Nicaragua: Political Situation and U.S. Relations
Nicaragua: Political Situation and U.S.
Relations
Clare Ribando Seelke
Analyst in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Nicaragua, the second poorest country in Latin America after Haiti, has had a
difficult path to democracy, characterized by ongoing struggles between rival caudillos
(strongmen), generations of dictatorial rule, and civil war. Since 1990, Nicaragua has
been developing democratic institutions and a framework for economic development.
Nonetheless, the country remains extremely poor and its institutions are weak. Former
revolutionary Sandinista leader, Daniel Ortega, was inaugurated to a new five-year
presidential term in January 2007 and appears to be governing generally democratically
and implementing market-friendly economic policies. The United States, though
concerned about Ortega’s ties to Venezuela and Iran and his authoritarian tendencies,
has remained actively engaged with the Ortega Administration. The two countries are
working together to implement the U.S.-Dominican Republic-Central America Free
Trade Agreement (CAFTA-DR), control narcotics and crime, and promote economic
development through the Millennium Challenge Account (MCA). Nicaragua is
receiving some $28.6 million in U.S. assistance in FY2008 and could benefit from the
proposed Mérida Initiative for Mexico and Central America. This report may not be
updated.
Background
Nicaragua is a Central American nation bordering both the Caribbean sea and the
Pacific ocean between Costa Rica and Honduras. Slightly smaller than the state of New
York, Nicaragua has a population of roughly 5.4 million. With a per capita income level
of $1000 (2006), Nicaragua is classified by the World Bank as a lower middle income
developing country.1 Nicaragua is still largely an agricultural country, but its non-
traditional exports (textiles, tobacco products, vegetables, gold) have expanded rapidly
in the last few years. Nicaragua’s key development challenge is to boost growth rates to
a level that can reduce poverty, which is especially severe in rural areas.
1 World Bank, World Development Report, 2008 and “Nicaragua Country Brief,”December 2007.
Nicaragua has had a conflicted and anti-democratic past, dominated from 1936 until
1979 by the Somoza dictatorship. Anastasio Somoza and his two sons who succeeded
him, though corrupt and authoritarian, were staunch anti-communists who maintained
good relations with the United States. In 1979, the Somoza government was toppled by
a revolution led by the Sandinista National Liberation Front (FSLN), a leftist guerrilla
group that had opposed the regime since the early 1960s. That revolution resulted in the
loss of some 50,000 lives. During the 1980s, Nicaragua was embroiled in a decade-long
struggle between its leftist Sandinista government, which confiscated private property and
maintained ties with rebel forces in neighboring El Salvador, and U.S.-backed counter-
revolutionary forces. Since democratic elections were held in 1990, Nicaragua has
adopted pro-market economic reforms, held free and fair elections, and worked toward
building democratic institutions. Despite progress on those fronts, successive
governments have made limited inroads in combating corruption and addressing the
country’s high levels of poverty and inequality.2
Political Situation
On January 10, 2007, Sandinista leader and former President Daniel Ortega was
inaugurated to a five-year presidential term. Ortega’s previous presidency (1985-1991)
was marked by a civil conflict pitting the government against U.S.-backed “contras.”
Ortega, who had lost the last three presidential elections, won only 37.9% of the vote in
the November 2006 elections, but Nicaraguan law allowed him to avoid a run-off vote
since he was more than 5% ahead of the next closest candidate, Eduardo Montealegre,
then head of the Nicaraguan Liberal Alliance (ALN).
Ongoing disputes between powerful leaders, endemic corruption, and weak
institutions have undermined the consolidation of democracy in Nicaragua. The 2006
elections followed more than a year of political tensions among then-President Enrique
Bolaños, Ortega and the leftist Sandinista party, and allies of rightist former President
Arnoldo Alemán. Alemán and Ortega, once longtime political foes, negotiated a power-
sharing pact (“El Pacto”) in 1998 that has since influenced national politics. In addition
to a tendency to have caudillos like Ortega and Alemán dominate national politics,
Nicaragua is known to have high levels of corruption. According to Transparency
International’s 2007 Corruption Perception Index, Nicaragua is one of ten Latin American
countries where corruption is perceived as rampant. Currently, some opposition leaders
are urging the Ortega government to publicly disclose how it is using the aid Nicaragua
receives from Venezuela, including funds earned through the re-sale of Venezuelan oil
bought on preferential terms through Petrocaribe. They are concerned that the president
of Nicaragua’s state-owned oil company, which distributes the Venezuelan oil, is also the
treasurer of the Sandinista party.3 Finally, the politicization of government entities,
including party influence over the judiciary, is an obstacle to governance in Nicaragua.
2 U.S. Department of State, “Background Note: Nicaragua,” January 2008; Nicaragua: A
Country Study, Tim Merrill, ed. Washington D.C.: Federal Research Division, Library of
Congress, 1994.
3 “Opposition Accuses FSLN of ‘Privatizing’ Venezuelan Aid,” Central America Report, Feb 1.
Since no single party won an outright majority in Nicaragua’s 90-member National
Assembly in the November 2006 legislative elections, President Ortega and the
Sandinistas (FSLN) must form alliances in order to enact legislation The FSLN has
generally relied on an informal alliance with the Constitutionalist Liberal Party (PLC),
dominated by jailed former President Alemán, to pass legislation. In December 2007,
however, the PLC broke with the Ortega government by voting against its plan to increase
the power of the country’s Citizen Power Councils (CPCs), which are funded by the
executive branch, over the existing municipal authorities.4 The PLC has since aligned
with Eduardo Montealegre, who, until recently was head of the ALN, to contest the ruling
FSLN and its allies in the November 2008 municipal elections. Those elections will test
the strength of the FSLN, which currently holds 87 of the country’s 153 municipalities.5
Economic and Social Policy. In 2008, the Ortega government faces the
challenges of boosting the country’s moderate growth rates (GDP growth was 2.9% in
2007) and reducing poverty. According to the World Bank, although overall poverty has
declined in Nicaragua since the country’s return to democracy (from 50.3% in 1993 to
roughly 46% today), more than two-thirds of the rural population is impoverished. While
Nicaragua made some progress towards development in the 1990s, much of those gains
were reversed by the devastation wrought by Hurricane Mitch in 1998. As a result of
sluggish growth rates, some social indicators for Nicaragua have shown little or no
improvement since 1993. Nicaragua is highly dependent on foreign aid, which
contributed 26% of its budget in 2006. It is also dependent on remittances sent from
Nicaraguans living abroad, which totaled some $656 million in 2006 and accounted for
17% of the country’s GDP. The official unemployment rate is about 5%, but
underemployment is a major problem and some 60% of workers are employed in the
informal sector, which doesn’t provide social security and other benefits.6
The Ortega government has adopted a poverty reduction strategy and a 2008 budget
in line with International Monetary Fund (IMF) recommendations. As a result, the IMF
and the World Bank have cancelled roughly $200 million and $1.5 billion respectively in
foreign debt owed by Nicaragua. President Ortega is expected to announce a development
plan by mid-2008 that is likely to emphasize sustainable agro-industrial development.
Obstacles to Nicaragua’s growth prospects in 2008 will be the rising price of oil and the
economic slowdown in the United States, which could affect trade and remittance flows.
4 “Government-Opposition Relations Deteriorate in Nicaragua,” Global Insight Daily Analysis,
December 10, 2007. In January 2008, the Nicaraguan Supreme Court upheld the legality of the
CPCS, which are backed by President Ortega and organized by his wife, Rosario Murillo. See
“Nicaraguan Politics: Sparring Abroad, Calm at Home,” Economist Intelligence Unit (EIU) ,
February 20, 2008.
5 “Alliances Ready for Nicaraguan Elections,” Latinnews Daily, March 4, 2008; “Nicaragua:
Country Report,” EIU, March 2008.
6 Poverty is defined as living on less than $2 a day. Historical data is from World Bank,
Nicaragua Poverty Assessment, June 2004. See World Bank, World Development Report, 2008;
U.S. Department of State, “Background Note: Nicaragua,” January 2008; “Remittances to
Central America up to $12.1 billion in 2007,” Latin America News Digest, November 7, 2007.
Some economists have also warned that if Ortega should engage in an increasingly radical
or authoritarian manner, foreign investment in Nicaragua could decline.7
Foreign Relations. President Ortega is working with the United States and the
IMF to boost the country’s long-term prospects for economic development, but is also
seeking aid from Iran and Venezuela to meet more immediate needs. Iran has pledged to
invest in Nicaragua’s ports, agricultural sector, and energy network, with Venezuela co-
financing many infrastructure projects. Venezuela has promised to build a $3.5 billion
oil refinery and to provide up to 10 million barrels of oil at preferential prices annually
through the PetroCaribe program.8 Ortega shares an ideological affinity with President
Hugo Chávez of Venezuela and the other countries comprising the Bolivarian Alternative
for the Americas (ALBA) trade block (Cuba and Bolivia). President Ortega generally
maintains good relations with neighboring countries in Central America, but his
government has been embroiled in a serious border dispute with Colombia. In December
2007, the International Court of Justice (ICJ) upheld Colombia’s sovereignty over the
islands of San Andrés and Providencia, but the ICJ is still determining the official
maritime boundaries between the two countries.
U.S.-Nicaraguan Relations
Despite initial concerns about the impact of Ortega’s November 2006 re-election on
U.S.-Nicaraguan relations, the bilateral relationship, though tense at times, appears to be
generally intact. One cause of tension has been President Ortega’s tendency to vacillate
between anti-U.S. rhetoric and reassurances that he will respect private property and
pursue free-trade policies. In September 2007, Ortega denounced the United States in a9
speech before the United Nations as “the imperialist global empire.” Rhetoric aside,
Ortega’s interest in cooperating with the United States has been reflected in his pledge to
hand over 651 Soviet-made surface-to-air missiles in exchange for military and medical
equipment. Ortega has continued cooperating with the IMF, which approved a new three-
year poverty reduction package for Nicaragua in October 2007. His government is also
implementing the CAFTA-DR. The United States provides significant foreign assistance
to Nicaragua, and the two countries cooperate on counternarcotics, trade, and security
matters. The United States responded to Hurricane Mitch in 1998 by granting Temporary
Protected Status (TPS) to eligible Nicaraguan migrants living in the United States. In
May 2007, the U.S. government extended the TPS of an estimated 4,000 eligible
Nicaraguans through January 5, 2009. In response to Hurricane Felix, a category 5
hurricane that hit Nicaragua in September 2007, the United States provided hurricane
assistance to Nicaragua to help with the recovery efforts.
U.S. Aid. The United States provided Nicaragua with $50.2 million in foreign aid
in FY2006 and $36.9 million in FY2007, while an estimated $28.6 million is being
provided in FY2008. The Administration has also requested, but Congress has not yet
7 “Nicaragua: Country Report,” EIU, March 2008.
8 “Iran’s Push Into Nicaragua,” San Antonio Express-News, December 17, 2007; “Nicaragua,
Esso Standard Oil Sign Accord,” Latin America News Digest, January 11, 2008.
9 “Nicaragua’s Ortega Rips U.S. ‘Tyranny,’” Miami Herald, September 26, 2007; “Ortega’s
Statements Put U.S. Ties to the Test,” Miami Herald, September 15, 2007.
considered, some $2 million in FY2008 supplemental assistance for Nicaragua as part of
the Administration’s Mérida Initiative to boost the region’s capabilities to interdict the
smuggling of drugs, arms, and people, and to support a regional anti-gang strategy. For
FY2009, the Administration has requested $38 million for Nicaragua, not including P.L.
480 food aid. Nicaragua could also receive roughly $6.7 million of the $100 million in
Mérida Initiative funds for Central America included in the FY2009 budget request.10
The FY2009 request includes increases in funds for security reform and combating
transnational crime, democracy and civil society programs, and trade capacity building
programs to help Nicaragua benefit from CAFTA-DR.
Millennium Challenge Account (MCA). In addition to traditional development
assistance, Nicaragua benefits from its participation in the MCA, a presidential initiative
that increases foreign assistance to countries below a certain income threshold that are
pursuing policies to promote democracy, social development, and sustainable economic
growth. In 2005, the Bush Administration signed a five-year, $175 million compact with
Nicaragua to promote rural development. The compact, which entered into force in May
Those projects aim to promote investment by strengthening property rights, boost the
competitiveness of farmers and other rural businesses by providing technical and market
access assistance, and reduce transportation costs by improving road infrastructure.
During a recent visit to Nicaragua, John Danilovich, director of the Millennium Challenge
Corporation, asserted that, despite some political differences, he believes that the United11
States and Nicaragua can work together to combat poverty.
Consolidating Democracy. U.S. democracy programs aim to reform
government institutions to make them more transparent, accountable and professional;
combat corruption; and promote the rule of law. The United States provided some $13
million to support the November 2006 elections in Nicaragua. Some 18,000 observers
monitored the elections. Following the November 2008 municipal elections, USAID is
expected to help increase the capacity and transparency of local governments. Other
ongoing programs seek to increase citizen advocacy and the role of the media.
Human Rights. U.S. officials have expressed some concerns regarding respect for
human rights in Nicaragua. According to the State Department’s March 2008 human
rights report on Nicaragua, civilian authorities generally maintained effective control of
security forces, but there were some reports of unlawful killings involving the police.
Some of the most significant human rights abuses included harsh prison conditions,
arbitrary arrests and detentions, and widespread corruption in and politicization of
government entities, including the judiciary and the Supreme Electoral Council. Human
rights problems related to labor issues include child labor and violation of worker rights
in some free trade zones. In October 2007, Human Rights Watch asserted that
10 U.S. Department of State Mérida briefing paper provided to Congressional offices. Country
breakdowns for proposed Mérida funding were not included in the FY2009 budget request.
11 “U.S. Official: Washington Can Work on Poverty With Nicaraguan President Ortega,”
Associated Press, January 24, 2008.
Nicaragua’s current ban on all abortions, which includes cases where the mother’s life is
at risk, has put pregnant women’s health at risk.12
Counternarcotics Cooperation. Nicaragua is a significant sea and land
transshipment point for cocaine and heroin being shipped from South America to the
United States, according to the State Department’s February 2008 International Narcotics
Control Strategy Report (INCSR). Trafficking occurs on both the country’s Atlantic and
Pacific coasts, with increasing trafficking occurring on the Pacific Coast since 2006. The
INCSR report asserts that Nicaraguan law enforcement were “very successful” in their
counternarcotics efforts in 2007. Seizures and arrests increased dramatically, with 153
kilograms of heroin and 13 metric tons of cocaine seized (compared to 23.4 kilograms of
heroin and 9.72 metric tons of cocaine in 2006) and 192 traffickers arrested (up from 67).
It also asserts that corruption, particularly within the judiciary, has been an obstacle to
Nicaragua’s counterdrug efforts. The Ortega Administration has asked the United States13
for more assistance to deal with drug gangs. The FY2009 budget request includes an
increase in U.S. counternarcotics aid to Nicaragua. As noted above, other assistance
could be provided through the proposed Mérida Initiative.
Trade. Nicaragua’s National Assembly approved the CAFTA-DR in October 2005
and passed related intellectual property and other reforms in March 2006. The agreement
went into effect in Nicaragua on April 1, 2006. Compared to other CAFTA-DR countries,
Nicaragua has attracted textile and apparel investors because of its relatively low wage
costs. In addition, Nicaragua is the only CAFTA-DR country allowed to export a certain
amount of apparel products composed of third country fabric to the United States duty-
free. Foreign Direct Investment (FDI) in Nicaragua totaled roughly $282 million in 2006,
an 18.5% increase over 2005. In 2007, FDI rose again to some $335 million. CAFTA-
DR has also helped to accelerate U.S.-Nicaraguan trade. In 2006, Nicaraguan exports to
the United States totaled about $1.53 billion, up 29.2% from 2005. They rose again in
coffee, cigars, cheese, and fruits and vegetables. For the same period, Nicaraguan imports
from the United States rose 20.6% in 2006 to $752 million as compared to 2005, and by
18.5% in 2007 to $890 million. Key Nicaragua imports from the United States include
machinery, grains, fuel oil, textile fabric, plastics, pharmaceuticals, and motor vehicles.14
Property Claims. Resolution of property claims by U.S. citizens has been a
contentious issue in U.S.-Nicaraguan relations since the Sandinista regime expropriated
property in the 1980s. The Nicaraguan government has gradually settled many claims
through compensation, including the claims of 4,500 U.S. citizens. Fewer than 700
claims registered with the U.S. Embassy remain unresolved. The Ortega government’s
willingness to continue processing those claims was rewarded in July 2007 by the
Administration’s renewal of a waiver that allows Nicaragua to continue receiving U.S.
foreign assistance despite the past expropriation of property owned by U.S. citizens.
12 Human Rights Watch, “Nicaragua: Over Their Dead Bodies,”October 2007.
13 “Nicaragua Asks U.S. For Help in Drug War,” El País, February 6, 2008; Data on seizure and
arrests for 2007 provided by the U.S. Department of State.
14 Trade figures are drawn from the World Trade Atlas; U.S. Department of Commerce, Fact
Sheet, “Nicaragua: Trade and Investment Impact of CAFTA-DR,” February 2008;