Economy development toward the history

The economy of Nicaragua has made significant progress toward macro-economic stabilization over the past few years - even with the damage caused by Hurricane Mitch in the fall of 1998. International aid, debt relief, and continued foreign investment have contributed to the stabilization process. GDP grew 6.3% in 1999, while inflation remained about 12%, and unemployment dropped. In 2005, finance ministers of the leading eight industrialized nations (G-8) agreed to forgive Nicaragua's foreign debt, as part of the HIPC program. Aid is conditioned on improving governability, the openness of government financial operations, poverty alleviation, and human rights. According to the CIA Fact Book, Nicaraguas GDP per capita ranks #158, however, sources give differing data.

Economy affected by the war

Nicaragua's economy was ravaged in the 1980s by the Contra War, which saw the destruction of much of the country's infrastructure. At the same time, the US staged an economic blockade from 1985 onward.

Following the end of the war and the defeat of the Sandinistas in the 1990 general election, Nicaragua began free market reforms, privatizing more than 350 state enterprises. Since then, inflation has been reduced from 33,603% to 8%, and the government's foreign debt has been cut in half. The economy began expanding in 1991 and grew 2.5% in 2001. In 2001, the global recession, combined with a series of bank failures, low coffee prices, and a drought, caused the economy to retract.

Unemployment is officially 3.8% (2006 est.), and another 46.5% (2006 est.) are underemployed. Nicaragua suffers from persistent trade and budget deficits and a high debt-service burden, leaving it highly dependent on foreign assistance--as much as 25% of GDP in 2001.

One of the key engines of economic growth has been production for export. Exports were 640 million in 2001. Although traditional products such as coffee, meat, and sugar continued to lead the list of Nicaraguan exports, the fastest growth is now in nontraditional exports: maquila goods (apparel); gold; seafood; and new agricultural products such as peanuts, sesame, melons, and onions. In 2007 Daniel Ortega managed exports to top 1 billion dollars for the first time in Nicaraguan history during his first 100 days as president. Nicaragua also depends heavily on remittances from Nicaraguans living abroad.

Fundamentals

Nicaragua is primarily an agricultural country, but construction, mining, fisheries, and general commerce also have been expanding during the last few years. Foreign private capital inflows topped $300 million in 1999 but, due to economic and political uncertainty fell to less than $100 million in 2001. In the last 12 years tourism has grown 394%, the rapid growth has led it to become Nicaragua's second largest source of foreign capital. Less than three years ago, the nation’s tourism budget was U.S. $400,000; today, it is over $2 million. Nicaragua's economy has also produced a construction boom, the majority of which is in and around Managua.

Challenges

Nicaragua faces a number of challenges in stimulating rapid economic growth. An International Monetary Fund (IMF) program is currently being followed, with the aim of attracting investment, creating jobs, and reducing poverty by opening the economy to foreign trade. This process was boosted in late 2000 when Nicaragua reached the decision point under the Heavily Indebted Poor Countries (HIPC) debt relief initiative. However, HIPC benefits were delayed because Nicaragua subsequently fell "off track" from its IMF program. The country also has been grappling with a string of bank failures that began in August 2000. Moreover, Nicaragua continues to lose international reserves due to its growing fiscal deficits.

The country is still a recovering economy and it continues to implement further reforms, on which aid from the IMF is conditional. In 2005, finance ministers of the leading eight industrialized nations (G-8) agreed to forgive some of Nicaragua's foreign debt, as part of the HIPC program. According to the World Bank Nicaragua's GDP was around $4.9 US billion dollars. Recently, in March 2007, Poland and Nicaragua signed an agreement to write off 30.6 million dollars which was borrowed by the Nicaraguan government in the 1980s.

Trade Partners

The U.S. is the country's largest trading partner, providing 25% of Nicaragua's imports and receiving about 60% of its exports. About 25 wholly or partly owned subsidiaries of U.S. companies operate in Nicaragua. The largest of those investments are in the energy, communications, manufacturing, fisheries, and shrimp farming sectors. Good opportunities exist for further investments in those same sectors, as well as in tourism, mining, franchising, and the distribution of imported consumer, manufacturing, and agricultural goods. There also are copper mines in northeastern Nicaragua.

Components of the economy

Gross Domestic Product (GDP) in purchasing power parity (PPP) in 2006 was estimated at $16.83 billion USD, and GDP per capita in PPP at $3,000 USD. The service sector is the largest component of GDP at 56.8%, followed by the industrial sector at 25.8% (2006 est.). Agriculture represents only 17.3% of GDP (2006 est.). Nicaraguan labor force is estimated at 2.261 million of which 29% is occupied in agriculture, 19% in the industry sector and 52% in the service sector (est. 2003).