Nicaragua extreme poverty cut in half

October 26, 2012

By David Hutt | Special to The Tico Times

LEÓN, Nicaragua – The Nicaraguan economy has been hitting the headlines for all of the right reasons lately. 

First came the news that since the Sandinistas returned to power in 2006, the economy has grown by 30 percent, according to a report by the Nicaraguan Central Bank, published last month.

The same report noted that in the past year, Nicaragua has seen its gross domestic product increase from $1,239 to $1,582 per citizen.

At the same time, the Nicaraguan government signed a lucrative memorandum of understanding with a major Chinese telecommunications company to fund and build an inter-oceanic canal and freight railroad across the country to rival the Panama Canal.

Then came further good news from Venezuela that Hugo Chávez will serve another six-years in office, which was received by the Nicaraguan government with optimism and relief by the country’s economists. 

Nicaragua currently imports Venezuelan oil at “solidarity rates,” meaning the country pays rock bottom prices for half of the oil up front, and then pays back the rest through low-interest loans. 

According to the Central Bank, which released new trade figures shortly before the Venezuelan elections, 62 percent of Nicaraguan oil revenue goes to fund social programs and macro-business development. 

To top all of this, Paul Oquist, the presidential secretary for national policy, speaking on the political radio station Radio La Primerisima, reported recently that in the last five years, extreme poverty has fallen from 11.2 percent to 5.5 percent. Extreme poverty is measured by a daily income of less than $1.25. 

According to Oquist, Nicaragua also recorded an economic growth of 5.1 percent in 2011 – the highest rate in all of Central America. 

Insufficient Growth?

Despite the optimism, most Nicaraguan economists agree that much more needs to be done. Oquist admitted that 5 percent growth is not good enough if the country wants to properly eradicate poverty and move away from being Central America’s poorest nation, and the second poorest in all of Latin America. 

“We could continue to grow at 5 percent and get good grades, because it is the fastest growing economy in Central America and we are reducing poverty. But we will not achieve a great transformation, eradicate extreme poverty and overcome poverty in Nicaragua by growing at 5 percent,” he said. 

Oquist said that a transformation of Nicaraguan society would be possible only with an 8 percent growth rate. However, he is confident that in the next few years Nicaragua will be able to reach this lofty target, largely through the projected megaprojects. He added that the government has an investment portfolio of more than $11 billion, including a major oil refinery complex to be funded by Venezuela, and the Chinese-subsidized canal. 

But not everyone is so confident. Independent economist Néstor Avendaño doubts whether Nicaragua will even be able to match its current growth in the coming year. 

“I don’t see any possibility of us getting above 4 percent growth next year,” he said. Avendaño predicted a growth rate of 3.1 percent for 2013.

Furthermore, Nicaragua is going to have to invest much of its economic windfall back into society if it wants to alleviate poverty that still exists. Currently just under half of all Nicaraguans live in poverty. 

A walk around any Nicaraguan city makes clear that a great inequality of wealth still exists. A 10-minute stroll can take you from a barrio of broken windows, passed-out glue addicts and littered streets to a barrio with U.S.-styled houses, high wire fences and security guards patrolling the perimeters. 

A survey by Wealth-X, a firm that surveys global wealth, found that 190 “ultra-rich” people (with wealth greater than $30 million) live in Nicaragua, with a combined wealth of $26 billion, the third highest in Central America. 

So, while there are positive signs of economic progress and a reduction in poverty, the country is going to have to move a lot quicker if it wants to catch up to its Central American neighbors and alleviate the suffering of many of its citizens.

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