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Economy of Nicaragua

From Academic Kids

Nicaragua is one of the northern hemisphere's poorest countries, with low per capita income, flagging socio-economic indicators, and huge external debt. The country 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. Nicaragua may qualify for the Heavily Indebted Poor Countries (HIPC) initiative, though aid is conditioned on improving governability, the openness of government financial operations, poverty alleviation, and human rights.

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 onwards.

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 cutting the foreign debt in half. The economy began expanding in 1991 and grew 2.5% in 2001, with overall GDP reaching $2.44 million 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.

Nicaragua is currently the second-poorest nation in the Americas after Haiti, with a per capita GDP of less than $500. Unemployment is officially around 11%, and another 36% 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. Nicaragua also depends heavily on remittances from Nicaraguans living abroad.

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 recent years, tourism has grown rapidly to become Nicaragua's third largest source of foreign capital.

There are copper mines in northeastern Nicaragua.

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 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.

GDP: purchasing power parity - $12.5 billion (1999 est.)

GDP - real growth rate: 6.3% (1999 est.)

GDP - per capita: purchasing power parity - $2,650 (1999 est.)

GDP - composition by sector:
agriculture: 34%
industry: 22%
services: 44% (1998)

Population below poverty line: 50% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: 1.6%
highest 10%: 39.8% (1993)

Inflation rate (consumer prices): 12% (1999 est.)

Labor force: 1.7 million (1999)

Labor force - by occupation: services 43%, agriculture 42%, industry 15% (1999 est.)

Unemployment rate: 10.5% (1999 est.); considerable underemployment

Budget:
revenues: $527 million
expenditures: $617 million, including capital expenditures of $NA (1998 est.)

Industries: food processing, chemicals, machinery and metal products, textiles, clothing, petroleum refining and distribution, beverages, footwear, wood

Industrial production growth rate: 3.2% (1998 est.)

Electricity - production: 2,714 GWh (1998)

Electricity - production by source:
fossil fuel: 53.43%
hydro: 35.34%
nuclear: 0%
other: 11.23% (1998)

Electricity - consumption: 2,520 GWh (1998)

Electricity - exports: 99 GWh (1998)

Electricity - imports: 95 GWh (1998)

Agriculture - products: coffee, bananas, sugarcane, cotton, rice, maize, tobacco, sesame, soya, beans; beef, veal, pork, poultry, dairy products

Exports: $573 million (f.o.b., 1998 est.)

Exports - commodities: coffee, shrimp and lobster, cotton, tobacco, beef, sugar, bananas; gold

Exports - partners: US 35%, Germany 13%, El Salvador 10%, Spain 4%, Costa Rica 4%, France 2% (1998)

Imports: $1.5 billion (c.i.f., 1999 est.)

Imports - commodities: machinery and equipment, raw materials, petroleum products, consumer goods

Imports - partners: US 31%, Costa Rica 11%, Guatemala 8%, Venezuela 6%, El Salvador 5%, Mexico 4% (1998)

Debt - external: $5.7 billion (1999 est.)

Economic aid - recipient: pledges of $1.4 billion in new aid in 1999

Currency: 1 gold cordoba (C$) = 100 centavos

Exchange rates: gold cordobas (C$) per US$1 - 12.29 (December 1999),11.81 (1999), 10.58 (1998), 9.45 (1997), 8.44 (1996), 7.55 (1995)

Fiscal year: calendar year

See also

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