NICARAGUA

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Development Challenge Other Donors FY2001 Program / Activity & Budget Information Summary Tables Program Summary Work Force Data Program/Sector Summary USAID Search: Nicaragua Previous Years' Activities 2000, 1999, 1998, 1997 21     Introduction U.S. assistance to Nicaragua contributes to our strategic goals by fully integrating Nicaragua in regional and global markets, consolidating democracy, and promoting economic growth and reconstruction. U.S. engagement in Nicaragua is an investment in regional stability and the security of our borders, particularly after the destructive flooding caused by Hurricane Mitch in November 1998. Broad-based economic growth, open markets, and more jobs in Nicaragua not only offer an expanding market for U.S. exports and investment but also help stem the flow of illegal immigration to the United States. Post-Mitch conditions may spur more migration. Assisting Nicaragua to achieve a healthy democracy and rule of law contributes to a more level playing field for U.S. companies, the resolution of property cases, and improved security for U.S. citizens in Nicaragua. Through improved administration of justice and fiscal management, U.S. assistance strengthens Nicaragua as a partner in the fight against illicit drug trade and international crime, and curbs opportunities for corruption in government. Efforts to reduce environmental degradation will protect vital hemispheric biodiversity and help prevent natural disasters in the future while assuring sustainable development. U.S. assistance to reactivate basic health and education services following Hurricane Mitch and reconstruction programs to help reinstate the livelihoods of affected families, respond to Nicaragua's humanitarian needs and will contribute to its future prosperity. Development Challenge In 1998, Hurricane Mitch hit Nicaragua, cutting the country's gross domestic product in half and killing more than 3,000 people. The areas most affected by Mitch, located in the north and northwest part of the country, coincide with the poorest regions of Nicaragua. The Atlantic region, with its large indigenous population, suffered flooding along the Rio Coco and its tributaries. Mitch caused extensive damage to roads and bridges. Much of the population had no potable water. Hundreds of schools were damaged or destroyed, and many that survived became temporary shelters for Mitch-affected families. More than 20,000 family homes were damaged or destroyed. With more than 25% of the country's cropland damaged and eroded by the flooding, small farmers suffered greatly. The U.S. Government responded with emergency disaster assistance, both material and cash, totaling about $20 million with emergency P.L. 480 Title II food included. Following the emergency phase, USAID redirected approximately $8.5 million from its regular activities to jumpstart reconstruction activities principally in the health and agricultural sectors until the Central American and the Caribbean Emergency Disaster Recovery Fund (CACEDRF) supplementary funds were approved in late May 1999. With supplemental funds, USAID is now restoring primary health care services and rebuilding water and sanitation systems for small communities in areas affected by Mitch. USAID is helping some 100,000 rural households recover from the effects of Mitch through a variety of reconstruction programs. These include provision of agricultural inputs and technical assistance to farmers, repair of farm-to-market roads, protection of watersheds, and reclamation of cropland damaged by the floods. Communities will be better prepared to face future disasters after receiving training sponsored by USAID at the same time the repair of containment structures, retaining walls, culverts, and restoration of river embankments, under the supervision of the U.S. Army Corps of Engineers, will mitigate against another tragedy. USAID will refurnish and re-equip at least 570 school rooms that were badly damaged or destroyed by Mitch. USAID is assisting 20 small to medium municipalities in the most severely affected areas of Nicaragua to repair basic infrastructure works key to restoring services to families. Overall economic losses as a result of Mitch were estimated at $1.5 billion. GDP growth for 1998 dropped to four percent down from five percent in the previous year. With international flows, growth rebounded to about six percent in 1999. Moreover, despite debt forgiveness by the U.S. and other donors before and after Hurricane Mitch, Nicaragua still has an impossibly large external debt burden. Because additional debt forgiveness is required, Nicaragua is working to meet conditions for a Heavily Indebted Poor Countries (HIPC) initiative including the design of a national poverty reduction strategy and evidence of progress made in improved governance. The challenge now is to recover productive capacity, with emphasis on rebuilding damaged agriculture, shelter, water and transportation infrastructure, and to build for more sustainable development. To deal with the requirements of hurricane reconstruction and national transformation, the Government of Nicaragua (GON) sought $1.4 billion in assistance from the international donor community during the Consultative Group meeting in May 1999. Hurricane Mitch demonstrated how vulnerable the country is to natural disasters. Though immediate efforts to assist households affected by the hurricane still continue, the country must devise programs to reduce the vulnerability of rural households especially to future natural disasters and unforeseen downturns in the market for primary commodities. Nicaragua needs donor support to create the economic and social conditions that will produce a greater margin of safety for the poor. The Mitch tragedy brought into high relief the need to improve the mechanics of delivering services to the poor. Investments in health and education, credit and technology, will not only put the affected families back on their feet, but will in the long run assure that they will be able to recover faster when disasters strike again. Mitch also brought to the fore the urgent need for Nicaragua to pay systematic and immediate attention to environmental issues and problems including watershed management, natural resources management, reforestation, and land use. The USG supports the GON's post-Mitch objective to safeguard reconstruction efforts through good governance and its guarantee that civil society will participate in national reconstruction programs. The challenge now for democracy in Nicaragua is to not regress during this difficult period of recovery, but rather to push forward on government accountability, transparency, efficiency, participation, and decentralization during the reconstruction period. Other Donors The international community responded generously to Nicaragua's appeal for donor support for its reconstruction and national transformation program. Indications are that major infrastructure needs in the transport, housing, electric and communications sectors will be covered by multilateral financial institutions, the European Union, and bilateral donors including Japan, Spain and Taiwan. The World Bank, United Nations agencies and numerous bilateral donors increased their funding for school and health center reconstruction and equipping as well as for new water and sanitation programs. There is an increase in donor emphasis on social sector programs following the various Consultative Group meetings. Food assistance also figures strongly in the transition period between emergency and recovery from Mitch damages in the agricultural sector. Though there are many donors financing agriculture and environmental recovery, the needs are overwhelming given the extent of the damages. The Inter-American Development Bank (IDB) has proposed programs in municipal strengthening for the Atlantic Coast and waste management for Managua, among other programs in the pipeline. The IDB is also taking the lead on developing a mechanism to assure that all reconstruction funds are handled in a transparent and responsible manner. Donors will be asked to contribute to financing this anti-corruption mechanism. Nicaragua plans to continue with its Economic Structural Adjustment Facility agreement with the International Monetary Fund (IMF) to ensure its participation in the HIPC initiative. With CACEDRF supplemental funding included, the United States is likely to rank as the largest single bilateral donor to Nicaragua in 1999 with Japan as a close second. In 1998, Japan had emerged as the largest single bilateral donor, and third ranked overall, with only the IDB and World Bank providing higher levels of assistance according a report prepared by the IDB at the request of the GON in April 1999. The United Nations agencies and the U.S. ranked fourth and fifth, respectively, on the list of donors to Nicaragua in 1998. Country Background Information Resources   CIA Factbook Library of Congress National Geographic Country Maps State Dept. Country Information

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