Nicaragua

Struggling under heavy unemployment, a failing economy, increasing poverty and debt payments that were eating up 40 percent of the country’s earnings (the second highest debt-to-GDP ratio in the world),¹⁶ Nicaragua signed an ESAF loan with the IMF in 1994. The focus of the loan was to increase production and export volume particularly in fishing, forestry and agriculture. Nicaragua also had to reduce its public sector deficit, lay off government workers, and reduce inflation by tightening credit. The program cited the economic potential for Nicaragua through the sustainable use of its natural resources, yet the state of Nicaragua’s forests has long been in dismal shape. Despite efforts to cut back on deforestation, Nicaragua loses 150,000 hectares (approximately 375,000 acres) of forested land every year through commercial timber cutting, agricultural land development, slash-and-burn farming and forest fires.¹⁷

Nevertheless, in response to the strategy laid out in the IMF loan, the forestry sector grew from 1.5 percent of GDP in 1994 to 3.2 percent of GDP in 1997. Forests were further imperiled when, as part of the stabilization and adjustment program, credit to the agricultural sector was cut by 62 percent. Small- and medium-sized farmers hit hard by these cuts were forced to slash-and-burn forested areas to clear space for subsistence crops, further reducing the country’s forests.¹⁸

The environmental result of this economic strategy of increased logging and agricultural expansion has been severe deforestation that has left the country with only a few productive forests. These forests may not last more than the next 10–15 years if logging continues at existing rates.

The Nicaragua Policy Framework Paper 1998–2000 calls for a stop to environmental degradation, and for the strengthening of the Ministry of Environment and Natural Resources’ (MARENA) capacity to formulate and implement policies. Yet the IMF’s demands to reduce government spending led to MARENA’s budget being cut by 26 percent in 1997, making it impossible to strengthen this important government agency.¹⁹

The human tragedy of deforestation was highlighted when Hurricane Mitch struck Central America in 1998. Believed to be Central America’s worst natural disaster in two decades, the hurricane’s effects were exacerbated by widespread deforestation, which left the landscape susceptible to rapid rainfall runoff and increased rates of erosion. The results were tremendous mudslides and flooding, causing billions of dollars in damage, over 6,000 deaths, and the destruction of 68 percent of the area’s primary roads. According to the World Bank, deforestation caused by human development and agricultural expansion increased the devastating effects of Hurricane Mitch.²⁰ Government policies were considered to have contributed if not directly, then by allowing the severe deforestation to occur.

Facing the pressure of international pleas for relief, the IMF and other donors promised debt relief and the availability of soft money. In exchange the IMF required Nicaragua’s agreement to the continuation of adjustment measures, including continued government lay-offs and reduced public spending. The Managing Director of the IMF, Michel Camdessus, praised the Nicaraguan government for its commitment to continued structural adjustment policies, stating that "now we are dealing not only with immediate aid for rebuilding, but also for the reconstruction of a new and better country."²¹

In January 1999, a reforestation and land rehabilitation program partially funded by the World Bank was...