San José, Costa Rica, since 1956

Nica Economy Could Grow 3% in 2010

MANAGUA – Driven by 27.6 percent growth in exports during the first half of this year, Nicaragua’s economy is now expected to grow by 3 percent in 2010, according to the Nicaraguan Foundation for Economic and Social Development (Funides).

Considering Nicaragua’s economy was originally projected to grow around 1 percent this year, the 3.6 percent growth during the first semester of the year and a 10 percent increase in tax revenue suggests the economy is doing better than expected.

However, many doubt it’s sustainable.

Funides, a private economic research and policy think tank, says Nicaragua’s export-driven economic growth mostly “reflects economic recuperation in the more advanced economies” of the world.

Meanwhile, investment in the Nicaraguan economy only grew by 1.3 percent during the first semester of 2010.

It may be too soon to celebrate recovery, because the country remains highly vulnerable to internal and external factors, says Funides director Carlos Muñíz.

Externally, the Nicaraguan economy is very dependent on larger economies, such as that of the United States.  Nicaragua has also developed a much greater dependence on Venezuela, which has provided more than $1 billion in aid to President Daniel Ortega.

“During the current administration, there has been a greater concentration of aid from only one source – Venezuela – which increases our vulnerabilities to economic or political changes in that country,” the Funides report found.

Domestically, Muñíz said, “The political situation and investment climate are still deteriorated here,” he said.

Confidence in government institutions is also very low, he noted. According to the Funides survey, a resounding 97.6 percent of Nica businesses said they have no confidence in the judicial system, while 87 percent said they oppose Ortega’s economic policies.

Opposition lawmaker and former Finance Minister Eduardo Montealegre said he thinks the economy is doing passably, but that its growth is not based on stable conditions.

“We’re on the alligator’s nose,” he said.

Ultimately the country can’t hope to attract investment or grow its economies with its democratic institutions in shambles, Montealegre said.

Curiously, despite all Nicaragua’s political problems, the Funides survey showed a slight improvement in Nicaragua’s business climate.

 The survey showed that 9.5 percent of business leaders answered that the climate is “favorable,” while 54.7 percent said it was unfavorable. While that might not look like a very convincing vote of confidence, it’s a new high for Nicaragua. Last year at this time, 88.4 percent said the business climate was unfavorable, and none said it was good.

Opposition political leader and former Inter-American Development Bank analyst Edmundo Jarquin said the business climate is only “a little bit less worse than before.”

Still, he said, even in the best case scenario, Nicaragua is not poised for growth.

“Even 3 percent growth is not going to generate the employment needed to provide new jobs for the 150,000 Nicaraguans entering the labor force each year,” Jarquín said. “And it’s not enough to reduce poverty.”

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