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Country Profile 2005

NicaraguaThis Country Profile is a reference work, analysing thecountry’s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit’s Country Reports analyse current trends and provide atwo-year forecast.

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Comparative economic indicators, 2004

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

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Nicaragua

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Nicaragua 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Nicaragua

3 Basic data

4 Politics4 Political background5 Recent political developments7 Constitution, institutions and administration9 Political forces12 International relations and defence

14 Resources and infrastructure14 Population15 Education16 Health16 Natural resources and the environment17 Transport, communications and the Internet18 Energy provision

19 The economy19 Economic structure20 Economic policy23 Economic performance24 Regional trends

25 Economic sectors25 Agriculture27 Mining and semi-processing27 Manufacturing29 Construction29 Financial services31 Other services

32 The external sector32 Trade in goods33 Invisibles and the current account34 Capital flows and foreign debt35 Foreign reserves and the exchange rate

36 Regional overview36 Membership of organisations

39 Appendices39 Sources of information41 Reference tables41 Population41 Education indicators41 Health indicators42 Transport statistics

2 Nicaragua


42 Electricity generation by plant type43 Central government finances43 Money supply43 Interest rates44 Gross domestic product44 Nominal gross domestic product by expenditure44 Real gross domestic product by expenditure45 Prices and earnings45 Labour force45 Production of staple food crops45 Production of main export crops46 Livestock production46 Fisheries production46 Gold and silver production46 Construction: gross value of production47 Tourist arrivals and revenue47 Main exports and imports48 Main trading partners49 Balance of payments, IMF series49 Balance of payments, national series50 External debt, World Bank series50 Exchange rates50 Foreign reserves

Nicaragua 3


Nicaragua

Basic data

121,428 sq km; mountainous upland in the central area, with a wide plain onthe western coast and tropical forest on the eastern coast

5.63m (2004 official estimate)

Population in ‘000 (1995 census)

Managua 820Matagalpa 365Chinandega 348León 330Masaya 236Estelí 169Granada 153

Tropical; tropical rainforest on the Atlantic coast

Hottest month, May, 27-32ºC (average daily minimum and maximum); coldestmonth, January, 23-30ºC; driest month, January; wettest month, October

The official language is Spanish. Miskito, Sumo and English are spoken on theAtlantic coast

Metric system, but imperial measures are in popular use. Other measuresinclude:

quintal = 46 kgmanzana = 0.7 ha

Córdoba (C). Average exchange rate in 2004: C15.94:US$1. Exchange rate on June7th, 2005: C16.678:US$1

6 hours behind GMT

January 1st, Maundy Thursday, Good Friday, May 1st (Labour day), July 19th(1979 revolution), September 14th (Battle of San Jacinto), September 15th(Independence Day), November 2nd (All Souls’ Day), December 8th and 25th

Land area

Population

Main towns

Climate

Weather in Managua (altitude83 metres)

Languages

Measures

Currency

Time

Public holidays

4 Nicaragua


Politics

Political background

Nicaragua is a presidential democracy. Enrique Bolaños Geyer, the candidateof the Partido Liberal Constitucionalista (PLC), was sworn in as president inJanuary 2002 following his election victory in November 2001. Mr Bolañosenjoys the support of a maximum of 12 legislators in Nicaragua’s unicameralNational Assembly, most of them members of the Azul y Blanco bench (Blueand White, the national flag colours). At important moments he has also usedthe opposition Frente Sandinista de Liberación Nacional (FSLN, also knownas the Sandinistas), which holds 38 seats, for support. The PLC, which controls41 of the 92 seats, remains under the control of the former president, ArnoldoAlemán. It moved into opposition to the government in February 2003.

In July 1979, after an insurrectionary war, the FSLN overthrew the dictatorshipof Anastasio Somoza Debayle. The Somozas and members of their inner circlehad ruled the country since 1936. The revolutionary government sought totransform the economy along semi-socialist lines and accorded priority tosocial projects, including extended healthcare, an improvement in literacy ratesand land reform. However, growing state control of production and distributiongenerated opposition. In particular, Nicaragua became a stage for the Cold Warwith more than 12,000 US-backed Contras (counter-revolutionaries) fighting thesocialist government. The defeat of the Contras became the government’spriority and a growing proportion of the national budget was consequentlydiverted to military spending. The FSLN was confirmed in power by election inNovember 1984 when its leader, Daniel Ortega, was elected president.

Contra aid was one of the most controversial policies adopted by the USadministration under the then president, Ronald Reagan. Covert funding beganin 1981, channelled through the US Central Intelligence Agency (CIA). Apart fromarming the Contras, the US used trade and aid embargoes as well as diplomaticpressure to weaken the government. Ensuing overt funding provoked disagree-ment between Mr Reagan and the US Congress. Contra aid eventually lostsupport following the Iran-Contra arms scandal (a US foreign-policy scandal)and in the wake of the 1987 peace plan devised by the then president of CostaRica, Oscar Arias. It was signed by the leaders of all five Central Americanrepublics as part of a move towards ending the bloody political and militaryconflicts that had plagued the region since the late 1970s.

In February 1990 more than ten years of rule by the FSLN came to an end witha surprise electoral defeat at the hands of the 14-party Unión NacionalOpositora (UNO) alliance led by Violeta Barrios de Chamorro, the widow of amartyred newspaper editor, Pedro Joaquín Chamorro. Mrs Barrios de Chamorrowon 54.7% of the vote, compared with 40.8% for Mr Ortega. The UNO tookcontrol of the National Assembly and a majority of municipal councils.Mrs Barrios de Chamorro initially secured the demobilisation of the Contras,but in 1991 many former Contras, unhappy that they had failed to obtain the

The Sandinistas overthrow thecorrupt Somoza regime

The US covertly funds armedopposition

The Chamorro years

Nicaragua 5


land to which they felt they were entitled, started to form armed bands knownas recontras. In the north of the country in particular there were conflictsbetween the recontras, the recompas (demobilised Sandinista soldiers) and thegovernment. In September 1993 a new amnesty was granted to all recontras andrecompas who had given up their arms, and in February 1994 a further peaceagreement was signed with the recontras of the Frente Norte 380 (FN-380).Remnants of the FN-380 laid down their arms in June-July 1997, as did aSandinista grouping, the Frente Unido Andrés Castro (FUAC), later in that year.

Recent political developments

Mr Alemán, previously the mayor of the capital, Managua, became president in1997 after defeating Mr Ortega with 51% of the vote against 38%. The PLC wasthe largest party in the legislature, but the Sandinistas continued to act as astrong opposition and a major force in politics. However, Mr Alemán’spopularity was short-lived owing to discontent among farmers over propertytitles and debts, and among students over university budgets. Although thegovernment and FSLN agreed to compromise over the disputed properties, thelevel of popular dissatisfaction with the government rose again, owing to a lack ofprogress on social policy and widespread allegations of corruption against thepresident and his close collaborators. By 1998 splits had emerged in the rulingPLC, with dissident deputies frustrated by Mr Aléman’s autocratic style.

The FSLN was unable to capitalise in the late 1990s on the divisions within theruling PLC owing to memories of their revolutionary excesses and the cont-inued dominance of Mr Ortega in the party. However, the Sandinistas retaineda hardcore vote of about 20% of the electorate, and at elections their supportersturn out to vote in large numbers, pushing the party’s share of the vote higher.

By January 2000 the declining fortunes of both Mr Alemán and Mr Ortega ledthem to sign a political pact aimed at reducing their vulnerability to investi-gation and increasing their political influence. The agreement weakenedNicaragua’s fledgling democracy by allowing the two major parties to exercisejoint control over important institutions, especially those involved in combatingcorruption, and to change the election rules to make it far more difficult forminor parties to challenge PLC and Sandinista dominance. Only one other partywas able to register to contest the elections in 2000 and 2001.

Despite the FSLN’s strong showing in the municipal elections in November2000, and Mr Ortega’s lead throughout much of the presidential electioncampaign in 2001, voters elected Mr Bolaños on the PLC ticket with a majorityof 56.3% of the vote. Mr Bolaños’s anti-corruption stand and fear of Mr Ortega’sreturn to power persuaded voters in the end. Mr Bolaños began his term bytackling corruption and pledging to undo the PLC-FSLN pact. Unexpectedly, hisgovernment brought indictments against officials from the Alemán era and inAugust 2002, against the former president himself. Then in December 2002, theNational Assembly stripped Mr Alemán of his parliamentary immunity and hewas placed under house arrest.

A PLC-FSLN political pact dealsa blow to democracy

Mr Alemán comes to power

The FSLN has difficulty capital-ising on the PLC’s problems

Mr Bolaños wages war oncorruption

6 Nicaragua


In December 2003 a court found Mr Alemán guilty of the corruption chargesbrought against him and convicted him to serve 20 years in prison. Never-theless, Mr Alemán has managed to maintain control of the PLC (which haddeclared itself in opposition to the Bolaños government in February 2003),depriving Mr Bolaños of a legislative majority. In order to govern, Mr Bolañoshad to rely in 2002-03 on tactical alliances between the Azul y Blanco bench,most of whom split from the PLC to support him, and the Sandinistas. Thiscoalition enabled Mr Bolaños to fulfil most of the requirements of the IMF’spoverty reduction and growth facility (PRGF) and achieve foreign-debt reliefunder the heavily indebted poor countries (HIPC) programme in January 2004(see The external sector, Capital flows and foreign debt). Constitutional reformsneeded to overhaul the judiciary and the electoral branch were not passed asthe Sandinistas opposed them.

Following the realisation of HIPC debt relief in early 2004, control over policyslowly slipped from the government’s grasp as the FSLN and the PLC started tonegotiate a revision and expansion of their 2000 political pact. However, thistime the FSLN was the dominant partner in the pact owing to its strongshowing in the 2004 municipal elections and indications that the party wasmaking political headway at the expense of the government and the PLC.Congress went on, in late 2004, and again in early 2005, to pass constitutionalreforms, including changing the organisation of the executive branch of govern-ment, curtailing the powers of the executive and conferring upon the legislaturethe power to nominate the authorities of new and existing state entities.

Mr Bolaños has staunchly rejected the reforms, which had not yet taken effectby mid-2005. After threatening to invoke a state of emergency, the governmentand FSLN agreed in January 2005, with help of the UN, to set up a NationalDialogue forum to try to resolve the stand-off. But the contentious deliberationshave made no headway. Mr Bolaños has also lobbied for international politicalsupport. He ostensibly prepared the ground to invoke the Inter-AmericanDemocratic Charter of the Organisation of American States (OAS) on the groundsthat the reforms abridged the democratic principle of the separation of powers.He also sent the constitutional reforms to the Corte Centroamericana de Justicia(CCJ, the Central American Court of Justice) to decide upon their validity. InMarch 2005 the CCJ issued a ruling backing the government’s argument thatthe amendments violated the separation of powers. The PLC and FSLN leadersresponded by having the Supreme Court, which they control, repeat its refusalto recognise the CCJ’s jurisdiction over Nicaragua’s domestic affairs.

Important recent events

January 2000

The Partido Liberal Constitucionalista (PLC) and the Frente Sandinista de LiberaciónNacional (FSLN, also known as the Sandinistas) change the constitution andelection rules as part of a political pact designed to grant the two parties a largeshare of influence in the judiciary and other government institutions.

The government loses itsleverage over policymaking

Policy control slips away fromthe Bolaños government

Nicaragua 7


November 2001

Enrique Bolaños Geyer of the PLC wins the presidency; he assumes power inJanuary 2002.

December 2002

With a small majority the Assembly strips the former president, Arnoldo Alemán(1997-2002), of his parliamentary immunity. Subsequently he is indicted oncorruption charges and placed under house arrest. Nevertheless, Mr Alemánmanages to remain in control of the PLC, leaving Mr Bolaños in a weak positionwith the firm support of only eight members in the National Assembly and theuncertain support of the FSLN.

February 2003

The PLC, on whose platform Mr Bolaños was elected president in November 2001,announces that it will join the opposition bench following its failure to link theirsupport for the government with their efforts to free Mr Alemán from house arrest.

December 2003

Mr Alemán is found guilty of corruption and money-laundering and sentenced to 20years’ imprisonment.

November 2004

After winning municipal elections, a strengthened FSLN joins with the PLC to reviseand expand the 2000 political pact. Constitutional amendments and new ordinarylaws are passed to curb the powers of the executive branch and extend the powersof the legislature.

January 2005

Mr Bolaños threatens to declare a state of emergency to thwart the constitutionalreforms. A National Dialogue forum, under the auspices of the UN, begins to seek away to avert a crisis.

March 2005

The Corte Centroamericana de Justicia (CCJ, the Central American Court of Justice)rules that the constitutional reforms violate the separation of powers. The PLC andFSLN respond by having the Supreme Court, which they control, repeat its refusal torecognise the CCJ’s jurisdiction over Nicaragua’s domestic affairs.

Constitution, institutions and administration

Nicaragua’s current constitution, which dates from 1987, was the country’s firstsince the overthrow of the Somoza regime. It provided a legal foundation for theSandinista reforms and established a democratic system of government withelections every six years, and a mixed economy. It also established the formalseparation of powers between the executive, the National Assembly (the legisla-ture), the judiciary and the Consejo Supremo Electoral (CSE, the electoral council).It also created two new levels of elected government: 131 municipal councils(which now number 153) and two autonomous Atlantic coast regional councils.

Reforms designed to reduce the power of the executive branch and to shiftmore responsibility to the National Assembly were passed in 1995. These

The Sandinista constitution isretained with modifications

8 Nicaragua


changes also reduced the legislature’s and the president’s terms in office to fiveyears and provided for two rounds of voting in presidential elections. Furtherreforms in January 2000 enlarged the Supreme Court and the electoral council,as well as expanding the Controlaría General de la República (the comptroller-general’s office) as a device to facilitate shared party control of these bodies.

The 2000 reforms: main elements of the PLC-Sandinista pact

Changes to the constitution

• The number of judges in the Supreme Court increased from 12 to 16.

• The Controlaría General de la República (the comptroller-general’s office)becomes a five-person collegial body.

• The electoral council is expanded from five to seven members.

• The percentage of the vote needed to win a presidential election in the firstround is reduced from 45% to 40%, and further, to 35%, if the gap between thefirst and second places exceeds 5%.

Changes to electoral law

• New parties seeking registration must submit valid voters’ signaturesequivalent to 3% of those voting in the previous national election and mustform party candidate lists in all 150 municipalities.

• Any party that fails to gain 4% of the vote in municipal or national electionsloses its registration.

A Supreme Court ruling in October 2002 struck down some of the election lawchanges mentioned above, allowing a more open contest in the November2004 municipal voting, when ten parties participated. In the same month, theFSLN and PLC initiated further constitutional reforms that, if completed, willforce the president to gain the approval of 60% of the National Assembly forcabinet appointments. Mr Bolaños has denounced the amendments as anillegal attempt to change to a semi-parliamentary system of governmentwithout calling a constituent assembly to legitimise the transformation. Theamendments have not yet gone into effect.

The president is the head of state. Directly elected by adult suffrage for a five-year term, he is supreme commander of the armed forces and has the power toappoint ministers and vice-ministers, and to propose the national budget.However, the president’s powers to issue economic and tax decrees werecurtailed under the 1995 constitutional reforms; all tax legislation must beapproved by the National Assembly.

The president appoints the head of the Banco Central de Nicaragua (BCN, theCentral Bank), which is not an autonomous institution. The presidency alsocontains a secretariat for strategy and co-ordination as well as several socialinvestment funds. The Ministry of Foreign Affairs is responsible for managingrelations with donors. The minister of public credit (finance) and the president

The executive

Nicaragua 9


of the Central Bank are normally the most powerful officials. An independentcomptroller-general theoretically oversees the probity of government operationsbut in effect this institution has become politicised and ineffective.

The 153 mayors and mayoral councils are directly elected and in theory enjoyautonomy from the central government. Real autonomy has so far been slightowing to the limited tax base of local governments, but it is destined to grow asthe result of a 2003 law that provides for a staggered transfer of 10% of thenational budget to the municipalities.

The legislature, a 92-seat unicameral National Assembly, is directly elected byadult suffrage for a period of five years. Of those elected, 90 are elected byproportional representation, 20 of them to serve nationally and 70 to representthe provinces, known as departments. By virtue of the PLC-Sandinista pact, ofthe two remaining seats, one was given to Mr Alemán, and the other to therunner-up in the 2001 presidential election, Mr Ortega. Efforts to removeMr Alemán from his seat following his corruption conviction failed after a courtruled that this cannot occur until all appeals have come to pass. Regional coun-cils, consisting of 45 members, serve as mini-legislatures on the Atlantic coast.

The Supreme Court is an independent branch of government whose 16members are selected for five years by the National Assembly from listssubmitted by the president and by the parties in the legislature. The magistrateselect the court’s president and vice-president from within their own ranks. Thecourt appoints judges to the lower courts.

The selection of magistrates and judges has always been political, and judicialindependence from executive and legislative pressures is slight. A judicial careersystem based on merit was legislated in 2004 but has yet to be tested. Thetraining of judges is highly deficient, and public confidence in the fairness ofjudicial processes is extremely low. Corruption and influence-peddling in thejudicial branch put foreign investors at a sharp disadvantage in any litigationor dispute, and legal security for business in general is among the lowest inLatin America.

The main function of the electoral council is to organise elections, plebiscitesand referendums freely and fairly. It is a formally independent branch ofgovernment. The 2000 pact politicised the council, leading to widespreadcharges that it acted unfairly to exclude certain parties and candidates fromrunning for office in 2000 and again in 2001.

Political forces

Although constitutionally barred from immediate re-election, Mr Alemán hassuccessfully maintained his influence over the PLC during the Bolaños presi-dency. At first, as president of the National Assembly, he sought to undermineMr Bolaños, who pursued a campaign against corruption. A split in the 53-member PLC bench ensued, with five legislators forming the separate Azul yBlanco bench to support Mr Bolaños against Mr Alemán. This grouping subse-quently stabilised at eight to ten members, while the PLC went into opposition

The legislature

The judiciary

The electoral council

The PLC moves into oppositionagainst the government

10 Nicaragua


against the government in February 2003. Despite his conviction on corruptioncharges, Mr Alemán managed to retain control over most of the PLC’s bench ofAssembly deputies and the party generally. But in late 2004, a former ministerin his cabinet, Eduardo Montealegre, challenged Mr Alemán’s dominance overthe PLC and demanded a primary election to choose the party’s nextpresidential candidate. Mr Alemán expects to appoint a loyal candidate.

The left-wing FSLN, which originated in the guerrilla force that overthrew theSomoza dictatorship in 1979, supported the Bolaños government on importantissues until the end of 2003, but has since adopted a stance of truculentopposition and sabotage. Mr Ortega continues to be the most powerfulSandinista figure, despite defeats in the 1990, 1996 and 2001 presidentialelections and allegations of child abuse made against him. The FSLN mademajor advances in the November 2004 local elections, when the centre-rightwas divided among the PLC, liberal splinter parties, and the Alianza por laRepública (APRE). In early 2005, the outgoing Sandinista mayor of Managua,Herty Lewites, began challenging Mr Ortega for control of the party. LikeMr Montealegre of the PLC, he demanded that an internal election beorganised to decide on the party’s nomination for the presidential election.

Formed in May 2004, the APRE emerged as a third contender and won 9% ofthe vote in the November 2004 municipal elections. The alliance is composedof the Partido Conservador (PC), pro-Bolaños liberals and other minor parties. Itportrays itself as a modern alternative to the dominant FSLN and PLC partiesand their leaders. However, it is not certain that APRE will manage to staytogether for the 2006 election.

Recent national election results% of the vote

1984Frente Sandinista de Liberación Nacional (FSLN) 67Partido Conservador Democrática (PCD) 14Partido Liberal Independiente (PLI) 10Others 91990Unión Nacional Opositora (UNO, 14 parties) 55Frente Sandinista de Liberación Nacional (FSLN) 41Others 41996Alianza Liberal (AL) 51Frente Sandinista de Liberación Nacional (FSLN) 38Others 11

2001Partido Liberal Constitucionalista (PLC) 56Frente Sandinista de Liberación Nacional (FSLN) 42Partido Conservador de Nicaragua (PCN) 2

Mr Bolaños has consistently vowed to dismantle the 2000 constitutional pactbetween the PLC and FSLN, in order to boost political competition andtransparency. However, between them Mr Alemán and Mr Ortega still controlthe National Assembly votes needed to pass constitutional reform initiatives

FSLN constitutes the mainopposition

The PLC and FSLN unite toimpede institutional reforms

A third force has arisen tochallenge the caudillos

Nicaragua 11


(for which a 60% majority is needed), and have thwarted all attempts to over-turn their pacts. In early 2005, the National Assembly reconfirmed many of theparty representatives chosen in 2000 (or replaced outgoing staff with party stal-warts) to the Supreme Court, the Supreme Electoral Council and as comptrollers-general when their terms expired. As a result of the renewed pact, prospects forinstitutional reform during the remainder of Mr Bolaños’s term are poor.

Main political figures

Enrique Bolaños Geyer

President of Nicaragua since January 2002. He was a driving force in the arrest andconviction of Arnoldo Alemán, his predecessor, on corruption charges. He was vice-president under Mr Alemán until October 2000 for the Partido LiberalConstitucionalista (PLC). Mr Bolaños was president of the Consejo Superior de laEmpresa Privada (Cosep, the higher council for private enterprise) during much ofthe Sandinista revolution (1979-1990).

Arnoldo Alemán Lacayo

Leader of the PLC, president of the National Assembly for most of 2002, and theformer president of Nicaragua (1997-2002). Following widespread corruption duringhis presidency, charges were instigated against him. Stripped of his immunity as adeputy and put under house arrest pending trial on corruption charges in December2002, he was sentenced to 20 years’ imprisonment a year later. Although discreditedinternationally, he remains a major figure at home.

Daniel Ortega

Leader of the Frente Sandinista de Liberación Nacional (FSLN, known as theSandinistas) and former president of Nicaragua (1985-90). Mr Ortega successively lostthe presidential elections in 1990, 1996 and 2001. but he has maintained his party’svote share and increased its quotas of power in key institutions of state since his2000 pact with Mr Alemán, leading many Nicaraguans to view him as the country’smost powerful figure. In Latin America, he is an ally of the presidents of Cuba andVenezuela, Fidel Castro and Hugo Chávez Frías respectively. He is set to run again forthe presidency in 2006.

Herty Lewites

Elected mayor of the capital, Managua, in November 2000 on the FSLN ticket.Mr Lewites was minister of tourism under the Sandinista regime during the 1980s,when he developed vacation facilities for the masses. A moderate Sandinista,Mr Lewites conducted an effective, non-partisan and reasonably transparentmunicipal administration until his exit from office in January 2005. Thisperformance gained him wide popularity across party lines. Although he is keen torun for the presidency in 2006, Mr Ortega will endeavour to stop him fromrunning and dividing the Sandinista vote.

Eduardo Montealegre

Minister of finance in the Bolaños government from January 2002 to March 2004.He was minister to the presidency and minister of foreign affairs under Mr Alemán.After losing to Mr Bolaños in the party primaries in December 2001, Mr Montealegreran his presidential campaign. The US-educated Mr Montealegre is a member of a

12 Nicaragua


traditional banking family and is also widely tipped to be a contender for thepresidential race in 2006.

International relations and defence

During the 1980s, Nicaragua’s most important international links were with theSoviet Union, the rest of the Eastern bloc countries, and Cuba. Relations withthe US resumed after 1990 with the defeat of the Sandinistas in elections,leading to generous aid inflows (albeit dependent on political reform),improvements to the country’s human rights record and a satisfactoryresolution of disputes arising from the expropriation of US citizens’ property.The US government has exercised periodic tutelage over Nicaragua’s internalaffairs to resolve impasses and protect its own interests, which it defines asguarding against the Sandinistas’ return to power, and, more recently, ensuringthat Mr Alemán does not return to power either. After the US, Nicaragua’s mostimportant external ties are with Taiwan, to which it provides political supportinternationally in return for aid and investment.

Nicaragua participates fully in Central American integration. In December 2003the country concluded negotiations with the US over its participation in theDominican Republic and Central American Free-Trade Agreement (DR-CAFTA),which comprises four other countries in the region (Costa Rica, El Salvador,Guatemala, and Honduras) and the Dominican Republic. The treaty will notcome into effect until the US Congress ratifies it. Nicaragua’s national Assemblyalso still needs to vote on it.

Nicaragua’s relationship with its southern neighbour, Costa Rica, is uneasy onaccount of Costa Rican concerns about Nicaraguan immigration. Costa Rica andNicaragua have disputed the access rights to the San Juan River, which bordersthe two countries, since mid-1998. If not resolved by September 2005, thedispute will proceed to the International Court of Justice (ICJ) in The Hague.Tensions with Honduras have flared recurrently, as both countries claim fishingrights in the Gulf of Fonseca. In 2000 Nicaragua and Honduras took theirdisputes over maritime claims in the Atlantic Ocean to the International Courtof Justice in The Hague. Since the election of Mr Bolaños in Nicaragua and ofRicardo Maduro in Honduras, relations have improved.

The armed forces have always been closely associated with Nicaraguan politics.The country has experienced frequent internal armed conflicts resulting frompolitical disputes, which have led to military occupation by the US on twooccasions. In the 1990s the army underwent a process of contraction andreform to subordinate it to the civilian government. However, the institutionretains significant autonomy from the executive branch.

Armed forces, 2004Army 12,000Navy 800Air force 1,200

Total armed forces 14,000

Source: International Institute for Strategic Studies, The Military Balance, 2004-2005.

Relations are re-establishedwith the US and Taiwan

There is participation inregional integration

The army undergoesrationalisation

Nicaragua 13


Security risk in Nicaragua

Armed conflict

The risk of armed conflict in Nicaragua is small, and poses virtually no threat tobusiness. Given the level of rural poverty and uncertainty over land rights, theresurgence of armed bands formed by ex-soldiers from the contra war—eitherContras or Sandinistas—remains a possibility but should not affect business. However,violent conflict is currently limited to localised land disputes and occasional socialprotest in the cities.Nicaragua has a long-running maritime boundary dispute with its neighbourHonduras but the two countries are seeking an amicable solution through arbitrationby the International Court of Justice (ICJ) in The Hague. The latest round of thedispute began in 1999 after Honduras ratified a maritime treaty granting Colombiarights to areas of ocean that Nicaragua claims as its own. Nicaragua retaliated byimposing a 35% surcharge on imports from Honduras, and there were accusations ofmilitary movements along the border. The Organisation of American States (OAS)mediated an agreement between the two countries early in 2001. After the electionof Mr Bolaños in Nicaragua and of Ricardo Maduro as president in Honduras,relations improved and the 35% import surcharge was suspended in early 2003.

Unrest/demonstrations

Mass demonstrations, and both civil and labour unrest, take place occasionally,usually in protest at the national government and poor living conditions. Theseactivities may interrupt business operations as roadblocks, for example, preventingthe movement of people and goods. However, activists do not specifically targetforeign businesses.

Crime

Poor law enforcement and high poverty rates make crime a growing problem inNicaraguan urban areas. Although crime is not a major concern for business orforeign enterprises, its existence poses a threat to personnel and property. The mostcommonly occurring crimes are robbery and pick-pocketing—sometimes employingviolence—and burglary. A hangover of the violence of the civil conflict in the 1980s isthe frequent use of guns by criminals of all types. Although not as common as inmost other Central American countries, gang activity and car-jackings are on theincrease. Gang violence tends to be confined to poor neighbourhoods.

Organised crime

There is a small amount of organised crime, mainly centred on the trafficking ofarms, people and narcotics. It poses little risk to foreign business.

Kidnapping/extortion

Kidnapping tends to be perpetrated in rural areas against wealthy landowners andtheir families. It has rarely affected foreigners.

14 Nicaragua


Resources and infrastructure

PopulationPopulation by department, 2003(% of population)

Urban RuralManagua 93.1 6.9

Matagalpa 37.6 62.4Chinandega 62.4 37.6León 59.2 40.8

Masaya 60.9 39.1Jinotega 21.9 78.1

Estelí 58.4 41.6Granada 64.8 35.2Nueva Segovia 50.2 49.8

Carazo 61.7 38.3Rivas 36.6 63.4

Chontales 56.1 43.9Boaco 32.9 67.1

Madriz 28.5 71.5RAAN 28.5 61.5RAAS 43.2 56.8

Río San Juan 24.5 75.5Total population 58.6 41.4

Source: Instituto Nacional de Estadísticas y Censos.

By 2004 the population reached an estimated 5.63m according to the InstitutoNacional de Estadísticas y Censos (the national census and statistics institute). Agrowing number of Nicaraguans have migrated from rural to urban areas overthe last decade. In 2004 41% of Nicaraguans were living in rural areas, andabout 25% of the population lived in the department of Managua. Populationgrowth is estimated at 2.6% a year. Fertility rates, although declining, are twicethe Latin American average. As a result, the population is young, with amedian age of just 17 years. In the 2001 elections, 55% of the total populationwas of voting age, at 16 years or above.

Most Nicaraguans are mestizo (of mixed Spanish and Amerindian ancestry).The Atlantic coastal region is home to indigenous minorities made up ofMiskitos and Mayangnas (Sumos), of Chibcha origin, in the north, and blacksand Garifunas in the south. An estimated 2-3% of the total population does nothave Spanish as a native language. Traces of indigenous social organisation, butnot languages, survive in the Pacific region. Over the last 20 years, in-migrationfrom the Pacific has slowly changed the ethnic balance on the Atlantic coast infavour of mestizos. Emigration to Costa Rica is known to be high, but precisestatistics are lacking.

Standard-of-living surveys carried out in 1998 and 2001 indicated that despite aslight decline, overall poverty levels remain high and the poor continue toincrease in number. Judged according to indicators of unmet basic needs, 74.8%of households were classified as poor in 2001, compared with 76.7% in 1998.

Population estimates arerevised

Poverty remains widespread

Nicaragua 15


Using the World Bank’s poverty-line measure, which is based on the cost of aminimum diet, the 2001 poverty level was 45.8% of the population, comparedwith 50.3% three years earlier. Most of the decline was recorded in rural areasand in the capital, Managua. However, the total number of poor people rose bynearly 35,000 during the period surveyed. Previous surveys have also showedthe distribution of national income becoming more unequal, with the top 10%of income earners receiving 44.7% of total income in 1998, compared with 44.6%in 1993. At 0.50, the Gini coefficient of income inequality (1998) in Nicaragua ishigh and matches the Latin American average.

National income distribution(%)

Decile Sep 1993 Sep 19981st 0.4 0.82nd 1.9 2.03rd 3.0 2.9

4th 4.0 3.85th 5.3 5.0

6th 6.7 6.37th 8.8 8.1

8th 11.5 10.79th 16.0 15.810th 42.4 44.6

Wealthiest 1% 13.2 15.6

Source: UN Development Programme, El Desarrollo Humano en Nicaragua 2000.

Education

According to the Instituto Nacional de Estadísticas y Censos (INEC, the NationalInstitute of Statistics and Census), the literacy rate in Nicaragua was 81.9% in2001 and average school attainment among adults is 4.6 years. Underfundedand badly managed, Nicaragua’s basic education system is both fragmentedand inadequate in coverage, with nearly 850,000 children aged 3-18 outside thesystem altogether. Rural poverty, which continues to promote early school-leaving, has made it difficult to improve net primary enrolments, which stoodat just 83% in 2004. Reflecting in addition the shortage of well-trained teachers,only 41% of those who initially enroll complete primary school during the sixyears allotted, although 70% finish eventually.

Although it is increasing, net enrolment in secondary schools was only 40% in2004. The secondary curriculum is heavily oriented towards preparation foruniversity, yet prepares students poorly for higher learning. In part, this reflectsgross misallocation of the national education budget, which in 2002 provided ascant US$40 per secondary school pupil, whereas US$763 was spent on eachuniversity student. Reflecting a cultural bias against manual labour, formaltechnical and vocational education is scarce, although supply is now increasing.

A long–term Plan Nacional de Educación (National Education Plan) drafted in2000 is attempting to address the system’s lack of relevance to changingeconomic circumstances. New priorities drafted in 2003 stress the need to

16 Nicaragua


bolster basic skills at primary level, increase teacher quality and motivationacross the system, and expand technical training for youth.

Health

The provision of public health services is inadequately distributed, favouringurban areas and hospital care over rural areas and the kind of primary levelattention needed to cope with a high incidence of diarrhoea and acuterespiratory ailments among poor children. Foreign aid has helped maintain reallevels of health spending despite inadequate budgetary allocations, but on a perhead basis spending is still the lowest in Central America. Better prenatal careand physician attendance at births helped drive the infant mortality rate downfrom 121 deaths per 1,000 live births in 1979 to 31 per 1,000 in 2002—but this isstill one of the highest rates in the hemisphere. The Ministry of Health claims tohave vaccinated 93% of children against measles and 86% against a broadspectrum of other infectious diseases in 2003. Malaria and dengue fever areendemic. Health services are provided by state and private institutions. However,the public provision of health services is badly managed, and state hospitals lackmedicines for the treatment of patients, who often have to buy them from privatepharmacies. Chronic malnutrition—defined as stunting, where a child’s height isinadequate for its age—affects 20% of children, while anaemia afflicts one-third.

Health indicatorsLife expectancy at birth (2003, years) 69 Men 66 Women 71Child mortality (2003, under-five mortality/1,000) 38

Maternal mortality (2002, per 100,000 live births)a 97Births attended by skilled staff (2001, % of total) 67Prevalence of under-nourishment (2000, % of population) 29

Access to clean water (2002, % of population) 81Access to sanitation (2002, % of population) 78

a Ministry of Health.

Source: The World Bank, World Development Indicators 2004, unless otherwise indicated.

Natural resources and the environment

Nicaragua has a variety of tropical ecosystems ranging from tropical rainforeston the Atlantic coast to dry tropics on the Pacific coast. Owing to the offshoreconfluence of tectonic plates and six active volcanoes, Nicaragua is highlyvulnerable to earthquakes, flooding and hurricanes. Conditions in themountainous regions in the centre and north of the country are fresher andwetter. The country has two large freshwater lakes, the Lago de Nicaragua andthe Lago de Managua. Both are polluted.

The continental shelf off the Atlantic coast is a rich source of fish, lobster andshrimp, and both the Atlantic and Pacific coasts have underfished reserves ofgrouper, tuna, clams and mackerel. Commercial shrimp farming has alsoflourished in estuaries along the Pacific Coast. According to official sources,

Health services are badlyorganised

There is a wide variety ofecosystems

Nicaragua 17


there are 37,880 ha suitable for shrimp farming. However, overexploitation isdepleting the Atlantic lobster beds.

Forest reserves are fairly abundant compared with the rest of Central America.The main commercially viable species are mahogany, cedar, pine, rosewoodand oak. Official sources put the forested area, including rainforest underofficial conservation, at 4.8m ha in 1992. Protected areas covered 2.2m ha. Thetwo largest nature reserves are Bosawás on the north Atlantic coast and Sí-a-Paznear the border with Costa Rica. Both are subject to encroachment by illegalsettlers. Deforestation is a serious problem, resulting in soil erosion, the decayof watersheds and aquifers, and an increasing tendency towards drought.

Transport, communications and the Internet

Internal transport relies almost entirely on the road network. The railwaynetwork was closed in 1994 after falling into disrepair. Although the roadnetwork has recovered from wartime damage, it was no more extensive in 2002than before the 1979 revolution. Of a total of 18,711 km of roads, only 6,165 kmare all-weather roads and a mere 1,957 km are paved. By contrast, motor vehicletraffic has grown rapidly, with passenger cars virtually doubling in numberbetween 1996 and 2002, when they reached more than 80,000. The Pan-American Highway crosses the country from north to south. It is the main roadlink with other countries in Central America. Although improvements to majorroads were made in the 1990s, secondary and rural roads remain in a poorcondition. Traffic congestion is a minor problem in Managua.

The Pan-American Highway gives Nicaragua access to seaports on the AtlanticCoast of the isthmus, principally Puerto Cortés in Honduras and Puerto Limónin Costa Rica. As paved roads linking the Pacific and the Atlantic coasts are stilllacking, most of the country’s agricultural exports must be shipped throughthese ports at a significant cost. Recent investments have rehabilitated thePacific port of Corinto but it still cannot handle enough volume to attract majorshipping lines to use it as a port of call.

The country’s main international airport, Managua International Airport,handles most air-passenger traffic, which grew by two-thirds between 2000and 2004. The Atlantic coastal region’s three airports are able to accommodateinternational cargo flights.

Almost all installed telecommunications capacity uses digital technology, owingto investments since privatisation of the formerly state-owned telecomscompany, the Empresa Nicaragüense de Telecomunicaciones (Enitel). With thepurchase in February 2004 of the 40% share belonging to a Honduran firmMegatel, Mexico’s Telmex-América Móvil group now completely controls Eniteland is rapidly expanding both fixed and cellular services. Nevertheless, with214,000 fixed lines at the end of 2004, coverage of fixed telephony is still thelowest in Central America. As owner of both Enitel and PCS Aló, AméricaMóvil also enjoys a dominant position in the cellular market where it competeswith Telefónica de España (Spain), which in late 2004 bought the mobilephone holdings of BellSouth International (US). With over 738,000 subscribers

Highways, ports and airports

Telecoms modernisation

18 Nicaragua


at the end of 2004, cellular coverage outstrips fixed-line telephony. In recentyears, mobile phone charges have fallen by around 25% owing to competition.

Nicaragua has 11 privately-owned television stations, two daily newspapers—LaPrensa and El Nuevo Diario—and 187 radio stations.

A total of 20 Internet providers operate in Nicaragua, but private use of e-mailand the Internet remains low—at about 20,000 subscribers—owing to the highcost of the service relative to local incomes.

Energy provision

Private suppliers now generate the majority of electric energy, with theEmpresa Nicaragüense de Electricidad (Enel, the state-owned electricitycompany) playing a diminishing role as it undergoes slow privatisation.Nicaragua’s effective generating capacity in 2003 was 601 mw, with dailydemand reaching up to 441 mw. A system of energy-swapping with Panamaand Honduras contributes slightly to consumption. Enel supplied 583 gwh ofpower in 2004, around 20% of total output, down from 44% in 2000. In2000-04, electricity output grew by 7.2% per year, while consumption expandedby only 3.3%. Power blackouts, frequent during the administration of VioletaBarrios de Chamorro (1990-97), have declined notably. Although hydroelectricinstallations in the north and geothermal output from a plant at theMomotombo volcano have recovered to a degree since 2000, the countrydepends on oil-fired thermal plants for two-thirds of its electricity.

All of Enel’s distribution network was privatised in September 2000. Invest-ments are under way to improve the distribution system, which loses nearlyone-third of all power generated. After repeated delays, two of six Enelgenerating plants were sold in 2002 and 2003. The sale of Enel’s twohydroelectric generating plants was originally a condition set by the povertyreduction and growth facility (PRGF) agreement with the IMF in order to reachcompletion point under the heavily indebted poor countries (HIPC) initiative.However, this plank was dropped as a result of strong political opposition, andthe hydro generators remain in state hands.

Energy demand by type of usera

2003 2004gwh % of total gwh % of total

Household 519.5 31.8 558.4 32.8Commercial 486.7 29.8 515.4 30.3

Industrial 354.1 21.6 337.0 19.8Irrigation 64.1 3.9 66.8 3.9

Street lighting 53.9 3.3 67.5 4.0Water pumping 157.5 9.6 156.1 9.2Total 1,635.8 100.0 1,701.0 100.0

a Official estimates.

Source: Banco Central de Nicaragua, Indicadores Económicos.

Media

The Internet

Privatisation makes slowprogress

Nicaragua 19


The economy

Economic structureMain economic indicators, 2004Real GDP growth (%) 5.1Consumer price inflation (av; %) 8.5Current-account balance (US$ m) -795a

Exchange rate (av; C:US$) 15.94Population (m) 5.63a

External debt (year-end; US$m) 3,362a

a Economist Intelligence Unit estimates.

Sources: Banco Central de Nicaragua, Indicadores Económicos; IMF, International Financial Statistics.

Nicaragua is an impoverished country still struggling to recover from a politicaland economic upheaval in 1979-90 that destroyed infrastructure, reduced prod-uctivity and increased poverty levels. In 2004 the country’s GDP was estimatedat US$4.6bn, giving per head GDP of around US$810. In May 2003 the BancoCentral de Nicaragua (BCN, the Central Bank) published new national accountsbased on a 1994 base rather than the previous base of 1980. It showed howGDP had been severely underestimated and the tax and debt burdens converselyoverstated. The new accounts presented major corrections in these and othervariables and incorporated a host of new survey and census information.

Through the new accounts it has become obvious that the statistical profile ofthe Nicaraguan economy has changed radically. For 2002 the new data raisedGDP to US$3.95bn, compared with US$2.5bn under the old accounting system,while GDP per head rose from US$480 to US$754. However, the rate of growthof real GDP during the administration of the former president, Arnoldo Alemán(1997-2001), previously calculated at an average of 4.9%, was revised down to4.4% per year. The higher GDP level has also substantially changed statisticalratios. Whereas Nicaragua’s national tax coefficient as a percentage of GDP hadlong been considered the highest in Central America (22-23% under the oldsystem), the corrected figure of 16.3% for 2004 places it squarely in the sub-regional mainstream. By contrast, gross fixed investment remains relativelyconstant under both systems, at 26-28% of GDP.

Between 2000 and 2004 the weight of the primary sector in GDP increasedslightly, from 18.3% to 20.1% of GDP, in spite of a fall in the importance of fishing.It was largely owing to growth in livestock farming and the production of basicfoodstuffs. Agriculture remains by far the country’s largest employer, accountingfor about 40% of all employment. Most agricultural jobs are in the informalsector. Manufacturing grew from 16.9% to 18.1%, owing to a sharp expansion infood products and garment output, while the weight of the construction sectorfell slightly. Services fell from 59.7% to 56.3% of GDP, and the government alsosaw its share of GDP marginally diminished.

The cultivation of basic food crops is concentrated in the central and Pacificcoast regions, while coffee is grown in the uplands north of Matagalpa.Livestock farming, mainly cattle ranching, is most prevalent in Boaco and

GDP data based on 1980 wereseverely underestimated

The importance of agriculturerises slightly

20 Nicaragua


Chontales and in the southern provinces near the border with Costa Rica.Commerce and manufacturing are concentrated in the capital, Managua, and inthe cities of Matagalpa, Chinandega, León, Masaya and Estelí.

Comparative economic indicators, 2004Nicaraguaa Guatemala a El Salvadora Honduras b Mexico b

GDP (US$ bn) 4.6b 26.7 15.8b 7.5 676.5

GDP per head (US$) 810 2,109 2,390 1,060 a 6,445GDP per head (US$ at PPP) 2,577 4,988 3,627 2,696 a 9,711a

Consumer price inflation (av; %) 8.5b 7.5 b 4.5b 8.1 4.7Current-account balance (US$ bn) -0.8 -1.1 -0.6 -0.4 -8.8

Current-account balance (% of GDP) -17.5 -4.1 -4.0 -5.2 -1.3Exports of goods fob (US$ bn) 1.2 3.4 3.3b 1.6 188.6Imports of goods fob (US$ bn) -2.4 -6.9 -5.9 -3.7 -197.2

External debt (US$ bn) 3.4 4.7 7.7 6.0 a 143.3a

Debt-service ratio, paid (%) 16.8 8.6 9.3 10.3 a 17.0a

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policyCentral government finances(C m; Jan-Dec)

2003 2004 % changeRevenue 13,413 16,099 20.0

Expenditure -16,739 -19,174 14.5Balance before grants -3,326 -3,075 -7.6Grants received 2079 2,378 14.4Balance incl grants -1,247 -697 -44.1

Source: Banco Central de Nicaragua.

Following the hyperinflation and economic decline of the 1980s, Nicaraguapursued a policy of stabilisation and structural adjustment in the 1990s,complemented in 1997 by the pursuit of great foreign debt relief. Under thecurrent president, Enrique Bolaños Geyer, debt relief has been obtained underthe heavily indebted poor countries (HIPC) initiative. Mr Bolaños’s macro-economic policy has been framed within an overarching design fordevelopment known as the Plan Nacional de Desarollo (PND, NationalDevelopment Plan).

In March 1998 the Alemán government signed a second three-year enhancedstructural adjustment facility (ESAF) agreement with the IMF—the first wassigned in April 1994. It committed the government to pursue further fiscal adjust-ments and to privatise public utility companies. The public finances improvedin 1997-98, although they remained heavily dependent on foreign grants. Fiscaltargets were revised after Hurricane Mitch, which created the need for vastlyincreased public spending on reconstruction. With the agreement of the IMF,public capital spending almost doubled in 1999, to 20.6% of GDP, and the non-financial public-sector (NFPS) deficit (before grants) reached 12% of GDP.

IMF agreement commits theAlemán government to reform

Nicaragua 21


Hurricane Mitch

Hurricane Mitch struck Nicaragua with devastating force in late October 1998. Thestorm killed at least 3,000 people and left 400,000 temporarily homeless ordisplaced. It also caused massive material losses estimated by the government atUS$1.5bn, including damage to 8,000 km of roads and 71 bridges. By March 1999 thecountry had received US$250m in emergency assistance, including debt relief frommany bilateral donors. A further US$1.4bn was pledged by the donor community ata meeting in Stockholm in May, covering reconstruction efforts through to 2002.Coping with the aftermath of Hurricane Mitch was a prime policy objective in 1999-2001, and some reconstruction efforts continue.

Although market-oriented reforms in the early 1990s were successful in jump-starting the economy, by 1998 concern had emerged among donors thatrenewed economic growth was not benefiting the poor. In October 1999, theESAF was renamed the poverty reduction and growth facility (PRGF).Meanwhile, the Alemán administration began seeking access to the HIPCinitiative to gain foreign debt relief. As a prerequisite, in consultation with civilsociety, the government began formulating a poverty reduction strategy, whichwas completed in mid-2001. Interim reductions in foreign debt service underthe HIPC programme were applied to fighting poverty within the strategy’sguidelines beginning in 2001. Nicaragua reached completion point under HIPCin January 2004 (see The external sector, Capital flows and foreign debt).

Fiscal reform and privatisation stalled in the latter years of the Alemánadministration. After 1999 the budget gap was supposed to decline, butelection-year spending in 2000 and 2001 kept the NFPS deficit extremely high,resulting in PRGF fiscal targets being missed by an increasingly wide margin.Progress in privatising public utilities was also inadequate. A social securityreform introducing private pension funds was passed by the NationalAssembly in March 2000 but was not implemented. In view of these fulfilmentshortfalls, the 1998 PRGF was allowed to lapse in mid-2001.

In December 2002 Mr Bolaños signed a new three-year PRGF covering 2002-05.The primary goal of the agreement is fiscal sustainability, through thebroadening of the tax base, the elimination of tax exemptions, improvedrevenue collection and more effective budgeting. A modest tax reform wasapproved in April 2003. The PRGF has also aimed to rebuild reserves after theirdepletion in 2001 and improve the financial position of the Central Bankthrough a significant net redemption of internal debt. These goals were met to alarge extent, but by early 2005 lack of progress on the fiscal front put thecontinuation of the PRGF in jeopardy.

Major economic policy events

December 2002: The Bolaños government signs a new three-year poverty reductionand growth facility (PRGF) with the IMF.April 2003: The National Assembly approves a tax reform, the Tax Equity Law, aPRGF condition.

Reducing poverty is amajor goal

Fiscal reform and privatisationstall

Mr Bolaños agrees a newPRGF with the IMF

22 Nicaragua


December 2003: Along with other Central American countries, Nicaragua signs theDominican Republic-Central American Free-Trade Agreement (DR-CAFTA) with theUS.January 2004: The IMF and World Bank announce that Nicaragua has reachedcompletion point under the heavily indebted poor countries (HIPC) initiative.January 2005: The IMF suspends the three-year PRGF programme informally.

Privatisation has ground to a halt. In December 2003 the government sold itsremaining 49% stake in the Empresa Nicaragüense de Telecomunicaciones(Enitel) to América Móvil (the mobile telephone arm of Telmex) of Mexico.However, it has all but abandoned attempts to introduce private pension fundsor sell the ageing thermal generating plants, while political opposition hasblocked the sale of the hydro plants or the process to offer concessions tooperate parts of the national water company. Although some of these stepswere pre-conditions for HIPC debt relief, they were mostly abandoned beforeHIPC completion was declared in January 2004.

Since 1997 monetary policy aimed to combine inflation control with astrengthening of foreign reserves. The 1998 ESAF II agreement establishedtargets for further reserve growth and limitations on domestic NFPS borrowing,and committed the government to redeeming certificados negociables deinversión (Cenis, negotiable investment certificates) to control quasi-fiscal lossesof the Central Bank, which were expanding the money supply.

The economy’s extensive dollarisation, and the effective indexation of mostdomestic prices to the crawling-peg exchange rate, convinced authorities to adoptthe nominal exchange rate as an inflation anchor in 1998. In 1999 the governmentslowed the crawling-peg devaluation from 12% to 9% annually, and then further,to 6%, in an effort to keep price increases to single-digit levels. The policy wassuccessful, as prices rose by just 4.8% year on year in 2001 as domestic demandlevelled off, reflecting election-year nervousness and a fall in imported oil prices.

Key economic policy figures

Marco Arana: Minister of finance and public credit.

Mario Alonso: President of the Banco Central de Nicaragua.

Azucena Castillo: Minister of development, industry and commerce.

Juan Sebastián Chamorro: Secretary for strategy and co-ordination.

Excessive public spending in 2001 forced the BCN to extend large credits to thenon-financial public sector, resulting in a fall in net foreign reserves held by theBCN, which closed the year at just US$211m. In 2002-03, Mr Bolaños’s first twoyears in office, fiscal spending was cut sharply to produce a large resource trans-fer from the government to the Central Bank, helping net reserves rebound.

In September 2003 the Bolaños government unveiled a draft version of a PlanNacional de Desarollo (PND, National Development Plan). The PND is the firstserious effort since the 1980s to provide an overarching framework for bothnational and international development efforts. The Plan envisions ways inwhich government can act to spur private investment in clusters of economic

Building of reserves is mixedwith inflation control

A development policy isinaugurated

Nicaragua 23


activity in geographic areas of the country thought to have significant potentialfor development. The thinking behind the plan guided the government’sstrategy in negotiating the 2003 free-trade agreement (FTA) between the CentralAmerican countries and the US.

Openness to trade and foreign investment has been a cornerstone of economicpolicy since 1990. In May 1997 the Tax Justice Law introduced timetables forreducing all customs tariffs on goods from outside Central America to 10% bymid-2001. In 2000 the government radically simplified foreign investmentregulations without adding new enticements. Despite this stance, the govern-ment continued to use incentives to try to turn the country into a haven formaquila (in-bond assembly for re-export) operations and tourism. BecauseNicaragua remains a low-income country, World Trade Organisation (WTO)rules have allowed it to continue offering tax breaks to free-zone companiesafter 2003, giving the country an advantage as a site for maquila relocation.

The Bolaños government has built on this base, and seeks to attract greaterinvestment from the US through an FTA between the US, five Central Americancountries (Nicaragua, El Salvador, Honduras, Guatemala and Costa Rica) andthe Dominican Republic (see Regional overview, Membership of Organisations).The agreement was signed in December 2003, but it cannot go into effect untilthe US Congress ratifies it. El Salvador, Honduras and Guatemala have ratifiedthe treaty.

Economic performance

In 2000-04, according to official figures (using 1994 as a base year), averageannual GDP growth was 3.1%. Continued growth in agricultural output andmanufacturing led the modest advance, whereas government services were cutback as part of the austerity imposed by the PRGF. Although quantitatively lessimportant, livestock raising, financial services and utilities outperformed allsectors. Powered by post-hurricane reconstruction, real growth in 1999 reached7%, but it fell back to just 3% in 2001, owing in part to uncertainty about theoutcome of the elections. It slowed further in 2002, to just 1%, as a result ofweak external demand for agricultural exports and the severe fiscal adjustmentthe Bolaños government implemented during its first year in office. Asignificant recovery of GDP occurred only in 2004, when it increased by 5.1%driven by higher prices for exports and a surge in public capital spending.

Since 1997 an influx of foreign direct investment (FDI) has boosted privateinvestment spending. FDI inflows peaked at US$337m in 1999 before falling backto US$150m in 2001. In 2002-04, FDI averaged US$243m per year. It wasconcentrated in cellular communications, maquila operations and tourist projects.Private investment, which amounted to 22-23% of GDP in 2004, is still too low tospur rapid growth rates, while public investment, which accounts for 20% of allinvestment, will inevitably decline in the coming years as foreign assistancewanes. Factors deterring higher investment levels include weak financialintermediation, lingering property disputes, a corrupt judiciary and periodicpolitical unease, and the low skill levels of the workforce.

Trade is opened andinvestment promoted

Growth returns in the 1990s

Private investment remainsinadequate

24 Nicaragua


Despite significant oil shocks in recent years, average inflation in 2000-04 was7.3% a year, down from 11.2% in 1995-1999. The decline is largely owing toimproved fiscal and monetary discipline. Reductions in the crawling-pegdevaluation of the córdoba further helped reduce year-end inflation, whichrose by just 3.9% in 2002. Price rises picked up in 2004, to 9.3%, owing to higheroil prices.

Although dollarisation is not an official policy goal, US dollars are accepted inalmost all transactions, and the public prefers to keep more than 70% of itsbank deposits in US dollar-denominated accounts. The return of domesticsavings from abroad and the removal of foreign-exchange controls hasencouraged this trend.

Real wage levels have increased since 1997 owing to more rapid economicgrowth, the reduction in inflation, and pay rises for government workers. Partlyspurred by hikes in official minimum wage rates, nominal wages increased by8.2% in 2002; this translated into a 4.3% rise in average real wages. However,since then real wage increases have averaged just 1.5% owing to the increase ininflation which eroded nominal wage hikes of over 8% per year.

Inflation and wages(% change, year on year)

2000-04 2004Consumer price inflation (av) 7.3 8.5

Nominal wages 10.1 8.8Real wages 2.6 0.3

Sources: Banco Central de Nicaragua, Informe Anual 2004; Indicadores Económicos.

Given that labour force participation has declined modestly in recent years,open unemployment, which stood at 6.5% in 2004, has continued to drop inspite of relatively slow growth. But underemployment, reflecting in part thelow level of skills, is a massive problem, and affected around 45% of theworkforce in 2004. Much new job creation is in the informal sector. Accordingto the Central Bank, the informal sector accounted for 63% of all jobs in 2004.

Regional trends

Although poverty levels declined in the Pacific region in the 1990s, theyincreased on the Atlantic Coast. Regional GDP figures are not available, butgrowth is likely to have been well below the national average on the Atlanticcoast as the area’s traditional mining and timber industries are in decline,leaving lobster and shrimp fishing as the main growth sector. In-migration hasslowly altered the Atlantic region’s ethnic balance in favour of mestizos (peopleof mixed Spanish and Amerindian ancestry) from the Pacific, rather thanindigenous people, putting pressure on the land base and fomenting tensionover land titles and demarcation. Sparsely populated and poorly policed, theAtlantic coast has also become a transshipment route for Colombian drugsmoving north, and local drug addiction is a serious problem. The North andSouth Autonomous Regions are officially self-governing, and 45-member gover-ning councils are chosen every four years. But the 1987 Autonomy Law remains

Inflation is increasinglycontrolled

Wage levels start to keep pacewith inflation

Underemployment and a largeinformal sector

The Atlantic coast is especiallydisadvantaged

Nicaragua 25


largely unenforced, and the regional governments are dependent on the centralgovernment for what is an inadequate level of financial support. Althoughtension between the indigenous and mestizo populations is slight, centralgovernment neglect of the region has begun to stir up some separatist feeling.

Economic sectors

Agriculture

Agricultural yields in Nicaragua are abysmally low by regional standards, andless land is irrigated now than 25 years ago. Although white corn yields havegrown since 2000, red bean and rice yields are no higher than they were in thelate 1970s. This poor performance has resulted from a plethora of problems.One is the lack of secure land tenure, as more than one-third of all landholderslack registered land titles. A World Bank-sponsored programme begun in 1992resulted in the award of 40,000 agrarian reform titles by 2000, but most ofthese have not been registered and holders have not felt secure enough to makeinvestments. Access to credit is woefully inadequate, as only 6% of all farmersreceive formal bank financing. A mere 8% of small and medium-scaleproducers enjoy the benefit of technical assistance programmes. The rural roadnetwork is largely unpaved and in poor condition; the average farmer’s holdinglies 82 km from the nearest paved road. Other infrastructure bottlenecks includethe lack of an Atlantic port and the high cost of electricity to run irrigationequipment, which is used mainly in sugar-cane and rice fields.

The most important export goods are coffee, meat, seafood and sugar, whichtogether accounted for 35% of all export earnings in 2004. Owing to arenovation of plantations in the early 1990s, the coffee-harvest area grew by39% between 1996 and 2004, with output peaking in 2000 at just over 2mquintals (1 quintal=46 kg). The collapse of world prices that year, aggravated byfinancing difficulties, caused production to plummet, but it recovered to 1.8mquintals in 2004. The production of raw sugar has been rationalised since 2000,with harvested area reduced by 24% as mill ownership became concentrated.Increased yields have nevertheless maintained output at an average of justunder 4m tonnes per year.

Cattle-raising, together with milk and cheese production, has been the mostdynamic part of the agrarian economy in recent years. From 1999-2004, thedollar value of meat exports grew from US$15.7m to US$35.8m, while live cattleexports grew from 54,700 head to 103,600 head. Domestic sales of raw milkalso doubled. Much of this output is turned into cheese for export to regionalmarkets in Central America. The government’s Plan Nacional de Desarollo(National Development Plan) has singled out the meat and milk products sectorfor special attention as a “cluster” with high potential for future development.

Poor agricultural yields

Export agriculture has grown

26 Nicaragua


Area harvested by major crop(‘000 manzanas)a

2002/03 2003/04 % changeDomestic agricultureMaize 526.0 502.1 -4.5Beans 351.8 409.4 16.4Rice 84.3 115.8 37.4Sorghum 33.5 36.6 9.3

Export agricultureCoffee 154.7 165.2 6.6Sugarcane 58.5 58.7 0.3Sesame 4.5 9.2 104.4Bananas 1.7 1.4 -37.8

a One manzana equals 0.7 ha.

Source: Banco Central de Nicaragua, Indicadores Economicos.

Efforts to diversify Nicaragua’s export crops are enjoying increasing success.Easier access to the US market and expanded sales to Central America haveencouraged production of exports such as peanuts, fruits, red beans and cheese,formerly regarded as “non-traditional” goods. A 1998 free-trade agreement (FTA)with Mexico has also spurred exports of live cattle and black beans. Theprospect of the implementation of Dominican Republic-Central American FreeTrade Agreement (DR-CAFTA) with the US will also spur agricultural invest-ment and growth.

Forested areas account for 38% of the national territory. The country has anenormous diversity of flora, with at least 65 commercially-viable species of tree.Among these are mahogany, cedar, pine, rosewood and oak. However, thecountry is losing an estimated 120,000 ha each year, owing to both illegallogging and the cutting of trees for firewood. The government also forbade theexport of caoba (a variety of mahogany) and royal cedar in 1997, but it replacedthe ban with a 7.5% tax in 1999. Underscoring the need for action, an infestationof the pine borer insect in 2000 decimated 30,000 ha of pine forest near theHonduran border. The country is belatedly moving toward a coherent policy ofreforestation incentives with the passage of forestry legislation in June 2003.The new framework covers the regulation of timber activity as well as thepromotion of sustainable management of the nation’s dwindling forest.

Fishing, which was a promising area of primary-sector exports in the 1990s,faces an uncertain future owing to over-exploitation and the entry of newproducers in world markets, which has depressed prices. Although pond-shrimp output has rebounded strongly after being hit hard by Hurricane Mitch,the ocean catch has declined precipitously since 1999. Shrimp earnings peakedin 2000 at US$54m but fell back to US$37m in 2004 owing to declining worldprices. Lobster exports similarly hit a high of US$57.5m in 2000 but have sincefallen sharply, to US$43m in 2004, compromised by overfishing of the Atlanticzone beds.

Forest development stalls

Fishing is levelling off

Nicaragua 27


Mining and semi-processing

Between 1998 and 2002 mining activity, which was substantial prior to 1970,dropped further, from 1% of GDP to 0.8%. The mining industry comprises fivesectors: gold and silver, salt, marble, quarried stone and sand. Nicaragua hasthree gold and silver mines in operation. With the fall in world prices,significant gold production now occurs only at the El Limón mine. Goldreserves were estimated in 1998 at 3.8m ounces. Mining output increased byaround 16.8% in 2002, as gold production stabilised with the reopening of theEl Mojón mine in Chontales. An estimated US$60m-70m of private investmentwas made in exploration and technological modernisation of production plantsin the 1990s.

Manufacturing

The contribution of manufacturing to GDP increased from 16.9% in 2004 to18.1% in 2004. Industrial activity in Nicaragua has never progressed muchbeyond the stage of light manufacture. Outside the maquila sector (in-bondassembly for re-export) few new industries have appeared, and during the latterpart of the 1990s foreign companies purchased many of the traditional indus-trial plants that survived the sector’s reorganisation in the early 1990s. Whenfree-zone output is included, average real manufacturing growth in 2000-2004was 4.6% a year, down from 5.3% during the previous five years. Aside fromclothing, much of the growth is concentrated in the food and beverage industries.About 80% of traditional manufactures are destined for the domestic market.

Growth of manufacturing value added(%)

2003a 2004b

Total 2.5 6.6 Food-processing 2.0 9.4 Beverages 9.0 4.4 Tobacco 2.0 2.7 Textiles 3.3 7.3 Wood & cork -1.7 0.5 Chemicals 0.7 9.8 Free zones 20.7 34.3

a Preliminary. b Official estimates.

Sources: Banco Central de Nicaragua, Informe Anual, 2004; Comisión Nacional de Zonas Francas.

Official policy designed to encourage manufacturing is currently focused on:

• promoting more free-trade zones, thus stimulating competitiveness byencouraging investment by foreign manufacturing firms;

• supporting programmes for small and medium-sized enterprises (SMEs)under the National Competitiveness Programme; and

• simplifying bureaucratic requirements for investors and exporters andintroducing measures to raise product standards.

Declining importance of lightmanufacture industry

The importance of miningdeclines further

28 Nicaragua


In contrast with most other forms of manufacturing, maquila productionexpanded rapidly after 1997, taking advantage of extremely cheap labour costs.There are now fifteen operative free zones, most of them privately owned, inwhich 43 separate plants operate, mainly from Taiwan and the US. Forty otherplants are run individually under the free-zone benefit regime. The sector emp-loyed 66,000 people in December 2004, up from 28,000 at the end of 2000.The maquila sector is shifting away from an exclusive emphasis on garments.Factories designed to produce electrical wiring for automobiles are operating anda plant to produce cotton fabric for use in other free-zone plants is under con-struction. Maquila plants are increasingly located in the interior of the country.

Free-zone output and employment2000 2001 2002 2003 2004

Gross sales (US$ m) 250 296 347 403 600Export value added (US$ m) 75 94 111 134 180Direct employment (‘000) 28 36 46 60 66

Source: Comisión Nacional de Zonas Francas.

The main free-trade zone, Las Mercedes, which is owned by the government, islocated next to the international airport in the capital, Managua. It houses firmsthat produce garments, shoes and aluminium products. Firms exporting textilesto the US take advantage of Nicaragua’s duty-free status with the US.Companies operating under free-trade-zone rules take advantage of taxincentives provided by the Ley de Zonas Francas Industriales y su Reglamento(the Free-Zones Law and Regulations). These include:

• a 100% exemption from corporate income tax in the first 15 years ofoperation;

• exemptions from capital gains tax on real estate;

• exemptions from taxes, including stamp duty, on the reconstitution of acompany;

• exemptions from all import duties on machinery, equipment and inputs toproduction, as well as equipment imported to satisfy the needs of personnelsettled in the zones;

• exemption from import duties on transport equipment;

• exemption from excise, sales and selective consumption taxes; and

• exemption from municipal taxes.

The Ley de Inversiones Extranjeras (the Foreign Investment Law), approved inApril 2000 to replace legislation passed under the administration of a formerpresident, Violeta Barrios de Chamorro (1990-97), offers foreign investors thefollowing guarantees:

• a 100% repatriation of foreign capital at any time;

• 100% remittance of profit, dividends and interest; and

• free access to foreign currency with which to repatriate capital and profit.

Liberal legislation andincentives for FDI are approved

The government encouragesmaquila investment

Nicaragua 29


In addition, the Ley de Admisión Temporal para el Perfeccionamiento de lasImportaciones (the Temporary Admissions Law), which was passed in March2001, permits all firms, both foreign and national, to import raw materials andcapital goods for use in production free of duty, in exchange for exporting 25%of their output. It also exempts such exports from all municipal levies. TheTemporary Admissions Law replaced the 1992 Export Promotion Law, thebenefits of which lapsed at the end of 1997.

The 2003 Ley de Equidad Fiscal (the Fiscal Equity Law) expanded the benefitsof the temporary admissions laws to smaller companies. Nicaragua subscribesto the rules of the Multilateral Investment Guarantee Agency (MIGA), theInternational Conference on the Settlement of Investment Disputes (ICSID) andthe US Overseas Private Investment Corporation (OPIC). It has also signed andratified bilateral investment protection agreements with Canada, Taiwan, SouthKorea, Mexico, Spain, Denmark, the UK, the US, the Netherlands, theDominican Republic and Ecuador.

Construction

In the past five years construction activity has declined in importance in GDPterms, falling from 4.7% to 4.2%. Reconstruction work associated with HurricaneMitch gave the sector a massive boost in 1999, but it has stagnated since owingto slower growth and the contraction of public-sector capital spending. Theturnaround in 2004, when activity grew by 8% in real terms, was a result of alarge increase in spending on public works. The quality of much of thedomestic construction and the materials used is low, leading the government tofavour foreign construction firms in public works contracts.

Financial services

The banking system, consisting of six commercial banks and three finance com-panies, is the main source of credit for the public and private sectors. A smallstockmarket began operation in 1993. Despite marked growth in the 1990s, thebanking system remains the smallest in Central America. Following the demiseof the Banco Nacional de Desarrollo (Banades, the National DevelopmentBank) in 1998, the Banco de Crédito Popular in 2000, and the BancoNicaragüense de Industria y Comercio (Banic, state industrial developmentbank) in 2001, the state no longer has any holdings in the banking sector. Over70% of the deposits are in US dollars.

The banking system’s small size has kept financial intermediation weak. Thelack of bank finance is a major hindrance to growth in most areas of economicendeavour. Bank finance is overwhelmingly concentrated in household andcommercial loans, and bank branches are absent from most of the countryside.Rural lending is offered primarily by non-bank intermediaries including non-governmental organisations (NGOs) and local usurers. Mortgage finance isunderdeveloped but has begun to grow vigorously, with more banks expandingtheir lending.

Liberalisation of thebanking sector takes place

Intermediation is weak

The importance ofconstruction activity rises

30 Nicaragua


Reforms agreed with the IMF under the poverty reduction and growth facility(PRGF) have regulated the system more strictly and shored up its capital base.Changes in September 1999 to the Ley General de Bancos (the General BankingLaw) established US$10m as the minimum capital needed to found a privatebank and limited private bank shareholders to a maximum share of 20% each.The reforms also curbed the practice of lending to related companies and set alimit on loans to a single borrower of 15% of a bank’s capital. According tofigures from the Superintendencia de Bancos y Otras Instituciones Financieras(SIB, the banking watchdog), the capital base of private banks at the end of2004 was C3,178m (US$199m), giving a capital/risk-weighted asset ratio of 14.3%.

Despite these cautious reforms, a series of banking scandals involving fraudand mismanagement occurred in 2000 and 2001. Consequently, and as part ofNicaragua’s accession to the heavily indebted poor countries (HIPC) initiative inDecember 2000, the government agreed to implement reforms to strengthenthe banking watchdog, tighten rules for asset valuation and loan provisioning,and provide safeguards against fraud through the publication of audited balancesheets along with the names of bank directors and related shareholders. A lawproviding deposit insurance up to US$20,000 per account-holder was passed inDecember 2000.

Total credit outstandingC m % of GDP

2003 2004 2003 2004Agriculture & livestock 2,179 2,308 3.5 3.2Industry 1,705 1,943 2.7 2.7Commerce 3,641 5,322 5.8 7.3

Personal 1,884 2,179 3.0 3.0Housing 1,498 2,281 2.4 3.1

Total plus others 14,725 18,776 23.6 25.9

Source: Superintendencia de Bancos y Otras Instituciones Financieras, Informes Anuales 2003-04.

Opened in 1993, the Bolsa de Valores de Nicaragua (BVN, the stock exchange)listed nine firms authorised to issue securities. A total of C7.75bn (US$486m)was traded in 2004, but the bulk of trading is made up of certificadosnegociables de inversión (Cenis, negotiable investment certificates) issued by theBanco Central de Nicaragua (BCN, the Central Bank). There are fourteeninvestment houses currently trading on the exchange. The first, extremely small,stock offerings were introduced on the exchange in 2001.

As of 2001 the small but growing insurance market ceased to be dominated bythe Instituto Nicaragüense de Seguros y Reaseguros (Iniser, the state insuranceinstitute). Insurance company income from premiums, calculated in 2004 atUS$72m, derives mainly from policies insuring goods and property. Domesticinsurance brokers also provide insurance policies from foreign insurers in anunregulated grey market permitted to exist, albeit unofficially.

Regulatory reform

The stock exchange tradesmostly government paper

The insurance sector isopening up

Nicaragua 31


Other services

Nicaragua’s tourism potential is underexploited. The majority of visitorsclassified as tourists are business travellers, mainly from Central America,whose stays are brief and whose spending is limited. Cultural, recreational andeco-tourism geared toward foreigners is still largely undeveloped, although thecity of Granada has attracted a large trade in recent years. In 2004 614,782tourists entered Nicaragua, 17% more than in the previous year, according to theInstituto Nicaragüense de Turismo (Intur, the national tourism agency). Ofthese, 36% listed “vacation” as the reason for their visit.

Following the inauguration of four new hotels in the capital in 1999-2001, thereare now eight premium-class hotels, seven of which are in Managua. Thenewcomers have brought a measure of much-needed competition to the sector.In 2003 the country had 108 hotels of widely varying size and standard, with atotal of 5,161 beds. The national hotel occupancy rate was estimated at 50% in2003, in the larger cities such as Managua and Granada it averaged 65%.

Over 280 other tourist projects involving potential investments of US$234mwere approved under the 1999 Ley de Incentivos Turísticos (the TourismIncentives Law), which has spurred the industry’s development by providing aseries of tax breaks. But the 2003 Tax Equity Law revoked many of theseexemptions, putting many investments on hold. The southern Pacific Coastnevertheless continues to see new ventures spring up, with a notable recenttrend toward investments in retirement homes. A resident pensioners law,passed in early 2002, aimed at attracting retired foreigners and Nicaraguanswho have lived outside the country for at least ten years, appears to havehelped this development. The southern port of San Juan del Sur also attracts asmall number of foreign cruise ships.

Tourism arrivals by region of origin, 2004Arrivals % of total

Central America 377,674 61.4North America 157,782 25.7

Other 79,326 12.9Total 614,782 100.0

Source: Ministerio de Turismo.

Rapid growth of consumer imports financed by remittances and other inflowshas sparked major foreign investments in commercial establishments. InManagua, investors from Taiwan and El Salvador have built modern shoppingcentres and Costa Rican retailers are slowly extending their control over thesupermarket business. The growth potential of formal commerce continues tobe limited by low income levels and contraband goods in Managua’s EasternMarket. Fast-food franchises from the US have also proliferated, althoughmany are in the hands of a single franchise holder. Car lots offering usedimported vehicles from Asia have multiplied since 1999, taking business awayfrom established new-vehicle importers.

The retail sector hasmushroomed

Tourism has potential

32 Nicaragua


The external sector

Trade in goods

The dollar value of merchandise exports (excluding free-zone assembly) in 2004reached US$756m, the highest level since the late 1970s. After growing rapidlyin the mid-1990s, exports stagnated in 1998-2002, when they averaged adisappointing US$583m per year. This was caused in part by the appreciation ofthe real exchange rate, making conditions more difficult for exporters, butadverse terms of trade for traditional products, especially coffee, played a moresignificant role. More favourable terms of trade since 2003, and some gains inexport diversity, helped export earnings to rebound strongly in 2003-04. Bycontrast, growth in maquila (in-bond assembly for re-export) value added hassteadily increased in the last five years. Between 1999-2004 growth averaged over20% per year. This suggests that the economy’s inability to shift resources out ofthe traditional export lines into non-traditional sectors is a problem. Factors bear-ing on the problem include the high cost of finance, uncertainty over propertyrights, infrastructure bottlenecks (particularly the lack of a port on the Atlanticcoast), low labour skills and insufficient government promotion of exports.

Import spending grew by 24.8% in 1999 to just under US$1.9bn as recon-struction work following Hurricane Mitch pulled in imports—it did not surpassthis level again until 2003. The trade deficit narrowed in 2000-01 but it hassteadily expanded since. The share of consumer goods in the total import billhas risen despite sharply higher bills for imported oil in recent years. Highereconomic growth in 2004, accompanied by larger outlays on oil, caused thedeficit (fob-cif) to widen to US$1.5bn.

Although the US remains by far Nicaragua’s most important trading partner,accounting for 35% of exports and 22% of imports in 2004, its importance hasdeclined since 2000 in favour of Nicaragua’s Central American neighbours.Exports to the US dropped from 38% of the total in 2000 to 35% in 2004, whileexports to Guatemala, Costa Rica, Honduras and El Salvador grew from 25% ofthe total to 33%. Although import spending on US goods (as a percentage of thetotal) also fell in 2000-04, Nicaragua did not import more goods from itsneighbouring countries. The shift can be linked to rising oil prices, whichinflated the importance of spending on Mexican and Venezuelan goods overthe period.

Main trading partners, 2004(% of total; Jan-Dec)

Exports to: Imports from:US 34.9 US 22.2El Salvador 14.5 Venezuela 14.5

Honduras 7.5 Costa Rica 8.6Costa Rica 6.7 Mexico 7.4Mexico 5.3 Guatemala 7.1

Guatemala 4.3 El Salvador 5.0


Adverse terms of trade affectexport earnings

Trade with Central Americancountries rises sharply

Import spending expandssteadily

Nicaragua 33


Nicaragua is committed to reducing trade barriers. After several years ofunilateral tariff reductions, it raised external tariffs on a range of items to 15% inMay 2001 in an effort to harmonise tariffs and spur integration with itsneighbours. A further move occurred in May 2003, in an effort to accelerate thenegotiations towards the Dominican Republic-Central American Free-TradeAgreement (DR-CAFTA) with the US. As a member of the Sistema deIntegración Centroamericana (SICA, the Central American Integration System,formerly called the Central American Common Market) the country has beenactive in efforts to strengthen regional trade integration. In 1998 Nicaraguasigned a free-trade agreement (FTA) with Mexico and in 1999-2000 joined otherCentral American countries in trade accords with the Dominican Republic andChile. Trade and investment links with Taiwan have also been developed.Nicaragua, Costa Rica, El Salvador, Honduras and Guatemala negotiated theestablishment of DR-CAFTA with the US in 2003. Negotiations were concludedat the end of that year without the adherence of Costa Rica, which later joinedalong with the Dominican Republic. Although El Salvador, Honduras andGuatemala have ratified the treaty, the Nicaraguan and the US legislatures hadnot approved it by mid-2005.

Invisibles and the current account

The large current-account deficit, which ended 2004 at 17.5% of GDP, is one ofthe economy’s main structural weaknesses. Calculated at 35-40% of GDP underthe old national accounts system, under the new accounts it averaged 19% in2000-04. The trade deficit is by far the largest item in the balance of payments,registering an average of more than 23% of GDP in 2000-04. Nicaragua also hasa deficit on its services and income accounts.

Current-account balance(US$ m)

2003 2004 % changeTrade balance -971.5 -1,111.9 -14.5Services balance -105.8 -109.6 -0.8Income balance -190.7 -192.3 -0.8

Current transfers balance 518.9 618.8 19.3Current-account balance -749.1 -795.0 -6.1


The major non-merchandise debit item is income, mainly comprising con-tracted interest payments on external debt, which in 2004 amounted to almostUS$122m, of which US$27m was actually paid. The interest burden has fallensince 1998, after several bilateral creditors provided substantial debt relief in1995-96 (see The external sector, Capital flows and foreign debt). In 2001-02 thecountry began receiving interest rebates as the Inter-American Development Bank(IDB), the World Bank and bilateral debtors extended interim relief under theIMF-World Bank heavily indebted poor countries (HIPC) initiative. In 2001-03this relief averaged US$186m per year. With HIPC completion, the debt-interestburden has now been greatly reduced. But the current-account deficit will notnarrow significantly until there is a major improvement in the trade account.

Trade relations

The trade deficit amplifies thecurrent-account imbalance

34 Nicaragua


Capital flows and foreign debt

High levels of foreign aid, growing workers’ remittances and fluctuating foreigninvestment flows finance the current-account deficit. In 2004 the sum of theseinflows plus revenue from privatisation was estimated at US$1.38bn, comparedwith US$1.13bn in 1999. Once understated, official figures on worker remittanceshave increasingly come into line with reality, but the 2004 figure of US$518m isprobably still too low.

Debt-restructuring and forgiveness

December 2000

The IMF and World Bank declare that Nicaragua has reached the start-up (“decision”)point under the heavily indebted poor countries (HIPC) initiative.

March 2001

Spain agrees to assume the bulk of Nicaragua’s US$500m debt to Guatemala,pardoning US$399m.

December 2002-June 2003

Bilateral creditors forgive an additional US$575m in official debt.

January 2004

The IMF announces that Nicaragua has reached “completion point” in the HIPCprocess

March 2004

In its fifth negotiation with Nicaragua, the Paris Club finalises the pardon ofUS$1.2bn in bilateral debt.

The administration of Arnoldo Alemán (1997-2002) made little progress inreducing the stock of foreign debt, which, according to World Bank data, washigher at the end of 2001 than in 1996, and reached 250% of GDP. However, thecurrent president, Enrique Bolaños Geyer, has made sufficient progress infulfilling new targets under the IMF’s poverty reduction and growth facility(PRGF), completing structural reforms and improving governmental trans-parency, for the IMF and World Bank to decide, in early 2004, that Nicaraguahad reached completion point under the HIPC initiative.

The eventual reduction in net present value of debt under the HIPC initiative iscalculated by the Banco Central de Nicaragua (the Central Bank) at US$5.1bn,from a total of US$6.1bn owed in December 1999. During negotiations withcreditors in 2004 a US$3.1bn reduction (in net present value terms) wasformalised. In real terms, HIPC completion point has left the country with anoutstanding debt stock of around US$2.7bn. But as multilateral creditors haveopted to write the debt down gradually as loan payments fall due, the officialdebt stock registered at end-2004 was still US$5.4bn. The foreign debt servicepaid in 2004 amounted to US$76m, down from US$183m in 2000, and theequivalent of 10.1% of exports.

Foreign aid and remittancesfinance the balance of payments

A heavy debt burden is likelyto be alleviated

Nicaragua 35


External debt stock, 2003(US$ m unless otherwise indicated)

Total external debt 6,917 Medium & long term external debt 5,900 Short-term debt 595 Use of IMF credit 213External debt/GDP (%) 167

Total debt service, paid 225Debt-service ratio, paid (%)a 30.1

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Foreign reserves and the exchange rate

Owing to the weakness of the external accounts, the country’s gross foreignreserves remain dependent on foreign assistance. Nicaragua’s import cover in2000-04 averaged 2.5 months, up from 2.2 months in the preceding five-yearperiod. Since 2000 gross reserves have averaged US$497m, owing largely toincreased aid flows, some current savings and borrowing from the IMF. Thecost of several bank failures caused reserves to fall modestly in 2001, butexcessive public spending and election uncertainty caused reserves to dropbelow US$400m in 2001. Fiscal retrenchment in 2002 and progress on thePRGF conditions in 2003 underpinned a rebound in gross reserves. Increasedforeign aid and privatisation receipts powered a massive rise in gross reservesin 2004, when they reached US$668m, equal to nearly three months of imports.

In 1997 the monetary authorities became concerned that the rate of nominaldepreciation of the córdoba was preventing the reduction of inflation to single-digit levels. In mid-1999, against a backdrop of negligible first-half inflation, themonetary authorities slowed the depreciation schedule to 9% and, severalmonths later, to 6%. At the start of 2004 the rate of crawl was dropped to 5%.The overall trend has been for the córdoba to appreciate against the US dollar,increasingly so in the late 1990s as aid related to Hurricane Mitch stimulatedhigher flows of official and foreign capital. The country has thus sacrificedsome export stimulus to achieve lower inflation and higher real wages.

The foreign reserves positionis weak

Exchange-rate stabilisationis successful

36 Nicaragua


Regional overview

Membership of organisations

Nicaragua is a member of many international organisations including the UNand related agencies, the IMF, the World Bank and the World TradeOrganisation (WTO). It is a member of the following Latin American regionalorganisations: the Inter-American Development Bank (IDB); the Organisation ofAmerican States (OAS); Group of 77; the Mercado Común Centroamericano(MCCA, the Central American Common Market) which includes Nicaragua,Guatemala, El Salvador, Costa Rica and Honduras. Nicaragua is also a memberof the Sistema de Integración Centroamericana (SICA, the Central AmericanIntegration System which includes MCCA countries and Panama and Belize)and the Central American Group of Four (CA-4) which includes Nicaragua,El Salvador, Guatemala, and Honduras.

Nicaragua, Guatemala, El Salvador, Honduras and Costa Rica established theMercado Común Centroamericano (MCCA, the Central American CommonMarket) in December 1960. Several institutions were created subsequently tohelp to promote regional integration and development. The most important ofthese bodies was the Banco Centroamericano de Integración Económica (BCIE,the Central American Bank for Economic Integration), a development bank thathas served as the financial arm of integration. The bank has grown with theincorporation of Mexico, Taiwan, Argentina and, more recently, Colombia asextra-regional partners. In the past 40 years BCIE has provided nearly 30% oftotal multilateral lending to its members. The BCIE’s long-term foreign-currencydebt is rated “investment grade” by international credit rating agencies.

Another institution set up to promote regional integration was the ParlamentoCentroamericano (Parlacen, the Central American parliament), established in1987. However, member countries have been unwilling to cede jurisdiction andauthority to Parlacen. Ex-presidents of member states automatically becomemembers, and enjoy immunity from prosecution. This was waived in 2003 toenable Nicaragua to prosecute its former president, Arnoldo Alemán, forcorruption. In February 2004 the Constitutional Court waived it again forformer president Alfonso Portillo (2000-04) who is wanted in Guatemala foralleged fraud and corruption. In December 2004 Parlacen enacted reforms thatdenied former presidents the automatic right to a seat in the parliament, amuch-criticised feature that had previously afforded former heads of stateimmunity from prosecution. It was also decided to reduce the Parlacen budgetand that each state should determine the number of its representatives and theapproach to their election.

In 1993 the Sistema de la Integración Centroamericana (SICA, the System forIntegration in Central America), which includes MCCA member countries andPanama, came into force. SICA co-ordinates and implements agreements madeat regional presidential summits and by the council of foreign ministers ofparticipating countries. Belize joined SICA in 2000, despite diplomatic tensions

MCCA and BCIE

Parlacen and SICA

Nicaragua 37


with Guatemala over an unresolved territorial dispute. A separate body, theSecretaría de Integración Económica Centroamericana (SIECA), handles thetechnical aspects of regional economic integration promoted by SICA andpublishes statistics on intra-regional trade.

In 1993 the Protocol of Guatemala to the General Treaty on Central AmericanEconomic Integration (Protocol of Guatemala) modified the original MCCAtreaty. Member countries adopted a strategy of “open regionalism” to furtherintegrate the region within the global economy and to increase internationalcompetitiveness. Maintaining the goals of a customs union and commonmarket, agreement was reached to implement a lower common external tariff(CET) and to expand the liberalisation of intra-regional trade, including trade ofagricultural products. The target of a 0% floor and 15% ceiling for the CET wasachieved in 2000. The Protocol of Guatemala provided the flexibility to allowmembers to negotiate trade agreements as a group or individually. MCCAmember countries negotiated free-trade agreements with the DominicanRepublic in 1998 (ratified by El Salvador in 2001 and by Costa Rica in 2002);with Chile in 1999 (ratified by both Costa Rica and El Salvador in 2002); andwith Panama in 2002 (ratified by El Salvador in 2002). Costa Rica ratified anFTA with Mexico in 1995 and Nicaragua in 1998.

The last round of negotiations between the US and four Central Americancountries (Guatemala, El Salvador, Nicaragua and Honduras) to establish aCentral American Free-Trade Agreement (CAFTA) concluded in Washington DCin December 2003 and the parties signed the agreement. Costa Rica, which alsoparticipated in the process, signed the deal after it had held an additional roundof negotiations with the US in January 2004. In April 2004 the DominicanRepublic joined the treaty, which thereafter became known as the DominicanRepublic-Central American Free-Trade Agreement (DR-CAFTA). The agreementformalises the trade benefits already enjoyed under the Caribbean BasinInitiative (CBI), as well as improving access for several agricultural andmanufactured products. Gains were made in the maquila (offshore assemblyfor re-export) sector in particular, with immediate tariff-free access to allproducts made with regional inputs, as well as certain products made fromregional or extra-regional inputs, which show “substantial transformation” intheir manufacture. Concessions were made on both sides to protecteconomically sensitive sectors. Tariffs will remain on sugar, although CentralAmerican sugar producers will see a steady opening of the US market throughan increase in quotas of 2% per year.

The treaty is expected to come into effect in 2006 after the Congresses of theUS and at least two signatory countries have ratified it. El Salvador’s Congressratified DR-CAFTA in December 2004, the Congress of Honduras at thebeginning of March 2005 and Guatemala on March 10th. Nicaragua and the USCongress have still to ratify the treaty.

DR-CAFTA

Protocol of Guatemala

38 Nicaragua


Nicaragua and DR-CAFTA

The Nicaraguan negotiating team considered the outcome of the talks highly positivefor the country because it gained expanded access to the US for agriculturalcommodities and textiles, along with significant protection for domestic farmersagainst US imports.

Expanded access to the US for agricultural goods is in the form of quotas for mosttraditional exports, which are significantly higher than existing export levels andwhich are scheduled to rise over time. Protection for local farmers will involvelengthy periods for tariff reduction—from 15 years and upwards—as well as additionalgrace periods for certain products. These protections start from pre-existing (andrelatively high) levels. For most non-traditional products there were no changes asthese already had tariff free access to the US under the Caribbean Basin Initiative(CBI), except that the Dominican Republic-Central American Free-Trade Agreement(DR-CAFTA) will give the privilege a permanent status. In access terms, Nicaragua’smost significant achievement is probably in the textile sector, with permission forgarment companies in Nicaragua to use up to 100m sq metres per year of cloth fromnon-US, non-Central American suppliers to make garments and sell these duty-freein the US. Nicaragua was the only one of the five Central American countries(Guatemala, El Salvador, Nicaragua, Honduras and Costa Rica) to receive thisconcession. It should help Nicaragua resist Chinese competition in the US after 2005,which increased markedly at the start of 2005 when the US lifted quotas.

Other sectors expressing satisfaction were sugar producers, whose current 22,000-tonnes quota to the US market will gradually double, and peanut farmers whoachieved a quota of 10,000 tonnes when they had none before. More important inthe eventual growth of export earnings will be the quota for Nicaraguan beef, whichwas set at an initial level of 10,000 tonnes above and beyond existing export volume.

The US will enjoy relatively limited quotas for the export to Nicaragua of corn, redbeans, chicken parts and dairy products. There is only a small quota and no tariffreduction for white corn, a staple crop grown by peasant farmers that thegovernment officially wanted to protect even though the US does not produce thiscorn variety. By contrast, American yellow corn will compete with domestically-produced sorghum for use as chicken feed, and the importation of US powderedmilk may have some impact on local raw milk output. The relatively large rice quotagranted to American producers will initially do no more than make up for shortfallsin local production—the country produces only about half of its yearly consumption.Nicaragua’s rice farmers will enjoy a long period of adjustment—28 years—beforetheir crop is subjected to total free trade.

Nicaragua 39


Appendices

Sources of information

Banco Central de Nicaragua, Boletin Económico Trimestral (quarterly)

Banco Central de Nicaragua, Indicadores Económicos (monthly)

Banco Central de Nicaragua, Informe Anual (annual)

Fundación Internacional para el Desafío Económico Global (FIDEG):El Observador Económico, Informe Económico Mensual (monthly)

Instituto Nacional de Estadísticas y Censos (INEC), Informe General: EncuestaNacional sobre Medición del Nivel de Vida, 2001

Ministerio de Cooperación Externa, Informe de la Cooperación Externa (annual)

Ministerio de Hacienda y Crédito Público, Presupuesto General de la República(annual)

Superintendencia de Bancos y de Otras Instituciones Financieras, Informe Anualdel Sistema Financiero Año (annual)

IMF, Direction of Trade Statistics (annual)

IMF, International Financial Statistics (monthly)

UN Development Programme (UNDP), El Desarrollo Humano en Nicaragua 2002

UN Economic Commission for Latin America and the Caribbean (ECLAC),Nicaragua: Evolución Económica (annual)

World Bank, Global Development Finance (annual)

Teódulo and Julio Francisco Báez Cortés, Todo sobre impuestos en Nicaragua,2001

Banco Central de Nicaragua, Nicaragua: Desafíos para la Modernización delSistema Tributario, April 2002

Banco Central de Nicaragua, Nicaragua en la Iniciativa HIPC: Memoria yPerspectivas, January 2005

Cámara de Industrias de Nicaragua, Bases para la política industrial deNicaragua, February, 2001

David Close and Kalowatie Deonandan, eds., Undoing Democracy: The Politicsof Electoral Caudillismo, Lexington Books, 2004

Klaus Deininger and Juan Sebastián Chamorro, Investment and Income Effects ofLand Regularization, World Bank Policy Research Working Paper, January 2002

Geske Dijkstra, Structural Adjustment and Poverty in Nicaragua, March 2000

David R. Dye, Democracy Adrift: Caudillo Politics in Nicaragua, November 2004

National statistical sources

International sources

Select bibliography

40 Nicaragua


Government of Nicaragua, Estrategia Reforzada de Crecimiento y Reducción de laPobreza, July 2001

Government of Nicaragua: Propuesta de Plan Nacional de Desarrollo, September,2003

Instituto Centroamericano de Administración de Empresas (Incae), ProgramaNacional de Competitividad, July 1999

Inter-American Development Bank, Nicaragua: Summary of internationalAssistance, Consultative Group Meeting, October 2003

Nitlapán-UCA, El campesino finquero, 2 volumes, 1996, 2001

Secretaría de Coordinación y Estrategias, Metas de Desarrollo: Seguimiento a laCumbre del Milenio, Nicaragua, first report, December 2003

UN Economic Commission for Latin America and the Caribbean (ECLAC),Nicaragua: Uso Productivo de las Remesas Familiares, July 1999

Universidad Centroamericana, Revista Encuentro, “Economía y Sociedad enNicaragua”, No. 59, 2001

Universidad Centroamericana, Revista Envío (monthly)

Roberta Van Haeften, Food Security in Nicaragua, USAID, December 2000

Panos Varangis et al., Dealing with the Coffee Crisis in Central America: Impactsand Strategies, World Bank. 2002

World Bank, Agriculture in Nicaragua, June 2003

World Bank, Development Policy Review, December 2004

World Bank, Land Policy and Administration, October 2003

World Bank, Poverty Assessment, December 2003

Central Bank website, www.bcn.gob.ni

Banking watchdog, www.superintendencia.gob.ni

Foreign Co-operation Secretariat, www.srec.cancilleria.gob.ni

Ministry of Finance and Credit, www.hacienda.gob.ni

National Statistics and Census Institute, www.inec.gob.ni

La Prensa newspaper, www.laprensa.com.ni

Selected websites

Nicaragua 41


Reference tables

These reference tables provide the most up-to-date statistics available at the time ofpublication.

Population(m; % change year on year in brackets)

2000 2001 2002 2003 2004Total 5.072 5.205 5.342 5.482 5.626

(2.6) (2.6) (2.6) (2.6) (2.6)

Population per sq km 41.8 42.9 44.6 45.1 46.3

Source: Instituto Nicaragüense de Estadísticas y Censos.

Education indicators2000 2001 2002 2003 2004a

Spending per student (US$/year)Primary 113.8 153.9 116.0 98.7 n/aSecondary 34.2 46.6 69.3 69.0 n/aTertiary 987.7 936.0 962.8 928.2 n/aEducation budget as % GDP 2.7 2.6 2.6 2.5 n/a

Net enrolment ratiob

Pre-school education 26.8 26.1 27.9 28.4 30.8Primary education 80.7 81.3 85.5 83.5 82.6Secondary education 34.7 36.3 38.0 38.8 40.1Complete primaryc 35.4 36.3 38.5 40.8 n/a

a Preliminary. b Percentage of children enrolled in the grade corresponding to their age.c Percentage of children who finish six primary grades in six years.

Source: Instituto Nacional de Estadísticas y Censos; UN Development Programme, El Desarrollo Humano en Nicaragua 2002.

Health indicators(per 1,000 inhabitants unless otherwise indicated)

1998 1999 2000 2001 2002Medical appointments 5,793 7,348 7,149 7,099 7,205Mortality rate 5.62 5.62 5.16 5.16 5.16

Infant mortality rate(per 1,000 live births) 39.5 39.5 39.5 39.5 31.0

No. of doctors 7.7 7.3 7.0 4.0 3.9

No. of hospital beds 1.1 1.1 1.0 1.0 0.9

Source: Ministerio de Salud.

42 Nicaragua


Transport statistics2000 2001 2002 2003 2004

Passenger transport (m)By landa 102.29 99.33 103.17 107.05 111.09By water 0.81 0.66 0.73 0.79 0.69By air Loaded 303.90 302.24 304.55 331.80 440.00 Unloaded 308.13 305.66 304.22 333.9 587.7Cargo transport ('000 tonnes)By land 5,469 4,666 4,929 n/a n/aBy water International 2,215 2,264 2,092 2,143 2,330 National 162 156 166 185 230By airb

Loaded 6.4 7.3 7.4 7.5 9.3 Unloaded 12.9 12.5 13.0 12.0 13.0

a After mid-1999 excludes data for urban buses and taxis. b Through Managua International Airport.

Source: Ministerio de Transporte e Infraestructura.

Electricity generation by plant type(gwh)

2000 2001 2002 2003 2004Hydroelectrica 209.5 196.8 303.3 297.4 320.9

Geothermala 134.2 206.1 210.3 270.7 254.9Thermalb 1,826.0 1,992.6 1,946.4 1,992.6 2,069.6

Total generation incl others 2,262.7 2,463.6 2,619.9 2,773.7 2,915.3

a Plants owned by the Empresa Nicaragüense de Electricidad. b Includes privately and publiclyowned plants.

Source: Empresa Nicaragüense de Electricidad.

Nicaragua 43


Central government finances(C m unless otherwise indicated)

2000 2001 2002 2003 2004a

Total revenue 7,540.9 7,654.0 11,450.0 13,412.6 16,098.9 Current revenue 7,537.4 7,645.6 11,450.0 13,412.6 16,098.9 Tax 7,264.3 7,354.5 8,123.2 9,878.8 11,815.3 Capital revenue 3.5 8.4 0.0 0.0 0.0Total expenditure 1,1772.0 13,266.0 13,887.4 16,738.5 19,173.5 Wages & salaries 1,885.8 2,251.1 3,780.0 4,179.1 4,562.4 Goods & services 1,420.8 1,944.9 1993.2 2,035.6 2,440.3 Interest payments 1,034.3 1,284.9 1,287.0 1,918.8 1,482.0 On internal debt 318.4 549.0 934.0 1,518.8 1,196.0 On external debt 715.9 735.9 353.0 400.0 286.0 Other spending n/a 2,734.7 1,782.1 1,894.9 2,083.0 Capital & current transfers 5,105.0 5,050.4 2,504.2 3,050.4 4,240.3 Fixed capital formation n/a n/a 2,540.9 3,659.7 4,365.5

Overall balance -4,231.1 -5,612.0 -2,437.4 -3,325.9 -3,074.6Grants 1,873.9 1,712.0 1,522.0 2,079.0 2,377.8Overall balance after grants -2,357.2 -3,900.0 -915.4 -1,246.9 -696.8Ratios (% of GDP):Tax revenue 15.2 13.9 20.0 21.4 22.2Total expenditure 23.8 24.1 24.2 26.7 26.4Interest payments on external debt 1.4 1.3 0.6 0.6 0.4Overall balance before grants -8.5 -10.2 -4.2 -5.3 -4.2Foreign grants 3.8 3.1 2.7 3.3 3.3Overall balance after grants -4.8 -7.1 -1.6 -2.0 -1.0

a Preliminary.


Money supply(C m unless otherwise indicated; end-period)

2000 2001 2002 2003 2004Money (M1) incl others 3,412.0 3,267.0 3,368.0 4,208.0 4,807.0 % change, year on year 8.3 -4.2 3.1 24.9 14.2Quasi-money 16,101.0 17,046.0 19,648.0 21,717.0 25,582.0

Money (M2) 19,513.0 20,313.0 23,016.0 25,925.0 30,389.0 % change, year on year 9.4 4.1 13.3 12.6 17.2


Interest rates(%; period averages unless otherwise indicated)

2000 2001 2002 2003 2004Lending interest rate (%) 18.1 18.6 18.3 15.6 13.5Deposit interest rate (%) 10.8 11.6 7.8 5.6 4.7


44 Nicaragua


Gross domestic product(market prices)

2000 2001 2002 2003 2004Total (US$ m)At current prices 3,906.5 4,124.7 4,026.0 4,149.3 4,555.6

Total (C m)At current prices 49,551.9 55,155.3 57,376.3 62,673.8 72,603.3At constant (1994) prices 27,094.6 27,908.7 28,196.6 28,850.5 30,322.0 % change, year on year 4.2 3.0 1.0 2.3 5.1Per head (C)At current prices 9,770.3 10,596.6 10,740.8 11,432.0 12,904.1At constant (1994) prices 5,342.3 5,361.9 5,278.4 5,262.5 5,389.2 % change, year on year 1.4 0.4 -1.6 -0.3 2.4


Nominal gross domestic product by expenditure(C m at current prices; % of total in brackets)

2000 2001 2002 2003 2004Private consumption 41,960.1 47,225.4 51,384.8 56,402.0 64,343.8

(84.7) (85.6) (89.6) (90.0) (88.6)

Government consumption 6,113.9 6,518.7 6,124.0 6,614.1 7,575.2(12.3) (11.8) (10.7) (10.6) (10.4)

Gross fixed investment 15,073.3 15,580.2 14,261.8 15,334.3 18,870.4(30.4) (28.2) (24.9) (24.5) (26.0)

Exports of goods & services 11,932.4 12,476.7 12,846.4 15,202.3 19,120.9(24.1) (22.6) (22.4) (24.3) (26.3)

Imports of goods & services 25,527.7 26,645.7 27,936.4 31,887.5 39,059.6(51.5) (48.3) (48.7) (50.9) (53.8)

GDP 49,551.9 55,155.3 57,376.3 62,673.8 72,603.3


Real gross domestic product by expenditure(C m at constant 1994 prices; % change year on year in brackets)

2000 2001 2002 2003 2004Private consumption 22,621.1 23,729.7 24,785.2 25,709.8 26,557.3

(5.3) (4.9) (4.4) (3.7) (3.3)Government consumption 2,523.0 2,449.8 2,339.1 2,409.5 2,476.2

(4.8) (-2.9) (-4.5) (3.0) (2.8)Gross fixed investment 7,680.9 7,036.4 6,165.5 6,140.8 6,743.4

(-16.8) (-8.4) (-12.4) (-0.4) (9.8)

Exports of goods & services 6,776.9 7,275.0 7,019.5 7,571.0 8,764.8(12.5) (7.3) (-3.5) (7.9) (15.8)

Imports of goods & services 12,526.2 12,613.5 12,593.4 13,149.3 14,384.5(-4.7) (0.7) (-0.2) (4.4) (9.4)

GDP 27,094.6 27,908.7 28,196.6 28,850.5 30,322.0(4.2) (3.0) (1.0) (2.3) (5.1)

Source: Banco Central de Nicaragua..

Nicaragua 45


Prices and earnings2000 2001 2002 2003 2004

Consumer price index annual(year-end; 1999=100) 109.7 115.0 119.4 127.2 138.9

Inflation (year-end; %) 9.9 4.8 3.9 6.5 9.3

Cost of basic needs basket (C)a 1,852 1,980 2,120 2,312 2,565Nominal wages (C)b 2,585 2,897 3,135 3,388 3,686Real wages (% change)b 1.5 4.4 4.3 2.6 0.3

a Cost of basket of 53 goods in Managua. b Central government employees and those paying nationalinsurance contributions, in current córdobas.

Sources: IMF, International Financial Statistics; Banco Central de Nicaragua, Indicadores Económicos; Informe Anual, 2000.

Labour force('000 unless otherwise indicated)

2000 2001 2002 2003 2004Economically active population (EAP) 1,924.3 n/a n/a 2,077.4 2,111.1

Open unemployment 114.7 n/a n/a 164.7 138.0 As % of EAP 6.0 n/a n/a 7.7 6.5Underemployment as % of EAP 42.2 n/a n/a 46.5 45.5

Source: Banco Central, Informes Anuales 2003-2004

Production of staple food crops('000 quintals; crop years)

1999/2000 2000/01 2001/02 2002/03 2003/04a

Rice 1,995 3,723 1,579 1,919 2,416

Beans 2,959 3,801 3,905 4,289 5,044Maize 6,397 9,053 9,242 10,887 12,049Sorghum 948 989 1,275 1,363 1,382

a Preliminary.


Production of main export crops('000 quintals unless otherwise indicated; crop years)

1999/2000 2000/01 2001/02 2002/03 2003/04a

Sesame 103 115 153 35 81

Bananas ('000 42-lb boxes) 3,200 2,533 3,349 3,126 3,090Coffee 2.083 1,809 1,272 1,152 1,796

Sugarcane ('000 short tons) 4,056 3,877 3,460 3,431 4,566

a Preliminary.


46 Nicaragua


Livestock production(C m at constant 1994 prices)

2000 2001 2002 2003 2004Cattle 1,844 1,952 1,788 1,905 2,090Pigs 127 131 97 99 100

Poultry 1,057 1,192 799 854 906Total 3,028 3,274 2,685 2,858 3,096

Source: Banco Central de Nicaragua, Informe Anual 2004.

Fisheries production('000 lb)

2000 2001 2002 2003 2004Shrimp 20,810 20,995 21,762 3,457 23,964Lobster 12,987 8,280 9,083 7,919 8,836

Fish 9,428 10,724 11,828 11,058 10,751


Gold and silver production('000 troy oz)

2000 2001 2002 2003 2004a

Gold 118.1 123.5 125.5 108.3 138.7

Silver 51.1 81.4 70.7 65.7 94.8

a Preliminary official estimates.


Construction: gross value of production(C m)

2000 2001 2002 2003 2004Private construction n/a n/a 4,324.6 4,526.1 5,459.4 Residential n/a n/a 1,290.8 1,359.1 1,461.4 Commercial n/a n/a 2,119.1 1,877.3 2,259.7 Service n/a n/a 240.7 680.6 1,077.9 Industrial n/a n/a 112.7 35.1 15.7 Civil engineering works n/a n/a 159.0 163.8 168.7 Rural n/a n/a 402.3 410.2 476.0Public construction: n/a n/a 2,518.5 3,259.4 4,600.0 Buildings n/a n/a 668.5 774.4 1,162.9 Civil engineering works n/a n/a 1,850.0 2,485.0 3,437.1Total n/a n/a 6,843.1 7,785.5 10,059.4


Nicaragua 47


Tourist arrivals and revenue2000 2001 2002 2003 2004

Arrivals ('000) 485.9 482.9 471.6 525.8 614.8 % change 3.8 -0.6 -2.3 11.5 -16.9

Revenue (US$ m) 111.3 109.0 116.4 151.8 166.7 % change 3.9 -2.1 6.8 30.4 9.8

Source: Instituto Nicaragüense de Turismo.

Main exports and imports(US$ m)

2000 2001 2002 2003 2004Exports (fob) 642.8 589.4 561.0 604.5 755.6 Agricultural 263.3 212.0 177.7 201.6 266.4 Fisheries 122.3 88.0 90.7 80.8 92.6 Manufacturing 227.6 259.1 256.7 285.5 349.1 Minerals 29.6 30.3 35.9 36.6 47.5Imports (cif) 1,805.5 1,775.3 1,753.7 1,879.4 2,212.3 Consumer goods 536.3 554.2 571.3 631.7 733.7 Non durable 421.1 447.0 451.9 489.4 569.8 Durable 115.2 107.2 119.4 142.3 163.9 Oil & derivatives 291.5 269.7 253.7 328.4 425.9 Oil 184.5 171.5 149.5 194.5 235.7 Fuel & lubricants 107.0 98.2 104.2 133.9 190.2 Intermediate goods 533.2 540.5 508.9 557.6 646.1 Agriculture 72.8 49.9 55.8 60.3 67.6 Industry 344.6 383.5 365.1 403.1 452.2 Construction 115.8 107.1 88.0 94.2 126.3 Capital goods 442.6 406.2 414.8 359.2 404.6 Agriculture 31.6 37.4 27.8 19.5 17.5 Industry 227.5 228.1 238.0 221.0 250.4 Transport 183.5 140.7 149.0 118.7 136.7 Other imports 1.9 4.7 5.0 2.5 2.0

Merchandise trade balance (fob-cif) -1,162.7 -1,185.9 -1,192.7 -1,274.9 -1,456.7


48 Nicaragua


Main trading partners(US$ m)

2000 2001 2002 2003 2004Exports fob to:US 246.0 186.5 205.2 202.0 263.4Germany 53.4 30.2 13.0 9.5 14.1El Salvador 70.8 75.8 86.7 104.4 109.3Honduras 34.3 39.6 38.4 43.5 56.6Costa Rica 37.7 36.3 48.4 49.2 50.6Guatemala 19.7 22.9 23.2 25.9 32.3UK 13.1 16.1 15.3 19.0 3.8Total exports incl others 642.8 589.4 561.0 604.5 755.6Imports cif from:US 450.0 493.1 475.1 462.5 491.9Central America 423.1 414.8 400.5 429.2 507.7Venezuela 197.3 195.2 196.1 183.2 320.1Japan 133.5 88.2 93.8 81.9 95.5Mexico 126.1 130.0 112.2 158.8 163.0Guatemala 126.9 130.0 136.8 137.3 157.4Costa Rica 164.2 158.6 151.3 167.6 189.2UK 7.1 5.9 6.4 8.7 9.0Total imports incl others 1,805.5 1,775.3 1,753.7 1,879.4 2,212.3


Nicaragua 49


Balance of payments, IMF series(US$ m)

1999 2000 2001 2002 2003Goods: exports fob 748.6 880.6 910.9 916.7 1,049.1Goods: imports fob -1,819.8 -1,801.5 -1,808.2 -1,853.1 -2,021.2

Trade balance -1,071.2 -920.9 -897.3 -936.4 -972.1Services: credit 214.2 221.3 223.4 226.2 249.0

Services: debit -334.7 -343.4 -353.1 -335.5 -372.1Income: credit 30.7 30.7 14.7 9.2 6.7

Income: debit -227.5 -232.5 -255.0 -209.6 -209.9Current transfers: credit 460.1 452.9 482.5 462.4 518.9Current transfers: debit 0.0 0.0 0.0 0.0 0.0

Current-account balance -928.4 -791.9 -784.8 -783.7 -779.5Direct investment in Nicaragua 337.3 266.9 150.2 203.9 201.3

Direct investment abroad 0.0 0.0 0.0 0.0 0.0Inward portfolio investment

(incl bonds) 0.0 0.0 0.0 0.0 0.0Outward portfolio investment 0.0 0.0 0.0 0.0 0.0

Other investment assets 55.2 22.2 79.9 -60.4 2.9Other investment liabilities -41.8 166.0 -284.1 -31.5 -220.6

Financial balance 350.7 455.1 -54.0 112.0 -16.4Capital account nie credit 194.0 307.0 309.0 295.0 248.0Capital account nie debit 0.0 0.0 0.0 0.0 0.0

Capital account nie balance 194.0 307.0 309.0 295.0 248.0Net errors & omissions -141.3 -299.5 -35.5 -61.2 135.1

Overall balance -401.9 -395.2 -455.8 -493.0 -414.2Financing (– indicates inflow)Movement of reserves 27.5 -159.3 21.3 108.5 -68.2Use of IMF credit & loans 22.8 107.1 26.6 0.0 9.0

Source: IMF

Balance of payments, national series(US$ m)

2000 2001 2002 2003 2004Goods balance -920.9 -909.8 -917.2 -971.5 -1,111.9

Services & income balance -323.7 -369.3 -312.0 -296.5 -301.9Transfers balance 452.9 482.5 462.4 518.9 618.8

Current-account balance -791.7 -796.6 -767.2 -749.1 -795.0Capital & financial accounts 614.1 524.8 575.3 574.6 716.6 Capital 308.9 294.7 248.2 286.0 283.5 Financial 305.2 230.1 327.1 288.6 433.1Balance of payments -177.6 -271.8 -191.9 -174.5 -78.4


50 Nicaragua


External debt, World Bank series(US$ m unless otherwise indicated; debt stocks as at year-end)

1999 2000 2001 2002 2003Public medium- & long-term 5,780.0 5,490.0 5,440.0 5,580.0 5,900.0Private medium- & long-term 110.0 281.0 140.0 181.0 209.0

Total medium- & long-term debt 5,890.0 5,771.0 5,580.0 5,761.0 6,109.0 Official creditors 5,410.0 5,140.0 5,090.0 5,230.0 5,550.0 Bilateral 2,940.0 3,020.0 2,890.0 2,810.0 2,850.0 Multilateral 2,470.0 2,120.0 2,200.0 2,420.0 2,700.0 Private creditors 480.0 631.0 490.0 531.0 559.0

Short-term debt 865.0 911.0 674.0 554.0 595.0 Interest arrears 745.0 789.0 535.0 420.0 434.0Use of IMF credit 155.0 169.0 158.0 174.0 213.0

Total external debt 6,910.0 6,851.0 6,412.0 6,489.0 6,917.0Principal repayments 98.9 189.3 263.1 103.8 143.3

Interest payments 87.2 97.7 73.2 47.5 61.8 Short-term debt 4.5 6.5 4.8 4.1 5.9Total debt service 185.9 286.5 336.7 151.2 205.2

Ratios (%)Total external debt/GDP 184.6 175.4 155.5 161.2 166.7Debt-service ratio, paida 14.4 19.7 22.7 9.9 11.8

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank.

Exchange rates(C per unit of currency unless otherwise indicated; annual averages)

2000 2001 2002 2003 2004US$ 12.7 13.4 14.3 15.1 15.9£ 19.2 19.2 21.4 24.7 29.2MePs 1.34 1.43 1.48 1.40 1.41

BrR 6.93 5.69 4.88 4.91 5.45c 0.041 0.041 0.040 0.038 0.036

Bs 0.0187 0.0185 0.0123 0.0094 0.0084

Source: IMF.

Foreign reserves(US$ m; end-period)

2000 2001 2002 2003 2004Total reserves incl gold 488.5 379.9 448.1 502.1 668.2

Total international reservesexcl gold 488.5 379.9 448.1 502.1 668.2

Gold, national valuation 0.0 0.0 0.0 0.0 0.0

Source: IMF.

Editors: Ondine Smulders (editor); Martin Pickering (consulting editor)Editorial closing date: June 7th 2005

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

nicaragua - world banksiteresources.worldbank.org/intafrsumessd/resources/... · 2006-06-22 ·...

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