This essay will examine how the political crisis impacts on the economic development by analysing some of the characteristic numbers of the Nicaraguan economy. First it will explain poverty and inequality which are one of the main problems in the country. Then, it will focus on economic growth and the importance of the tourism sector. After that it will take a short look at Nicaragua’s performance in the GCI.
Earlier this year Nicaragua was named “The other Venezuela of Latin America” by the economic newspaper Portafolio due to its economic crisis which is the worse of the last thirty years caused by socio-political and humanitarian conflicts. Although Nicaragua is considered one the poorest country in Latin America it had one of the fastest-growing economies. Since April 2018, Nicaragua has been in a severe crisis. After the violent suppression of pro-tests against a social security reform, 325 people died, more than 2000 were injured and about 800 people were arrested. Furthermore, around 70.000 people left the country – most of them are fleeing south for Costa Rica. International human rights organizations accuse the state of systematic and serious human rights violations. The government rejects the accusations and accuses its opponents of a political campaign.
According to its constitution, Nicaragua is a presidential democracy with a one-chamber parliament. Daniel Ortega has been president since 2007. After the Sandinista revolution against the dictator Anastasio Somoza in 1979, he ruled the country authoritarian for eleven years with a social reform agenda. Government, administration, judiciary and the ruling party Frente Sandinista de Liberación Nacional (FSLN) are closely intertwined. The 2016 elections took place without international election observation. The international community is engaged in various ways to reform the electoral system and fully restore the rule of law and civil liberties.
Table of contents
List of figures
List of tables
1. Introduction
2. Poverty
2.1. Poor and extremely poor people
2.2. Expected situation for the future
3. Inequality
3.1. Gini index
4. Economic growth
4.1. Development of the GDP
4.2. Sectors
4.3. Development of credit rating
4.4. Inflation
4.4.1. Cordoba exchange rate
5. Tourism
6. GCI
7. Conclusion
Bibliography
List of figures
Figure 1: real gross domestic product annual growth rate in % from 1990 to2018
Figure 2: value added (% of GDP) 2018, sectors
Figure 3: exports and imports in $million
Figure 4: Inflation, consumer prices (annual %)
Figure 5: the development ofEUR to NIO
Figure 6: Performance in the GCI 4.0 (2019) Nicaragua and Spain
List of tables
Table 1: differences in poverty between urban and rural (2017) table 2: expected situation ofNicaraguans by the end of2019 table 3: Gini-index comparison Central American countries (2014)
1. Introduction
Earlier this year Nicaragua was named “The other Venezuela of Latin America” by the economic newspaper Portafolio due to its economic crisis which is the worse of the last thirty years caused by socio-political and humanitarian conflicts. Although Nicaragua is considered one the poorest country in Latin America it had one of the fastest-growing economies. (Bogota, 2019) Since April 2018, Nicaragua has been in a severe crisis. After the violent suppression of protests against a social security reform, 325 people died, more than 2000 were injured and about 800 people were arrested. Furthermore, around 70.000 people left the country - most of them are fleeing south for Costa Rica. International human rights organizations accuse the state of systematic and serious human rights violations. The government rejects the accusations and accuses its opponents of a political campaign. (IACHR, 2019)
According to its constitution, Nicaragua is a presidential democracy with a one-chamber parliament. Daniel Ortega has been president since 2007. After the Sandinista revolution against the dictator Anastasio Somoza in 1979, he ruled the country authoritarian for eleven years with a social reform agenda. Government, administrationjudiciary and the ruling party Frente Sandinista de Liberacion Nacional (FSLN) are closely intertwined. The 2016 elections took place without international election observation. The international community is engaged in various ways to reform the electoral system and fully restore the rule oflaw and civil liberties.
This essay will examine how the political crisis impacts on the economic development by analysing some of the characteristic numbers of the Nicaraguan economy. First it will explain poverty and inequality which are one of the main problems in the country. Then, it will focus on economic growth and the importance of the tourism sector. After that it will take a short look at Nicaragua’s performance in the GCI.
2. Poverty
2.1. Poor and extremely poor people
There was an initial reduction in the proportion of poor and extremely poor people in Nicaragua from 2005 to 2009. The proportion of people living in poverty decreased from 48.3% (2005) to 44.7% (2009) of the population, the proportion of extremely poor people even from 17.2% to 9.7% in the same period. (FIDEG, 2009)
Table 1: differences in poverty between urban and rural (2017)
Abbildung in dieser Leseprobe nicht enthalten
Source: FIDEG, 2018,p.l0
In further studies, FIDEG has found that the decline in poverty has continued over the period 2009-2017. According to the last Encuesta de Hogares (table 1), the share of poor people in 2017 was 41.2%, the share of extremely poor people 8.4%. In the countryside, the problem has always been more dramatic than in the city, and the figures here are correspondingly worse: in 2017, out of 100 people in the countryside, 55.9 were poor and 14.5 extremely poor.
Meanwhile, the state statistics institute INIDE has conducted its own surveys and comes to different conclusions than FIDEG. Poverty then fell from 42.5% (2009) to 29.6% (2014) and 24.9% (2016). At the same time, the percentage of the extremely poor decreased from 14.6% (2009) to 8.3% (2014) and 6.9% (2016). (INIDE, 2016)
Although FIDEG and INIDE have the same approach to measure poverty (calorie consumption and family consumption), the differences are striking.1 The political explosiveness of poverty figures is obvious, and politicians are interested in low figures. In August 2017, for example, FIDEG had to postpone the presentation of its new figures indefinitely. According to a report in Confidential magazine, the background was that FIDEG wanted to announce a temporary increase in poverty for 2016 and the government intervened to prevent this. (Olivares, 2017)
2.2. Expected situation for the future
The prospects in the current crisis since April 2018 are correspondingly worrying. According to the study by FIDEG in September 2018, the general poverty in the country could return to values from before 2009. Assuming a 10% decline in family consumption, the proportion of the population living in poverty would rise to 46.6%. If consumption were to fall by 30%, the share of the poor would even increase to 57.3%. Extreme poverty would rise accordingly to 10.6% and 15% respectively.
Table 2: expected situation ofNicaraguans by the end of 2019 based on FUNIDES, 2019
Abbildung in dieser Leseprobe nicht enthalten
In April 2019, the generally recognised FUNIDES Foundation2 published a study analysing the consequences of the 2018/19 economic recession (table 2). If the loss ofjobs and the decline in per capita income continues at the present rate, it is to be feared that by the end of 2019 more than 30% of the population will be poor, 9% of them extremely poor. FUNIDES also expects a 21% share of the population to be in a vulnerable position. Only 49% of the population would not be directly affected by the economic crisis. (FUNIDES, 2019)
The World Bank has also repeatedly pointed out the seriousness of the situation. Even if the official figure of 30% is correct and not much higher in reality, this means that 1.7 million inhabitants in the country are suffering from permanent poverty. It should be noted that the vulnerability of the population has remained very high. (World Bank, 2017)
3. Inequality
3.1. Gini index
The Gini coefficient (or Gini index) indicates the degree of inequality of income distribution, e.g. in a country or region, according to domestic per capita income. The Gini coefficient is calculated from the Lorenz curve.
Table 3: Gini-index comparison Central American countries (2014) based on World Bank, 2014
Abbildung in dieser Leseprobe nicht enthalten
At the end of the 1990s, Nicaragua showed an extremely unequal distribution of income. The Gini index3 for 1998 was given as 0.554. However, this tendency has now eased. The Gini index for 2014 is 0.462, a level comparable with the other countries in the region (table 3).
On the list of the Human Development Index 2018, Nicaragua ranks in the position of 124 (out of a total of 189 countries surveyed) and in a Central American comparison is just ahead of Guatemala and Honduras4 (UNDP, 2018). Furthermore, 22% of all Nicaraguan children suffer from chronic malnutrition (UNICEF, 2013).
According to the central bank, public foreign debt amounted to US$ 5.950 billion in 2018. This represents an increase of 7.3% over the previous year where it was US$ 5.546 billion. Together with the internal debt of US$ 935.6 million, the total public debt represented 52.5% of GDP. The annual debt service to foreign creditors did not exceed US$248.5 million, although very high expenditures for the state's internal debt had an additional impact of US$248.5 million. The financial consolidation of recent years has so far been generally acknowledged, but has been questioned by the constant increase in debt and by the current state and economic crisis. (Central Bank ofNicaragua, 2018)
4. Economic growth
4.1. Development of the GDP
Figure 1: real gross domestic product annual growth rate in % from 1990 to 2018 based on World Bank
Abbildung in dieser Leseprobe nicht enthalten
Since 2010, Nicaragua's economy has shown strong growth of 4-6% per year. In 2015, the GDP grew by 4.8% adjusted for inflation, by 4.7% in 2016 and by 4.9% in 2017. It should be noted that growth is no longer absorbed by population growth; GDP per capita grew by 3.4% in 2015, 3.2% in 2016 and 3.4% in 2017 (figure 1).
The forecast for real GDP growth was also favourable for the year 2018: 4.7% was again expected. But the protest movement that has swept the whole country since 18 April 2018 has led to economic losses. The annual report of the central bank has calculated a decline in GDP of 3.8%. In other words, economic development was worse than expected.
The government's tax revenues declined by 6.1% for the year as a whole. Exports were able to roughly maintain their level, but foreign direct investment in the country halved and capital flight is an acute problem. Migrants' remittances abroad increased by 7.9%. Income from tourism slumped in 2018 from US$ 924 million (2017) to US$ 544 million (2018). Domestic economic life is going through a severe crisis. Many people have lost their jobs and poverty and hunger are spreading. According to the independent foundation FUNIDES, 453,000 employees have been made redundant. The current development in 2019 is difficult to understand in detail, as important and sensitive data are apparently withheld by the central bank for political reasons.
4.2. Sectors
Figure 2: value added (% of GDP) 2018, sectors based on World Bank, 2018
Abbildung in dieser Leseprobe nicht enthalten
The gross domestic product is divided into the following economic sectors (2018): agriculture: 15.5%; industry: 25.8%; services: 50.2%. The share of agriculture is the highest in Central America. Nicaragua has been an agricultural country since colonial times, and it still is today. The most important export products in order of export revenues in 2017 are: insulated wire, knit t-shirts, coffee, gold and frozen bovine meat (OEC, 2017). The extremely weak industrial base of the economy is only complemented by the dynamic development of the free trade zones, in which mainly textile products and car parts are produced for export. However, this industry is based on imported intermediate products and is linked to the national economy only through the use of cheap labour. The economy as a whole is not productive enough, especially in the agricultural sector. The inadequate capacity of agriculture, for example, makes imports of food necessary again and again. In terms of labour productivity, Nicaragua only achieves US$ 1,959 per capita (2017, GDP at 2010 prices), making it by far the last country in Central America.
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1 Methodologically, they can be explained by the fact that FIDEG sets the poverty line at $2.40/day, but that INIDE only speaks of poverty when there is no more than $1.71/day available.
2 La Fundacion Nicaragüensepara el Desarrollo Economicoy Social (FUNIDES) is an independent institution that specializes in research and policy analysis in the areas of socio-economic development and institutional reform
3 scale between 0 = equal distribution and 1 = largest conceivable unequal distribution
4 Guatemala ranks in the position 127 and Honduras in 133
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