The last time Americans paid much attention to Nicaragua was during the Cold War, when keeping this tiny, impoverished Central American country out of the hands of Cuba-loving socialists somehow seemed important. But Nicaragua is creeping back into the news as a popular revolt against the elected government of strongman Daniel Ortega gains momentum — and the body count (already topping 300) grows.

Beginning of the End

What a difference a few months can make. Until recently, Daniel Ortega, leader of Nicaragua’s Sandinista Party and one-time devil-incarnate for the American right, was riding high. After being relegated to the sidelines for nearly two decades, the former revolutionary had decisively escaped the stigma of bloodshed and political instability left by the long war with the American-controlled contras. He was elected president in 2007, reelected in 2011 and reelected yet again in a landslide in November 2016. 

True, Ortega was helped to his latest victory by Nicaragua’s Sandinista-friendly Supreme Court, which allowed him to circumvent term limits and barred his most popular opponents from the ballot. But there is little doubt that Ortega drew substantial support from all sectors of society, thanks to his record of economic and political stability, and poverty reduction.

With hindsight, though, it’s clear that discontent has been building. In April, a protest by college students over the government’s decision to increase payroll tax contributions and decrease pensions in order to balance the books of the overextended social security system erupted into nationwide demonstrations. Ortega responded with force, reminding Nicaraguans that he’s never been one to walk away from a fight. 

The government crackdown, abetted by administration-paid thugs, has left hundreds dead. And what began as a demand for a rollback on taxes has hardened into calls for early presidential elections to replace Ortega and his vice-president/wife/svengali, Rosaria Murillo. 

The popular challenge to Ortega caught many observers by surprise. One of the wave of left-wing, authoritarian populist leaders who rose to power in Latin America in the early to mid-2000s, Ortega proved adept at maintaining his grip by channeling revenue into a spectrum of social programs even as he eroded checks on his power. 

Furthermore, he proved more pragmatic and far more skilled at managing the economy than Venezuela’s Hugo Chavez, Argentina’s Cristina Kirchner or Bolivia’s Evo Morales. Even as these leaders ran out of cash and wore out their welcome when the global commodities market boom that financed their patronage networks slumped, Ortega looked to be an authoritarian populist with staying power.

The early economic success of Ortega’s second presidency reflected important lessons he learned from his embattled 1980s administration. While Ortega’s left-wing rhetoric remained, he pursued mostly free-market economic policies. Instead of picking fights with old enemies, he formed alliances with the private sector and the Catholic Church. Moreover, rather than sustaining his quarrel with the United States, he welcomed trade with the yanqui superpower, and even maintained proper relations with the bean-counters at the International Monetary Fund. Moreover, rather than taking his political base for granted, Ortega cultivated the support of the campesinos and the urban poor.

These policies initially produced impressive results. Nicaragua’s annual GDP growth rose from an average of 3.4 percent between 1990 and 2007 to 4.2 percent between 2008 and 2017, a record second only to that of Panama among Central American countries. Between 2008 and 2017 Nicaragua also enjoyed Central America’s lowest incidence of crime and violence — which probably wasn’t Ortega’s doing, but certainly reminded Nicaraguans of the advantages of not rocking the political boat.

Ortega’s economic success, it’s worth noting, was in part due to help from his foreign friends. Between 2008 and 2015, Nicaragua received an estimated $500 million a year — equivalent to 7 percent of the country’s GDP — in assistance (mostly discounts on oil) from Venezuela. These off-the-books benefits were not subjected to legislative oversight. Ortega used them as a personal slush fund to, among other things, provide bonuses to state employees and farmers, buy zinc roofing for the poor, undermine political opponents — and by some accounts, enrich himself and his inner circle.

But once falling oil prices and the cumulative impact of monumental economic mismanagement forced Venezuela to drastically cut its assistance to Nicaragua in 2014, Ortega’s ability to maintain his patronage networks suffered — as did the struggling working class confronted by the social security tax increase. Ortega apparently failed to understand that, while authoritarian patronage systems can be useful in mobilizing resources at the initial stages of development, rules-based institutions are necessary to support higher levels of economic development. Not only did his government mismanage its manna from Venezuela, but it undermined democratic institutions that might have bolstered Ortega’s political legitimacy in hard times. 

According to the World Bank, control of corruption in Nicaragua declined from the 25th percentile among countries in 2008 to the 17th percentile in 2016. At the same time, the bank’s “voice and accountability” yardstick — a measure of democracy — fell from the 35th to the 30th percentile. The country’s economic freedom,as measured by the Heritage Foundation’s index, fell below both the regional and world averages beginning in 2009 and has lingered there ever since. 

As Nicaraguan institutions withered, many Western governments withdrew aid, which had little effect as long as Venezuela filled the breach. But once unable to buy his way out of trouble, Ortega was forced to implement austerity measures, beginning with an increase in the heretofore heavily subsidized price of electricity in 2017. 

Eager to regain the upper hand, he has dropped his plan for pension reforms. But, at best, it will buy him time. And not much: The IMF predicts that the pension system, whose assets were channeled into low-rate-of-return investments by managers with close ties to Ortega’s government, will run out of funds in 2019.

After several months of protests, the economy is running out of momentum. The Nicaraguan Foundation for Economic and Social Development estimated that, if the violence continues through the end of July, it will cost the country more than US$400 million in GDP and destroy some 20,000 jobs. Needless to say, Nicaragua’s business elite, along with the Church, and other civic groups are backing away from Ortega, whom they had privately labeled the “good dictator.”

As Goes Venezuela?

If it is any consolation, Ortega is not alone in his troubles. Cristina Kirchner not only left office in disgrace, she faces a treason charge. Hugo Chavez’s successor, Nicolas Maduro, is barely clinging to power as the Venezuelan economy circles the drain. Running a country the way Boss Tweed ran Tammany requires a lot of skill. And populists, no matter how they package themselves, are generally better at dividing the pie than expanding it. 

Ortega may outlast the opposition this time around. Doing battle with an entrenched leader who has an obsession with power and the will to use force to maintain it takes a level of determination Nicaraguans may not have after enduring a fierce civil war. But the bloom is off the rose. There is no going back to the fantasy of a populist jefe who will build a successful economy without building a successful democratic polity.