Democracy and Governance in Nicaragua
The Development Challenge: Over the last several years, Nicaragua has made strides in establishing and strengthening democratic institutions, improving the education and health status of the population, and, in the last two to three years, turning around its sluggish economy. Nicaragua's improved situation is both remarkable and fragile. Its advances are remarkable in that Nicaragua has been plagued with formidable setbacks in recent years, including devastating natural disasters and political corruption at the highest levels in past administrations. The fact that measurable progress has occurred, however, signals the dedication of many Nicaraguans to improving the country's living standards.
The executive branch of the current Government of Nicaragua has a strong political will to implement economic reforms and invest in social development; however the country is still beleaguered by serious problems that hold back the country's economic growth and social development. Despite its rich natural resources and substantial donor support, Nicaragua remains the second poorest country in Latin America, just above Haiti. Real per capita gross domestic product and income levels are lower than those of the 1960s. Nicaragua's high external debt ($6.5 billion before recent debt forgiveness) and internal debt ($1.5 billion) have inhibited growth. Around 75% of the population lives on less than $2 a day, unemployment and underemployment are close to 50%, and income inequality is very pronounced. However, there have been some recent improvements. Real economic growth declined from 7.4% in 1999 to 1% in 2002, then turned around to grow back to 2.3% in 2003, and about 4% in 2004. Foreign investments have increased by about 35% since 2001 and remain at about $200 million per year. In January 2004, Nicaragua reached the completion point of the Heavily Indebted Poor Country (HIPC) Initiative and, as a result, will have approximately 80% of its external debt forgiven.
Considerable improvements in health and education have been made over the past decade, although significant problems remain. USAID programs have contributed to a steady decline in infant mortality, reduced malnutrition among children under two from 13.0% in 2000 to 9.6% in 2003, and increased infant DPT (diphtheria, pertussis, and tetanus) immunization coverage from 47% to 67%. Despite these improvements, however, maternal and child mortality, chronic malnutrition, and population growth rates remain among the highest in the hemisphere. On average, Nicaraguans complete fewer than five years of schooling, and nearly 500,000 children, aged three to 12, remain outside the formal education system. However, key advances in the education system have resulted from USAID assistance such as the model schools program, which has increased fifth grade completion rates in Nicaragua.
By far the most serious obstacle to progress in Nicaragua, affecting the economy and the welfare of the people, is the extremely politicized and weak judicial system. The country has seen three technically satisfactory presidential elections since 1990, but it suffers from continuous manipulation of the institutions by political bosses for personal benefits and power for the elites. The justice system, in general, is inefficient and politicized. Establishing the legal and institutional framework to promote the transparency and rule of law necessary to protect citizens' rights and encourage business and investor confidence requires dramatic reforms. The situation reached a crisis level in November 2003, and the U.S. Government responded by suspending direct assistance to the Nicaraguan judicial system, based on a series of events that placed the efficacy of that assistance in question. Work continued, however, with civil society groups and on public oversight activities. In May 2004, USAID restarted assistance for selected activities related to the judicial system but maintained a freeze on most activities with the courts and those with the National Assembly that are not directly relevant to U.S. interests.
A key U.S. national interest in Nicaragua is to promote economic growth through integration in regional and global markets, since Nicaragua's poverty and high unemployment can threaten the long-term sustainability of democracy and rule of law. Increased stability in Nicaragua's democratic institutions and growth in its impoverished economy contribute to a more secure, democratic and prosperous region. In addition, U.S. national security can be affected by Nicaragua's poorly controlled borders and weak governmental institutions that cannot adequately defend against international terrorism and transit of illegal aliens, drugs and arms.
Despite political weaknesses, Nicaragua is a relatively stable country that is slowly moving along the right path, consistent with the development precepts outlined in President Bush's Millennium Challenge Account (MCA): ruling justly, economic freedom, and investing in people. Nicaragua is one of 16 countries eligible for MCA assistance and has submitted a proposal to the Millennium Challenge Corporation for consideration. The current administration has imposed discipline and demonstrated that fiscal and monetary stability can be achieved. Inflation has been kept at bay, and the internal debt is being addressed. The current government's fight against corruption, focus on restarting the economy, and advances in health and education, if sustained, can help pave the way for achieving long-term development goals. But recent political manipulations show how fragile these gains are.
(Excerpted from the 2006 Congressional Budget Justification for Nicaragua)
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