Ortega's Faltering Economy - - - - - - - - - - - - ¶2. (SBU) In 2007, the Ortega Administration coasted on the achievements of the Bolanos government, but that ride is about to end. The government essentially adopted Bolanos' 2007 and 2008 budgets, and used them as the basis for negotiating a new Poverty Reduction and Growth Facility Agreement with the IMF. Foreign investment remained stable in 2007 thanks to commitments made during the Bolanos years. Exports are up this year by 21% over 2007 levels. In most other respects, however, the Ortega government is not faring well. Growth expectations have fallen while inflation expectations have risen. In 2007, inflation reached 17% and annualized inflation is running at 22% for 2008, the second highest rate in Latin America. The lack of a strong policy response to rising oil and food prices worries independent economists, some of whom suspect that hidden foreign assistance from Hugo Chavez has created excess liquidity. Minimum wages rose 30% in the last year, but still do not cover the soaring cost of food and transportation. To quell demand and keep prices down, the government removed import tariffs on basic food items through December 2008, made documenting export shipments more difficult, and instructed the state-owned grain storage company to intervene in local markets. So far in 2008, the Agricultural Ministry has failed to deliver needed seeds to farmers in time for planting, although it has become aware of the urgency need to do so. More radical measures related to food supply may be coming, as President Ortega has just concluded a regional "food sovereignty" summit in Managua on May 7.
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