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Nicaragua, Economy

Since the colonial period, Nicaragua’s economy has been based on the export of raw materials, largely agricultural products. Coffee has been a major crop since the 1840s, and cotton, sugar, bananas, forestry, mining, cattle, and shrimp have also contributed to the economy. A small elite class traditionally controlled the bulk of Nicaragua’s land, and therefore its economic life.

The economy grew rapidly from the 1950s until the 1970s, as agricultural exports and industry expanded. However, this growth benefited the middle and upper classes, especially the Somoza family and their associates, while the poorest Nicaraguans suffered increased poverty. Beginning in the 1970s, Nicaragua suffered a series of devastating events that led to an economic crisis. The country was severely damaged by civil conflicts, including the anti-Somoza revolution and then the contra war of the 1980s, at the same time it suffered natural disasters including earthquakes, floods, and hurricanes. The Sandinista government tried to institute a new economic system, mixing socialist policies and private enterprise while redistributing income and land. Some of its policies succeeded, while others failed, and all were hampered by U.S.-sponsored sanctions against Nicaragua, attacks by rebels backed by the United States, and unfavorable world economic trends. The result was a severe depression that lasted into the 1990s. Between 1981 and 1990 gross domestic product (GDP) per capita declined by 33.5 percent.

Nicaragua’s economy has recovered somewhat since 1994, but it remains severely depressed, due to a number of factors. Nicaraguan and foreign business people have been reluctant to invest in the country, in part because of continuing disputes over ownership of property that was confiscated under the Sandinistas. Many former owners want the property returned, but the Sandinistas remain an influential political force. Rising crime and rural violence, and a deteriorating infrastructure, also hinder economic recovery.

In 2000 Nicaragua’s GDP was $2.40 billion, equivalent to $470 per person, making Nicaragua one of the poorest countries in the Western Hemisphere. Nicaragua has a high debt level, more than $6 billion in 1996, and low worker productivity. Agriculture remains the dominant sector, although a growing percentage of people work in service jobs. Mining and forestry have declined in importance over the past half century. Industry has also declined due to damage from the wars and an almost total lack of new investment.

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