Nicaragua is heading towards its worst economic crisis in the last 30 years

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  • Sun, 02/10/2019 - 22:30
  • EFE-Archivo

Luis Felipe Palacios

The Nicaraguan economy, which contracted by 4% last year, is heading to its worst economic crisis in the last 30 years in the middle of a socio-political and humanitarian conflict that has confronted the Government with the private sector and other agents of this impoverished country.

The government of President Daniel Ortega took economic measures, always unpopular, to try to rebuild the economy that, according to the private sector, will cause business closures, more unemployment, more informality in the labor market, the growth of the fiscal deficit, and increase in poverty.

This crisis began on April 18 through some social security reforms that were abolished by the Executive after a social explosion that left hundreds of deaths and detained in protests, and thousands more in exile.

These street demonstrations also ended with the model of alliance and consensus that the Executive maintained with the big capital and the syndicates and that, in the private sector's opinion, had "paid off" to Nicaragua.

Almost ten months after the crisis began, Ortega, without the private sector's consent, imposed some new modifications to social security that increases the share of companies and employees by 3.5 and 0.75 percentage points, respectively.

He also presented in the Parliament, controlled by the ruling party, a proposal to reform the Tax Settlement Law, which raises the Income Tax, the Selective Consumption Tax, as well as the income from economic activity, capital and profits, between others, in order to raise funds after the sharp fall in the economy due to the crisis.

The different economic agents, who consider these "tax collection" measures, have warned of a greater economic debacle.

"There are companies that will no longer be able to continue operating," said the president of the Higher Council of Private Enterprise of Nicaragua (COSEP), Jose Adan Aguerri, who predicted greater unemployment and poverty with these measures.

The economic deterioration experienced in 2018 and the one we expect this 2019 cannot be reversed with economic measures because its origin lies in the political and socioeconomic crisis that the country is experiencing, argued, on the other hand, the non-governmental Nicaraguan Foundation for Development Economic and Social (FUNIDES) in a study.

These political agreements must include, at least, guarantees of respect for constitutional rights, the freedom of political prisoners, the truth-clarification behind the acts of violence, as well as free, observed, transparent, and anticipated elections, said FUNIDES.

The consumers, entrepreneurs, and investors’ confidence as well as citizen security and social cohesion, can only be restored with political agreements that ensure a change in the course of Nicaragua, according to various sectors.

In this scenario, Nicaragua's gross domestic product (GDP) will contract between 7.3% and 10.9% in 2019, according to FUNIDES, who noted that country risk has increased significantly.

He also warned that the sanctions imposed on Nicaragua by the United States, its main trading partner, will play a key role in the dynamics of economic activity.

The US Senate approved the Nicaraguan Human Rights and Anticorruption Bill, known as the Nica Act, which contemplates restrictions on loans granted to Managua by international financial institutions where the United States has a vote, except for financing projects that promote democracy and Nicaraguans' basic needs.

With two consecutive years of economic contraction, Nicaragua would be head its worst economic crisis in the last 30 years.

Between 1985 and 1989, during the first Sandinista regime, Nicaragua's GDP decreased 11.9%, 14.1%, 1%, 36.4%, and 31.1%, in that order, according to Central Bank figures.

After that date, the other years in which the Nicaraguan economy have ended in the red are in 1993 (-4.4%), 2002 (-3.2%) and 2009 (-2.8%).

Before the sociopolitical crisis, Nicaragua was the region's country, after Panama, with the highest growth.


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