The Foreign Service Journal, June 2006

100 F O R E I G N S E R V I C E J O U R N A L / J U N E 2 0 0 6 R EFLECTIONS When Suits Came Back to Managua B Y B RIAN R UDERT M anagua is hot, always hot. The seasons are dry and wet, not hot and cool as in northern latitudes. Every May when the rains first start falling, marking the transition from the dry to the wet sea- son, it becomes hot and muggy rather than hot and dusty. When we arrived in 1990, the busi- ness attire in vogue made absolute sense for the climate. For men, a long-sleeve shirt with an open collar was considered to be formal. Presi- dent Violeta Chamorro swore in gov- ernment ministers in their best long- sleeve, open-collared shirts. The vet- eran U.S. ambassador, Harry Shlaude- man, wore a suit to his first diplomat- ic function but switched to open-col- lared, long-sleeve dress shirts after noting that he was the only one there with a suit on. He said that this was the most sensible thing he had ever seen in his 35 years of diplomatic service. During my assignment with the U.S. Agency for International Devel- opment, our biggest challenge was helping the new Chamorro adminis- tration whip the evil beast of hyperin- flation. In my first six months in Managua, the exchange rate for the cordoba went from 800,000 to 25 mil- lion to the dollar. The velocity of the money supply could have been mea- sured in light-years. It was said that the cordoba bills burned people’s hands on Friday paydays as people converted their earnings into hard goods or dollars in anticipation of yet another weekly devaluation. Luckily, the Nicara- guans had already resorted to print- ing additional zeros on existing money, so there was no need to cart cordoba notes around in wheelbar- rows, as was done in post-World War I Germany. Hyperinflation is caused by the misuse of a unique government privi- lege called seigniorage, which means the printing of money. When anyone else other than governments exercises seigniorage, it is usually called coun- terfeiting. The velocity of a particular money supply is equal to the gross domestic product or size of the econ- omy divided by the size of the money supply. The Sandinistas had commit- ted the grave sin of running the money printing presses 24 hours a day without getting the economy to grow accordingly. To stop hyperinflation, a deal was reached with the new government to stop the printing presses in exchange for a couple of hundred million dol- lars of U.S. taxpayer funds to stabilize the government’s fiscal situation. This trade-off worked remarkably well, and Nicaragua has had a stable cur- rency since 1991. Another part of the deal was get- ting the Chamorro administration to allow private banks to begin func- tioning again in Nicaragua. The Sandinistas had banned them, and people simply had no confidence in opening savings accounts for their newly stabilized currency in the gov- ernment banks the Chamorro ad- ministration inherited. Once the first private banks start- ed operations, in 1992, the bankers started showing up to cocktail parties in business suits and ties. I knew then that it was all over for comfort and sartorial sanity in Managua. Sure enough, at every social event more and more people arrived wearing suits and ties. The die was irretriev- ably cast when Amb. Shlaudeman’s replacement, John Maisto, began showing off his Hart, Schaffner & Marx business suits that had seen duty in the cooler climes of the north. They couldn’t be happy with comfort- able and cool cotton — to add insult to injury, it was going to be wool blends! I know it’s heresy, but maybe, just maybe, the Sandinista Sartorial Sanity presidential candidate, Daniel Or- tega, might win in November and bring comfort back to hot and steamy Managua. n Brian Rudert was a Foreign Service officer with USAID from 1977 until his retirement in 2004. He served in Managua from 1990 to 1995. He cur- rently works for the Academy for Educational Development as chief of party for the USAID-funded Panama Canal Watershed Management Pro- ject. Stamp courtesy of the Stamp Corner.