Country Report Nicaragua February 2009

Outlook for 2009-10

• A deal between the president, Daniel Ortega of the Frente Sandinista de Liberacion Nacional (FSLN), and Arnoldo Aleman of the Partido Liberal Constitucionalista (PLC) appears to have restored a sense of governability.
• The agreement has resulted in a pick up in policy implementation in the short term and may lead to electoral reform in the longer term. This could lower the risk of fraud in the 2011 elections.
• Uncertainty over Mr Ortega’s policy direction has been compounded by irregularities at the November 2008 municipal elections.
• Serious tensions with foreign donors could cause a sharp reduction in donations and may imperil fiscal financing. This could force the authorities to retrench, either by reducing spending further or raising taxes to boost revenue.
• Decelerating domestic demand and recessions in the US and the EU will cause GDP growth to slow to 1.5% in 2009 before recovering to 2.3% in 2010 on the back of a slow strengthening of global demand.
• The massive current-account deficit will ease in 2009 and in 2010 largely owing to a fall in import spending as the economy slows, although the trade imbalance will remain huge (averaging 23% of GDP).
• There is a growing risk that donor support will fall, restricting capital inflows. This could cause a balance of payments crisis unless there Nicaragua gets multilateral support.

Monthly review

• A political deal between Mr Aleman and Mr Ortega led to the former's exoneration of his fraud and money-laundering conviction and the restoration of his full political rights.
• In return, the deal allowed Mr Ortega's government to pass a string of pending bills from late 2008 delayed by the opposition's boycott of legislative proceedings.
• The government presented measures to deal with the slowing economy, including a 4% spending cut and a public-sector hiring freeze. Mr Ortega also indicated he would approach the multilaterals for emergency assistance.
• Furthermore, Mr Ortega has acknowledged indirectly that his government would not be able to overcome its difficulties without some sort of rapprochement with foreign donors to free up more funds.
• A local think-tank has shed further light on Nicaragua's economic slowdown, predicting GDP growth of just 1.6% in 2009.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22