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Nicaragua
>> Regional Overview >>Nicaragua Overview
Development Challenge Summary Tables
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998, 199719
Introduction
U.S. assistance to Nicaragua contributes to our strategic goals by consolidating democracy, promoting economic growth and reconstruction, and fully integrating Nicaragua into global markets. U.S. engagement in Nicaragua is an investment in regional stability and the security of our borders, which is particularly important after the destruction 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 but also help stem the flow of illegal immigration to the United States. Post-Mitch conditions, political uncertainty as Nicaragua faces national elections in November 2001, and an economic slowdown may spur more migration. Assisting Nicaragua to achieve a healthy democracy and rule of law contributes to better protection for U.S. companies and citizens in Nicaragua, and the resolution of property cases. 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 help prevent natural disasters in the future while assuring sustainable development. U.S. assistance to increase basic health and education services and assure a decent livelihood for poor families will contribute to Nicaragua's efforts to reduce poverty over the next decade.
The Development Challenge
Developing a vibrant and lasting democracy is the greatest challenge facing Nicaragua today. Nicaragua needs to prepare now for truly participatory, open, and fair national elections that will offer citizens a real choice in November 2001. The new Government of Nicaragua (GON) administration must be capable of creating a national vision and commitment to transforming Nicaragua into a fully representative democracy. Nicaragua must redouble its commitment on issues of government accountability, transparency, efficiency, participation, and decentralization during this critical period and beyond.
Consolidating democracy in Nicaragua is the highest priority of the U.S. Government's assistance programs for Nicaragua. Nicaragua must transcend its minimal qualifications as a democracy and construct effective democratic institutions capable of providing justice and protecting rights, and thus offer the security required for economic growth. In particular, strengthening the rule of law, de-politicization of the courts, and elimination of corruption in the justice system are fundamental for the development of Nicaragua.
According to a recent World Bank report, Nicaragua is now the poorest country in the hemisphere with a GNP per capita of $430, lower even than Haiti's GNP of $460. The government that takes power in January 2002 must reduce poverty while restoring economic livelihoods to the population hardest hit by natural disasters. The new government will have to deal with the aftershocks of last year's financial crisis, continued low international coffee prices, and a government spending level beyond the country's real capacity. These factors will make it difficult for the new government to produce tangible results in reducing poverty over the mid-term, and at the worst could lead to economic collapse.
Nicaragua is still feeling the effects of Hurricane Mitch, which cut the country's gross domestic product by one quarter and killed more than 3,000 people. The areas most affected by Mitch are also the poorest regions of Nicaragua. USAID launched a $103 million program aimed at helping Nicaragua achieve rapid reconstruction and a sustainable recovery, funded mainly with $94 million from the Central American and the Caribbean Emergency Disaster Recovery Fund (CACEDRF) approved in late May 1999.
Overall economic losses as a result of Mitch were estimated at $1.5 billion. To deal with the requirements of reconstruction, the GON sought and obtained pledges for $1.2 billion in assistance from the international donor community. Moreover, Nicaragua qualified for a Heavily Indebted Poor Countries (HIPC) initiative in December 2000 after committing to developing a national poverty reduction strategy and meeting other governance and financial conditions. With international flows, growth rebounded to about 7% in 1999. However, low world coffee prices and an internal financial sector crisis, which has cost more than 10% of GDP, cut economic growth back to 4% in 2000. The International Monetary Fund (IMF) anticipates a very low growth rate or possibly even a recession for 2002, depending on how election results influence economic expectations.
Hurricane Mitch demonstrated how vulnerable the country is to natural disasters. Nicaragua needs donor support to help 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 increase investments in health and education, credit, and technology, not only to put affected families back on their feet, but to assure that they will be able to recover faster when disasters strike again. Hurricane 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. Responsible GON investment of HIPC reflows is critical for such development.
Other Donors
Under the HIPC initiative, Nicaragua will save an estimated $72 million on debt servicing in 2001, and a total of $4.5 billion of debt forgiveness at the HIPC completion point projected for 2004. Donor financing for Mitch reconstruction combined with regular assistance will constitute a critical source of funding for the GON's investment program over the next three to five years. Indications are that major infrastructure needs will be covered by multilateral financial institutions, the European Union, and bilateral donors, including Japan, Spain, and Taiwan. There is increased donor emphasis on social sector programs and though many donors finance agriculture and environmental recovery, the needs are overwhelming given the extent of the Mitch damages. The Inter-American Development Bank (IDB) led the development of a mechanism to assure that all GON procurements, especially use of reconstruction funds, are handled in a transparent manner. USAID contributed $1 million of CACEDRF funds to financing this anti-corruption mechanism. The IDB, World Bank, and UN agencies provide the highest levels of assistance to Nicaragua, followed by the bilateral donors led by the US, Japan, and the European Union.
FY 2002 Program
USAID requests FY 2002 funds to implement its core sustainable development program in Nicaragua in the areas of democracy, economic growth, and human investment. The reconstruction objective will be implemented through 2001 with CACEDRF funding. Both the regular program and reconstruction program activities are being implemented in the departments most affected by Mitch, which are also the areas of highest poverty in Nicaragua. USAID is directing its reconstruction assistance to agricultural recovery, disaster mitigation, restoration of public health services and schools, small public works, and micro-credit activities. Complementary activities under USAID's regular development program reinforce reconstruction efforts and contribute to Nicaragua's longer-term plan to reduce poverty. The GON's Poverty Reduction Strategy Program rests on four pillars: broad-based economic growth and structural reform focusing on agricultural expansion; investment in the human capital of the poor; a steady transfer of responsibilities to local governments to better protect vulnerable groups; and good governance and institutional development.
USAID's democracy activities through the end of 2001 will focus on support to the national elections process through funding of domestic and international observers, increasing citizen participation in elections, and providing critical technical assistance for elections administration. In order to fund election-related activities, USAID cut back other on-going democracy activities. With the entry of a new government early in 2002, USAID will return to a more diverse democracy program that will be designed to address the priority areas identified by the new GON administration. USAID anticipates continuing initiatives in the areas of justice reform, civil society, and increased accountability and transparency in government. USAID will strengthen democratic institutions through technical support for reform and modernization of the courts. USAID will continue to work on improving the mechanism for settling property cases. By supporting the establishment of a fully functioning integrated financial management system, USAID will continue contributing to efforts to combat corruption in government. USAID will continue seeking to invigorate civil society through support to non-governmental organizations.
USAID will promote agricultural production and small businesses through the provision of credit, technical assistance, and policy reform, while assisting in the sound management of Nicaragua's natural resources. USAID has helped a number of farmer cooperatives to modernize, diversify, and expand production, will continue to promote better production practices among farmers producing vegetables, shaded coffee, and basic grains. USAID's highly successful microfinance activities will continue through FY 2002, increasing the number of loans to small producers by 20,000 during the period. USAID programs will impact important ecosystems by introducing environmentally sustainable agricultural practices into buffer zones surrounding protected areas. USAID will integrate DA funded and P.L. 480 Title II program activities aimed at increasing rural incomes for poor rural Nicaraguans while enhancing their food security status.
In the areas of basic health and education, USAID programs will help improve the delivery of government services, especially to rural areas. Decentralization will be key to improving the quality and accessibility of family health care, including comprehensive reproductive health services, at public health centers and posts. To combat malnutrition, USAID will improve food security through integrated P.L. 480 Title II programs and child survival activities. USAID will support initiatives to implement health education in schools on HIV/AIDS issues. The basic education program will increase access to quality education and foster greater community and parent participation in the schools. USAID assistance will enhance teachers' mastery of curricular reforms and will encourage active student learning in model schools supported by USAID.
Activity Data Sheets
- 524-001 More Political Participation, Transparency, and Compromise
- 524-002 Sustainable Growth in Small Producers Employment and Income
- 524-003 Better Educated, Healthier, and Smaller Families
- 524-005 Rapid Reconstruction and Sustainable Recovery in Mitch-Affected Areas
Country Background Information Resources CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: February 12, 2003 |
