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Nicaragua Project - Economy

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Nicaragua

Yesterday, Today and Tomorrow

Economy

 

Intro

 

Many Central American economies have been adversely affected by colonialism, political instability, civil war, foreign intervention and natural disasters. Nicaragua is no exception.

Nicaragua went from a well-developed agrarian society, to a thriving, but exploited, coffee and "banana republic" industry, to 1960’s industrialization. The country was hard hit by a 5-year blockade by the United States and the civil war between Sandinistas and Contras, that left most of the fragile infrastructure in ruins. Nicaragua remains, in the wake of Hurricane Mitch in 1998, a struggling economy.

Despite exports of $1.978 billion, the country relies on an estimated $471 million in economic aid. In 2005, Under the Heavily Indebted Poor Countries (HIPC) initiative, finance ministers of the leading eight industrialized nations (G8) agreed to pardon some of Nicaragua's foreign debt. Recently, in March 2007, Poland and Nicaragua signed an agreement to write off $30.6 million, which had been borrowed by the Nicaraguan government in the 1980s.

Free Trade

The Central American Free Trade Agreement (CAFTA-DR) is a trade agreement between the United States and the countries of Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The U.S. Congress approved the CAFTA-DR in July 2005 and the President signed the legislation on August 2, 2005.

CAFTA is modeled after the North American Free Trade Agreement (NAFTA) and critics are concerned the damaging effects of NAFTA will be repeated in CAFTA. NAFTA put countless small Mexican producers out of business; it increased unemployment in manufacturing, and caused environmental degradation because farmers increased the use of pesticides to compete with U.S exports. CAFTA may have worse effects in the Central American countries as they are less developed and compared to Mexico skill levels are substandard.

Although a free trade zone emulates the European model of integrating the economies of numerous countries, there is an issue of trust between the US driven CAFTA and Nicaragua. Relations with the US are at the best of times, strained. The trade agreement basically assures another prospect for cheap labor in Central America but an increase in emigrant labor force to the US. It is too early to determine the outcomes of CAFTA. However, citizens and economic critics, as was the case in NAFTA, will keep a close watch on the aftermath of CAFTA.

Past

It is difficult to pinpoint where things went wrong. Colonialism, a history of foreign exploits and intervention caused the people of Nicaragua to develop a distrust of foreign investors – although the government has a differing opinion. Nicaragua, due to it’s abundance of natural resources and geographical location, is an anomaly. It should be have a thriving Central American economy, but only a few have been able to take advantage of the country's wealth.

Nicaragua’s economic history is diverse. From the coffee boom (1840s to 1940s), to diversification and growth (1945 to 1977), to the Sandinista Era (1979 to 1990), Camorra’s "Plan of 100 Days," to Aleman’s fall due to corruption, and then the return of Daniel Ortega, Nicaragua economy has been a roller coaster. And let's not forget the legendary Somoza family, who ruled the country as dictators.

Some analysts estimate that by the mid-1970s, the Somoza family owned or controlled 60 percent of the nation's economic interests and owned a third of the land. They had dealings in the food processing industry, and controlled import-export licenses. They also either owned outright or partially controlled transportation, the country's main seaports and the national airline. Profit from these projects was reinvested in real estate throughout the United States and parts of Latin America.

When the Somozas fled Nicaragua in 1979, the family's worth was estimated to be between $500 million and $1.5 billion in US currency. In comparison, the average Nicaraguan earns $280 per month (2007 est.). For the majority of Nicaraguans, the Samozas ran away with an unimaginable amount of money.

Present

With a civil war, heavy foreign intervention, several natural disasters and the Somoza family behind it, Nicaragua needs to look internally for stability. Tourism is once again on the rise and is estimated to be the nation's second largest industry, affecting the agricultural, commercial, finance industries, as well as the construction industry.

 

In July 2007, Daniel Ortega’s government negotiated a new IMF agreement, which required free-market policies and included interests associated with energy, pensions, municipal-led improvement projects and spending on poverty. Nevertheless, Nicaragua is still the second poorest country in Latin America after Haiti. Although economic efforts have reduced the scope and severity of poverty, 48 percent (2007 est.) of the population lives below the poverty line.

Experts estimate that 700,000 Nicaraguans live in the U.S and 1.5 million (2007 est.) live abroad. The emigrant labor force accounts for $990 million in remittances sent home (2007 est.) Subsequently, labor force is Nicaragua’s real main export.

 

UNEMPLOYMENT: over 3.6 percent (2007 est.)

UNDEREMPLYMENT: 46.5 percent (2007 est.)

GDP PER CAPTITA: $2,600 (2007 est.)

DEBT: 63 percent of GDP (2007 est.)

AGRICULTURAL EXPORTS: bananas, chemicals, coffee, cotton, gold, meat, shellfish, sugar.

EXPORT COMMODITIES: coffee, shrimp, tobacco, sugar, gold, peanuts, copper.

MAIN INDUSTIRES: food processing, chemicals, metal products, textiles, clothing, petroleum refining and distribution, beverages, footwear.



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By Simon Gauci
I am freelance writer and researcher who resides in Quito *sept to June and Kilbride Ontario Canada *June to Aug*. I write fiction and...
15 Dec 2008


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