The growing debt accrued by Nicaraguan communist dictator Daniel Ortega from borrowing Chinese money has compromised the future of the Central American nation, according to a report published by the local newspaper Confidencial on Monday.
Between January and May 2024, Nicaragua received four loans from communist China totaling $567 million. According to lawmakers from the regime-controlled National Assembly, the four Chinese loans will go towards the renovation and expansion of an abandoned military airport near the capital city of Managua and the construction of three energy-related infrastructure projects.
The four new Chinese loans approved during the first months of 2024 add to Nicaragua’s already large public debt, estimated by the local newspaper to have surpassed $10 billion as of the third quarter of 2023.
Confidencial, citing economists with knowledge in the matter, stated in its report that dictator Ortega’s debt policy — and the loans’ elevated interest rates – will have to be paid by new generations of Nicaraguans under unfavorable terms.
Nicaragua, after breaking relations with Taiwan in early December 2021, began to fully embrace China in January 2022 by formally joining the Chinese communist government’s predatory Belt and Road Initiative (BRI).
China refuses to maintain diplomatic relations with any country that rightfully recognizes Taiwan as a sovereign state, which prompted Ortega to sever ties with Taiwan. Ortega previously cut Nicaragua’s ties with Taiwan in 1985, but they had been reestablished in 1990 by former President Violeta Barrios de Chamorro.
BRI is a Chinese-run program that sees its government offer predatory “debt trap” loans to member countries intended to be used to pay infrastructure projects, often under unfavorable terms.
The Chinese loans often pay Chinese companies to work on the agreed-upon projects. As the loans are a debt trap in nature, the countries eventually find themselves unable to pay them back, which then allows China to seize the project or exert pressure and influence on said country.
Chinese President Xi Jinping attends a summit at the Belt and Road Forum (Thomas Peter – Pool/Getty Images).
Nicaragua and China elevated their relations to a “strategic partnership” in December, shortly before a “lifeboat” Free Trade Agreement (FTA) deal between both countries went into effect.
In February, the Nicaraguan National Assembly approved a nearly $400 million loan from China for a construction project that calls for the renovation and expansion of the Punta Huete Airport and will see the facility turned into Nicaragua’s second international airport. It was originally built by the Ortega regime in the 1980s with the assistance of Cuba’s communist regime and the Soviet Union and served as the Sandinista regime’s main military base until 1990.
Confidencial reported that the airport loan, the largest of the four Chinese loans approved during the first months of 2024, establishes a 15-year term in its conditions, with a grace period of 54 months, and an interest rate of “approximately” 5.2 percent in addition to several other “commission” fees. The other loans signed in 2024, according to the newspaper, feature similar interest rates and additional fees.
Nicaraguan economist Juan Sebastián Chamorro, who now lives in exile in the United States, told Confidencial that the 5.2-percent interest rate is higher than those seen in loans from the World Bank or similar institutions but that the Ortega regime “has to accept it, because it no longer has access to that source of financing.”
Chamorro stressed that it will be necessary to take into account the additional charges detailed in the loan’s fine print, “which are the ones that make this type of international credit operations more expensive.”
“While it is true that they [the additional charges] are not interest, they are commissions that do not go to the project,” Chamorro explained. “They go to the commissioner, to the lender, and the indebted party [Nicaragua] is the one who will have to pay them.”
“The contract has by all accounts what generally some financial institutions try to do in places where there are legal restrictions on borrowing. Not just in a country context, but in a market context,” he continued. “Many countries have controls on interest rates, so they invent these charges that do not appear as rates, in order to evade legislation. Without fear of being wrong, I clearly see that this exuberance of charges and commissions serves to disguise the interest rate.”
Chamorro also explained that, as the money Nicaragua borrowed is in Chinese yuan, the Nicaraguan Treasury has to assume any risk of an appreciation of that currency, which would force the country to have to disburse more euros to buy the amount of yuan necessary to pay the debt.
In addition to the nearly $400-million airport loan, China reportedly issued the Ortega regime a $72.7-million loan to finance the design and construction of a photovoltaic plant. The plant will reportedly run the water systems of the state-owned Enacal aqueduct company in the San Isidro municipality. Beijing also granted Managua a nearly $27-million loan to build three gas storage spheres, and a fourth loan, worth $68 million, to build a photovoltaic plant in Ciudad Darío.
Christian K. Caruzo is a Venezuelan writer and documents life under socialism. You can follow him on Twitter here.
