Nicaragua - Economic analysis of government policies, investment climate and political risk.






NICARAGUA: Economic Policy Analysis

This site presents an analysis of the Nicaragua government's economic policies compared to a revised list of 34 economic policies as prepared by Jose Arebalo with the McKeever Institute of Economic Policy Analysis (MIEPA) in Fall 2012.

To read the analysis scroll through this site. To learn more about the background policies, click here: Introduction and Policy Recommendations

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The study is by Jose Arebalo, a Nicaraguan native who currently [December 2012] lives in San Francisco; this study presents the Nicaragua government's economic policies as compared to the MIEPA list of policies as outlined above. The ratings herein are based on the following rating scale:


5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 2012. Used herein with permission]

To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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        1               2.5           7.5             15.0        50 %

        2               2.0           6.0             15.0        40

        3               4.0          12.0             15.0        80

        4               3.0           9.0             15.0        60

        5               3.5          13.5             15.0        70

        6               4.0          12.0             15.0        80

        7               3.0           9.0             15.0        60

        8               2.5           7.5             15.0        50

        9               1.5           4.5             15.0        30 

        10              5.0          15.0             15.0       100

        11              2.0           6.0             15.0        40

        12              4.0           8.0             10.0        80

        13              3.5           7.0             10.0        70

        14              4.5           9.0             10.0        90

        15              5.0          10.0             10.0       100

        16              1.0           2.0             10.0        20

        17              3.0           6.0             10.0        60

        18              1.0           2.0             10.0        20

        19              1.0           2.0             10.0        20

        20              2.0           4.0             10.0        40

        21              1.0           2.0             10.0        20

        22              1.0           2.0             10.0        20

        23              3.5           7.0             10.0        70

        24              2.5           5.0             10.0        50

        25              2.0           4.0             10.0        40        

        26              2.0           4.0             10.0        40

        27              3.0           6.0             10.0        60

        28              2.0           4.0             10.0        40

        29              1.0           1.0              5.0        20 

        30              2.0           2.0              5.0        40

        31              5.0           5.0              5.0       100

        32              4.0           4.0              5.0        80

        33              3.0           3.0              5.0        60

        34              3.0           3.0              5.0        60

   TOTAL               93.0         204.0            365.0        55.9%
                      =====        ======            =====        =====


1. Freedom from internal control: 2.5

It is noted that in Nicaragua there are many civil rights that are violated by unlawful killings and lack of respect for law. Citizens are in danger of being victimized to multiple dangers from their government not respecting their civil rights. Even the judicial system is fallen to corruption with a fair trial being out of a citizen’s reach.

Sources: 11/10/12

2. Freedom of speech: 2.0

Many concerns have been shown in Nicaragua upholding its citizen’s rights. The right of expression has become a cloudy area as many incidents attacking the press have been apparent. The government has allowed for the expression of the press and the informing of society to be corrupted.

Sources: 11/10/12

3. Effective, fair police force: 3.0

The police force in Nicaragua is working hard to claim the title of the safest nation in Central America. The police force in Nicaragua contains crimes inside the nation to a low, but the officers themselves can be rough when it comes to methods of security. The police force is also undergoing work to prevent further drug trade.

Sources: 11/10/12 ; 11/10/12

4. Private property: 3.0

Fair rights are recognized in the constitution of Nicaragua, yet in some instances the right of private property is claimed by force. Entrepreneurship can grow in this environment but it is still frail. The US Embassy has written concern to Nicaragua with regards to private property and just how well it is being respected.

Sources: 11/10/12 ; 11/10/12

5. Commercial banks: 3.5

The banking system In Nicaragua gives enough room for someone to take out loans but there is not any market for mortgages. The banking system does have investments in businesses but at the moment it seems to lack a significant number of investments. There are also questions being born around the corruption of the banking systems investments.

Sources: 11/10/12

6. Communication systems: 4.0

The technology used to communicate in Nicaragua is dependent on many foreign investments and is constantly upgrading. Cell phones are available to the public and calls are charged at local rates. The use of internet is also available for around $1 an hour in many street cafes. About 84 percent of urban Nicaraguan public citizens have the utilities of a mobile phone.

Sources: 11/10/12 ; 11/10/12 ; 11/15/12

7. Transportation: 3.0

Nicaragua has common options such as airplanes, buses, and taxis. Their vehicles are not all new and as technologically advanced as many of the vehicles in other countries. One large disadvantage to the transportation in Nicaragua is that local landmarks instead of street names still sometimes mark addresses and locations.

Sources: 11/10/12

8. Education: 2.5

Nicaragua government has been diligent to maintain focus on raising the level of education accessible to its students. Although children need to contribute part of their money to help pay for their own education as well as balancing their family budget, Nicaragua is continuing to improve the conditions under which many students now live. On the Education Index the United States is ranked 13, while Nicaragua is ranked 127th. The comparison of student enrollment in Nicaragua compared to the United States is as follows by percentage of children enrolled based on gross enrollment ratios. A ratio above 100% is attained when students are above or below the theoretical enrollment age.

Nicaragua: 49% of girls, 43% of boys (Secondary school) ; 18% of girls, 17% of boys (Tertiary enrollment)

United States: 90% of girls, 94% of boys (Secondary school) ; 111% of girls, 79% of boys (Tertiary enrollment)

Sources: 11/10/12 ; 11/10/12 ; ;ReportId=121&IF_Language=eng&BR_Country=8400&BR_Region=40500 11/15/12 ; ;ReportId=121&IF_Language=eng&BR_Country=5580&BR_Region=40520 11/15/12 ; 11/15/12

9. Social Mobility: 1.5

The chance for someone to change his or her class rankings in this country is hard to come by. There are opportunities for some people to gain education now with more support programs coming into the country. Yet there is still very little room for anyone to drastically change their position in the social construct.

Sources: 11/10/12

10. Freedom from outside control: 5.0

Nicaragua was an independent nation as of September 1982, therefore taking out any power over the citizens from foreign powers. The main leaders of the community are now the FSLN who have their history as revolutionaries behind them. Most of the public is not monitored but it is possible to have citizens manipulate other citizens.

Sources: 10/17/12 ; 10/17/12

11. Protection of domestic Enterprises: 2.0

Enterprises in Nicaragua do not have a huge favor in their neighboring markets. There is a free trade agreement between the United States, Central America, and the Dominican Republic. Therefore tariffs are not imposed on these direct markets and their exporting/ importing values are not gaining any profit either. This all indicates that enterprises need to strive to make it through this economy.

Sources: 10/1712 ; 10/17/12

12. Foreign Currency Transactions: 4.0

In Nicaragua most transactions use the Cordoba, the official currency for Nicaragua. In some instances you can use a US dollar and in exchange have your change returned in Córdoba. In many rural and business areas there are many places to exchange American dollars for Córdoba. The two currencies are largely embraced or at least worked with to allow for easy exchanges to still leave the Cordoba as a main currency.

Sources: 10/17/12

13. Border Control: 3.5

The Central America-4 Border Control Agreement declares that citizens of El Salvador, Guatemala, Honduras, and Nicaragua can travel between the nations openly. There are not any proven events of smuggling, yet General Julio Cesar has been accused and denied smuggling weapons with Colombia. There are no restrictions on these citizens, but Immigrants and tourists are required to gain a visa and go through customs and immigration. By obtaining a Visa/ Entry Permit you are allowed to stay 30 days.

Sources: 10/17/12 ; 10/17/12 ; 11/10/12

14. Currency: 4.5

Nicaragua has its own currency and also accepts the US dollar in some instances. The Nicaraguan Cordoba is the main currency, which can be seen in either a paper bill or a coin. This is recognized as the official currency for Nicaragua. The Nicaraguan Cordoba is 23.4420 to One US dollar.

Sources: 10/17/12

15. Cultural, Language homogeneity: 5.0

It is easier for businesses to run in Nicaragua because of the demographic not being too split into sections. The demographic in Nicaragua is made up of 69% Mestizo, 17% Caucasian, 9% African-Americans, and 5% Amerindian. This is a great balance with the largest population being the Mestizo. There is a lesser chance of conflict or issues growing between the different cultural groups.

Sources: 10/17/12

16.Political Effectiveness: 1.0

On June 23 2012, Daniel Ortega gave a speech about US funding. The US government has decided to not provide aid to the Sandinista government and therefore many businesses are left without a large chunk of their currency. President Ortega has not tried to fix this issue but instead has gone completely in the wrong direction by stating that he will not allow funding to seep into even smaller organizations based in Nicaragua.

Source: 10/17/12 ; 10/17/12

17. Institutional Stability: 3.0

The institutions in Nicaragua have been held in a common fashion with education staying the same, and the political system staying the same as well. Citizens vote for their leader and the leader works the same way as always. They institutions in the nation are not radically changing in details at all. The only institution touched by the government is the reinstatement of Daniel Ortega’s Third Term. This clearly violates their constitution and therefore they are not keeping integrity.

Sources: 10/17/12

18. Honest Government: 1.0

There are constantly complaints about the lack of transparency the Nicaraguan Government has. With constant money laundering occurring with every large bank, and candidates being accused of being “fake” and others believing every word a politician makes. There have even been comments on cutting aid to the nation because of the lack of honesty they hold with all their neighboring countries and even their citizens. Corruption seems to look like an acceptable policy for this government, as there are constant holes in their political actions and budget.

Sources: 10/17/12 ; 10/1712 ; 10/17/12 ; 10/17/12

19. Common Law: 1.0

There have been many cases in which unless a defendant is wealthy with a private lawyer behind them, they will be convicted of a crime 90% of the time. It is even known that there have been many permissive rulings of violence and sexual assault in Nicaragua that the justice system does not focus on. One main example is Fatima Hernandez. Who after being drugged and raped had to strike in front of courthouses demanding that her offender be arrested. Finally her offender was given an Eight-year sentence, only to be let out in 18 months with the Supreme Court ruling the assault as an excess in the sexual act.

Sources: 10/17/12 ; 10/17/12

20. Central Bank: 2.0

It is blatant that this bank has very little room for independent policies outside from the nations government. Recent issues have occurred in the year of 2012 with a disagreement between the former Central Bank President Antenor Rosales and President Daniel Ortega. The ruling Sandinista political party that has held office for quite some time now was trying to push resources to foreign institutions. With the refusal from Rosales and soon after being replaced by a Finance Minister from the choosing of the Sandinista party happening so closely tied to this disagreement my statement is greatly supported.

Sources: 10/17/12

21. Domestic Budget Management: 1.0

On Dec 7, 2010 Nicaragua was placed under a public financial management modernization project. This nation has been known to have a very weak system of sharing policy and reallocating taxes collected. Public Participation is not allowed and numbers are not released even though Nicaragua has begun to undergo projects to allow study and understanding of how their economy is working in this act. Noticeable amounts of money is kept off budget and this has become a major scandal, As of now Nicaragua needs a lot of work done to fix their budget management.

Studies: 10/6/12 ; 10/6/12 ; 10/6/12

22. Government Debt: 1.0

Nicaragua held a debt accumulating 70.5% of its’ GDP in 2010. This is a very unhealthy situation for the nation’s economy and at this point the country is more than excessively indebted since the value of its debt exceeds 50% of its GNP. In 2009 it had a 7.12% increase in debt which has now still left the debt at this level.

Sources: 10/6/12

23. Economic Statistics: 3.5

There are many published statistics about the GDP and national budget but there are some holes in international relations with countries such as Venezuela. These are not published but large groups such as the UN still openly give other statistics. The other downfall to the country is that the data collected is usually not annually accurate to the most present situation.

Sources: 10/6/12 ; 10/6/12 ; 10/6/12

24. Protection of Public Health and Safety: 2.5

There are many political demonstrations given in public crowded areas daily and strikes occur quite often unannounced. These events are known to get violent and can use weapons to inflict pain against separate political parties. This is one of the largest dangers along with the common crimes done on the streets. It is also common knowledge that vaccinations may be needed to travel in the nation. There are no programs in the nation that help address these needs efficiently for tourists or natives.

There is an infant mortality rate of 22 deaths to 1,000 live births. Compared to the United States of America having 6 deaths to 1,000 births, Nicaragua is not taking care of their population as well as America. The data suggests that Nicaragua could spend more time into providing a safer delivery of all newborns into their nation.

Sources: 10/6/12 ; 10/6/12 ; 10/17/12

25. High Wage Policies: 2.0

The minimum wage in Nicaragua is based on each sector that you work in. They range from 1,392 in an agricultural sector and 3,232 Córdoba’s in the financial sector. An average of 2,218 Córdoba, which is about 93 dollars, is the average wage of residents. This is a very small amount of income for the nation, and the cost of living is actually almost double of what a resident would receive.

Sources : 10/6/12 ; 10/6/12

26. Environmental Protection: 2.0

There is not a large amount of environmental regulations about how businesses can conduct since entrepreneurship is a new and growing industry in the nation. As of now there are a few set regulations but there is still Land rights to be settled, Water access to be fixed, and deforestation to be considered as well as pesticide use to talk about.

Sources: 10/6/12 ; 10/6/12

27. Strong Army: 3.0

Due to constitutional reforms the National Army of Nicaragua was formed with help from the multiple nations that have trained and given support to the troops. With personnel of about 16,000 this nation has a good amount of security to deploy in a crisis.

Sources: 10/6/12 ;

28. Foreign Trade Impact: 2.0

Estimated for 2011 in billions by US$

Nicaragua’s GDP: $18.77

Nicaragua’s Exports: $4.071

Nicaragua’s Imports: $6.466

Exports & Imports: $10.537 is 56% of the GDP (%18.77)

Foreign Trade is in control of a large amount of the market in this country. Outside forces and other factors around trade can easily tip over the stability trying to be attained in such a nation. A lower percentage making up for the nation, about one-third is more desirable.


29. Management of foreign currency budget: 1.0

Recorded in 2009 by the UN (United Nations) Data shown in billions by US$

Nicaragua’s Total Exports: $1,393

Nicaragua’s Total Imports: $3478.6

Foreign Currency Budget: -$2,085.6

Nicaragua is deeply in debt and these numbers represent an undesirable situation for it.

Sources: 10/6/12

30. Layers of Collective Action: 2.0

After the Nicaraguan revolution, the Ministry of Culture was founded in 1980. This is the largest attempt at bringing multiple classes and voices to participate in the nation’s reputation. As of now, there are programs still trying to teach many of the citizens in Nicaragua that they can also participate in their government without having to agree with the FSLN. Usually an employee will be pressured to only attend meetings and municipal conferences in the name of the FSLN. This is a known trait of many citizens and it makes most of the entrepreneurs feel discouraged.

Sources: 9/23/12 9/23/12 9/23/12

31. Pro-Business Climate: 5.0

This nation has been ranked the 118th out of 183 economies to operate business in 2012. Since it’s last ranking it has improved in it’s property registration and has been enforcing contracts, which can have a good influence on many entrepreneurs. Although it is still tougher to start a business in Nicaragua than some other places, there are many programs that are displaying the multiple investment opportunities available. Programs are bringing agriculture workers innovation and teaching them skills, while investment firms are trying to bring in money from foreign investors.

Sources: 9/23/12 9/23/12 9/23/12

32. Government Enterprises: 4.0

Many of the government run enterprises that were first started during the revolutionary period, as is common in most civilizations, have been liquidated. The government itself does not control many of the prices. The Nicaraguan Investment Fund is the only area in which the government holds a 51% share, this are grows interesting while Venezuela and other countries seek to invest greatly into the country.

Sources: 9/23/12 9/23/12

33. International Security Agreements: 3.0

In 2008 Nicaragua had received a total of $1,461,967 from the U.S. Department of State. They have had many issues in the past with guerilla warfare being aided by the CIA in the past from president Reagan. Since then they have created the National Army of Nicaragua with founding help from Cuba, Eastern Europe, and the Soviet Union. The president of Nicaragua at the moment holds many bilateral relations with multiple countries that provide support. The United States has an interest to support a democratic process.

Sources: 9/23/12 9/23/12 9/23/12

34. Protection of Domestic Enterprises from Government Mandated Cost: 3.0

Starting up a business in Nicaragua is a somewhat quick process compared to many other nations. There are only eight steps that will take about 39 days to complete. There is no need to deposit capitol, simply fill out legal paperwork to meet with the regulations. Even though the process seems straight forward, there are many complaints within the system that describe a bias in the government. Unless a business supports the FSLN they will usually be treated with less importance and their transactions will occur much more slowly. In Nicaragua there is an external tariff on most items at a maximum of 15% on imports. This nation is a member of the Central American Common Market (CACM) and approximately 95% of all tariff lines are at the same rate of a 15% cap or lower. Consumer goods have been issued a decree to lower the tariff down to 5% for their imports. The amount of tariffs given to imports does indeed help neutralize the costs of running an enterprise.

Sources: 9/23/12 9/23/12 9/23/12 9/23/12


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