National Trade Data Bank ITEM ID : ST BNOTES NICARAGU DATE : Oct 28, 1994 AGENCY : U.S. DEPARTMENT OF STATE PROGRAM : BACKGROUND NOTES TITLE : Background Notes - NICARAGUA Source key : ST Program key : ST BNOTES Update sched. : Occasionally Data type : TEXT End year : 1993 Date of record : 19941018 Keywords 3 : Keywords 3 : | NICARAGUA BACKGROUND NOTES: NICARAGUA PUBLISHED BY THE BUREAU OF PUBLIC AFFAIRS US DEPARTMENT OF STATE JULY 1993 Official Name: Republic of Nicaragua PROFILE Geography Area: 130,000 sq. km. (50,000 sq. mi.), slightly larger than New York State. Principal Cities: Capital--Managua (est.) 989,000 inhabitants; Leon, Granada, Jinotega, Matagalpa, Chinandega, Masaya. People Nationality: Noun and adjective--Nicaraguan(s). Population (1992): 4 million. Annual growth rate (1992): 3.4%. Density: 32 per sq. km. Ethnic groups: Mestizo (mixed) 69%, white 17%, black 9%, Indian 5%. Religion: Roman Catholic 85%. Education: Years compulsory--11 yrs. of school or 16 yrs. old. Literacy--30-40%. Primary school completion rate is 20%. Health (1992): Average life expectancy--63 yrs. Infant mortality--62/1,000. Work force (1992 est.): 1.4 million: Service--45%. Agriculture--33%. Industry--19%. Open unemployment--21%. Government Type: Republic. Independence: 1821. Constitution: Passed by the Sandinista-controlled National Assembly and signed January 9, 1987. Branches: Executive--President and Vice President. Legislative--National Assembly (unicameral). Judicial--Supreme Court; subordinate appeals, district and local courts, separate labor and administrative tribunals. Electoral-- Supreme Electoral Council; nine Regional Electoral Councils; local Ballot Receiving Boards. Political parties: National Opposition Union (UNO)--Coalition of 14 parties, now reduced to 10 through consolidation and expulsion (Conservative Popular Alliance, National Conservative, National Action, Nicaraguan Democratic Movement, Independent Liberal, Liberal Constitutionalist, Neo-Liberal, Christian Democratic Union, Social Democratic, Communist). Sandinista National Liberation Front (FSLN); 10 others, including the Nicaraguan Resistance Party (PRN), which was awarded legal status in May 1993. Administrative subdivisions: 16 departments, 137 municipalities, and 1 national capital district. The military has divided the country into six regions and three special zones for administrative purposes. Flag: Two blue horizontal bands separated by a central white band with encircled triangle. Economy GDP (1992 est.): $1.7 billion. Annual growth rate: (1992) 0.8%. Per capita income: (1992) $413 (per capita income growth rate: -2.8%..) Foreign debt (1992 est.): $10.8 billion. Trade: Exports (1992)--$218 million: coffee, cotton, sugar, bananas, beef, gold, shellfish. Exports to U.S. (1992)--$52 million or 24%: sugar, coffee, cotton, and seafood. Other markets: ACM 19%, Europe 25%, Japan 13%, Canada 12%. Imports (1992 est.)--$831 million: petroleum, agricultural supplies, manufactured goods. Major suppliers (1992 est.)--U.S. $205 million or 25%, mostly consumer goods. Agriculture (22% of GDP and 33% of work force): Cash crops--coffee, cotton, sugar cane, bananas. Maize, beans, and rice are also principal food crops. Production crops--tobacco, timber, meat, and shellfish. Industry (26% of GDP and 19% of work force): Types-- processed food, beverages, textiles, chemicals, petroleum, and metal products. Service (50% of GDP and 45-47% of work force): commerce, government, transportation, banking, energy and water. Natural Resources: gold, silver, copper, tungsten, lead, zinc, timber, fish. Land use: pastures and meadows 43%, forest and woodland 35%, arable land 9%. Exchange rates (January 1993): Official--6 Cordoba Oro=U.S.$1. Economic aid received, multilateral and U.S.: U.S. (FY 1992)--$185 million. Multilateral (1992 )--$642 million. PEOPLE Most Nicaraguans have both European and Indian ancestry. Only the Indians of the Caribbean coast remain ethnically distinct and retain tribal customs and dialects. A large black minority (of Jamaican origin) is concentrated on the Caribbean coast, although migration to Managua is increasing. Nicaraguan culture follows the lines of its Ibero-European heritage. Roman Catholicism is the major religion, but evangelical Protestant sects have grown recently, and there are strong Anglican and Moravian communities on the Caribbean coast. Spanish is the official language; English and indigenous languages are spoken on the Caribbean coast. Most Nicaraguans live in the Pacific lowlands and the adjacent interior highlands region. The population is 57% urban. The principal cities of Managua, Leon, and Granada are on the Pacific side. The largest town on the Caribbean coast is Bluefields. HISTORY Columbus sailed along the Nicaraguan coast on his last voyage in 1502. The colonial period in Nicaragua began 20 years later with the arrival from Panama of Spanish conquistadors under Gil Gonzalez Davila. The Indian tribe living around present-day Lake Nicaragua received them peacefully; the country takes its name from their chief, Nicarao. Colonial Nicaragua's two principal towns were founded in 1524: Granada on Lake Nicaragua and Leon near Lake Managua. The region was part of the Captaincy-General of Guatemala. Wars between the Spanish on the Pacific and Indians and British on the Caribbean (the British presence did not end until 1905) marked the colonial period. The Captaincy-General of Guatemala declared its independence from Spain in 1821, but Nicaragua did not become an independent republic until 1838. Rivalry between the Liberals of Leon and the Conservatives of Granada characterized 19th-century politics. Governments were unstable and politicians were prone to violence. This allowed an American, William Walker, and a group of about 100 "filibusters" to seize the presidency in 1856. The advent of a foreigner as president led the two parties to suspend their internecine conflict long enough to drive Walker out in 1867. Walker had been invited by the Liberals; his defeat discredited them and led to 30 years of Conservative rule. But by the start of the 20th century, the rivalry between Liberals and Conservatives had resumed. Hostility between President Jose Santos Zelaya and the United States over an isthmian canal led to intervention in Nicaragua in 1909; U.S. troops stayed in Nicaragua until 1933. U.S. intervention in Nicaragua ended with Franklin Roosevelt's "Good Neighbor" policy. Despite U.S. efforts to create an apolitical constabulary prior to departing Nicaragua, National Guard commander Anastasio Somoza Garcia took over the Presidency in 1936, initiating 43 years of Somoza family rule. Somoza Garcia was assassinated in 1956, and control passed to his elder son, Luis Somoza Debayle. From 1963 to 1967, hand-picked successor to Luis Somoza, former Foreign Minister Rene Schick, was President. The Somoza family regained control of the presidency in 1967 when the younger son, Anastasio Somoza Debayle, took office. The Somozas used their political power to dominate Nicaragua's economy and government, despite occasional challenges, armed or otherwise, from their opponents. On December 23, 1972, an earthquake devastated Managua, killing or injuring an estimated 10,000 people and leaving 300,000 homeless. Many key businesses and government offices were destroyed, along with most of the downtown area. The government proved unable to cope with the emergency, and Somoza's control began to erode. The Sandinista National Liberation Front (FSLN) had been fighting a sporadic guerrilla war since 1961 to overthrow the Somoza regime. The FSLN took its name from Augusto Sandino, a Liberal Party general who opposed both U.S. intervention and Somoza Garcia, and who was assassinated on Somoza Garcia's order in 1934. Indications that Somoza Debayle had embezzled aid donated after the 1972 disaster raised popular discontent with his government. By 1977, increasing reports of the government's torture and murder of opponents led to organized resistance by businesses, professional groups, and the church. The assassination of La Prensa editor and publisher Pedro Joaquin Chamorro in January 1978 ignited massive protests and gave fresh impetus to the anti-Somoza opposition, which grew to encompass all sectors of Nicaraguan society. The Marxist FSLN, however, was the opposition's only organized military force. After heavy fighting, which lasted only several months, pressure from the Organization of American States (OAS), U.S. withdrawal of all support for Somoza, and the collapse of Somoza's domestic political support, Somoza fled the country on July 17, 1979. After the Sandinistas gained control of the capital on July 20, the junta and its Provisional Governing Council took power as the Government of National Reconstruction. The Junta had three Sandinista members--Daniel Ortega Saavedra, Sergio Ramirez Mercado, and Moises Hassan Morales--and two moderates, Violeta Barrios de Chamorro and Alfonso Robelo Callejas. In August, the junta issued a "Statute on Rights and Guarantees for the Citizens of Nicaragua" providing for basic personal freedoms in accordance with the both the UN and OAS declarations on human rights. However, by mid-1980, Violeta Chamorro and Alfonso Robelo had resigned from the junta, believing that the Sandinistas were abandoning democratic revolutionary goals. Chamorro continued to publish the main independent Nicaraguan newspaper, La Prensa. Robelo also attempted to participate actively in politics, but after several years of Sandinista harassment, he went into exile and eventually became a leader of the armed Nicaraguan resistance. By 1981, the political hegemony of the FSLN was beginning to become apparent, and anti-Sandinista protests began among the Caribbean peoples of Nicaragua's Atlantic coast. The Sandinistas declared the first of a series of states of emergency limiting civil and economic liberties, which were extended repeatedly during their years in power. The government nationalized 40% of the country's industrial capacity and 40% of the country's agricultural capacity, introduced agrarian reforms, and introduced Marxist ideology into both public school curricula and a nationwide literacy campaign. During the decade, Central America evolved into an arena for one of the Cold War's many regional conflicts. In 1981, the United States began to assist counter-revolutionary forces, termed "Contras" by the Sandinistas, and suspended economic aid to Nicaragua indefinitely because of the Sandinista regime's support of violent attempts to overthrow the Government of El Salvador. The Sandinistas justified the states of emergency as a response to conflicts with the Contras, while the new armed opposition began to attract support, even among some former Sandinistas. The junta continued to govern until the FSLN won the 1984 national elections. The principal opposition group--the Democratic Coordinating Board (Coordinadora)--withdrew from the campaign, citing Sandinista intimidation and interference. On January 10, 1985, Daniel Ortega became president and the FSLN assumed control of the National Assembly, holding 61 of 96 seats. In May 1987, the United Nicaraguan Opposition (UNO) and a separate Contra faction, the Southern Opposition Bloc (BOS), agreed to form a new armed coalition, to be known as the Nicaraguan Resistance. Diplomatic Activity Throughout the 1980s, a number of unsuccessful regional and bilateral U.S.-Nicaraguan diplomatic initiatives were undertaken to address concerns over Nicaragua's military buildup, support for insurgencies, and absence of democratic procedures, as well as Sandinista concern over U.S. support for the Nicaraguan Resistance. In 1983, other Latin American countries outside of Central America, known as the Contadora Group, began a series of diplomatic initiatives. The Contadora objectives were to negotiate an end to Central America's military conflicts, bring full democratization to the region, and negotiate the reduction in regional military forces. The Contadora Group consisted of Colombia, Mexico, Venezuela, and Panama. An expanded Contadora Support Group of other countries developed later; the European Community also became involved. In 1984, a series of U.S.-Nicaraguan talks at Manzanillo, Mexico, began, but after 9 rounds of discussions over 18 months, they proved unsuccessful. In mid-1986, the Central American presidents renewed their negotiations in Esquipulas, Guatemala, and for the next year, conducted multilateral talks to bring peace to the region. Carrying forward the Contadora agenda, they addressed issues such as full democratization, respect for human rights, limits on arms levels and troops, support for irregular forces in other countries, and verification of reduction in military activity. The talks became known as the Esquipulas process and led to the peace plan authored by Costa Rican President Oscar Arias, which he and the Presidents of Nicaragua, El Salvador, Guatemala, and Honduras signed in August 1987. The peace plan became the basis for future agreements among the region's leaders. The Sandinistas and the Nicaraguan Resistance each adopted periodic unilateral cease-fires during the 1980s, most notably in 1988. However, because they were not linked to comprehensive peace agreements, these efforts were never completely fulfilled. In February 1989, at a summit of Central American presidents in Tesoro Beach, El Salvador, Daniel Ortega agreed to advance the date of Nicaragua's elections to February 25, 1990, and invited international observers to verify their fairness. He also pledged to stop aiding guerrilla forces in El Salvador. The Central American presidents agreed to develop a joint plan within 90 days to demobilize the Resistance so they could return to Nicaragua or resettle elsewhere. In August 1989, the five Central American presidents signed an agreement at Tela, Honduras, to create a new organization, the International Support and Verification Commission (CIAV), led by the UN and OAS, to negotiate the voluntary demobilization, repatriation, or relocation of the Contra forces within a 90-day period. Key to the Tela agreement was that Resistance members be able to return to Nicaragua "under safe and democratic conditions." CIAV brokered talks between the Sandinista Government and the Nicaraguan Resistance in the fall of 1989, but the two sides did not reach agreement. In the meantime, 14 Nicaraguan opposition parties, ranging from traditional Conservatives to Communists, banded together as the National Opposition Union (UNO) to contest FSLN rule. UNO chose Violeta Chamorro as its presidential candidate and Liberal party leader Virgilio Godoy as her vice presidential running mate. These events occurred in a context of changing U.S. policy. The U.S. Congress had ended lethal assistance to the Nicaraguan Resistance in March 1988, but allowed humanitarian aid to continue. In March 1989, the incoming Bush Administration and the U.S. Congress reached a bipartisan accord which put the focus on elections in Nicaragua. The accord allowed humanitarian aid to the Resistance to continue through February 1990. To encourage the Sandinistas to proceed with free and fair elections, the U.S. worked actively to persuade its European allies to base their economic assistance to Nicaragua upon the conduct of free and fair elections. The U.S. gave renewed support to the regional peace process and worked with Central and Latin American leaders to support the Esquipulas Agreement and successor agreements. As the conflict with Nicaragua reflected Cold War tensions, diplomatic activity between the two superpowers in 1989 provided new hope for peaceful change in Nicaragua. U.S. policy stressed to the Soviet Union that Soviet military aid to Nicaragua, as well as its use of Cuba to aid Nicaragua and guerrilla forces in El Salvador, would be a fundamental issue in U.S.-Soviet bilateral relations. The U.S. and Soviet Union agreed to support the Esquipulas process, including an end to conflict and establishment of democratic governments throughout the region. The U.S.-Soviet dimension proved crucial to the evolution of the peace process and democratization in Nicaragua. The United States joined international support for the elections process. In October 1989, the U.S. Congress passed and President Bush signed legislation making up to $9 million available to support free, fair, and open elections in Nicaragua. Of this, the U.S. Agency for International Development (USAID) provided $7.4 million to the National Endowment for Democracy (NED), an organization chartered by Congress to promote democracy around the world. Some $1.5 million of these funds were provided to the National Democratic Institute for International Affairs (NDI) and the National Republican Institute for International Affairs (subsequently renamed as the International Republican Institute--IRI) to support various Nicaraguan internal groups for activities such as civic education programs that provided information on the benefits of pluralism and self-government, secrecy of the ballot, and the electoral process; verification of voter registration lists; and training of poll watchers to observe the casting and counting of ballots. NDI and NRI also helped a broad-based alliance of Nicaraguan parties, known as the National Opposition Union (UNO) to perform normal party functions, such as obtaining office space, equipment, and supplies; vehicles; and support staff through $1.8 million in assistance. Similar assistance was provided to a free trade union organization and a civic group. Nicaragua's Supreme Electoral Council received $2.1 million in a "tax" required on foreign contributions to political parties. The remainder of NED's funding covered administrative and reserve needs. Four electoral observer groups received a total of $1.3 million from the U.S. to support the electoral process and observer activities in Nicaragua. These groups were the Council of Freely Elected Heads of Government (headed by former President Jimmy Carter), the Center for Democracy, Freedom House, and the Center for Electoral Promotion and Training (CAPEL, a Costa Rican organization). Despite difficulties during the campaign period such as intimidation by Sandinista supporters and FSLN use of government resources for campaign purposes, the February 25, 1990, elections were peaceful. In elections that nearly 1,000 international observers from more than 50 countries, the UN, and the OAS deemed largely free and fair, Nicaraguan voters elected the UNO candidate, Violeta Barrios de Chamorro, over the FSLN's Daniel Ortega by a margin of 54% to 41%. UNO won a clear majority in the National Assembly and in most local races. GOVERNMENT AND POLITICAL CONDITIONS Nicaragua is a constitutional democracy with executive, legislative, judicial, and electoral branches of government. The constitution was adopted in 1987 by the Sandinista Government. The National Assembly is unicameral. Elections for the 92 Deputies were last held in 1990. The next national elections for the presidency and the National Assembly are scheduled to take place in 1996. In the judicial branch, FSLN justices outnumber Chamorro appointees five to four on the Supreme Court, with neither group having the six-vote majority necessary to decide cases. In practice, the Supreme Court functions by consensus. The constitution provides for freedom of speech and the press, although there are some constitutional provisions pertaining to the right to accurate information. Diverse viewpoints are freely and openly discussed in the media and in academia. There is no official state censorship in Nicaragua. Radio is the most important medium for news distribution, and listeners can receive a wide variety of viewpoints, particular in Managua. There are six television stations, the two largest operated by the government. There are three national daily newspapers: Barricada, El Nuevo Diario, and the independent La Prensa. A fourth newspaper, the independent La Tribuna, began publication July 1. The first two reflect rival Sandinista policy lines. There are also several weeklies. Other constitutional freedoms include peaceful assembly and association, freedom of religion, freedom of movement within the country, as well as foreign travel, emigration and repatriation. The government also permits domestic and international human rights monitors to operate freely in Nicaragua. The constitution prohibits discrimination based on birth, nationality, political belief, race, gender, language, religion, opinion, national origin, economic condition, or social condition. All public and private sector workers, except the military and the police, are entitled to form and join unions of their own choosing, and they exercise this right extensively. Nearly half of Nicaragua's work force, including agricultural workers, is unionized. Workers have the right to strike. Collective bargaining is becoming more common in the private sector. The Chamorro Government's first priority was peace and national reconciliation. Chamorro's triumph also marked a major step forward for the Central American peace process; all countries in Central America are now committed to good relations with their neighbors. Democratization in Nicaragua immediately improved the climate for demobilization and reintegration of the Nicaraguan Resistance forces, human rights and freedom of expression in Nicaragua, and Central American talks on regional security and force reduction. In Chamorro's first year in office, some 20,000 former Resistance fighters disarmed, and an additional 50,000 family members and other refugees began reintegrating into Nicaraguan society. In May 1993, the Nicaraguan Resistance Party achieved legal status as a new political party, a positive step in the evolution of democracy in Nicaragua. President Chamorro's Government has overseen a reduction of the size of the Sandinista People's Army (EPS) from a high of more than 80,000 in 1990 to under 16,000 active duty forces. With Nicaragua at peace, the government faces additional challenges. Foremost among these are the need to reform and exert civilian control over security forces inherited from the Sandinista Government; to revive economic production; to curb human rights abuses and bring to justice the perpetrators of high profile cases; and to resolve thousands of claims involving properties confiscated by the Sandinistas. The government must also forge a workable relationship with the UNO coalition which brought the Chamorro Government to power, but which proclaimed itself in opposition in January 1993. Principal Government Officials President and Minister of Defense--Violeta Barrios de Chamorro Vice President--Virgilio Godoy de Reyes Ministers Presidency--Antonio Lacayo Foreign Affairs--Ernesto Leal Sanchez Ambassador-designate to the U.S.--Roberto Mayorga Ambassador to the OAS--Jose Antonio Tijerino Ambassador to the UN--Vacant Nicaragua maintains an embassy in the United States at 1627 New Hampshire Avenue NW., Washington, DC 20009 (tel. 202-939-6572). ECONOMY Nicaragua's economy was once one of Central America's most advanced: the country boasted a strong agro-export sector, well developed financial institutions, and a growing domestic industrial base. Nicaragua grew rapidly throughout the mid-1970s, averaging 6.5% GDP growth each year from 1974 through 1977, higher than its Spanish-speaking Central American neighbors. In 1978, the economy began to decline. GDP fell 7.2% in 1978, and dropped dramatically in 1979 by almost 25%. Average per capita income during the mid-1970s remained in the $440 range, but fell by l0% in 1978 and by 27% in 1979, adding economic discontent to increasing tension over Somoza's human rights practices. Growth stopped as political instability increased during the anti-Somoza revolt, and as the Sandinistas carried out confiscations and socialist economic and political policies during the next decade. Nicaragua's per capita income, less than $400 in 1989, was among the lowest in the Western Hemisphere when Chamorro took office in 1990. Production was well below the 1980 level, exports were running at about half the pre-1980 level, hyperinflation had peaked at 33,000% in 1988, international reserves were depleted, and external debt had reached $10 billion, 27 times annual exports and 7 times GDP. The financial system, much of the productive structure, and external marketing of the principal products were in the hands of the oversized public sector. The country's infrastructure was damaged due to the war and poor economic conditions. The future of Nicaragua's economic growth and ability to attract needed foreign and domestic investment are dependent upon the Chamorro Government's ability to establish the rule of law, protect human and property rights, and establish true civilian authority over the state security apparatus. Unemployment remains high: some 21% of the work force is openly unemployed and 31% are underemployed. Reforming the Economy During her first year in office, President Chamorro espoused a policy of national reconciliation to address the nation's political and economic needs. While her government negotiated the disarmament of the Nicaraguan Resistance and ended compulsory military service, there were few immediate improvements in the economy. Through a process known as "Concertacion," President Chamorro attempted to forge a national dialogue between business and Sandinista labor groups to achieve peace and bring an end to disruptive strikes in return for reform of government programs. Workers were given the option of purchasing up to 25% of companies to be privatized, and many workers have exercised this option in several cases, including slaughterhouses, mines, sugar mills, and the national airline. On March 3, 1991, the government announced its economic stabilization program in conjunction with the International Monetary Fund, the World Bank, the Inter-American Development Bank, and certain bilateral donors. The government devalued the gold Cordoba (Cordoba Oro) from one to five to the U.S. dollar, reduced government spending, and restricted central bank credit to the central government and to the state financial system. The stabilization program was highly successful. Despite widespread labor agitation in 1991, the government successfully held the line on wages throughout the year. Inflation fell from 13,500% in 1990 to 775% in 1991 and to 3.5% in 1992. Economic activity remained sluggish during 1991 as GDP fell for the eighth consecutive year, by 0.2 %, before picking up in 1992 by 0.8%. The Chamorro Administration also made strides toward managing a crushing foreign debt burden of some $9.4 billion inherited from the Sandinistas. In September 1991, encouraged by the Chamorro Government's program, the donor community helped Nicaragua clear $315 million in arrears with the World Bank and the Inter-American Development Bank. The United States, the largest individual country donor, contributed $75 million to the effort. In December 1991, the Paris Club of government lenders rescheduled Nicaragua's official debt under "Trinidad Terms," the most favorable terms available to the poorest and most indebted countries. Despite these efforts, Nicaragua's foreign debt in 1993 totals 7 times its GDP and about 40 times its exports. In 1991, import/export licensing requirements were greatly relaxed, and Nicaragua, with the rest of Central America, began reducing tariffs. As of March 1993, the minimum tariff on most goods was 5%, with a maximum of 20%. The Government of Nicaragua also levies a stamp tax and a selective consumption tax on imports. A new foreign investment law passed in late 1991 allows foreign investors to repatriate profits generated since 1990. In 1992, budgetary difficulties, tight monetary policy, low international prices for major export crops (coffee and cotton), internal strife revolving around labor disputes, rural violence, and continued conflict over property rights continued to thwart government plans to stimulate growth. The economy expanded by only 0.8%. With one of the Western Hemisphere's highest population growth rates--3.4%--Nicaragua's per capita gross domestic product during 1992 actually declined. As it addressed its serious problems, the Chamorro Administration undertook a radical program to dismantle its centrally planned economy. In May 1991, the government created CORNAP, the Nicaraguan State Holdings Corporation and charged it with privatizing and otherwise divesting 351 state enterprises. As of April 1993, CORNAP had privatized about 240 of the companies it inherited from the Sandinistas, either through sales to private investors or labor union consortia. The agriculture, livestock, and fisheries sectors were restructured in 1991. Early in the year, several large government agricultural holding companies (Hatonic, Cafenic, Agroexco) were broken up and their lands distributed among former members of the Resistance, retired army soldiers, and property claimants. A number of the farms distributed to former members of the Resistance and the army had been confiscated from U.S. citizens during the Sandinista era. In August 1991, the government granted a license to operate Nicaragua's first private bank in 12 years. There are now seven private banks in operation, and several others have applied for licenses. As many as 18,000 pieces of property were confiscated by the Sandinista Government between 1979 and 1990. These include properties which were distributed by Decree 85 (La Pinata) to FSLN loyalists between the time Chamorro was elected and her inauguration. This created the basis for thousands of claims by Nicaraguan and foreign claimants since April 1990. During the fall of 1992, the Government of Nicaragua put in place a new property claims resolution system. The government's resolution system includes three components: -- The provision of land titles to those who legally obtained property during the Sandinista period; -- The review of all property transfers during the Pinata; and -- The creation of a compensation mechanism, including the establishment of new offices in the Attorney General's office and the Ministry of Finance. Claimants will be compensated with 20-year bonds backed by the assets of properties to be privatized. In January 1993, the government announced a new economic package designed to spur growth. The plan was designed to reduce consumption, especially of imported goods; increase government credit for the private sector; and create 20,000 emergency temporary jobs for the poorest sectors of the population. The plan devalued the Cordoba by 20% to improve Nicaragua's international competitiveness, and limited government spending for government ministries and state-owned enterprises. Agriculture Agriculture is the cornerstone of Nicaragua's economy. Food production--agriculture, livestock, and fisheries--employs about one-third of Nicaragua's labor force, accounts for slightly less than a quarter of gross domestic product (GDP), and generates about three-quarters of Nicaragua's export earnings. About 70% of the nation's territory is suitable for agriculture or livestock. Industry Nicaragua's industrial sector grew rapidly following the formation of the Central American Common Market (CACM) in 1960. During the Sandinista era, government mismanagement, depressed markets in its neighboring countries, and a shortage of foreign exchange for raw materials and capital equipment caused Nicaragua's industrial production to decline to one-third of its former value. Manufacturing recovered somewhat in 1991, growing by 6.3% for the year. Minerals production fell by 3.5% during 1991. Production of consumer goods soared, led by soft drink output which doubled. About one-fifth of Nicaragua's work force is employed in manufacturing alone. That, in addition to construction and mining, contribute about 26% to GDP. Trade and Investment Nicaragua's imports (CIF) in 1991 were valued at $751 million and increased to $831 million in 1992. Consumer goods and machinery accounted for most of the increases. The government continues to require import licenses, although the licensing process is now little more than a formality. Foreign exchange for goods and services is freely available. In 1992, the U.S. was the source of nearly 25% of Nicaragua's total imports and purchased 24% of Nicaragua's exports. Europe and Japan enjoy significant market shares. Nicaragua has joined its Central American neighbors in pursuing a common maximum duty on imported goods (except for certain commodities) of 20% by December 1993, down from 40%. Collectively, they are negotiating a free trade agreement with Mexico, Colombia, and Venezuela. Imports from the Commonwealth of Independent States, the republics of the former Soviet Union, have fallen to about 20% of their 1990 level. Nicaragua's export earnings fell by 18% in 1991, primarily reflecting cyclical factors in coffee production, a continuing decline in beef production, a drought which adversely affected agriculture production, and lower U.S. quotas for Nicaraguan sugar. Imports, for which demand is likely to grow, include machinery, electrical appliances and transport vehicles, animal and vegetable oil, fruits and vegetables, fertilizers, prepared foods, and clothing and other textile products. In January 1991, the government issued a decree authorizing the Minister of Economy to issue private export licenses for all major commodities. Previously, only the government was allowed to export commodities. Export earnings of $272 million in 1991 dropped to $218 million in 1992, due to the decline in international prices for cotton and coffee and the January 1993 devaluation. Following Chamorro's election victory, the U.S. lifted its 5-year trade embargo. Total U.S. exports to Nicaragua between 1990 and the end of 1992 increased from about $68 million to nearly $205 million, mostly in consumer goods and machinery. U.S. imports from Nicaragua for the same period increased from $15 million to $52 million, principally in cotton, coffee, and seafood. U.S. investment in Nicaragua, estimated at less than $100 million, is concentrated in the petroleum and agro-processing sectors. Most of the companies produce exclusively for the Nicaraguan market, although there are shipments of goods to Central America and Puerto Rico. For the most part, these companies have been operating in Nicaragua for nearly four decades. Estimates are that U.S. investments represent between one-half and two-thirds of all foreign investment, although investors from Spain, the United Kingdom, and Taiwan are active. Total foreign investment is estimated to be under $200 million. The best opportunities for investment appear to be in fishing, mining, timber, processing of non-traditional agricultural exports, hotels, and power generation. The privatization of the telephone utility is also a promising area for investors. U.S. Assistance The United States provided $725 million in economic assistance to Nicaragua in the first 3 years of the Chamorro Government: $5 million in emergency economic assistance in the spring of 1990 using fiscal year 1989 funds; $266 million in FY 1990; $269 million in FY 1991 and $185 million in FY 1992. In June 1992, Congress put a hold on $104 million from FY 92 funds due to concerns over rule of law issues, civilian control over the armed forces and police, human rights, and the return of property confiscated from American citizens by the Sandinista Government. With Nicaragua facing its debt obligations to international financial institutions (IFIs) in December 1992, the U.S. released $54 million to help Nicaragua normalize its relations with the IFIs, sustain its stabilization program, and preserve gains in controlling inflation. On April 2, 1993, the U.S. announced the release of the remaining $50 million from FY 1992 assistance. This decision was made after an exhaustive policy review and after extensive and useful consultations with Members of Congress. The Administration examined the broad range of issues vis-a-vis Nicaragua and concluded that the Nicaraguan Government was making progress on issues of priority concern. Significant steps Nicaragua took to justify release of the aid included suspension of police officers and action against civilians named by the commission for wrongdoing, and a request for a 2-year extension of the OAS civilian mission (CIAV) with a broadened mandate to monitor human rights throughout the country until June 30, 1995. Finally, the Government of Nicaragua established procedures for resolving outstanding property claims of U.S. citizens and others; this included an arbitration system which met international standards and a new compensation mechanism funded by some of the proceeds of the privatization program. U.S. assistance provides balance-of-payments support while the Nicaraguan Government pursues its economic reform program; assists the private sector and farmers; funds basic health care and education, development projects, and natural resource management. It also supports initiatives to strengthen democracy, including helping the Nicaraguan Government establish civic education programs, strengthen grass roots and independent labor organizations, improve public administration and financial management, and develop respect for human rights in the police, military, judiciary. Nicaragua is a beneficiary of the U.S. Caribbean Basin Initiative, and has signed a bilateral framework agreement with the U.S. to promote trade and investment. FOREIGN RELATIONS The 1990 election victory of President Violeta Chamorro placed Nicaragua in the ranks of democratizing countries in Latin America and Eastern Europe. The government has stated it seeks good relations with all countries and a policy of "true" nonalignment. The Chamorro Government participates in the Central American Security Commission (CASC), which promotes regional demilitarization, arms reduction, and confidence building. A major objective of President Chamorro's diplomacy has been to reach new terms with Nicaragua's international creditors. Though ex-Soviet-bloc aid to Nicaragua has declined to near zero from its previous level of almost $1 billion per year, other donors have picked up some of the slack and increased aid flows to Nicaragua's democratic government. The international donor community remains crucial to Nicaragua's economic life. Nicaragua belongs to the UN and several of its specialized and related agencies, including the World Bank, the International Monetary Fund (IMF), UN Educational, Scientific and Cultural Organization (UNESCO), World Health Organization (WHO), Food and Agriculture Organization (FAO), International Labor Organization (ILO), General Agreement on Tariffs and Trade, Inter-American Development Bank, Central American Common Market (CACM), and the Central American Bank for Economic Integration (CABEI). DEFENSE The Chamorro Government has reduced the Sandinista Army from more than 80,000 upon entering office to under 16,000 and has ended the military draft. Under the previous regime, the army had grown from a loosely organized force of a few thousand guerrillas to a professional, conventionally trained, and well equipped army that numbered 134,000 active duty personnel in 1987. It was augmented by reserve and militia units. The security apparatus remains under the same Sandinista leadership as before the 1990 election. In 1993 the Nicaraguan Government began working with the OAS and the Inter-American Defense Board in a project to remove land mines left in place following the end of hostilities in 1989. In the initial phase, this program included training for 15 military officers from other Latin American countries who trained their Nicaraguan counterparts in de-mining techniques. U.S.-NICARAGUAN RELATIONS The U.S. strongly supports the Chamorro Government in its efforts to strengthen democracy, promote national reconciliation, and achieve economic reform. U.S. objectives are to: -- Support national reconciliation and help create a stable democracy; -- Help Nicaragua de-politicize the army, police, judiciary, and regulatory bodies; -- Build respect for human and property rights and apply the rule of law justly; -- Promote resolution of outstanding human rights cases, including those committed against former members of the Nicaraguan Resistance; -- Obtain Nicaraguan Government resolution of all U.S. property claims in an expeditious manner; -- Support macro-economic reforms; and -- Provide improved health care and basic education. U.S. citizens' claims over confiscated property in Nicaragua remains a top bilateral issue. After many months and much U.S. technical assistance, Nicaragua has introduced procedures for settling claims to more than 1,000 properties on behalf of more than 370 U.S. citizens. The claims are valued by the claimants at over $417 million. The claims resolution mechanism includes an arbitration system which meets international standards and a new compensation mechanism funded by some of the proceeds of privatization of Nicaraguan state enterprises. Compensation bonds denominated in Nicaraguan currency that will maintain their value in relationship to the U.S. dollar are now being issued. Relations During the Sandinista Era The United States and the Sandinista Governments initially enjoyed satisfactory relations based on a mutual desire to facilitate Nicaragua's reconstruction. Between July 1979 and April 1981, the United States contributed $117 million in direct bilateral economic aid to Nicaragua. Despite this, FSLN rhetoric was marked by an intense anti-Americanism based on ideological hostility to the United States. Sandinista support for El Salvador's Farabundo Marti National Liberation Front guerrillas ultimately resulted in the suspension of U.S. aid to Nicaragua. Two significant developments in U.S. policy toward the Sandinista Government of Nicaragua were President Reagan's decision to provide assistance to the Nicaraguan resistance in 1981 and the decision in 1985 to impose a trade embargo. The steps were meant to encourage FSLN compliance with previous promises to open and democratize Nicaraguan society. In April 1984, the Sandinistas filed suit against the United States in the International Court of Justice, a UN body, to challenge alleged U.S. actions directed against the Sandinista Government. The United States did not recognize the Court's "compulsory" jurisdiction for two reasons: Nicaragua had never accepted the compulsory jurisdiction of the Court since the United Nations created the court in 1946, and the U.S. believed that the dispute was more a matter of politics than international law and should be dealt with bilaterally. The court heard Nicaragua's arguments without U.S. participation in the proceedings, and ruled against the U.S. in June 1986. The U.S. rejected the decision and did not comply with the ruling. In April 1991, the Chamorro Government withdrew its claim against the United States. From 1982 until 1990, the U.S. provided more than $300 million in military and non-military assistance to the Nicaraguan Resistance with the objective of bringing democracy and political pluralism to Nicaragua. From 1988 until 1990, U.S. assistance was completely non-lethal. It was used to support the Resistance after the 1988 cease-fire period, through the 1990 elections and their reintegration into Nicaraguan life. The former Soviet Union and its allies provided about $3.3 billion in military assistance to the Nicaraguan Government from 1980-1990, at times exceeding $500 million a year. Principal U.S. Officials Chief of Mission--Vacant Charge d'Affaires--Ronald D. Godard Economic/Commercial Officer--Paul Trivelli Political Counselor--Robert Millspaugh Public Affairs Officer--Steven Monblatt Administrative Officer--Roger E. Burgess Consul General--Kathleen Daly Chief, USAID Mission--Janet Ballentyne The U.S. Embassy in Nicaragua is located at Kilometer 4.5, Carretera Sur, Managua (tel. (505) (2) 666010). Travel Notes Climate and clothing--Nicaragua's tropical climate calls for lightweight, washable clothing. Customs--Passports are required for land or sea entry and for naturalized U.S. citizens. Health--Medicines are usually available in Managua, though shortages occur. Public sanitation is lower than the U.S. standard. The Managua water supply is generally safe. Food served in the better restaurants is also generally safe. Travelers should check latest information. Published by the United States Department of State -- Bureau of Public Affairs -- Office of Public Communication -- Washington, DC -- July -- Editor: Pete Knecht Department of State Publication 7772 Background Notes Series -- This material is in the public domain and may be reprinted without permission; citation of this source is appreciated. For sale by the Superindendent of Documents, US Government Printing Office, Washington , DC 20402.