traffic with the United
States. If services to and from the US were taken over by another
airline, it would cost the Nicaraguans more in hard currency than running
their in airline does. Direct service from Europe and Latin America is
bans currently offering trade financing and letters of credit to
Nicaragua joined in a united effort against Nicaragua, its trade with
Europe would be unaffected. (A large share of Nicaraguan coffee and
cotton exports are sold to Western Europe.) We expect that Deutsche Sud-
Amerikanische Bank and Banque Suisse would probably join the race for
Nicaraguan assets should another bank initiate action. The choice would
pose something of a dilemma for the government-owned Banque Nationale de
Paris, which would be confronted with the likelihood of losing any claims
it has on Nicaraguan assets. However, we judge that in the event US banks
decided to seize Nicaraguan assets, Banque Nationale, and possibly other
French banks would be directed by President Mitterrand's government to
continue offering normal trade financing and other services to Managua.
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Nicaragua: Declining Levels of Foreign Assistance
While total foreign financial assistance to Nicaragua has continued
to grow for a number of years, the level of aid from non-Communist
countries has begun to decline. With a few exceptions, we believe that
most developed and Latin nations will continue to scale back financing as
their government leaders becomes more pessimistic about their ability to
buy political moderation in Managua. Although Soviet and East European
support is expanding substantially we do not believe that it will fully
compensate for the loss of Western funds.
Latin Support Tumbles
Financing from Latin America has fallen dramatically this year,
largely due to concern among leaders in the region about the regime's
repressive policies and its closer ties with Cuba and Eastern Europe.
Their domestic financial crises also incline Latin leaders to take a
harder look. We expect Latin American economic support to reach $148-158
million this year, compared to about $220 million in 1983. We project a
further decline in the total again next year.
Mexico, Nicaragua's largest Latin donor since the 1979 revolution,
has slashed its aid from about $150 million in 1983 to at most $90 million
this year. We believe President de la Madrid's cutback was prompted in
part by a willingness to respond to bottom-line US concerns, in part by
Mexico's own financial problems, and in part by his own dissatisfaction
with the direction of the Nicaraguan revolution. The primary vehicle for
the cutback has been the decrease in Mexican oil shipments, which until
this year had been supplied on credits that neither side anticipated would
ever be repaid. We expect that Mexican oil shipments this year will reach
at most $80 million, down from roughly $130 million last year.
Financing from Venezuela and Brazil, which were substantial donors in
the early years of Sandinista rule, fell to about $10 million apiece in
1983 and will drop again to roughly $5 million each this year.
Nicaragua's credit lines with Brazil are now exhausted and will unlikely
be renewed.
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Argentina is the only Latin American nation to have substantially
increased its credits this year, and that also seems likely to be cut back
after November. President Alfonsin, arguing that economic leverage might
induce the Sandinistas to open the political process, agreed in March to a
$45 million line of credit. Argentine aid had previously been limited to
a credit line extended in appreciation for Nicaragua's support during the
1982 Falklands war for the year as a whole we expect Nicaragua to draw on
this credit line for about $25 million. We believe that Buenos Aires
expects some political liberalization for its money, however. Should the
regime adopt more repressive tactics on civil liberties and political
opposition after the November elections Alfonsin in turn would probably
discreetly scale down disbursements under the current credit and take a
harder stance in the future.
Slowdown from the West
Economic support from the West has probably also reached its peak,
but will decline more slowly than has Latin financing. We estimate that
assistance from Western industrial nations will total $84 million this
year, down about $4-19 million from 1983, and that it will decline again
next year.
Few leaders of Western industrial nations remain persuaded that their
assistance can be used as leverage to induce the Sandinistas to adopt a
different political course, and the regime's repeated failure to fulfill
its promises regarding domestic liberalization is prompting several
European countries to scale down their economic support. For some
leaders, however, continuing financial gestures to the Sandinistas will
remain a relatively cheap way to shore up their support from the left at a
time when they are struggling to implement more important policies--such
as austerity in France or NATO membership and US base rights in Spain--
that face heavy leftist opposition.
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Spain has been one of Nicaragua's most consistent financial
supporters, disbursing by our estimates, some $10-20 million in supplier
credits and humanitarian aid every year since the 1979 revolution. Madrid
also rescheduled Managua's $62 million bilateral debt in early 1981 on
fairly easy terms, and forgave $2.3 million in overdue interest, according
to the US Embassy in Managua. Madrid's current program--a $45 million,
3-year line of supplier credits--will expire in 1986. Nicaragua has been
trying to negotiate a second, $5 million line from Madrid
We doubt that Madrid will grant the additional credits soon or be
willing to renew the $45 million package after the current one expires.
Since it was announced in mid-1983, we believe that Prime Minister
Gonzalez has become increasingly disillusioned about the nature of
Sandinista rule. Moreover, we believe that Gonzalez--like Argentina's
Alfonsin--might discreetly slow the pace of disbursements should there be
a return to substantially tougher domestic policies after the Nicaraguan
elections. Thus, we project that Spanish financing in 1984 will probably
reach-$8-10 million. in contrast to an estimated $15-20 million last
year.
We expect French support, by contrast, to remain at roughly constant
or only slightly lower levels next year. We estimate French assistance at
$18-22 million in both 1983 and 1984. Should plans for a new geothermal
project go forward next year, Paris would lend $9 million toward its cost,
and probably provide some $10 million in other assistance. We believe
that emerging French concern over Nicaragua's political direction,
however, will at a minimum preclude Paris from significantly increasing
its financing, and perhaps induce a gradual decline
France is the only West European power to have granted military
assistance since the revolution--$16 million in a mix of credits and
grants in 1981. There is almost no prospect that more such aid will be
forthcoming.
Aid from other Western nations will remain roughly constant this
year. $8 million in Austrian aid in 1983 will probably not be repeated
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this year. Canadian assistance may total $13 million, roughly double 1983
levels, but almost half the money is to go for a water purification
project which does nothing to ease Managua's most pressi bless of
paying for consumer and industrial imports.
Declining Multilateral Aid
Prospects of substantial funding from multilateral sources are
becoming increasingly poor. Nicaragua is currently some $10 million in
arrears to the International Monetary Fund, which this summer cut off
Nicaragua's access to Fund resources until the books are cleared of
arrearages. Similarly, Managua's roughly $6 million arrearages to the
World Bank recently prompted Bank management to declare Nicaragua in
default--the first such country in Bank history
Bank rules specify that no disbursements can be made to
countries in default. Bank president Clausen also reportedly intends to
warn the Nicaraguans that they must also clear up their IMF arrearages
before regaining good standing with the Bank. In the year ended June 30,
1983, the Bank disbursed about $16 million to Nicaragua, and we believe
that roughly $3 million in currently-approved Bank lending is being held
up by the default. Disbursements from the Inter-American Development Bank
will probably total some $20 million in the year ending June 30, 1985,
down from the previous year's $33 million
The Soviet Response
We expect total Communist financing to reach $470 million this year,
compared to $270 million in 1983. Moscow and its Communist allies have
increased their support substantially this year, in part to help
compensate for the decline from other sources. The most important example
is Moscow's decision to make up entirely for the decline in Mexican oil
deliveries. We estimate that Soviet oil deliveries kill total some $85
million this year, up from just $2 million in 1983. In a marked departure
from usual Soviet policy, we believe that Moscow is requiring little or no
immediate payment for the petroleum. It seems most unlikely that Managua
will repay any substantial part of its debts to the USSR over the next
several years. We expect disbursements of non-oil economic assistance
from the Communist countries to reach some $135 million this year, down
slightly from about $165 million in 1983. This aid is mainly supplier
credits for manufactured goods, but also includes substantial technical
assistance and some donations of foodstuffs and fertilizers. In addition,
we have noted a few instances of actual loans or donations of hard
currency from Cuba, but believe that these remain relatively small. We
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estimate that financial assistance for military purchases will reach $250
quality of technical assistance also appears to be inferior.
assistance. A shipment of Soviet aviation fuel, for instance, was
reported by several sources to be of such poor quality that it was
damaging airplane engines. A wide variety of sources have reported
persistent problems with the quality of Communist-origin goods. The
In general, however, Communist help is a poor substitute for Western
future.
Uncertain Support From the Middle East
Although three Middle Eastern nations have provided some economic
support in the past, we do not believe that any of them will be reliable
partners in the future. In 1983, Algeria agreed to pay preferential
prices for Nicaraguan sugar after the United States slashed Managua's
sugar quota, an arrangement that should have netted the Nicaraguans
roughly $14 million. Reporting from a variety of sources, however,
indicates that the deal has not been as remunerative as Managua expected,
and we doubt that Algeria will provide substantial new aid in the
payment from Managua until 1985 and 1986.
In both 1982 and 1983, Iran lent Nicaragua roughly $27 million by
allowing Nicaragua to resell a tankerload of Iranian crude and deferring
Iran has been very late in paying for some of its imports
on much if any additional money from Tripoli
from Nicaragua and the prospect of another oil loan next year is uncertain
at best. In 1981 Libya lent Managua $100
million and since then may have contributed additional money for
construction of a new sugar mill. Qadhafi's record in keeping promises of
financial aid is poor, however, and we doubt that the regime is counting
the somewhat longer term.
Implications
On balance, even if the dollar value of Communist aid rises
substantially, we doubt that it will fully compensate for the decline in
aid from other sources. These trends will markedly affect both popular
living standards in the short run and the country's industrial base over
Discontent over worsening living standards erupted in a flurry of
work stoppages in August and September, shortly after the regime restored
the right to strike. The Sandinistas have taken a very hard line,
however, threatening to declare one strike illegal and refusing to
negotiate on several others until workers returned to work. Rather than
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again revoking the right to strike after the elections, and incurring
additional international disapproval, we expect the regime to continue
with the less visible, but still hard-line tactics it has used recently.
The Sandinistas may also attempt a strategy of dividing the workers by
providing substantial pay raises to non-strikers. As living conditions
continue to worsen, however, and most wage hikes are wiped out by
inflation that may reach 90 percent this year, we expect more labor
unrest, and some additional marketplace disruptions.
The problem is exacerbated by the Sandinistas' unwillingness or
inability to revive the economy. We foresee little if any change in
domestic policies, which have consistently tended to increase the
government's role in business decisions and to claim additional sectors of
commerce and industry as the exclusive preserve of the state.
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Table 1
Projected Official Foreign Financing to Nicaragua in 1984,
(million US $)
Total: 760-790
Western Europe 67-84 Western Hemisphere 148-158
Austria 2-3 Argentina
25
Finland 4 Brazil
5
France 18-22 Canada
13
Italy 2-4 Colombia
5-10
Netherlands 14-18 Mexico
90
Norway 8 Peru
5-10
Spain 8-10 Venezuela
5
Sweden 11
West Germany 2-4
Communist Countries 470 Other
47
For:
Oil 85 Algeria
14
Weapons 250 Iran
27
Other 135 Japan
3
Taiwan
3
Multilateral 26-31
World Bank 2-6
Inter-American
Development Bank 20
European Economic
Community 3-4
UN Food and
Agri culture
Organization
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ANNEX E
Nicaraguan Imports
Table 1
Nonmilitary Imports -- 1982
(Million US $ CIF)
Co
Total Go
nsumer Petroleum Intermediate
ods and products Raw Materials
Machinery
and Transport
Worl d
776
171 180 237 238
U.S.
148
37 5 56 50
W. Europe
103
45 0 57 1
Japan
18
0 0 5 13
Canada
50
8 0 3 39
Mexico
154
12 120 11 11
Central America
129
46 7 64 12
South America
57
3 38* 11 5
U.S.S.R
39
1 0 1 37
Other Comm.
50
11 0 21* 18
* Venezuela only.
** Cuba accounts for $17 million.
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Composition and Trade Partners
(million US $)
Average 1975-77
1982
% of Total
% of Total
CONSUMER GOODS
of which:
128.6
---
171
FOOD
48.0
100
95
100
W. Europe
3.0
6.2
32
33.7
France
0
0
13
13.7
Ireland
0
0
8
8.4
Netherlands
0
0
6
6.3
United States
21.0
43.7
28
29.4
Latin America
22.3
46.4
18
18.9
Costa Rica
9.0
18.7
7
7.3
Guatemala
7.0
14.6
6
6.3
Cuba
0
0
5
5.3
OTHER FINISHED GOODS
80.6
100
76
100
W. Europe
13.3
16.5
13
17.1
Spain
2.0
2.5
6
7.9
W. Germany
4.3
5.3
3
3.9
Switzerland
2.6
3.2
3
3.9
United States
15.0
18.6
9
11.8
Latin America
49.6
61.5
43
56.5
Costa Rica
13.0
16.1
12
15.8
Guatemala
13.3
16.5
10
13.1
Bulgaria
PETROLEUM AND
0
0
4
5.2
OTHER FUELS
82.6
100
180
100
Mexico
0
0
120
66.6
Venezuela
68.6
83.0
38
21.1
Panama
3.0
3.6
6
3.3
United States
4.6
5.5
5
4.1
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Average 1975-77
$ % of Total
1982
% of Total
INTERMEDIATE RAW
MATERIALS 217.3 100 237 100
Latin America 75.3 34.6 86 36.3
Guatemala 19.3 8.8 26 10.9
Costa Rica 22.6 10.4 22 9.3
W. Europe 42.6 19.6 57 24.0
France 2.0 0.9 17 7.2
W. Germany 18.3 8.4 12 5.0
Italy 2.3 1.0 8 3.4
Spain 1.0 0.5 7 2.9
United States 71.6 32.9 56 23.F
Cuba 0 0 17 7.2
Mexico 4.3 1.9 11 4.6
Japan 16.6 7.6 5 2.1
MACHINERY AND
TRANSPORT GOODS 174.3 --- 188
of which:
MACHINERY 114.3 100 138 100
United States 55.3 48.4 44 31.8
W. Europe 30.0 26.2 35 25.4
W. Germany 13.0 11.4 11 7.9
Italy 4.6 4.0 11 7.9
Spain 4.6 4.0 6 4.3
USSR 0 0 16 11.6
Mexico 2.6 2.3 7 5.0
E. Germany 0 0 6 4.3
Japan 13.3 11.6 5 3.6
60 100 50 100
USSR 0 0 21 42.0
Japan 20.3 33.8 8 16.0
United States 17.6 29.3 6 12.0
W. Europe 17.0 28.3 4 8.0
Spain 9.0 15.0 2 4.0
W. Germany 3.0 5.0 1 2.0
Mexico 2.6 4.3 4 8.0
E. Europe 0 0 2 4.0
E. Germany 0 0 2 4.0
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Composition of Imports
(in percent)
1979 1980 1981 1982 1983 1
Total Imports 100.0
Consumer Goods 27.0
Nondurable 21.6
Durable 5.4
Intermediate Goods 2 39.1
Inputs for agriculture 4.3
Inputs for industry 30.7
Construction materials 4.1
Petroleum Products 21.0
Crude and partially refined
Derivatives 2.8
Capital Goods - 12.8
Agriculture 1.2
Industry 8.7
Transportation equipment 2.9
100.0 100.0 100.0 100.0
29.1 24.3 20.6 20.1
24.2 19.6 15.0 14.7
4.8 4.7 5.6 5.4
38.3 35.2 34.6 33.7
7.0 5.6 4.5 5.0
28.0 26.3 24.1 24.8
3.3 3.4 6.0 3.9
19.6 19.8 23.0 22.2
18.2 16.7 17.3 19.1 15.6
2.9 2.5 3.9 6.6
12.4 20.1 21.5 23.9
2.7 3.0 3.2 4.5
6.9 12.1 14.0 15.0
2.8 5.0 4.3 4.4
Other 0.1 0.7 0.6 0.1 0.1
(Source: IMF Statistics)
r- Excluding petroleum products.
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CONFIDENTIAL
The Director of Central Intelligence
Washington, D.C. 20505
NIC 02372-85
7 May 1985
National Intelligence Council
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
FROM: Robert D. Vickers, Jr.
National Intelligence Officer for Latin America
SUBJECT: Implementation of Nicaraguan Sanctions
that the Sandinistas were making
strenuous efforts prior to May 1 to prepare for a possible embargo.
contracts, including those signed prior to May 1, 1985.
signed prior to May 1, 1985. (See Attachment A)
2. I firmly believe that the sanctions should apply to all
1. The proposed regulations to implement the sanctions against the
government of Nicaragua have still not been agreed upon. The proposals
currently contain a section exempting contracts for imports or exports
3. I suggest you contact Admiral Poindexter and indicate to him that
from the standpoint of the CIA, intelligence indicates that the sanctions
would have greatest impact only if they apply to all contracts, and not
just those concluded after May 1, 1985.
Robert D. Vickers
P
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EXECUTIVE SECRETARIAT
ROUTING SLIP
ACTION
INFO
DATE
INITIAL
1
DCI
X
2
DDCI
X
3
EXDIR
X
4
D/ICS
}{
5
DDI
x
6
DDA
x
7
DDO
X
8
DDS&T
X
9
Chm/NIC
10
GC
X
11
IG
12
Compt
}{
13
D/Pers
14
D/OLL
X
15
D/PAO
}{
16
SA/IA
17
AO/DCI
18
C/IPD/OIS
19
NIO /LA
20
C NIC
X
21
/ALA/DI
X
22
/LA/DO
x
2 May 85
Date
STAT
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 - Approved For Release 2009/08/19: CIA-RDP87M00539RO01802770023-9 i72
THE WHITE HOUSE
May 7, 1985
Executive Registry
85- 1843/1
MEMORANDUM FOR THE ICE PRESIDENT
THE ECRETARY OF STATE
THE (SECRETARY OF THE TREASURY
THE PECRETARY OF DEFENSE
THE PECRETARY OF THE INTERIOR
THE SECRETARY OF AGRICULTURE
THE SECRETARY OF COMMERCE
THE SECRETARY OF TRANSPORTATION
THE SECRETARY OF ENERGY
THE DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
THE DIRECTOR OF CENTRAL INTELLIGENCE AGENCY
UNITED STATES TRADE REPRESENTATIVE
SUBJECT: Implementation of Nicaraguan Economic
Sanctions With Regard to Contract Sanctity
The President's Executive Order of May 1, 1985 invoked the,
International Emergency Economic Powers Act (IEEPA) to put
into effect an embargo on all Nicaraguan trade in goods and'
services with the united States. The E.O. was effective as of
12:01 a.m. EDT, May 7, 1985.
The President has JI,etermined that all commercial contractual
commitments betweeIL the U.S. and Nicaragua will be terminated
simultaneous with ctivation of the Trade Embargo against
Nicaraguan goods and services. The President also has de-
termined that the (regulations to implemeT}t the trade embargo
will permit the foj~lowing exceptions with regard to
contractual commitents entered into before May 1, 1985:
(1) With regard to imports from Nicaragua to the United
States, shipment may be completed if it can be
demonstrated that the importer made a downpayment prior
to May 1, 1985.
(2) With regard to exports, contract sanctity will be allowed
until November 1, 1985 only if one of the following three
conditions applies:
-- Goods already in transit from the United States to
Nicaragua.
Companies that can demonstrate that failure to
comply with contractual obligations with Nicaraguan
tor
i
i
y
nven
n
importers will leave them with goods
which cannot be sold elsewhere.
0-387
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Companies whose export commiEments are guarahteed
under an outstanding perform6nce bond which can be
successfully invoked by Nicakaguan importers.
FOR THE PR2SZDENT:
Robbrt C. McFarlane
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EXECUTIVE SECRETARIAT
ROUTING SLIP
ACTION
FO
DATE
INITIAL
/)
DCI
2
DDCI
3
EXDIR
W
4
D/ICS
5
DDI
6
DDA
7
DDO
X
8
DDS&T
9
Chm/NIC
10
GC
x
11
IG
12
Compt
13
D/Pens
14
D/OLL
x
15
D/PAO
x
16
SA/IA
17
AO/DCI
18
C/IPD/OIS
19
NIO /LA
20
NIO E O
21
D/ALA/D
'
X
22
C/LA/DO
x
CIA had no comments on this.
STAT
6 May 85
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3672
OFFICE OF THE SECRETARY OF THE TRF.*SURY
WASHINGTON. D.C. 2020
May 6, 1985
MEMORANDUM FOR ROBERT M. KIMMITT
EXECUTIVE SECRETARY
NATIONAL SECURITY COUNCIL
SUBJECT; Foreign Assets Control Regulations to
Implement the Nicaraguan Sanctions
Executive Registry
85-
1843
Pursuant to your request, attached are the proposed
regulations that are intended to implement the sanctions
against the Government of Nicaragua that President Reagan
ordered on May 1, 1985.
Please note that time is of the essence in achieving
clearance for the regulations or in redrafting them to
reflect any policy changes. Inasmuch as the sanctions are
to become effective tonight at 12:01 a.m., EDT, May 7, the
speediest possible decision will contribute to the smooth
and fair implementation of them.
Edward J. S~t/lky
Acting Executive Secretary
Attachment
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 D6PARTMSN'P OP THE TREASUgY
Office of Foreign Asseti C*Qtro1
31 C.V.R. Part 540
Nicaraguan Trade Control #Legulations
A!3ENCY$ Office of porstgn Assets ContCO,l. Department of the
IT~ ACTION; pinal Rule _
A _ n- Ami r
ioAS_ the President issWea -
5,UMKAK+T I was r`%%z - . - -
? ct to Nicaragua,
e
e
h
pect to Nicaragua, and del-g- g
pitb res a...l,m'anttoff of
~"' ordetiitg spe ,
~A i$ . ~~pwers Act (50 U.S.C.. 1701 et se .) .
tin his authority under
r
p
a national emergency wXt
1.2513, declaring
a;1 the authority of the International Emergency Economic
i, nvo 06V
citied controls
into the United States of goods
Trade Control
Pt.
A services of
that ACC to. the Secretary or the team--*-s-
Department is iss'ing the Nicaraguan
that order# the Treasury
-----I-so 4wnart al prohibit
..imports
Eros the United States of
hibit exports
pro Nicaraguan origin; b) P
anized democratic
Iii It
4 . ,...
goods to;gicaragua. except those for the ogganized democratic
vessels of Nicaraguan registry from
.r .? , :+R A.
+.. resistances c) prohb ~ .
d air
prohibit transport by Nicaraguan
At P
entering'U.B. por%
carriers to or from the united 5ta---? -- - -
tran~4actions relatin9 to the preCeding prghibitions.
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4- 1
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y iu
.Y11 t' Daylight Time, May 7, 1967
~;-, EFFECTIVE OAT!: 12:01 a.m. Eastern
Counsel, Office of Foreign Assets Control, Department of the
Treasury, Washincton, D.C. 20220. Tel. [phone].
SUPPLEMENTARY INFORMATION! Since the regulations involve a
tori!i9n affairs function, the provisions of the Administrative
Procedure Act, 5 U.S.C. 553, requiring notice of proposed
rul'noapcinq, opportunity for public participation, and delay in
effective date, are inapplicable. Because no notice of proposed
gulemaking is required for this rule, the RAgulatory Flexibility
et seq., does not apply. Because the
Act, S U.S.C. 601,
regulations are issued with respect to a fo6eign affairs function
of the United States, they are not subject to Executive order
12291 of February 17, 1981, dealing with Fe4eral Regulations.
These regulations are not subject to the Paperwork Reduction Act
of 1950, 44 U.S.C. 3501 t !0 2.
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FOR FURTNER INFORMATION: Contact Raymond W. Ronan. Chief
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DEPARTMDIT Or THE TREASURY
Qftice of Foreign Asset$ Coiltrol
31 CPR Part 540
Nicaraguan Trade Control Regulations
subpart A -- Relation of this Part to Other &.awe and Regulations
Section 540.101 Relation of his part to other laws and
regulations.
B -- Prohibitions
540.204 Prohibited imports of goods and services from
Nicaragua.
540.205 prohibited ex orts of goods to Nicaragua.
540.206 Prohibited transactions with Nicaraguan vessels.
Prohibited transactions with Nicaraguan air
carriers.
;iection 540.208 Prohibited related transactions.
i,vasions~ effective date.
Subpart C -- General Definitions
,Section 540.301
Secticpn 540.302
Section 540.308
Secti4)n S40.316
Section 540.321
Effective date.
NicaraguaL Nicaraguan.
Pie rson .
Nicaraguan origin.
United States.
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 8ubpa=ir O -.- Interpretations
540.401 Offshore transactions.
..._,.'..,ie-at data.
Section 540.405 Tranesh en,
eta,
E throe h third countries
~+ ectigR 540.404 Trane?hip^ent through United States prohibited.
Sectiop 540.403 Imports of services of Micgra uan on gin.
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prohibited.
?f1L
vir % its through third countries prohibited.
Section 540.407
Imports into bonded warehouse or torsi n trsae.
Section 540.408
zone.
Release from bonded warehouse or foreign trade
SectiOOn 5'40.409
zone.
Im rt aqd ex rt of
0od5 in transit before the
Section 540.410
effective date.
Tr n Actions relatin
to n rohibited ottstiore
transaction's
14cenass. Authorizations and Statements of.Licensing
policy
,Section 540.502
effect of license or authorization.
gectOn 540.503
Exclusion from licenses and authorizations..
Section 540.505540.505
Prior contractual coamitpents.
section 540 504
Goods paid for prfor to May 1.
1985.
,Section 540.533
certain exports auth,oriz*d.
Section'540.53,4
di Lpmatic
Certain imports for, or official
P
personnel authorized.
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!8ACtion 540.535
p~: It
ctioi 540.536
action 540.537
~~,ection 540.538
,Sectiof 540.539
4 t
4~' l
.ection 540.540
Certain services relattng to participation In
various events authorized.
Im rt of publications authorized.
I^ rt of certain gifts authorized.
Import of accvepanlod. baqq4ge authorized.
Commercial exports of certain medical supplies.
En its for humanitarlane educational
and religions purposes.
Certain exports by intergovernmental
organizations.
Telecommunications and sail transactions
authorized.
i~1?
Sub t ?' -- >teX'ts
section 540.601 Eteeco ds .
Section 540.602 1 its to be furnish on demand.
Subpart a -- Pena:Lt_iO!
Section 540.701 Penalties.
Section 540.704 De?ention of shi cents.
SubLirt tI -- P;ocedLrss
Section 540.801 Licensing.
Section 540.803 L>ecivions.
Section 540.805 Amendment, modification, or revocation.
section 540.806
Section 540.807
Ruleuakinq.
pelegation_by the Secretary of the Treasur
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rocedures~ ~eRchapdise s seined in
S*ctioa 540.204.
':S.ctioq~ 540.809 Rules overnin availa4~ilit of intoc~atioa.
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t~ ~K
orbs lAWS and Regulations
}~ -- ee of This Past to
pelat*
Subpart ~-
t? ;j
' lation of this rt to othoc laws and
i 11`eaction $40.101
' ations
lilt I
of Parts $00, SOS, SiS, S200
independent
1. This part is
(a)
Those parts do not slate to Nicaragua ?
`: ~~a.?I, and S3S Of this cl-apter? in or issued pursuant to
se or authorization contained
y Nq, licep authorizes any transaction prohibited by this
if/I?i'. N .
` those other parts tions contai
,.eeitiOn. licenses or authorizaned in or
f Law
'i issued pursuant to any other provtsivA o
r transaction prohibited by this part.
rize any
h
o
not- aut
(p) No license or authorization contained in or issued
ursuant to this part relieves the involved parties fros
P ulations? !or
~;osplying with any other applicable laws os re9
as le, no license or authorization contained in or issued
'sz p Dods or the
pursuant to thif part authorizes the export of g of technical data for which a validated license would be
export ulations (tS C.F.R.
requi,Fed under the %sport Administration Rog
of
art 368 at !?j.) iw`the absence such validated license.
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8ubpact a -- Pr9bibitions
Sect.ipn 540.204 Prohibited imports of goods and services from
Nicaragua.
Except as 4uthorited by regulations, rulings, instructions,
licen,ses,'or otherwise, the following say not be Imported into
the.y{nited States:.
(a) services of Nicaraguan origint or
(b) goods of Nicaraguan origin.
Section 540.205 Prohibited exports of goods to Nicaragua.
Except as authorized, no goods may bA exported from thi
United States either to or destined for Nicaragua, except those
,for the organized democratic resistance. And except donated!
i
articles, such as food, clothing, and medicine, intended to be
used to relieve htzan suffering.
,Sect.-ion 540.2Q6 prohibited'transactiono with Nicaraguan vessels.
Vessels of Nicaraguan registry are prohibited from entering
into.United Sates ports.
Section' 540.207 prohibited transactions with Nicaraguan air
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-10-
carriers.
~? air carriers are prohibited Xroa proviazng saw
n
l~icaraqua
J. J: t;aneportation tq or from points in the Unit*d States.
El IT
ti s
n
.
S
.,-4r a..rtien 540.208 Prohibited related trae~sac o
($) No person say order, buy, receive, conceal, store, use,
occur, or is intended to occur
technical data.
payments are not prohibited if the transaction to which
sell, Loan, dispose of, transfer, transport, finance, forward, or
knowledge
Aaergency
service, in whole or in part. any commodity
hibitiona of this part, witn
a violatiop of the international
Economic Powers Act or any regulation, order, or
'license has occurred, is about to
Section 540.209 Lrvas1onsT effective date.
(a) Any transaction for the purpose of, or which has the
effect of, evading or avoiding any of the prohibitions set forth
in this subpart is hereby prohibited.
(b) Unless otherwise specified, the prohibitions in this
part shall be 9tfective from 12:01 a.m., eastern Daylight Time,
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 togs.
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Section 540.301 Effective data.
Section 540.302 ~_ -
The tern 'Nicaragua' means the country of Nicaragua and any
Nicaraguan territory, dependency, colony, protectorate, mandate,
dominion, possession or place subject to t1We jurisdiction
thereof, or any territory which is controlled or occupied by the
milit*ry, naval or police forces or otbeE authority of Nicaragua.
The term 'Nicaraguan' means pertaining to $icaragua as defined in
this section.
Section 540.308 Person.
The term !person' means an individual, partnership,
association, corporation or other organis4tion.
The tern 'effective date' means 12.01 *?n?. Eastern Daylight
Section 540.316 Niceira uan origin.
The tern 'goods or services of Nicaraguan origin' includest
(a) goods produced, manufactured, grown, or processed within
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 of 1p-he Nicaraguan vwvw ;i -
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' -13'
e
not include diplosatic and consular services pertors on
t.:nata,onal. However, the tors serv
d beha l t
j
ices of Nicaraguan origin";does
b) goods which have enteredinto Nicaraguan coeeercet and
(c) 'services perforeed in Nicaragua or by a Nicaraguan4
Section 540.321 United 8tat.s.
The term 'United States' soaps the United States and all
under the jurisdiction or authority thereof, including the
areas
Trmst Territory of the Pacific Islands.
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4' -- Interpretations
fi`'l hibitions contained in section 540.204 do no
ro
{{CLl~Dn ,7v. wa v--- --- -
ta) The p
ply to the importation into locations outside the United States
inorioorated into or g
substantially transformed after leaving Nicaragua.
~I e" 1
f ei n manufactured products or
(b) .The prohibitions contained in section 540.205 do not
apply to the. export of goods to or destined for Nicaragua from
locations outside the United Staten, except goods exported from
the United States which have not been incorporated into foreign
manufactured products or otherwise substantially transformed
after leaving the United States.
Section 540.402 Technical data.
The term -goods- shall include, inter i41ia, technical data
in tangible form including, but not limited to, a model,
prototype, blsefprint, drawing, operating manual, computer
software, tape recording, microfiche, or other material in
machine readable form. The term 'goods' does not apply to oral
transmission of technical data in the course of performance of
ser-,ices, telepipone communications, lectures, seminars, or plant
visits.
section 540.403 Import* of services of Nicaraguan o49-in.
.,ruin. except with respect to
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a:thosc destined for the United States which have not been
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-t3-
(a} Services of Nicaraguan origin are imported into the
Unite states when'
~l} such services are performed in Nicaragua and are
contracted for, or on behalf of, a person within the United
States and for the benefit of a person within the United Statesr
(2) such services are performed in thq United States by a
ted States for purpose' of
national of Nicaragua who is in the Una
performing such services as an employee Or contractor of a
.business or governmental entity locatbi in Nicaragua.
Example tj~l A Company located ii, the United States requests
an opinion troip a Nicaraguan accounting firm. Section 540.204
prohibits the U.S. firm from contraetkng for and receiving such
an opinion.
Example2: A eompanY located in the United States
contracts with an airline company located in Nicaragua to provide
maintenance personnel for the U.S. company's aircraft in the
United States. It would be inconsistent with Section 540.204 for
the U.S. company to contract for and receive such services.
(b) Services of Nicaraguan origin are not imported into the
United States when such services are provided in the united
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-16-
States by a Nicaraguan national who, during indefinite residlncy
in the United 8~ates.,works as, for.esq-aplS. a teacher, athlite,
restautant,or d,~ae%tic worker, or a person employed in any other
regular occupation.
(c) Sectigp 540.?204 does not prohibit a O.S. person lroc
obtaining',tecl%nical, custodial, legal, accounting, banking.
shipping, or other services.froe Nicaragua when they are to be
rendered outsic3e the United States, including in Nicaragua.
Section 540.404 Transshipment throw United States Prohibited.
The prohibitions in Section 540.204 apply to the import
into-the Unitei States, for transshipment or transit, of goods
'which are intended or destined for Nicaragua.
.(b). The prohibitions in section 540.204 apply to the!iaport
i oods of
to,tha United grates, for transshipment or transit, of g
n
;Nicaraguan origin which are intended or destined for third
countries.
section 540.405 ?ransship*ent through third countries
prohibited.
The prohibitions in sections 540.204 and 540.209 apply to
the import into the United States of goods of Nicaraguan origin
transshipped through other countries without being incorporated
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 IIL!II IIILIII.
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17-
to foreign sanutactured Products or otherwise
in
tranelora" -
substantially
through third countries rohibtted?'
Section 540.406 Ea its
to
in Sections 540.205 and 540.209 apply o
The p
of goods to'any country
the export from the United States outside
exporter has reasonable cause to
the United States where the ted, directly or
believe that the goods are intended to be espoc
'indirectly, to Nicaragua without being incorporated into foreign
tactured products or otherwise substantt$1tY transtor?ed-
sanu
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-~--rri~rr*mrn
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airplane where the goods have left the Unit.4 States before the
effective date.
(c) Payaents relating to goods describAd in paragraph (a)
t
d
e
'''and (b) Of this section are authorized, Aven where such t.a.
paysents occur after the efteetivs date.
1;!
1 k- j
transactions.
The prohibitions in Subpart B do not extend to transactions
. by a person located in the United states relating to transactions
se
=--- ---- p ------ - -
outside the United States which are t es
Subpart B, such as financial, service or brokerage transactions
Ai involving offshore transactions with Nicaragua.
Subpart B Licensess authorization and statements of licensing
policy
Section 540.5Qi2 gffect of license or authorization.
(a) No license or other authorization contained in this
pa=t, or otherwise issued by or under the direction of the
Secretary of the, Treasury pursuant to section 203 of the
International Eiergency Economic Powers Act, shall be deemed to
authorize or validate any transaction effected prior to the
issuance of the license, unless such license or other
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 ;t
(b) so
IV, I"ll'i rlV atIAfl specifically so provides-
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regulation,
ruling, instruction, or license
transaction prohibited under this part unless
ruling, instruction, or license
fi~regulation, ruling,
t.
~
and specifically refers
instruction, or license
is issued by the
to this part. No
referring to this
tranactions prohibited by
any provision of Parts 500, 505, S1S, 520, or 535 of this chapter
unless the regulation, ruling, instruction or license
specifically refers to such provision.
(c) *Any regulation, ruling, instruction or license
authorizing a transaction otherwise prohibited under this part
has the effect of removing a prohibition or prohibitions in
to the extent
Subpart B from the transaction, but only
specifically stated by its terns. Unia!s the regulation, ruling,
instruction or license otherwise specifies, such an authorisation
dons not create any right, duty, obligation, claim, or interest
in, or with respect to, any property which would not otherwise
exist under ordj~nary principles of law.
.
Section 540.503 Excluston from licenses sad authorisations
The Secretary of the Treasury resprveg the right to exclude
any person from the operation of any license or from the
privileges therein conferred or to restrict the applicability
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r. to particular persons, transactions or
thereof with respepc
thereof. Such action shall be binding upon
property or classes
all persons receiving actual notice or cgnetructive notice
thereof.
s l 5.
Section 540.504 i; Daid for eri ot to May'.
(a) All transactions are authorised with respect to the
import of goods arriving in the United States after the effective
date it the following conditions are net$
(1) the goods were paid for (including by opening an
itrevocsble latter of credit) prior to May 1, .1985; and
(2) the goods arrived in the United States prior to June I#
1985.
(b) All transactions are authorized with respect to the
export of goods from the United States after the effective date
(1) the goods were Paid for (includir~q by opening an
irrevocable let'ler of credit) prior to May 1, 1985; and
(2) the goods left the United States or were cospletely
laden on board a vessel preparatory to leaving the United States
prior to June 1, 1985.
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it the following conditions ar4s net:
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J ix,- - - .moo c ~- ?.,L_ 4
I a !~ `
z -21-t-- % 1 / 7g3
~__~
std A
\are authorised witj- respect to the
tior
t
1111 eransac
import of goods arriving in the United States after the effective
date if the follot4ing colidition? are met:
(1), ~oports through May 31. 1985,. i"rter, freight
forwarder,
or other authorized person (hereie~arrer the
imp orter") certifies
are in I ported under a
1, '1985.
to the U.S. Customs service that the goodie
biq!ding contract entered into prior to May
+~tober 31, 1985.1
(.k. 1985 through
(2) ,port Eton jUne 1,
porter makRa the following sworn certification to Customs$
the importer
e with the provisions of the blicaraguan Trade
cordanf,
In ac
RegulatiPns, Z, being duly authorized tO make this
Control,
certification on behalf; of [tire name), do hereby certify that
the goods to which th.i*h certification pertains are imported ~,ae,~aNs--moo a binding. 1~ntract entered into prior to May 1. 1985.
(Signature)
(Notarial SAW ,
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prior c ~~~?- --- // ~`
Section 4O.505
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~4
-22 //
(f) A11 transactionsJare authorized with respect to the
+-M
rt at goods from the United elates otter the effective date
,~?i -expo
if the following conditions are sets
,,, j
sport* through May 31, 1985, if the exporter, freight
forwarder, or otter authorized person (hereinafter 'the
exporter") cortilies.to the U.S. Customs Service that the goods
are imported und,r a binding contract entered into prior to May
1. 198S.
(2) Zxportij from June 1, 1985 through October 31, 1985, if
the exporter makes the following sworn certification to Customs,
In accordance witb. the provisions of the Nicaraguan Trade
Control. Regulatipns, I. being duly authorized to sake this
certification on behalf of [firm name], do hereby certify that
the goods to which thi,i certification pertains are exported
c1 .?,(!l_-\ 1985.
eua.p--to a binding contract entered into prior to May 1.
(Signature)
(Notarial Seal)
4P
(p) Licenses for exports of U.S. goods or imports of
Nicaraguan goods after October 31, 1985, will be considered on a
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-23-
case-by-case basil, where the .sports or imports will take place
pursuant to 8 binding coantract entered into prior to May 1, 1985.
A person seeking such a license is required to apply for the
license prior to July 31, 1985 and to inglud4 a copy of the
relevant binding Contract (with English ~rapnaction, "
ith the application..
)
? `~
w
necesaaK
M~~"
(d) The licenses 41nd lice ng policisp set forth in this
section are subject to 1:eview, modification #nd revocation, in
accordance with Section 540.805, as circumstances may warrant.
Section 500.533 Certaii;i a=ports authorized
(;) A11 transactions ordinarily incident to the exportation
of any it... commodities, or products from the United States to
or destined for Nicaragua, are authorized if such exports are
authorized under one of more of the following regulations
;adsintstsred by the Department of Commerce:
(1) 15 c.F.R? Section 371.6, General license BAGGAGE;
accompanied and unaccOUIpanied baggage;
(2) 15 C.P.R. Section 371.13, General license GUS;
Shipagnts to pefsonnel and agencies of the U.S. Governsentl
(3) 15 C.P.R. Section 371.18, Genera, license GIFT;
Shipments of gift parcels?
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(4) 15 C.F.R. Section 379.3. General license GTOAI
technical data av4i'lable to all destinations:
(51 15 C.F.R. Section 371.19, General license GATSs
relating to foreign-registry civil aircraft (except that
transactions relating to Nicaraguan-regt$tergld air carriers
not authorized),, Ond to U.S. air carrier aircraft and other
U.S.-registry civil aircraft.
are
(b) All transactions are,authorized ordinarily incident to
the exportation from thu United States to or destined for
Nicaragua of the follow4ng it... descibed as citedt
(1) 15 C.F.,R. Section 399.1, Commodity Control List,
Group %t, CCL No. 75991 * microfilm that reproduces the
content of certain publications, and sisilar materials.
(~) 15 C.F.R. Section 399.1, commodity) Control List, Group
9,:CCL No.;7999Is. csrtain publications and related materials.
Se;cttop 540.534 Certain imports for d p o"tic or off Let
ep rsor,inel authorized.
All transactions cgrdi"rily incident tip the importation !of
any goods or services Into the United States from Nicaragua are
authorized it such imp4)rts are destined for official or personal
use by personnel employed by Nicaraguan diplomatic missions or
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-2S-
Nicaraguan mis8ion4 to international organizations located in the
United States, and such ieports are not fqr resale.
Section 540.535 Certainn services relating to PaCticip4tion In
various events aut-horize
The importation of gervices of Nicaraguan origin into the
United States is authori4ed where a Nicaraguap national enters
the United States on a visa issued by the State Department for
the purpose of participating in a public conference, performance,
exhibition or similar event.
Section 540.536 Im rt iof ublications authorized.
The importation into the United States $a authorized of all
Nicaraguan publications,.including books, newspapers, magazines,
films, phonograph records, tape recordings# photographs.
microfilm, microfiche, posters, and similar paterials.
Sectiog 540.537 Import of certain tfte authorized.
The importation into the united States is authorized for
goods of Nicaraguan origin sent as gifts to persons in the United
States where the value of the gift is not more than $100.
Section 540.538 Imo; of accompanied ba a e authorized-
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persgns entering the United States directly or indirectly
froa Nicaragua are authorized to isport into the United States
nor
persocial accospanied bagg4ge s-ally inciden! to !ravel.
Section 340.539 Coeaerei*l ec rt? of Certain medical su ties.
to Nicaragua of medicines and supplies
-Cosy}ercial exports
intended strictly for .edical purposes are authorised-
Section 540.540 Es rte for humanitarian educational, and
reigious Purposes.
Applications for specific licenses to export goods to
NicaragMa for humanitarian, educational, or religious purposes
considered on a case-by-case basks.
ill bs
. w
Certain exports, b into ov rnaental
Section 540.541
organizations*
4 t-at ion? by intergovernmental organisations in the,
author i zeal..
All transactions of coseon carriers incident to the receipt
,:. Section 540.542 Teloc-amunicat one
.'United States for exportation of U.S. gq,ode to Nlcarayu. ?.?--
conoidilred on a case-by-case basis*
fAVI,
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or transmission of teleaommuaiatione and mail between the United
States and Nicaragua are authorized.
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 ,provisions of this part shall keep a full an4 accurate record of
Ave;y person 9 4
''` en a ing in any transaction subject to the
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leach transaction
Rtransaction
such record
-years after
..be required, complete information relative to any transaction,
s of q;eports or otherwise, from time to time and at any time a? say
I" Bve,ry person is required to furnish under oatho in the form
Section 7su.ovs -'"
11
is affected pursuant to license or otherwise,
shall be available for examination for
the date of such transaction.
at least two
regardless of whether such transaction is stfected pursuant to
license or otherwise, subject to the provisions of this part.
Such reports may be required to include the production of any
books of account, contracts, letters or other papers, connected
with any such transaction or property, in. the custody or control
of the persons required to sake spch reportp. Reports with
respect to transactions may be required eitiper before or after
such transactions are completed. The Secretary of the Treasury
may, through any person or agency, investigate any such
transaction or property or any violation of the provisions of
this part regati4less of whether any report'has been required or
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in which he engages, regardless of whether such
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!ilea in connection the#ewith.
I'i
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: .4-40114
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.;.Subpart C -- MenaiT-aa.
Section 540.7Q1 Penalties.
(a) Attention is directed to section 206 of the Inter-
national Emergency Economic Powers Act, which provides in parts
A civil penalty not to exceed $10.000 may be imposed on
Any parson who violates any license, order, or regulation
issued under this title.
wh,:jever willfully violates any 1lcease, order, or
regulation issued under this title shall, upon conviction,
be fined not more than $50,000 or, tt a natural person, may
be imprisoned for not more than ten years, or both; and any
officer, director, or agent of any corpgration who knowingly
participates in such violation may . punished by a like
fine, imprisonment,. or both.
This section of the International Eaergpncy Economic Powers
Act is applicable to violations of any provision of this part and
to violations of the provisions of any license, ruling,
regulation, ordgfr, direction, or instry,ction issued by or
pursuant to the direction or authorization of the Secretary of
the Treaii;ury pursuant to this part or c*therwise under the
internatllonal Epergency.Eeonemic Power* Act.
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-aa-
b) At~.ention is also directed t0...18.V.S?C? loot, which
providesI
ver, ilp any matter within the jurisdiction of any
aho,r ,
thi United State* knowingly and
departfs~nt or agency of
willfully falsifies. conceals or covers op by any
or device a:material fact, or makes any false,
trick, scheme,
fictitious or fraudulent statements or representation or
sane
sakes or uses any false writing Or docusVnt knowing the
false, fictitious or fraudulent statement or
to coqitain any.
entry4 shall be fined not more than $10,000 or imprisoned not
more I:han five years, or both.
Section 5+0.702 Detention of shi meets.
import' shipments into the'United States of goods of
Nicaraguan origin in violation of Section 540.204 and export
shipments'from the United States of 90008 to or destined for
in violation of Section 540.205 shall be detained.: No
Nicaragua
+
+~+{ rmitted to proceed, except as
much ispq-r t or export shall be. pe
Such
the Secretary of the Treasury.
d,?.4Ma`. :,
or forte Luce
lties
,
ena
shall be subject to licensing, p
t
e
p
n
shipm
aoolicai~)le provision of
.action. ender the
nCes
ss
~?r
:,jaw, depiUnding gn rn. 6.ircu
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Subpart 9
,._ procedures
,:. ......_r~~ i tenses. General licenses have been issued
` _ _._...,. under appropriate terns and conditions certain types
of transack ions which are subject to the prohibitions contained
ll
u
s
-
in Subpart B of this part. A
`'Subpart s of this part. It is the policy of the office of
ant specific
applications for
c
o Sc
oi noc
Foreign Assets Contr which the provisions of an
I licenses a.a~??~? ?~_..~
,outstanding general license are applicable. Persons availing
a
- -
- themsolves of certain general licenses -?
. vi th lnekection 201-207* 91 slat. 16;26 SO U.S.C. 1
]
E.O. 14;513
Dateds
t r,
Dennis M. O'Connell
i
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 (9 I LI I L_ II I 1 I I
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Office of Foreign Assets Control
proved
John m, Walker, Jr.
Assistant Secretary
EnforeeRent A Opsrationa
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 L7rWI-i .Jr IAL .WWAA{LIowls T Vr 1"ab 1RSVn5
WAINIMGTOM.O.G. ao=
May 6o 1985
MEMORANDUM FOR ROBERT M. KIMMITT
EXECUTIVE SECRETARY
NATIONAL SECURITY COUNCIL
SUBJECT; Foreign Assets Control Regulations to
Implement the Nicaraquan Sanctions
Pursuant to your request, attached are the proposed
regulations that are intended to implement the sanctions
against the Government of Nicaragua that President Reagan
ordered on May 1, 1985.
Please note that time is of the essence in achievinq
clearance for the regulations or in redrafting them to
reflect any policy changes. Inasmuch as the sanctions are
to become effective tonight at 12:01 a.m., EDT, May 7, the
speediest possible decision will contribute to the smooth
and fair implementation of them.
/14
Edward J. S$y ky
Acting Executive Secretary
Attachment
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`
>- .Y -Z 1 i~ ` 2 V
Section 54O. SOS W or c tracmua ?_~--- --- ~; ~`?,
1 A," 1 014. 'Z
t rO the
transactions are authorise) with respec
() 1-11
of goods arriving in the United States after the effective
import o g
date it the fo1loI4ing conditions are set:
4,
c1,
through May 31. 1985, 1 ,the importer, freight
forwarder, or other authorised person (h9leiqatrec the
importer") certifies to the U.S. Customs Service that the goods.
im rted under a bir,4ding contract entered into prior to May
are po
1, 1985.
Ar
June 1, 1985 through ,October 31. 1985. !tom
(2) ,~P?rte from
the importer makes the following sworn certification to Customs&
cordanh;e with the provisions of the Nicaraguan Trade
In ac
to take this
Control Regulati.gns. I. being duly authorised
do hereby certify that
certifl-cation on behalt of (firm name],
imported
certification pertains are
the goads to which thiM to May 1, 1985.
4W aa -ao a binding (wntract entered into prior
(Signature)
(Notarial Seal)
(1)porta
. III "RI'' I Approved For Release 2009/08/19: CIA-RDP87M00539R001802770023-9
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Ln,~t~t,L,:~ ..-C( '?~t
transactions are authorised with respect to the
after the
it the exporter, freight
(1 :poi tai throutp May 31. 1913S#
/ on thereinafter ?the
forwarder, or other authorised Pars
t i lies. to the U.S. Custoes Service that the goods
expoct?r?) ar prior to May
are imported under a bihidin9 contract entered into 1985.
export of goods from tho nnit'd states
it the following condit},ons are sets
~P~ t from June 1, 1985 through October 31. t983. it
(2) ; Expor
the exporter sakes the following sworn certification to Customs'
the Nicaraguan Trade
In accordance with the provisions of
to sake this
Control Regulati9ns? Is being duly authorised
do hereby certify that
certification Oct behalf of [firs Hasa], exported
cectitication psrta)ns are
the gQod? to which this
rior to May 1, 1985.
cc ,~E!!. a binding contract entered into p
P~~
(Signature)
(notarial Seat)
cts of U.S. goods or imports of
(p) Licenses for expo
s after October 31. 1985. will be considered on a
good
Nicacaguan
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