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USAID Information:
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Nicaragua
The Development Challenge: Nicaragua has hovered for decades in the ranks of the less developed
countries of the world. Despite its rich natural and human resource potential, and substantial donor
support, economic growth has failed to take off and the country remains among the poorest in the
Western Hemisphere. The per capita gross domestic product (GDP) and income levels are lower than
those of the 1960s, and real economic growth declined from 7.4% in 1999 to 1% in 2002. Nicaragua’s
external and internal debt of $6.5 billion and $1.5 billion respectively, is greater than its 2002 GDP, and
serves as an economic straightjacket that inhibits future growth. Around three-quarters of the population
live on less than $2 a day; unemployment and underemployment are close to 50%; and income inequality
is very pronounced. Access to capital decreased sharply with the collapse of the national banking sector
in 2001, and foreign direct investment has been declining.
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Juxtaposed on this economic landscape are a justice and institutional system in disarray. While the
country has seen three technically satisfactory presidential elections since 1990, it suffers from extremely
weak institutions that continue to be manipulated by political bosses for personal gain and power.
Observance of the rule of law is fragmented, and the current administration’s fight against corruption will
only be sustained if ingrained in the national consciousness. The justice system, in general, is inefficient
and politicized, and dramatic reforms are needed to establish the legal and institutional framework that
promotes transparency, rule of law, and business and investor confidence.
Though significant improvements in health and education were made over the past decade, problems
remain. On average, Nicaraguans complete fewer than five years of schooling, and nearly 500,000
children remain outside the formal education system. Population growth is estimated at 2.4%, one of the
highest in the region. There are serious inequities in health care access for the poorest 40% of the
population, and chronic malnutrition levels remain high for Nicaraguans in the lowest income groups.
Compounding these development problems are the frequent natural disasters from which Nicaragua has
weak capacity to recover.
Some signs of progress have appeared. In 2003, the economy is expected to make some gains, with
GDP growth rate anticipated at 2.3%. The U.S.-Central American Free Trade Agreement (CAFTA), which
was recently signed and is waiting for ratification, could bring the investments and jobs that the country
urgently needs, and serve as an impetus for economic growth and improved social conditions. Nicaragua
is poised to reach its Heavily Indebted Poor Country (HIPC) completion point by January 2004. As a
result, Nicaragua will see a significant amount of its external debt forgiven, which will free up resources
for critical economic growth and poverty reduction programs.
Nicaragua is slowly moving along the right path, consistent with the development precepts outlined in the
Millennium Challenge Account (MCA) of just and democratic governance, economic freedom and
investing in people. Despite political pressures, 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 and advances in
health and education, if sustained, can help pave the way for achieving long-term development goals.
Increased stability in Nicaragua’s democratic institutions and growth in its impoverished economy are at
the heart of U.S. interests to maintain Nicaragua among those nations aspiring to contribute to a more
secure, democratic, and prosperous world. Promoting economic growth through integration into regional
and global markets is a top U.S. foreign policy priority, since Nicaragua’s poverty and high unemployment
can threaten the long-term sustainability of democracy and rule of law. The USAID assistance program
for Nicaragua is a vital element in achieving these U.S. foreign policy objectives and is central to the
USAID-State Department Strategic Plan goals related to democracy, economic prosperity and security,
and social and environmental issues.
The USAID Program: The accompanying Data Sheets cover the three new strategic objectives (SOs) of
“Ruling Justly: More Responsive, Transparent Governance,” “Economic Freedom: Open, Diversified,
Expanding Economies,” and “Investing in People: Healthier, Better Educated People,” for which USAID is
requesting FY 2004 and FY 2005 funds. These three objectives are part of the recently approved Central
America and Mexico Regional Strategy. Activities for the Ruling Justly SO include promoting justice
sector reform and implementing an aggressive anti-corruption program, in coordination with other U.S.
government agencies. Under the Economic Freedom SO, USAID will work with the Nicaraguan
government and private sector to improve their capacity to implement CAFTA and other free trade
agreements by enhancing competitiveness and creating linkages to regional and world markets to
promote rural diversification and economic expansion. Activities under the Investing in People SO
include: improving government capacities to plan and manage health and education investments;
increasing access to quality education at the primary level; and working with the Ministry of Health, private
health service suppliers, and non-governmental organizations to improve health status at the household
and community levels, including HIV/AIDS prevention. USAID is also continuing activities under three
strategic objectives that will be closed out at the end of FY 2004, although no new funding is requested
for those activities.
Other Program Elements: In addition to its bilateral program, USAID funds activities in Nicaragua
managed regionally by the Bureau for Latin America and the Caribbean, including programs to strengthen
regional mechanisms that promote human rights, fortify government accountability, and promote
decentralization and local governance. The Bureau for Global Health implements child survival programs
and provides loans for private sector family health clinics. The Central America Regional Program carries
out activities in Nicaragua in trade capacity-building, rural diversification, green markets, protected area
management, specialty coffee development, energy sector reforms, natural resources management, and
HIV/AIDS prevention. Nicaragua also benefits from President Bush’s Center of Excellence for Teacher
Training (CETT) Initiative, which is designed to improve teacher training and address high rates of school
underachievement and illiteracy in disadvantaged areas.
Other Donors: The Government of Nicaragua continues to strengthen donor coordination through the
recently established sector coordination roundtables. USAID leads the economic growth roundtable.
This new system promises to be an improved forum to prioritize development needs jointly and harmonize
donor activities. The Nicaraguan Ministry of Foreign Relations reports that donor assistance in grants and
loans totaled $3 billion during 1997-2002. Based on the annual average assistance level during this
period, the top six bilateral donors are: Japan (education and training including school construction,
health, and agricultural production), United States, Republic of China (agriculture, small- and mediumsized
enterprise lending, housing, and trade promotion); Sweden (transport and communications,
governance, education, and health); Germany (water supply and wastewater management, governance,
and decentralization); and Denmark (productive sector programs including infrastructure, decentralization
and public administration, and environment). Of the multilaterals, the major donors are the Inter-
American Development Bank (IDB) (competitiveness and economic growth, governance, and social
sector adjustment including social safety nets), the World Bank (support for implementation of
Nicaragua’s Poverty Reduction Strategy Paper, or PRSP, including institution building and modernization
of the state, land tenure, agriculture, education, and health), the European Union (rural development,
agricultural policy reform, governance and citizen security, and education), and the World Food Program
(food security). An IDB report indicates that donors, in general, provide broad support for the pillars of the
PRSP by focusing approximately 41% of their assistance in economic growth and reform programs; 38%
for human capital formation and support for vulnerable groups; 7% for governance; and 14% for the
cross-cutting themes of environment, social equity, and decentralization.
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