A letter from WCCN’s Executive Director

Summer 2008 was rough for the microfinance industry in Nicaragua. Daniel Ortega’s government orchestrated an irresponsible set of attacks against microfinance organizations, and, for the first time ever, we saw public protests against them. The protests were actually focused in only a few municipalities in northern Nicaragua, where President Ortega has a strong base of support.

Why were some borrowers protesting, when our studies have shown that micro­ finance is having a very positive impact in Nicaragua? First and most importantly, unscrupulous political leaders manipulated and mobilized borrowers who are in trouble with, or close to having problems with, their loans. Second, the worldwide increase in food and energy prices had a strong impact on Nicaragua this summer, creating the perfect economic climate for such manipulation.

Let me put the protest in context. During his first year in office (2007), Ortega paid little attention to microfinance organizations. Then, however, a set of very generous economic accords were signed with Venezuela. Ortega’s administration decided to manage the funds outside the national budget, with no checks and balances. Some were used to create a network of government­controlled financial services at subsidized interest rates. As a result, the government decided to start a public campaign to discredit microfinance organizations operating under market rules, calling them usurers. This strategy did not work, because nothing happened. It became necessary for the government to create an artificial movement of dissatisfied borrowers with the idea that by protesting, interest rates would go down.

That was how unscrupulous political leaders were able to mobilize protestors in Jalapa, a remote town in the north. No one paid attention, so they moved their protest to the city of Ocotal and blockaded the Pan­American Highway. A few days later, Ortega publicly expressed support for the protesters and suggested they relocate to in front of the offices of microfinance organizations. After they spent a couple of days blocking the entrances of several organizations, including one of WCCN’s partners, Fundenuse, the police decided to intervene. When the protestors were forced to move, they tried to set fire to Fundenuse’s offices.

By the time of the attack in Ocotal, media coverage had reached its peak, and the whole country was alarmed, fearing international divestment. As things were getting out of control as a result of the national and international alarms, the administration decided to stop its attacks, and facilitated a negotiation between the microfinance industry and protest leaders. A deal was reached, and the protestors returned home. The absurdity and violence of the protests means there were no winners. Everyone lost, some more than others: the protestors, the cities of Jalapa and Ocotal, the microfinance industry, the government and the country as a whole.

As I write this, several weeks have passed with no more protests or attacks against microfinance institutions. Hopefully, the worst is over, and the government has learned not to play with fire. As the cover article discusses, WCCN is taking steps to diversify our lending to neighboring countries. We anticipate continuing normal operations in Nicaragua, but we also have the duty to prepare for the worst. We will keep our readers informed of any further developments.

Sincerely,

Carlos Arenas
WCCN Executive Director