Country Report Nicaragua October 2009

Summary

Governing will become more difficult for Mr Ortega and the FSLN as his chances of remaining in office beyond 2011 recede. This will raise political tensions.
The FSLN will struggle to push through a controversial tax package in 2010 as manoeuvring among the small parties in the National Assembly threatens to undermine the narrow majority the government has enjoyed.
Despite delays in concluding a second and third review under the IMF's three-year PRGF, we expect an accommodation allowing financing from the multilateral agencies to flow.
Improving global conditions will cause GDP to grow by 1.6% in 2010 before slowing down to 0.8% in 2011 as momentum in the US weakens, reducing remittances and investment flows.
After easing in 2009, the current-account deficit will increase slightly in 2010, largely owing to an increase in import spending as the economy recovers. The trade imbalance will remain huge, averaging 28% of GDP in 2010-11.
Although not our baseline scenario, there is still a risk that donor support will fall, restricting capital inflows. This could cause a balance-of-payments crisis, unless Nicaragua obtains multilateral support or Venezuelan aid.

Mr Ortega received a series of unexpected rebukes over the political drift of his FSLN government from his own brother, the retired general and founder of the Ejercito Popular Sandinista, Humberto Ortega.
Under fears of a possible electoral fraud, four party alliances and three individual parties registered to participate in the regional elections to be held on the Atlantic Coast region in March 2010.
The government and the IMF reached an "agreement in principle??? over terms that could allow pending reviews of the PRGF to be concluded. The agreement suggests a commitment by the government to cut spending.
The government's proposed tax reform has been universally rejected by the private sector and independent economists. These groups claim that increasing taxes in the short term will only deepen the recession.
In its latest quarterly report, a Nicaraguan think-tank, Funides has revised its projections for the contraction in GDP in 2009 down to 3.7%. It expects a further contraction in 2010, before a weak recovery in 2011.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;1
NAICS Code: 52;11