Introduction
One of the largest countries in Central America in Nicaragua. Being located in an area of only about 130 thousand square kilometers, Nicaragua has a population of about six million. The economy of the country is primarily determined by its excellent geographical location. The country’s east coast is washed by the Caribbean Sea and the west coast by the Pacific Ocean.
Thus, Nicaragua has several outlets to the water and is capable of importing and exporting through ships. Throughout its history, the sovereignty of this state has not been stable, so there have been colonization periods. This paper will identify the historical path of the Nicaraguan economy and analyze possible trends for future development.
The Birth of Feudalism in 1500–1821
Similar to the economic development of most countries, Nicaragua began its journey with the agrarian stage. Although the territory had been inhabited by the natives before, historically, it is believed that only Europeans in the person of Christopher Columbus discovered this land. Nicaragua was discovered by Columbus in 1502 on his last trip to America but was explored only by the Spanish conquistador Davila, who reached Lake Nicaragua.
The local Indians friendly received Davila, but soon clashes with Spanish colonists began. The conquest of the country by conquistadors started in 1522, and a year later, the land was included in the Spanish colonies. In the following decades, robust colonization led to the social and economic stratification of society into feudal lords and slaves.
In Nicaragua, a sizeable feudal landholding of Spanish landowners and creoles was formed, with extensive use of feudal exploitation and coercive methods. The economy was based on plantation agriculture, which is mainly oriented towards the export of agricultural products.
The Era of International Relations in 1821–1979
Beginning as a colony of Spain, the country gained independence only in 1821. By the beginning of the XIX century in Nicaragua, a multi-layered system of economy was formed, the development of capitalist relations began, associated with the development of foreign trade and the partial transition to the use of hired labor in large Latin America.
After the conclusion in 1850 between Great Britain and the USA of the Treaty of Clayton-Bulwer, called on established principles to begin the division of Nicaragua’s territory for the construction of an international trade route, started an intensive penetration of foreign, primarily American capital into Nicaragua. The historical and economic development of the Central American states is closely linked to the name of William Walker and the enslavement of the local population.
Since 1854, Nicaragua has had a civil war between conservatives and liberals – the Legitimist and democratic parties. They were not so many parties as rival groups of the country’s military and political elite. Walker agreed to help the liberals, and as a result of several armed conflicts, was proclaimed president of Nicaragua in 1856.
A hundred years between 1840 and 1940, Nicaragua calls it a time of coffee boom that fundamentally affected the economy. Coffee was brought to Nicaragua by missionaries back in 1790 and first grown as an exotic plant, but only in 1840, when the global demand was steadily increasing, did coffee become economically crucial for the country.
By 1870, coffee had become Nicaragua’s main export crop, and the government was trying to make it easier for foreign companies to invest and acquire land. Public plots were sold to individuals, and the government encouraged the establishment of large farms. For example, several subsidy laws had been created for plantation owners with vast territories.
Several progressive economic reforms had been implemented in the following ten years, during which time the construction of railways had begun. In 1909, to reduce the country’s dependence on the U.S., the significant loan from England was, but the conservatives raised an armed rebellion, and the current president was forced to stop the transformation and resign. In the middle of the last century, Nicaragua showed a growing global trend of exporting new goods: bananas, sugar, and cotton (Ocampo 333).
This is primarily due to the needs of states that found themselves amid World War II hostilities. The Republic of Nicaragua entered the period of the industrial economic system. Before the 1979 revolution, export crops were grown mainly on large estates owned by a small elite headed by the Somoza dynasty (Irvin 36).
These estates occupied most of the best arable land. To grow food crops, the population used uncomfortable and barren scraps of land on mountain slopes, and a significant proportion of the foodstuffs were imported. Until the middle of the 20th century, coffee remained the leading export crop; later, cotton, meat, and sugar were exported (Irvin 36).
All major landowners were united in powerful associations of cotton, coffee, or pastoralists, and more than 40 percent of the rural population remained landless. Landless peasants were employed on large estates for seasonal work, earning oppressive wages of less than a dollar a day. The establishment of the Central American Common Market created an incentive for the rapid development of new industries (Economy of Nicaragua). However, most businesses were concentrated in the capital and could provide jobs for only a small proportion of the rural population seeking work in the city.
Fundamental Changes in the Economic Situation After 1979
The 1979 revolution brought about fundamental changes in the structure of the country’s economy. With the expropriation of property, most of the oligarchic formations, such as the Somos family and its surroundings, were under state control (Ocampo 336). The government also nationalized all mining enterprises, banks, and insurance companies and took over all exports and parts of imports.
Financial planning and control over pricing, wages, credit, and foreign exchange rates were implemented. About 40% of all production in the country was under state control. As a result of the transformation, a large public sector emerged, which was tasked with becoming the leading sector in the mixed economy.
Nicaragua’s economy had become a planned and regulated one, with the State actively intervening in production, trade, and pricing. The government spent a significant amount of money on defense. By the end of the 1980s, the country was hit by galloping inflation and a severe shortage of consumer goods and medicines (Economy of Nicaragua). In 1987, the government faced severe economic difficulties and was forced to curtail almost all social programs (Ocampo 358). By June 1989, the financial crisis had erupted, the national currency had depreciated, and the black market had become more active.
Adjustments in macroeconomic policy accompanied the transition to an open market economy after the removal of the Sandinista from power. The state took a course on protection and development of all forms of ownership, freedom of entrepreneurship, creation of banks and other private financial institutions, the state monopoly in foreign trade was abolished. Privatization in the electricity, telephone, oil, port, and transport, banking, and warehousing sectors began.
The 1990 presidential election was won by the opposition candidate Violeta Barrios de Chamorro, and the Economy of Nicaragua started to a dramatic economic recovery. A year before the end of her presidency, production growth was 5.5 percent, and in 1997 it was 7 percent.
Today, underemployment is widespread, with one of the highest levels of social and gender income inequality in the world and the third-lowest per capita income in the Western Hemisphere. Nicaragua has made significant progress despite devastating natural disasters, the slave economy, and civil wars (Economy of Nicaragua). Over the past few years, the country has made progress towards macroeconomic stability. Today, the economy of Nicaragua is based on agriculture.
The Republic of Nicaragua has several functioning industrial enterprises producing cement, chemical reagents, paper, and metal products, as well as an oil refinery. The economy of the republic depends to a great extent on international economic assistance in fulfilling its financial and debt obligations. In 2006, a free trade agreement (Economy of Nicaragua) was signed between the Central American states, including Nicaragua and the USA. As a result, Nicaragua has increased its exports of textiles and agriculture, which now account for 50 percent of total exports.
Nicaragua should not be expected to perform economic miracles. Despite its stability, the country still has no developed financial system, and the majority of its inhabitants are considered inferior. Private investment was a decisive factor for Nicaragua. For example, in 2012, the country’s leadership had approved the creation of the Nicaraguan Canal, which provided for the passage of some 5,100 ships a year along with the state. However, as of 2018, the project is considered frozen due to a lack of funding.
Works Cited
Economy of Nicaragua, Currency. Nicaragua.com, 2019.Web.
Irvin, George. “The Nicaraguan Economy: Legacy and Perspectives.” Social Scientist, vol. 10, no. 1, 1982, pp. 36-43.
Ocampo, José Antonio. “Collapse and (Incomplete) Stabilization of the Nicaraguan economy.” The Macroeconomics of Populism in Latin America, edited by Rudiger Dornbusch and Sebastian Edwards, 1991, pp. 331-368.