MANAGUA, NICARAGUA, FEB. 14 -- Nicaraguan President Daniel Ortega announced today the creation of a new currency and a major restructuring of the economy to brake inflation that he acknowledged was 1,500 percent last year.
Ortega, speaking at a press conference transmitted on radio and television, said that each unit of the new cordoba, as the currency is to be known, will be worth 1,000 of the old cordobas -- all of which must be turned in, starting on Monday.
A major purpose of such swaps, which are common with runaway inflation, is to make currency transactions more manageable. Nicaraguans needed bags for their cordobas as large as for the groceries they could buy with them.
But Ortega also said that the new cordoba's exchange rate will be fixed at 10 to the dollar and that the current system of multiple exchange rates -- which varied according to the nature of the transaction -- would be restricted drastically to eliminate what has amounted to subsidies of some sectors.
The previous exchange rate for most transactions was 25,000 cordobas to the dollar while the black-market rate was 50,000 to one, making the newly announced rate appear unsustainable.
The steps are intended to battle a serious economic crisis that has caused severe shortages of most consumer goods, in part because of the inflation. The new measures at the least indicated that the leftist Sandinista government was turning its attention to the economy after concentrating on the Central American peace effort in recent months.
Ortega said the measures were developed secretly with the help of 60,000 workers. Radio stations immediately began running ads telling how to change old money for the new. Officials said the expected chaotic conditions at first because little new money will be in circulation.
The measures seemed to be at least partially a response to economists who support the Sandinistas but complain that excessive government control was resulting in distorted appropriation of resources. If the changes are implemented as presented, they could mark an aboutface in economic policy.
"We will fortify the mixed economy and give products their real value," Ortega said, calling the previous policy "paternalistic."
Enrique Bolanos, president of the Superior Council of Private Enterprise, the country's largest private business group, said the changes could help "reorder" the economy. He criticized the government, however, for failing to tackle what he called the primary cause of the economic crisis, the massive government deficit.
Ortega said the government is not expecting the new measures to be a "panacea" for Nicaragua's problems. "Inflation will not disappear," he said.
But the measures are expected at the least to decrease the amount of money in circulation. Ortega also said the government will do whatever necessary to control expenditures.
"We will control the budget, to the point of saving money on defense spending," Ortega said, without elaborating. The statement seemed to contradict a speech made in December by his brother, Defense Minister Humberto Ortega, that the Sandinistas would arm up to 600,000 Nicaraguans.
An official said government planners expect the new measures to benefit primarily salaried workers, who have suffered the most during Nicaragua's economic crisis. By severely reducing the value of the dollar relative to Nicaraguan salaries, the government plans to increase incomes by as much as 1,000 percent in dollar terms.
Bolanos predicted that eventually the black market for dollars will catch up with the adjustment.
The measures are also expected to increase production by giving producers more realistic prices for their goods. Because of low production, exports in 1986, at $218 million, were the lowest in real terms since the 1950s. Exports were up slightly in 1987.