Country Report Nicaragua March 2009

Summary

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.
Despite tensions with foreign donors, we expect an accommodation. However, there is a growing risk that a reduction in donations will imperil fiscal financing, forcing the authorities to retrench.
Decelerating domestic demand and recessions in the US and the EU will cause GDP growth to slow to 1.2% in 2009 before recovering to 2.2% 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 Nicaragua gets multilateral support.

Nicaragua's principal right-wing forces, the Partido Liberal Constitucionalista (PLC) and the Vamos con Eduardo (VCE) movement, have resumed their slow talks over the possibility of an alliance.
The director of the government's flagship anti-poverty programme, Hambre Zero (Zero Hunger, a programme designed to lift rural families out of poverty), resigned in February following allegations of malfeasance.
The government was preparing to present a revised budget to the legislature following talks with the IMF. The sources of financing for the budget remained uncertain owing to donor tensions.
According to preliminary figures from an official export agency, CETREX, Nicaragua's export earnings in January totaled around US$97m, down by 27% from January 2008, reflecting the global slowdown.
Another trade spat with Honduras could herald a regional trend toward agricultural protectionist measures.
A UK-based bank, HSBC, announced in January that it will be downgrading its operations in Nicaragua.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;53
NAICS Code: 22;44