Download Nicaragua Economy

NS4540
Winter Term 2017
Nicaragua: Economy
Nicaragua: Overview
• Country has had a period of gradual economic recovery
from the mid-1980s despite devastation caused by
Hurricane Mitch in 1998
• Recovery since latter half of 1990s followed period of
major economic crisis
• Between late 1970s and early 1990s Nicaraguan economy
battered by
• Prolonged civil war,
• Major international recession of the early 1980s
• Imposition of economic sanctions by U.S. and
• Government mismanagement
• By 1994, economic output more than 60% below what it
had been in 1977
• These factors accentuated the traditional dependence on
imports and external financing
2
Agriculture I
• Agricultural sector along with rest of economy deeply
depressed in the 1980s and early 1990s
• Immediately after revolution of 1979 the state took over
more than 1m. ha of land
• 70% converted into state farms
• Remainder transferred to peasant cooperatives
• Large areas of underutilized and idle land expropriated
during second stage of Government’s land reform
program in 1981
• From 1986 emphasis was increasingly placed upon
• Production from cooperatives or individual smallholders
• With government exercising considerable control over sector
through monopoly purchase of export crops.
3
Agriculture II
• Government of President Barrios de Chamorro (1990-97)
adopted a more pragmatic approach
• Privatized a number of large state farms but
• Declined to reverse the Sandinista land reforms
• Administration of Aleman Lacayo (1997-2002) continued
this flexibility
• Reached agreement with Sandinista opposition which
sanctioned the land and property distribution to legitimize
beneficiaries of the Sandinista reforms
• Government also reinforced arbitration mechanism to adjudicate
claims of many larger property owners who claimed to be victims
of asset seizures by senior Sandinista's
• Rather than return land generous compensation made
• Claims not completely settled – has created uncertainty
over access to U.S. markets
4
Agriculture III
• Payments totaled US $900m between 1990 and 2003
• Massive impact on country’s external debt representing more
than half the total in 2003
• Property question continued to be major political and
economic issue in Nicaragua
• No doubt a major disincentive to significant private sector
investment in agriculture
• Although Sandinistas returned to power in 2006 elections
President Ortega distanced himself from more extreme
policies of 1980s and pledged to
• Respect free enterprise
• Protect private property, and
• Encourage investment
5
Agriculture IV
• Agriculture production has had steady improvement
since 1999
• Production levels 81.7% higher in 2012 than in 1999
• Remained mainstay of economy in 2014 accounting for
20.5% of GDP
6
Recent Developments: 2015 I
• President Ortega and the FSLN government weathered
considerable adversity in 2015
• Slow-down in economic growth
• Upsurge in social conflict
• Reduced assistance from Venezuela and
• Stalling of a inter-oceanic canal project
• Despite difficulties, Ortega popularity firm above 50%
• Can count on a fairly easy election win in 2016
• Opposition splintered
• Ortega has tacit support of business community through
negotiating some important policies with its leaders
• Business still thinks energy prices too high
7
Recent Developments: 2015 II
• Conflict on the rise
• Despite government’s commanding positon, social and
political conflict increased led by opposition party, PLI
• PLI has organized small scale-scale protests demanding
conditions for a free and fair ballot in 2016
• Government has responded with repression
• fear that election related protests would combine with rural and
industrial conflicts leading to destabilization
• October 2015 church supported environmental movement
forced cancellation of a mining concession
• Rural demonstrations against canal project increased in
strength – despite lack of any property expropriations
8
Recent Developments: 2015 III
• Developments suggest certain fraying of FSLN’s capacity
to head off political conflict
• Recently approved Law on Sovereign Security probably
designed to dissuade multiple opposition groups from
combining forces against government
• Economically
• GDP growth down to 3.8% in 2015 from 4.7% in 2014
• Fall in exports
• Impact of drought on agriculture
• Uncertainty about charges for electricity held up investment in
renewable energy projects and
• Little done to improvement the investment climate
9
Recent Developments: 2015 IV
• Financing Worries
• Government came under pressure in 2015 to start diversifying its
external financing sources
• Assistance form multilateral banks will be offered on an
increasingly less concessionary basis in the future
• Crashing world oil price has hastened the decline of off-budget
assistance from Venezuela
• Starting in June 2015 monthly shipments of crude oil and
derivatives from Venezuela fell by nearly half.
• Foreseeing and eventual end to assistance Ortega government
began laying groundwork for Nicaragua to issue sovereign
bonds on world financial markets
• Invited both Standard and Poor’s and Fitch, to rate the country’s
credit worthiness
10
Recent Developments: 2015 V
• The US$50bn canal project did not advance as scheduled
• Startup has been postponed to end of 2016
• Doubts about the scheme’s viability and the absence of
visible financial banking make it difficult to determine
project’s status
11
IMF: Outlook and Risks I
12
IMF: Outlook and Risks II
13
IMF: Outlook and Risks III
14
IMF: Outlook and Risks IV
15