尼加拉瓜奧蒂嘉總統執政期間之經濟政策分析 (2007到2020年) - 政大學術集成

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(1)International Master‘s Program in International Studies National Chengchi University 國立政治大學國際研究英語碩士學位學程. Analysis of Nicaragua Economic Policy under Ortega 政治administration 大立 from 2007 to 2020 ‧ 國. 學. 尼加拉瓜奧蒂嘉總統執政期間之經濟 ‧. n. al. er. io. sit. y. Nat. 政策分析 (2007 到 2020 年) Ch. engchi. i Un. v. Chyau-Shyang Jang Advisor: Dr. Chung-Chian Teng. July, 2020. DOI:10.6814/NCCU202001514.

(2) Abstract. This study aims to reveal the impacts of the economic and political strategies of Nicaragua under the Ortega administration from 2007 to 2020. The case of the socio-political and economic crisis in Nicaragua has been of an ongoing nature lasting since 2018 when the president announced the enactment of a social security reform, which later expanded to larger demonstrations about the discontent of the Nicaragua Canal, the social injustices caused by the long-term regime, and mismanagement of the democratic elections during the Ortega administration. These impacts can be examined through the historical advances made in the. 政治大. policy reforms, the integration of market economy, and the pursuit of free trade agreements. 立. by the Nicaraguan government. This research explores the positive and the negative social,. ‧ 國. 學. economic, environmental, and political impacts of Nicaragua. Finally, the implementation of. ‧. free trade policy and management of economic relations with partner countries through its advantages in a free trade zone under market economic conditions, some positive effects can. n. al. er. io. sit. y. Nat. be seen.. Ch. i Un. v. Keywords: Nicaragua, market economy, agrarian reform, free trade agreements, preferential treatment, Central America, globalization. engchi. I. DOI:10.6814/NCCU202001514.

(3) 摘要. 這項研究旨在揭示尼加拉瓜在 2007 年至 2020 年奧特加政府領導下的經濟戰略的影響。自 2018 年奧爾特加宣布頒布《尼加拉瓜社會保險改革》以來，尼加拉瓜的社會政治和經濟危機一直持續不斷。社會保障改革，後來又因之前尼加拉瓜運河的議題更擴展示威遊行，因長期政權造成的社會不公正以及奧爾特加政府執政期間對民主選舉的管理不善。這些影響可以藉由尼加拉瓜政府改革政策階段性任務來改進，市場經濟的自由化以及尼加拉瓜政府和各國的自由貿易協定簽署的優惠待遇來檢驗成果。本研究探討對尼加拉瓜. 政治大透過其在市場經濟條件下的自由貿易區中的優勢來管理與夥伴國的經濟關係中，可以看立. 社會，經濟，環境和政治的正面和負面影響。最後，在尼加拉瓜實施自由貿易政策以及. ‧ 國. 學. 到某些方面的積極影響。. ‧. 關鍵詞：尼加拉瓜，市場經濟，土地改革，自由貿易協定，優惠待遇，中美洲，全球化. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. II. DOI:10.6814/NCCU202001514.

(4) Table of Contents Abstract ....................................................................................................................................... I 摘要............................................................................................................................................ II Table of Contents ...................................................................................................................... III List of Tables .............................................................................................................................V List of Figures ...........................................................................................................................VI Acknowledgements ..................................................................................................................VII List of Abbreviations ..............................................................................................................VIII Chapter 1 – Introduction and Motivation................................................................................... 1. 1.2. 1.3.. 治政大 Research Questions and Hypothesis .......................................................................... 7 立 Literature Review....................................................................................................... 8 Background ................................................................................................................ 4. 學. ‧ 國. 1.1.. The Market Economy ........................................................................................ 9. 1.3.2.. Sustainable Development................................................................................. 11. 1.3.3.. Challenges for Nicaragua ................................................................................. 12. ‧. 1.3.1.. Methodology ............................................................................................................ 15. 1.5.. Research Limitation ................................................................................................. 16. er. io. sit. y. Nat. 1.4.. Chapter 2 – Economy of Nicaragua. ........................................................................................ 17. n. al. Ch. i Un. v. 2.1.. Economic Overview................................................................................................. 17. 2.2.. Demographic dividend ............................................................................................. 29. 2.3.. Foreign Trade ........................................................................................................... 32. 2.4.. Foreign Direct Investment ....................................................................................... 40. 2.5.. Inflation Rate ........................................................................................................... 45. 2.6.. Economic challenges in Nicaragua .......................................................................... 48. 2.7.. Impact of Nicaragua Canal Construction to the Economy of Nicaragua ................. 52. 2.8.. Summary and Discussion of Chapter 2 .................................................................... 57. engchi. Chapter 3 – Trade Policy and Trade Agreements .................................................................... 61 3.1. Trade Agreements .................................................................................................... 61. 3.2. Free Trade Zones ..................................................................................................... 71. III. DOI:10.6814/NCCU202001514.

(5) 3.3. Regional Trade Liberalization ................................................................................. 76. 3.4. Agricultural subsidy policy ...................................................................................... 80. 3.5. The impact of US rice subsidy to Nicaragua ........................................................... 86. 3.6. Summary and Discussion of Chapter 3 .................................................................... 94. Chapter 4 – Social Policy Reforms in Nicaragua .................................................................... 97 4.1. Food Security Policy ................................................................................................ 97. 4.2. The Agrarian Reform ............................................................................................... 99. 4.2.1.. The Sandinista Agrarian Reform since 1979 ................................................... 99. 4.2.2.. The ―Lame Duck‖ Period of the Sandinistas ................................................. 106. 4.2.3.. Current situation of the Land Reform ............................................................ 109. 治政大 4.2.5. Other relevant examples relating to land ....................................................... 119 立 4.3 The Social Security Reform under Ortega administration ..................................... 121 學. 4.4. Relevant Law Articles regarding to Land Rights .......................................... 111. ‧ 國. 4.2.4.. Summary and Discussion of Chapter 4 .................................................................. 126. Chapter 5 – Conclusion and Suggestions............................................................................... 129. ‧. Suggestions ............................................................................................................ 138 Suggestions for Sustainable Development..................................................... 143. y. Nat. 5.1.1.. sit. 5.1. io. al. er. References .............................................................................................................................. 149. n. APPENDIX A ........................................................................................................................ 159. Ch. i Un. v. APPENDIX B ........................................................................................................................ 160. engchi. IV. DOI:10.6814/NCCU202001514.

(6) List of Tables Table 1. Nicaragua: Selected Economic Indicators from 2007 to 2018. ................................. 19 Table 2. Economic Sectors (% of GDP) from 2008 to 2018. .................................................. 21 Table 3. Nicaragua: Minimum Wage Adjustment in 2020. ..................................................... 25 Table 4. GDP per capita (based current US$).......................................................................... 26 Table 5. Top Product Export (% share of total export) in 2018 and Total Export (in US$) to the World in relations to the progress made from year 2006 to 2013...................................... 28 Table 6. Coffee Exports by destination in pounds in harvesting season 2018/2019. .............. 34. 政治大. Table 7. Sugar Exports by destination in metric tons in 2019. ................................................ 34. 立. Table 8. Top Five Nicaraguan Export Products to Taiwan and Total Exports (in US$). ‧ 國. 學. corresponding to the first six months of 2019 versus 2020 ..................................................... 37 Table 9. Top Five Nicaraguan Import Products to Taiwan and Total Imports (in US$). ‧. corresponding to the first six months of 2019 versus 2020 ..................................................... 38. y. Nat. sit. Table 10. Central America: FDI inflows, by recipient country and region, 2012 - 2018 (in. n. al. er. io. millions of US dollars and percentage variations) ................................................................... 41. i Un. v. Table 11. Inflation rate and consumer price (annual change) .................................................. 46. Ch. engchi. Table 12. Transportation cost and time between Central American countries to U.S. ports. .. 57 Table 13. Industrial free trade zone indicators in Nicaragua from 2006 to 2019 .................... 73 Table 14. Nicaragua Textiles and Clothing Exports by Country (in millions of US dollars).. 74 Table 15. Rice imports to Nicaragua – U.S. imports versus total imports in relations to the national rice production from 2009 to 2017 ............................................................................ 93 Table 16. Agricultural production for exports (in thousands) ............................................... 146 Table 17. Population of Nicaragua by age group, 2019. ....................................................... 159. V. DOI:10.6814/NCCU202001514.

(7) List of Figures Figure 1. Nicaragua - Land Utilization and Vegetation ............................................................. 5 Figure 2. GDP Growth and FDI inflow from 2007 to 2018. ................................................... 27 Figure 3. Population of Nicaragua by age group ..................................................................... 30 Figure 4. Coffee and T-shirts Exports to the world from 2015 to 2018 .................................. 32. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. VI. DOI:10.6814/NCCU202001514.

(8) Acknowledgements. First, I am most grateful to all the academic staff in the International Master‘s Program in International Studies at National Chengchi University. I would like to thank my advisor, Dr. Chung-Chian Teng, for his guidance, time, and patience to support me along the way that has made this thesis possible. Always encouraging and giving insightful advice and helpful remarks to support and develop my work.. Second, I would like to thank my committee members, Dr. Wen-Yang Chang and Dr.. 政治大. Hsiu-Chi Wang, whose thoughtful comments and suggestions have helped sharpen the. 立. direction of my thesis and brought it to a higher level, providing me with the insights needed. ‧ 國. 學. to successfully complete my master‘s thesis, without their time and effort I would not have. ‧. been able to finalize it.. y. Nat. er. io. sit. Third, I would like to thank the International Cooperation and Development Fund (ICDF), Ministry of Foreign Affairs, and the Embassy of Republic of Nicaragua in Taiwan, without the. n. al. Ch. i Un. v. support of their employees and the provision of access to information, such as the multiple. engchi. ICDF workshops, I would not have been able to obtain knowledge that are useful for my thesis.. Finally, I would like to thank my family for the unconditional support you have shown me through this academic research. To my two sisters and parents whose constant encouragement and love helped me stay focused and inspired throughout my thesis and studies. To my friends whose support and experiences allowed me to reach this milestone.. VII. DOI:10.6814/NCCU202001514.

(9) List of Abbreviations ALBA. Bolivarian Alliance for the Peoples of Our America. APP. People‘s Property Area. ATC. The Association of Farm Workers. BCN. Central Bank of Nicaragua. CABEI. Central American Bank for Economic Integration. CAFTA-DR. US-Central America and Dominican Republic Free Trade Agreement. CGWIC. China Great Wall Industry Corporation. CNZF. National Free Zone Commission. COSEP. Superior Council for Private Enterprise. COVID-19. Coronavirus disease 2019. ECF. Extended Credit Facility. ECLAL. Economic Commission for Latin America and the Caribbean. EPR. Extended Producer Responsibility. EXCAN. Association of Coffee Exporters of Nicaragua. FAO. Food and Agriculture Organization. FDI. Foreign Direct Investment. FENACOOP. National Federation of Agricultural and Agroindustrial Cooperatives. FSLN. The Sandinista National Liberation Front. FTA. Free Trade Agreement. FTAA. Free Trade Area of the Americas. FUNIDES. Nicaraguan Foundation for Economic and Social Development. GDP. Gross Domestic Product. GSP. Generalized System of Preferences. HKND Group. Hong Kong Nicaragua Canal Development Investment Company. 學 ‧. ‧ 國. 立. 政治大. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. VIII. DOI:10.6814/NCCU202001514.

(10) IADB. Inter-American Development Bank. IFAD. International Fund for Agricultural Development. IMF. International Monetary Fund. INIDE. National Institute of Information Development. INSS. Nicaraguan Social Security Institute. MAERSK EEE. Maersk Triple E-class container ship. MDGs. Millennium Development Goals. MDRI. Multilateral Debt Relief Initiative. MEFCCA. Ministry of Family, Community, Cooperative and Associative Economy. MIDINRA. Minister of Agricultural Development and Agrarian Reform. NICA Act. Nicaragua Investment Conditionality Act. OECD. Organisation for Economic Co-operation and Development. OOT. Office of Territorial Ordering. PRGF. Poverty Reduction and Growth Facility. PRONicaragua. Nicaragua‘s official investment promotion agency. RTA. Regional Trade Agreement. SDGs. Sustainable Development Goals. SDT. Special and differential treatment. SSM. Special Safeguard Mechanism. TEU. Twenty-foot equivalent unit. UNAG. National Union of Farmers and Ranchers. UNO. National Opposition Union. UPANIC. Union of Agricultural Producers of Nicaragua. US. United States. USAID. United States Agency for International Development. WTO. World Trade Organization. 立. 政治大. ‧. ‧ 國. 學. n. Ch. engchi. er. io. sit. y. Nat. al. i Un. v. IX. DOI:10.6814/NCCU202001514.

(11) Chapter 1 – Introduction and Motivation. Republic of Nicaragua, the largest country with the two largest fresh water lakes can be found in Central America. It is about 120,340 square kilometers, making it nearly 3 times larger than Taiwan, with a population density of 54 per square kilometer. It is abundant and rich in natural resources and manpower. The country, however, is amongst the poorest countries in the region in terms of the economy. It has relied on the prolonged foreign aid to build its economy. So, why does its overall development lag behind to its contemporaries in Latin America? Therefore, this study hopes to uncover through relevant historical factors,. 政治大. political factors, social factors, and factors relating to the Nicaragua‘s transition to market. 立. economy to analyze the obstacles that hindered its long-awaited economic development to. ‧ 國. 學. better understand the causes of the economic stagnation of Nicaragua.. ‧. sit. y. Nat. The study mainly discusses the overall economic and social development of Nicaragua. io. er. from 2007 to 2020 under the current President Daniel Ortega, as of writing the paper. In view. al. of the current social problems of poverty and unequal income distribution, the background. n. iv n C and reasons for the formation of the social in Nicaragua were explored through its h eproblems ngchi U history. With an understanding of the social issues and the participation of free economic markets, it is important to understand how social and economic development affects each other in Nicaragua.. The political policies led by President Daniel Ortega affected the national economic development of Nicaragua. The schemes pursued by his administration often reach beyond the parameters of the market economy, but has maintained it through the signing of free and regional trade agreements, and numerous plans of development cooperation and investments,. 1. DOI:10.6814/NCCU202001514.

(12) which may well, indeed, provide positive impacts to the country. Using favorable conditions to introduce foreign capitals in Nicaragua, a large amount of international capitals came flowing in to drive the development of the country. The attraction of foreign capitals has always been the interests of many countries, to solve the problem of lack of funds, to assist in the promotion and boosting of the national economic development. The introduction of foreign capital also brings new production methods and technologies, production equipment and management experiences, all which can encourage the economic development of a nation. With the development of the economy, people's lives can be improved, and the numbers of people in poverty be reduced.. 立. 政治大. The author‘s research motive for producing this thesis is to demonstrate the support for. ‧ 國. 學. making Nicaragua a better place to live in for the next generations, and support the trade. ‧. liberalization, aiming to enhance the understanding and the information regarding the access to market for Nicaragua. The thesis will focus on Nicaragua since the author lived in Central. y. Nat. io. sit. American countries for the beginning eighteen years of his life, where eleven years – from year. n. al. er. 2000 to 2011 – were spent in Nicaragua. The author deeply believes that Nicaragua has the. Ch. i Un. v. opportunity to overcome its economic hurdles by better understanding the economic obstacles. engchi. it is facing with its implementation of the market economy.. Through this study, the author hopes to provide some insights and explanations on the economic, political, and social circumstances under the Ortega administration, and provide a brief examination of its history to recent development arranged to explain the overview of economic development and the factors affecting its operation. The author also had the opportunity to participate in seminars, workshops and conferences in Taiwan where he had the pleasure of meeting important guests that works in the tourism sector, National Institute of Information Development of Nicaragua (INIDE), Central Bank of Nicaragua (BCN), water 2. DOI:10.6814/NCCU202001514.

(13) system and treatment sector, and business sectors from Nicaragua. The hope is to create a research that examines the economic development challenges Nicaragua has experienced, and inspire people to generate opportunities and necessary steps to improve the economy status of Nicaragua in Central America.. ―Leave this world a little better than you found it,‖ said by Robert Baden-Powell, and ―know more today about the world than I knew yesterday and lessen the suffering of others,‖ said by Neil deGrasse Tyson, are the mottos the author tries to live by every day.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i Un. v. 3. DOI:10.6814/NCCU202001514.

(14) 1.1. Background. Nicaragua has suffered a myriad of devastating incidents, such as the earthquake in 1972, the long-term civil war thereafter, and the socialist policies in the 1980s that affected the domestic economy, distribution of land, and industrial development for an extended time. In the 1990s, the government transitioned to a more democratic political regime, adopting the free market economy as part of the deal to receive the debt relief and economic assistance from the IMF while actively improving the investment environment to attract foreign investment. Due to the weak domestic industrial and technological foundation, the livelihood of its people and. 政治大. supplies relied on imports, thus, welcomed foreign investment. Export goods attached. 立. particular importance to agricultural products, textiles and garments, auto parts, leather shoes,. ‧ 國. 學. food processing and other projects, mostly generated by foreign investment which provided job opportunities for the domestic labor force. In the state of globalization, businesses and. ‧. manufacturing companies look to invest in Nicaragua to access its large labor force, tax. y. Nat. sit. incentives for imports and exports in its free trade zones, and other advantages to maintain a. n. al. er. io. competitive edge in the market, which facilitated the economic prospects of the country.. Ch. engchi. i Un. v. Nicaragua is known its arable land that is responsible for producing various types of agricultural products, such as coffee, bananas, beef, poultry, tobacco, maize, rice, sugar, soybeans and other beans, and timber. According to the data provided by the FAO, there is about 50,650 square kilometers of agricultural land1 and 15,040 square kilometers of arable land.2 The map on figure 1 below shows the different land use and vegetation throughout the nation, where the western part is more developed than the eastern part, the eastern being part of the two autonomous regions of the country that are mostly less developed and largely 1. Agricultural land, according to the FAO, is the land area that is used for cultivation of crops and animal husbandry, which is under permanent crops, or under permanent meadows and pastures. 2 Arable land includes land under temporary crops, temporary meadows and pasture for mowing, and land with temporary fallow; it does not account for the land that is possibly cultivable and not farmed. 4. DOI:10.6814/NCCU202001514.

(15) comprised of dense rain forests. Nevertheless, the large plots of cultivated area scattered throughout the tropical dry forests in the eastern part are essential for the development since it provides food and income for the hundreds of thousands of people residing in the area.. Figure 1. Nicaragua - Land Utilization and Vegetation. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. v. Colored version available online at: https://legacy.lib.utexas.edu/maps/nicaragua.html. Ch. engchi. i Un. Economic development has taken off in recent years, and with regard to poverty reduction according to statistics from the National Institute of Information Development (Instituto Nacional de Información de Desarrollo, INIDE), the number of poor people has been reduced from 48.3 percent of the population in 2005 to 24.9 percent in 2016, while the number of extreme poverty has fallen from 17.2 percent in 2005 to 6.9 percent in 2016.3 The Zero Hunger program, also known as the Food Production Program (PPA), was a five-year program launched in 2007 to help eradicate hunger, malnutrition, extreme poverty and unemployment. 3. Department of Investment Services (2019). ―Investment Guide to Nicaragua‖, page 3. 5. DOI:10.6814/NCCU202001514.

(16) among the poor rural families, and was one of the more successful programs implemented in Nicaragua under President Daniel Ortega. Other economic and social programs, although effective, have yet to eradicate a significant amount of poverty while the country continues to receive international economic assistance. The poverty rate4 grew to 13.1 percent in 2019 from 9.5 percent in 2017, introducing an extra 240,000 people into poverty (World Bank).. National Demographics: -. Approximately 5.59 million people in 2007, and 6.39 million in 2008. The population growth rate in 2007 was 1.4 percent annual change rate.. -. 政治大. In 2018, there were about 6.47 million people, and in 2019 about 6.55 million. The annual. 立. rate of change was estimated to 1.1 percent.. ‧ 國. 學. -. The population growth in Nicaragua was consistently kept above one percent in the past. ‧. decade.5. y. Nat. er. io. sit. Nicaragua is the poorest country in Central America and the second poorest in the Americas in particular. Nicaragua was listed as part of the Heavily Indebted Poor Countries. al. n. 6. Ch. i Un. v. (HIPC) Initiative, which made it eligible to receive economic assistance for debt relief since. engchi. 1996 from the IMF and the World Bank. Additionally, in 2006, the debt relief program was accompanied by the Multilateral Debt Relief Initiative (MDRI) that provided additional debt relief to assist the eligible low-income countries to further reduce poverty, accomplish macroeconomic stability and ultimately meet the United Nations‘ Millennium Development Goals (MDGs) by 2015, 7 which was later updated and modified to a more ambitious 4. People living with average income below $3 per day in relations to 2011 Purchasing Power Parity (PPP). Population Growth. World Bank Data. Retrieved: data.worldbank.org/indicator/SP.POP.GROW?locations=NI 6 A multilateral debt relief program launched by the IMF and World Bank in 1996 to reduce the external debt burden of low-income countries to a more sustainable level and promote implementation of poverty reduction strategy, and other key structural reforms designed to create macroeconomic stability and promote growth. 7 Marcelino, Sandra, and Ivetta Hakobyan (2014). ―Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth‖, p. 3. 5. 6. DOI:10.6814/NCCU202001514.

(17) development agenda with seventeen goals known as the Sustainable Development Goals (SDGs) set to be achieved by 2030. How to realize economic development in Nicaragua is an important issue at the present. To increase competitiveness in a freely open market, it is only after the government policies and the hard work of the people across the country that may drive and reverse the prevailing circumstances faced within the nation. This study hopes to uncover the economic circumstances, social problems, and development analysis of Nicaragua from 2007 to 2020 to better understand the reasons behind the complications to its economic development and analyze potential improvement methods.. 政治大. 立. 1.2. Research Questions and Hypothesis. ‧ 國. 學. To understand the possibility of what Nicaragua really needs for economic development,. ‧. first, it is important to identify the previous economic challenges and obstacles Nicaragua has. y. Nat. sit. interacted with. It is crucial to study the economic circumstances Nicaragua has been through. n. al. er. io. under the tenure of President Daniel Ortega to determine whether or not the economic. i Un. v. development of implementing the market economy was successful. As the scope of the. Ch. engchi. research is broad, the following proposed research question this thesis hope to answer is aimed and focused at the direction of:. 1. Why President Daniel Ortega maintained the free market reforms previously implemented by his political oppositions? 2. Why was Nicaragua unable to overcome its economic status or succeed in terms of achieving an economic development under the Ortega administration?. 7. DOI:10.6814/NCCU202001514.

(18) Initial observations: 1. By retaining an open market, the country is able to benefit from foreign direct investments to boost its economic development, creating job opportunities and productivity. 2. Exploitation of wealthy landowners (domestic and foreign; investors), political leaders, and misfortune of natural disasters might be causes that could explain the economic and environmental challenges in Nicaragua. 3. The lack of preparation from the Sandinistas government in 1979 to overtake and manage the economic activities and the implementation of the agrarian reform after the revolution caused further problems to land security and productivity.. 政治大. 4. Although Nicaragua enjoys a myriad of trade agreements, the byproduct of an open market. 立. made domestic farmers susceptible to market prices and import volumes.. ‧ 國. 學. 5. The challenges of contemporary economic plans in Nicaragua:. ‧. - Agricultural sector, outflow of labor force, unemployment; uneven distribution of resources, foreign aid (external factor, may be agenda driven); health, education,. y. Nat. n. al. er. io. sit. pollution, low wages, women, poor living conditions (urban slums), etc.. Ch. 1.3. Literature Review. engchi. i Un. v. The literature review is sub-divided into three sections. First, the literature examines the market economy and transition to market economy from a socialist economy, which is largely guided by established western countries and organizations. Second, it observes literature that highlights the importance of sustainable development, a feature attached as part of the policy goals requested by the IMF to achieve the MDGs by 2015, which was later updated to achieve the SDGs by 2030. Lastly, it presents the initial challenges Nicaragua faces in its economy, land, and overall development. 8. DOI:10.6814/NCCU202001514.

(19) 1.3.1. The Market Economy Prominent financial institutions such as the IMF and the World Bank supported the Washington Consensus, a set of economic policy recommendations for Latin America set out by John Williamson, a British economist, in 1989 that leaned toward free-market reforms. Williamson (2002) recapped the ten policy reforms that ―Washington believed Latin America (not all countries) ought to be undertaking as of 1989,‖ which includes: fiscal discipline, reordering public expenditure priorities, tax reform, financial liberalization, exchange rate. 政治大 barriers to entry and exit, and property rights. The reforms have been largely regarded as 立. policy, trade liberalization, foreign direct investment, privatization, deregulation as in easing. ‧ 國. 學. orthodox in the OECD countries, where three key ideas are highlighted for economic development: macroeconomic discipline, a market economy, and openness to the world in. ‧. terms of trade and FDI (Williamson, 2002).. sit. y. Nat. n. al. er. io. The transition from a socialist economy to market economy is often guided by the. iv n C U in h ein npower party g c his iusually. international organizations, states, and experts in developed countries of the West (Lavigne, 1999). In socialist countries, the. control of the economy,. therefore, the progress to macro-economic stability by restructuring micro-economic with the help of professionals and international organizations, such as the IMF and the World Bank, are required. The economic transition also describes the process of switching from a ‗centrally planned‘ economy to a market-based allocation of economy, where the adjustment process is carried out through the transformation of the political and economic systems, sometimes relating to social changes that are brought by the change from economic planning to market-based economy (Fingleton et al., 1996).. 9. DOI:10.6814/NCCU202001514.

(20) The structural adjustment and implementation of free market reforms were the process according to which the IMF and the World Bank organization gave loans to underdeveloped countries under specific conditions to be fulfilled in its economy. These conditions were planned and devised by these institutions and were implemented under their supervision and support in order to repay its national debt. Roháč (2013) believes that the transition to a market economy was accompanied by a system of institutional reforms that consist of planned and non-planned characteristics. These programs usually contained methods that include liberalization of trade and economy, privatization of state-owned properties, improvement of the price system by eliminating subsidies or distortions, as well as increase. 政治大. the level of productivity and profitability of public enterprises, and reduce government. 立. expenditures while increase taxes (Doroodian, 1993).. ‧ 國. 學 ‧. Under the transition of market economy, economic performance would improve after substantial macroeconomic adjustment costs were experienced. Through the guidance of. y. Nat. er. io. sit. international organization (Lavigne, 1999), the implementation of the efficiency-enhancing policies would cause significant macro-economic costs, which will make the country need. n. al. Ch. i Un. v. economic assistance from such organization in order to experience economic growth in later. engchi. stages. Once the initial negative impact of the economic transition was absorbed, the economy would recover (Hare and Turley, 2013). For example, according to the macroeconomic patterns of these adjustment processes made by Turley (2013) show that during the first ten years of the transition there would be an increasing amount of capital flows injected into the private sector in relations to its GDP, indicating the need for private investments in a market-based economy.. The inflow of capital is very important for the development of a market economy. World. 10. DOI:10.6814/NCCU202001514.

(21) system theory regards Latin American economies as periphery countries8 that serve part of the capitalist world system, in which labor and resources are being exploited by the industrial system of the world (Ashcroft, 1998). Paired with the formation of a market-based economy, the less developed countries need to become capitalistic in support of increasing productivity (Mendels, 1972). For these countries to develop, the integration of newer technologies is one of the main practices to improve the wealth and the living standard of the people (Wallerstein, 1976). For instance, in rural areas, the use of machinery and factories helps boost the output levels of agricultural goods, which can later be exported at competitive prices in the global market.. 立. 政治大. 1.3.2. Sustainable Development. ‧ 國. 學. According to the Purvis, Mao and Robinson, publications on the awareness of. ‧. sustainability has risen in last two decades, one well-established description in particular. sit. y. Nat. utilizes the concept of three pillars of sustainability (Purvis et al. 2018). The three. er. io. interconnected pillars—social, economic and environmental—have become universally. al. n. iv n C solving the problems of the social andhecological e n g caspects h i Uof a nation to achieve economic known, especially among developing nations, when pursuing for economic growth while. prosperity. The broad concept of sustainable development can be traced back to 1987 by the Brundtland Commission, formerly known as World Commission on Environment and Development (WCED), was to encompass the considerations of development that ―meets the needs of the present without compromising the ability of future generations to meet their own needs.‖9 Decision-makers and policy-makers have to take long-term perspective of setting. 8. Also referred as the periphery in context of world systems theory, which means they are less developed countries that oftentimes are dependent on, or sometimes even exploited by, more developed countries.. 9 Federal Office for Spatial Development. Brundtland Report (1987). Retrieved in March 2018. Available at: https://www.are.admin.ch/are/en/home/sustainable-development/international-cooperation/2030agenda/un-_-mil estones-in-sustainable-development/1987--brundtland-report.html 11. DOI:10.6814/NCCU202001514.

(22) policy goals that permeate into future generations, and account for the value of the environment as well as improving the socioeconomic status of the nation (Pearce et al. 1989).. While there is considerable amount of different and widespread interpretations of sustainable development, for the purpose of this research, the paper will use the definition provided by Pearce et al. (1989), which indicates economic development must guarantee at least the same level of economic opportunities in addition to social and environmental welfare. Moreover, the paper also takes into consideration the perspective of sustainable development provided by Brand (2015) that takes into account the sidelined and the. 政治大. subsistence-based ways of life of small farmers and indigenous peoples since most of. 立. investment as a goal for economic development.. 學. ‧ 國. economic plans in Nicaragua attach an importance to capital inflows, attracting foreign direct. ‧. 1.3.3. Challenges for Nicaragua. sit. y. Nat. er. io. Kolodko (1999) identified that large government were susceptible to create weaker. al. iv n C h e nespecially encourage corruption and judicial instability, g c h i ifUthe profits were privatized while n. institutions in response to the ―processes and […] forces of liberalized markets‖, which could. the negative impacts and ―losses [were] socialized‖. Economic development is challenging when a country materializes its resources from its environment and provides cheap labor to attract foreign investments, especially when all resources are utilized for the development plans in the short-term (Todaro & Smith, 2015). Government should address the use of human capitals, use of natural resources, the environment, and policies in order to shift its goals toward a more sustainable one.. One of the core problems is that the multinational companies, national governments, and. 12. DOI:10.6814/NCCU202001514.

(23) the urban consumers are usually the winners of sustainable development (Brand, 2015). Big businesses often access less developed countries, such as Nicaragua, to exploit its resources in raw material and cheap labor for manufacturing and distribution of export goods (Wallerstein, 1976). Because countries in Latin America follow neocolonial patterns of development that consist of industrialization that usually includes mechanisms in exploiting arable lands, resources, and labor to boost its economy. Therefore, the losers of this model are the ―people who depend on land, forests, and water as their traditional means of livelihood‖, which are usually the poor farmers. But, how can this further be resolved with the engagement of land reform? The idea of development project is to bring positive means. 政治大. of livelihood to the people (Grisby Vergara, 2008), which is by creating a new alternatives. 立. for those living or working in or around the area.. ‧ 國. 學 ‧. Furthermore, Todaro and Smith (2015) emphasize the problems of farmers lacking resources to buy fertilizers to increase output levels since they usually use the lands as. y. Nat. er. io. sit. collateral to moneylenders, banks, or loans to buy the materials and equipment needed to boost production. Therefore, if the strategy fails to incentivize these farmers to increase their. n. al. Ch. i Un. v. production capabilities, especially since in Nicaragua most of the farmers are just the tenants. engchi. of the lands and do not have full ownership, it will further create poverty trap for these farmers that will further create problems of food security should the agricultural productivity decrease. Dethier and Effenberger (2011) stated that agriculture is the main source of income for most people living in the rural areas, with nearly 86 percent of them dependent on agricultural production.. When the farmers decide to produce commercial goods, governments usually support them with subsidies and access to credit that provide fertilizers, equipment, land protection services, and other output-oriented mechanisms to increase productivity via and support the 13. DOI:10.6814/NCCU202001514.

(24) agricultural exports. Schultz (1953) stated that agriculture is crucial for the economic growth in the terms of ensuring subsistence for the nation, while Johnston and Mellor (1961) emphasized on the importance its importance in terms of the provision of raw materials for the industrial sector and food consumption for the nation, which in return can increase the income of the rural population. However, if the cycle of focusing on producing commercial goods is taken, it will create food scarcity problems for the domestic population since no producers are harvesting food for general consumption, which is why most developing countries import mass amount of food, usually from the U.S. or Canada that has great bargaining power to influence the food market when other countries tries to compete. The. 政治大. Food Price Crisis in 2007-08, for example, was created since too many farmers focused on. 立. increasing commercial products for exports rather than food for their own country.. ‧ 國. 學 ‧. As a response, consistent to the theme of solidarity promoted by the Sandinista party in Nicaragua, Adelman (1984) argued that the emphasis of agricultural productivity should be. y. Nat. er. io. sit. focused on the small- and medium- sized farms since they tend to produce goods for the domestic consumption rather than the large-scale producers that uses imported machinery and. n. al. Ch. i Un. v. other output-oriented methods to produce goods for exports. In addition, market liberalization. engchi. actually hurt small farmers the most since they are vulnerable to distortions of prices and failures of the market (Bezemer and Headey, 2008). Not to mention the property rights problems pointed out by Cook and Iliopoulos (2000), reasoning that cooperatives and even individual farmers would feel discouraged to invest their own capital to help boost production amid uncertain land tenure.. Furthermore, with the irreversible trend of globalization, the economic development of the growing global populations and consumption trends in developed economies around the world, according to Klimentov (2018), is expected to be unsustainable for the economic 14. DOI:10.6814/NCCU202001514.

(25) transformation of developing countries. He learned that the renewable resources recycling rate, for instance, in China only has increased by 0.83 percent in span of four years – 21.05 percent in 2015 compared to 20.22 percent in 2011 – while the cost of not recycling each year for the European economy cost about US$121 billion, and that it ―could see a 3.9 percent GDP increase by shifting toward [sustainable] practices.‖10. 1.4. Methodology. 政治大. The research method is primarily qualitative to better understand the impacts of the. 立. economic challenges encountered under the Ortega administration. A qualitative research. ‧ 國. 學. design will be used to determine what theses impacts are, and attributing causes of these impacts with in-depth and exploratory means. The focus will be to analyze the patterns of. ‧. economic development through references with the economic trends, the social and economic. y. Nat. n. al. Ch. engchi. er. io. the agrarian and social reforms, experienced in Nicaragua.. sit. policies implemented by the Nicaraguan government, as well as the political reforms, such as. i Un. v. Several of sources that will be analyzed ranges from secondary sources – government policy reports and laws, trade agreements, academic researches, and media coverage to information and data retrieved from the Central Bank of Nicaragua (BCN), PRONicaragua, INIDE, as well as long established reputable organizations such as the IMF, World Bank, and FAO as references to support the analyses, and among others, speeches, testimonials, and a firsthand information gathered by the author regarding the plans for building the Nicaragua Canal from the Nicaraguan Embassy are utilized to determine and identify the patterns and 10. Klimentov, Mikhail, ―Coming full circle? The state of circular economies around the globe‖, accessed November 29, 2018, https://www.greenbiz.com/article/coming-full-circle-state-circular-economies-around-globe 15. DOI:10.6814/NCCU202001514.

(26) effects of the economic plans and trends – imports and exports, the FDI inflow – of Nicaragua along with a historiographical analysis of past reforms to examine the effects of their implementation to the economy. Specific time periods, such as the post-civil war Sandinistas regime, the transition to democratic regimes, and the Ortega regime will be examined.. As previously stated, the purpose of this thesis is to create a better understanding of the underlying causes of the economic development of Nicaragua. The case study of Nicaragua is a single case study; this allows the researcher to analyze the direct, in-depth characteristics and nature of impacts that the Nicaraguan economy can and have experienced.. 立. 政治大. ‧ 國. 學. 1.5. Research Limitation. ‧. Due to the scope of the recent political turmoil of Nicaragua in 2018, plus the. sit. y. Nat. subsequent effects of COVID-19 pandemic in 2020, the likelihood of uncovering the impacts. er. io. occurring or not occurring within the nation is something that continues to be not disclosed. al. n. iv n C development is h thee main h i U for n g cconsensus. transparently through the media, especially under the long tenure of the Ortega administration. Achieving economic. the people of Nicaragua,. therefore, the research will focus on uncovering the past and present economic trends and challenges that the nation has experienced in order to examine and suggest opportunities and steps toward economic development that should work within the conditions of market liberalization, which encourages competition and cooperation.. 16. DOI:10.6814/NCCU202001514.

(27) Chapter 2 – Economy of Nicaragua.. The purpose of this chapter is to revise the economic trends and indicators of Nicaragua under the Ortega administration. In order to capture the patterns of economic trends created by President Daniel Ortega, it is necessary to interpret the main reasons why he maintained the free market reforms previously pursued by his opposition from the rightwing democratic party in contrast to his more radical, anti-free market rhetoric, and socialist approach in the 1980s.. 2.1. Economic Overview. 立. 政治大. ‧ 國. 學. One of the first economic affairs President Ortega took care of in the beginning of his second term was the assurance to investors and businesses in respect to the private sector that. ‧. the country will remain opened.11 He promised to work for and put the Nicaraguan poor people. y. Nat. io. sit. first, reassuring increased job opportunities, while the lawmakers from the opposition would. n. al. er. ensure that the government is on track with continuation of the free market reforms and the. Ch. i Un. v. promotion of free press. In order to help lift extreme poverty and hunger coupled with the. engchi. attraction of foreign investments, President Ortega required assistance from the IMF, which in turn requested that the government maintain an open market, minimize fiscal expenditures, and promote fiscal transparency for as long as it receives its economic assistance.. When Daniel Ortega was elected president at the end of 2006, an IMF representative paid the transitioning government a visit in December. The meeting discussed the successful macroeconomic stability and economic progress created under the exiting President Bolaños. 11. Ortega wins Nicaraguan presidency. The Guardian Press, November, 8, 2006. Retrieved February 2018. https://www.theguardian.com/world/2006/nov/08/1 17. DOI:10.6814/NCCU202001514.

(28) with the support of the IMF and international community, including the debt relief of MDRI, and further extended to dialogues of reconciliation with the President-elect Ortega. The following statement was officially given by Anoop Singh, Director of the Western Hemisphere Department of the IMF:12 ―President-elect Ortega has emphasized to me his commitment to prudent macroeconomic policies and intensifying poverty reduction. In particular, […] his intention to work with the Fund towards an early new economic program that would entrench stability in Nicaragua, and move ahead with reforms critical for. 政治大. raising investment and sustainable growth, and accelerating employment creation and poverty reduction.‖. 立. ‧ 國. 學. Through the negotiations between President Ortega and the IMF in May and July 2007,. ‧. the government was able to attained debt relief and a medium-term loan through the Poverty Reduction and Growth Facility (PRGF). The Nicaraguan government signed a 3-year deal in. y. Nat. io. sit. October 2007 that approved about $111.3 million to support the anti-poverty programs and. n. al. er. sustain the level of macroeconomic performance. The government was required to retain a. Ch. i Un. v. sustainable amount of public debt through fiscal discipline in order to prioritize on social. engchi. programs and infrastructure. Under the IMF supervision, transparency of fiscal management and spending was essential to strengthen investor confidence and achieve the MDGs that aimed to improve ―access to health, education, water and sanitation, food security, housing and training opportunities for the poorest‖.13. Since the defeat of President Ortega in the 1990 election, U.S. capital inflows to. 12. Press Release: Statement by Anoop Singh, Director of the IMF's Western Hemisphere Department, in Nicaragua. December 20, 2006. https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr06292 13 Press Release: IMF Executive Board Approves US$111.3 Million PRGF Arrangement for Nicaragua. October 5, 2007. https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr07224 18. DOI:10.6814/NCCU202001514.

(29) Nicaragua via foreign investments has risen due to cheap labor and low crime rates. Therefore, the Ortega administration maintained the business-welcoming atmosphere since 2007 and worked to meet the terms of the IMF and the CAFTA-DR agreement to strengthen the overall economic performance.. Table 1. Nicaragua: Selected Economic Indicators from 2007 to 2018. Imports (millions of. Exports Remittances (millions of (millions of. US dollars) US dollars)14 US dollars)15 US dollars) 3,610.6. 739.6. 1,327. 8,254. 政治1,475.3 4,316.7 大. 2008. 3.4. 2009. -3.3. 818.1. 1,498. 8,156. 3,489.0. 1,393.8. 768.4. 1,445. 2010. 4.4. 8,586. 4,173.2. 1,822.1. 2011. 6.3. 9,636. 5,203.7. 2,251.7. 2012. 6.5. 10,508. 5,854.1. 2,671.9. 2013. 4.9. 11,255. 5,656.5. 2,436.2. 2014. 4.8. 11,806. 5,876.5. 2,670.8. 2015. 4.8. 12,693. 2016. 4.6. 13,230. 2017. 4.7. 2018. -3.8. ‧ 國. 立. 1,222.1. 822.8. 1,506. 911.6. 1,630. 1,014.2. 1,735. Nat. y. ‧. 7,316. 學. 5.1. (US$). io. 2007. GDP per capita. n. al. 1,077.7. 1,790. 1,135.8. 1,917. 1,193.4. 2,037. sit. (%). GDP (millions of. er. Year. GDP growth. i 2,421.7n C h5,906.2 U engchi. v. 5,887.2. 2,226.4. 1,264.1. 2,030. 13,814. 6,092.3. 2,548.3. 1,390.8. 2,156. 13,179. 5,199.6. 2,516.9. 1,501.2. 2,022. Source: BCN. Available at: bcn.gob.ni/estadisticas//sector_real/produccion/1-1.htm, bcn.gob.ni/estadisticas/sector_externo/comercio_exterior/importaciones/6-14.htm, and bcn.gob.ni/estadisticas/siec/datos/1a.2.1.04.htm. By the end of 2007, the GDP growth has risen above 5 percent, amounting about US$7.3. 14 15. Does not include the imports made in Free Trade Zones Does not include the exports made in Free Trade Zones. 19. DOI:10.6814/NCCU202001514.

(30) billion (see table 1). The sudden economic boost was due to President Ortega reaching out to join the socialist coalitions of ALBA during his inauguration in January 2007 to cooperate with major partners, such as Venezuela, Cuba, and Iran, on the development schemes and establish economic relations that would attract more financial and investment opportunities to improve the infrastructure of the energy and agricultural sectors of Nicaragua.. In 2008, the IMF granted an additional US$10 million16 in financial support via the PRGF to offset the negative effects of the Category 5 status Hurricane Felix in September 2007, estimating a total amount of about US$716 million in damages,17 where FAO evaluated more. 政治大. than US$46.7 million in damages to the agricultural sector.18 By the end of 2008, GDP growth. 立. maintained a positive growth of 3.4 percent. Nevertheless, due the state of recovery from the. ‧ 國. 學. natural disaster plus the external factor of the global financial crisis in 2008, the GDP growth. ‧. rate in 2009 contracted by minus 3.3 percent, entering its first recession in which exports also declined due to lower demands of the international market. By late 2009, the Nicaraguan. y. Nat. n. al. er. io. sit. government had about US$37.9 million from the PRGF to distribute over the course of 2010.. Ch. i Un. v. In early 2010, from February to March, the Nicaraguan government would enter another. engchi. round of negotiations with the IMF to discuss for an extension of the 3-year PRGF arrangement signed in 2007. The deal was revised and would replace the original PRGF by the Extended Credit Facility (ECF) to promote longer-term reforms. In November, the IMF approved the extension of the ECF to December 2011 with an immediate disbursement of US$8.95 million. 16. Press Release: IMF Executive Board Completes First Review Under Nicaragua's PRGF Arrangement and Approves Increase in Financial Support by US$10 million. September 11, 2008. Retrieved May 2018. https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr08204 17 Hurricane finished plunging them into poverty. January 29, 2008. Retrieved February 2018. https://web.archive.org/web/20090122094329/http://impreso.elnuevodiario.com.ni/2007/01/29/especiales/84368 18 Assessment of Damage Caused by Hurricane Felix in the Caribbean of Nicaragua. FAO. 2007. Retrieved July 2018. http://www.fao.org/fileadmin/templates/tc/tce/pdf/Nicaragua_FAO_Evaluacion_2007.pdf 20. DOI:10.6814/NCCU202001514.

(31) to continue to support the strong consumption and investment levels in Nicaragua,19 which is reflected on its GDP growth of 4.4 percent in 2010. In the following years, the IMF would continue to oversee its economic activities, stating that the outlook for 2011 and subsequent years were ―favorable‖ and ―generally positive‖, indicated on its increased average of GDP growth from 2011 to 2017 by 5.2 percent, the highest compared to its neighboring countries.. In the past five years, the share of economic sectors in the GDP of Nicaragua has shifted toward the service sector. Regarding 2015, agriculture accounted for 18.8 percent of the GDP, industry accounted for 26.9 percent, and services for 54.3 percent (see table 2). As of 2018,. 政治大. agriculture sector dropped to 16.9 percent and industry 23.8 percent while the service sector. 立. grew to 59.3 percent. Services provided to the foreign investments, working on the agricultural. ‧ 國. 學. products and livestock products at exporting industries in or out the free trade zones continued to grow as the manufacturing sector also supported the momentum of economic growth in the. ‧. service sector of Nicaragua.. n. Year. Ch. er. io. al. sit. y. Nat Table 2. Economic Sectors (% of GDP) from 2008 to 2018.. i Un. v. Sector (% of GDP). engchi. Agriculture. Industry. Manufacturing. Service. 2008. 19.5. 28.1. 16.9. 52.4. 2009. 19.2. 29.3. 21.7. 51.5. 2010. 20.8. 26.9. 24.3. 52.3. 2011. 23.1. 28.4. 24.5. 48.5. 2012. 21.9. 29.4. 24.3. 48.7. 19. Press Release: IMF Executive Board Completes Sixth Review of Nicaragua‘s Extended Credit Facility and approves US$8.95 Million Disbursement. April 27, 2011. Retrieved May 2018. https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr11148 21. DOI:10.6814/NCCU202001514.

(32) 2013. 22.9. 26.9. 25.6. 50.2. 2014. 22.6. 28.3. 16.9. 49.1. 2015. 18.8. 26.9. 14.7. 54.3. 2016. 17.3. 26.8. 15.0. 55.9. 2017. 17.2. 26.2. 15.2. 56.6. 2018. 16.9. 23.8. 15.6. 59.3. Source: BCN. Available at: taitraesource.com/total01.asp. However, due to the social and economic crisis that broke out in 2018, the economy was. 政治大. down and service industry declined. The Nicaraguan service sector accounted for about 60. 立. percent of the GDP, employing more than half of its working population, has dropped in 2019. ‧ 國. 學. to about 50 percent in the preliminary data (World Bank).20 Its recovery is very important for. ‧. medium and long-term economic growth of Nicaragua since the main contributors in services are in traditional activities, such as tourism, personal, social and business services, government. y. Nat. io. sit. services and transport and telecommunication,21 in addition to the growing services in the. n. al. er. financial sector.22 Moreover, due to the recent COVID-19 pandemic in 2020, the economy of. Ch. i Un. v. Nicaragua would suffer a recession on all aspects, not just mainly the services, but supply. engchi. chains of imports and exports as well as the participation of the labor force.. Nicaragua has established production traditionally based on agriculture, forestry, fishery and animal, whereas the domestic development of industry and services are foreign-owned and labor intensive. The domestic job opportunities paid low wages, thus the labor force immigrate. 20. Retrieved in May 2020. data.worldbank.org/indicator/NV.SRV.TOTL.ZS?locations=NI&view=chart Services Policy Review. UN Conference on Trade and Development (UNCTAD), 2013. Retrieved March 2020. http://unctad.org/en/PublicationsLibrary/ditctncd2013d13_en.pdf 22 Financial Services: Business Potential in Central America. Central America Data. June 25, 2020. https://www.centralamericadata.com/en/article/home/Financial_Services_Business_Potential_in_Central_Ameri ca 21. 22. DOI:10.6814/NCCU202001514.

(33) to neighboring countries to earn remittances. In 2007, during President Ortega‘s second term, the remittances to Nicaragua from foreign countries were US$739.6 million, and by 2012 during his third term, that numbers increased by 37 percent, breaking the billion dollar mark to US$1.01 billion (see table 1). In the following years, the remittances to Nicaragua continued to grow, and in 2018 the total remittances to Nicaragua reached US$1.5 billion. For instance, most of labor force chose to work in Costa Rica at low-skilled occupations and sectors that paid better than the national wages, such as construction, domestic services and agriculture – 60 percent of coffee pickers were identified as immigrants in Costa Rica (OECD, 2018).. 政治大. It was estimated that about 20 percent of Nicaraguans worked abroad to earn remittances. 立. to support their families. In 2019, the tax reforms were implemented instead of adjusting the. ‧ 國. 學. minimum wages of workers to maintain foreign investments, reducing employment between. ‧. 30 to 35 percent in the industrial sector, stated by Sergio Maltez, president of the Chamber of Industries of Nicaragua in July.23 The Nicaraguan government passed Law 987 on February. y. Nat. n. al. er. io. sit. 28, 2019 as a reform to the tax Law 822,24 which included the following but not limited to:25. 1). i Un. v. Increase personal income tax to the withholding rate of board of directors and. Ch. engchi. similar head positions from the original 12.5 percent to 25 percent, while local workers have retained at 12.5 percent and non-residents at 20 percent. 2). Cooperatives with annual gross income larger than $60 million córdobas (US$1.73 million), originally $40 million córdobas (US$1.15 million), must pay an increased. 23. Tax reform reduces industrial employment by 30 percent. El Nuevo Diario. July, 4, 2019. Retrieved March 2020. https://www.elnuevodiario.com.ni/economia/495628-reforma-fiscal-desempleo-nicaragua/ 24 Law 822, also known as Tax Concertation Law, was approved in January 2013 to expand export incentives and encourage agricultural production in rural areas. For instance, a deduction of income tax equivalent to 1.5 percent of its export value for the first to six years for the newly established and existing exporter, exemption of Value Added Tax and Selective Consumption Tax, transfers of raw materials, intermediate goods, capital goods, spares, parts and accessories for machinery and equipment to agricultural producers. Information retrieved from PRONicaragua (2019), Investor Guideline, p. 48. 25 Main changes to the Income Tax in Nicaragua. García & Bodán (Attorneys and Counselors at Law). March 30, 2019. Available at: https://garciabodan.com/en/main-changes-to-the-income-tax-in-nicaragua/ 23. DOI:10.6814/NCCU202001514.

(34) annual income tax from the original 1 percent to 3 percent, while the fishing sectors in the Caribbean and main taxpaying contributors increased from 1 percent to 2 percent. 3). 10 percent deduction of income from foreign financial institutions, and increase resident and non-resident income and capital gains, including trusts, from 10 percent to 15 percent, while increasing the withholding to tax havens 26 from 17 percent to 30 percent.. 政治大. The implementation of the new tax reform hoped to counter the budget deficits of about. 立. US$300 million the government was facing in order to maintain fiscal stability. 27 The. ‧ 國. 學. Superior Council for Private Enterprise (COSEP), the main business chamber that represents the private institutions in Nicaragua, has criticized greatly the government‘s enforcement of. ‧. the new tax law, stating that the new tax law will seriously hurt the operation and production. y. Nat. sit. of the enterprises, especially when the new tax law increases the minimum income tax. n. al. er. io. calculated based on revenue, which may exceed the actual profits of the enterprises.. Ch. engchi. i Un. v. In response the incident, the government decided to increase the wages by 8.25 percent for the workers in the free zone areas on January 1, 2020, and adjust the minimum wage of other sectors by 2.63 percent starting March 1, 2020 (see table 3). However, with the prices rising year by year and the inflation index increasing as well, the conversion of Nicaraguan currency into U.S. dollars is still not much lower than the minimum wage level of 2018. In comparison to the similar wage adjustment the government ratified on January 1, 2018 for workers in free zone industries, an increase of 8.25 percent was provided much like the updated one in the year. 26 27. Financial technique that allows businesses and organizations to pay less tax compared to their nation. Department of Investment Services (2019). ―Investment Guide to Nicaragua‖, pp. 34-36. 24. DOI:10.6814/NCCU202001514.

(35) 2020. La Prensa, the local daily newspaper, reported that the minimum wage was 5,044.7 córdobas (about US$180) prior the adjustment and increased to 5,460.9 córdobas (about US$190) thereafter,28 which has not increased much in comparison to the new monthly salary of 6,399.07 córdobas when converted into US$188.50 in 2020.. Table 3. Nicaragua: Minimum Wage Adjustment in 2020. Wage Adjustment (%). New monthly salary (approximate in U.S. dollars). 2.63%. US$ 126.30. Agriculture Fishing Mining and quarrying. 立. Micro and Small National Handicraft and Tourism Industry. 2.63%. US$ 188.50 US$ 135.00. y. Nat. 2.63%. US$ 232.50. n. er. io. Construction, Financial Establishments and Insurance. US$ 170.00. ‧. 8.25%. al. US$ 227.50. 學. Free Zone Industries. Electricity and Water; Commerce, Restaurants and Hotels; Transportation, Storage and Communications. US$ 192.00. 2.63%. ‧ 國. Manufacturing Industry. 2.63% 政治大 2.63%. sit. Economic sector. Ch. e n2.63% gchi. i Un. v. US$ 283.10. Community, social and personal services. 2.63%. US$ 177.00. Central and Municipal Government. 2.63%. US$ 157.50. Source: JD Supra. Available at: jdsupra.com/legalnews/nicaragua-increase-in-minimum-wage -for-75132/. According to the national income per capita, the per capita gross national income. 28. Nicaragua: 8.25% Increase in Wages in Free Zones. June 8, 2017. Retrieved March 2019. https://www.centralamericadata.com/en/article/home/Nicaragua_825_Increase_in_Wages_in_Free_Zones 25. DOI:10.6814/NCCU202001514.

(36) provided by the World Bank measures a country‘s most recent and updated version of the annual income divided by the value of the population, reflecting the average income of a citizen within the country. To understand the current economic strength and needs of a country, the data of World Bank will be used here to better understand the standard of living of the citizens of Nicaragua, starting from the third term of President Ortega. The per capita gross national income of a country is closely related to social, economic and environmental indicators. People living in countries with lower gross national income per capita tend to have shorter life span, access to sufficient food and safe drinking water, low literacy, low medical standards, and high infant mortality rates.. 立. 政治大. 2012. 2013. 2014. 2015. 2016. 2017. 2018. 2019. 1760. 1812. 1934. 2050. 2108. 2159. 2021. 1913. ‧. GDP per capita (US$). 學. Year. ‧ 國. Table 4. GDP per capita (based current US$)29. Retrieved from World Bank. Available at: data.worldbank.org/indicator/NY.GDP.PCAP.. n. al. er. io. sit. y. Nat. CD?locations=NI. i Un. v. In reference to the World Bank data, the per capita income was about US$2,159 in 2017. Ch. engchi. (see table 4), which was a substantial increase of above 62.7 percent compared to the US$1,327 in 2007 (see table 1). In 2018, because of the political and economic crisis, the per capita income dropped to US$2,021 and continued declining in 2019 to US$1,913, which is lower than the income of US$2,159 in prior the crisis in 2017. The World Bank ranked Nicaragua at 142 out of 190 economies in doing businesses for 2020.30 That would mean that about 42 percent of the population earns less than US$1.25 a day, where the unemployment rate is about 6.8 percent in 2019, which is higher than the 3.3 percent in 2017 (World Bank). 29. Based on 2020 US$ currency. Retrieved in June 2020. Doing Businesses 2020. World Bank Group. http://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Busi ness-Regulation-in-190-Economies.pdf 30. 26. DOI:10.6814/NCCU202001514.

(37) The IMF stated that in 2010, the FDI coming from the United States, Mexico, Venezuela, Canada, and Spain grew to US$1.56 billion in 2010 from US$335.7 million in 2007 (IMF, 2011). Furthermore, the total FDI attracted during the period 2007-2010 combined was US$1.95 billion higher in comparison to the period 2002-2006 that brought in US$720 million.31 The economy of Nicaragua has experienced positive growths for eight consecutive years, which is reflected on its average annual economic growth rate of more than 5.1 percent from 2010 to 2017 (see figure 2).. 政治大. Figure 2. GDP Growth and FDI inflow from 2007 to 2018.. 立. 12. ‧ 國. 學. 10. 8 6. ‧. 4 2. y. Nat. -6. er. al. iv n C 2007 2008 2009 2011 2012 U 2013 2014 2015 2016 2017 2018 h e2010 i h n c g 5.08 3.44 -3.29 4.41 6.32 6.5 4.93 4.79 4.79 4.56 4.63 -3.95 n. -4. io. -2. sit. 0. GDP growth (%) FDI, net inflows % 5.14 7.38 5.23 5.59 9.58 7.29 7.42 7.44 7.45 6.76 5.6 2.75 Source: World Bank.. In 2012, the GDP growth rate rose slightly from 6.32 percent in 2011 to 6.5 percent due to the result of the presidential elections and new promises made for economic expansions by President Ortega. In 2015, the net inflows of FDI in Nicaragua reached its peak of about US$950 million, accounting for 7.45 percent of its GDP. The average GDP growth from 2013 to 2017 sustained a positive growth of above 4.5 percent, making it the most consistent and the 31. ibid. 27. DOI:10.6814/NCCU202001514.

(38) second only to Panama in Central America. However, due to the socio-political outbreak in 2018, the economy experienced a reduction in GDP with an economic recession of minus 3.8 percent that amounted US$13.2 billion.. The main industries in the manufacturing sector was dominated by the food processing industry, accounting for about 20 percent of GDP and 35 percent of total exports. Agricultural output value accounted for about 20 percent of GDP while agricultural related products exports accounted for about 60 percent of total exports. Among the bulk, meat and refined sugar products are the highest. The Nicaraguan government adjusted its trade policy to create. 政治大. conditions that encourage diversification of export production in addition to its already. 立. established traditional exports like coffee and cash crops. It facilitated access of existing. ‧ 國. 學. markets and new markets, and pursued free trade agreements with large trading partners in. ‧. the international arena to keep reaping the benefits from the free market reforms. For instance, the government eased the relocation for textile and garment facilities in free zones and. y. Nat. io. sit. continued the CAFTA-DR free trade agreement with the U.S. to incentivize foreign. n. al. er. investments to increase exports and help create jobs in Nicaragua.32. Ch. engchi. i Un. v. Table 5. Top Product Export (% share of total export) in 2018 and Total Export (in US$) to the World in relations to the progress made from year 2006 to 2013. Year. 2006. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2018. Consumer goods. 12.90. 16.81. 38.10. 18.58. 15.64. 13.86. 45.60. 50.67. 52.84. Raw Materials. 64.60. 55.41. 32.42. 54.39. 53.57. 54.82. 33.66. 29.15. 30.17. Textiles and clothing. 0.75. 0.30. 22.37. 0.15. 0.12. 0.11. 25.66. 28.52. 29.11. Animal. 26.14. 35.10. 18.16. 35.58. 33.16. 32.57. 18.96. 19.04. 18.91. Product. 32. Miller (2016). Sustainable Ecotourism in Central America, pp. 31-32. 28. DOI:10.6814/NCCU202001514.

(39) Intermediate. 21.27. 26.62. 16.50. 25.77. 29.98. 30.47. 20.26. 19.70. 16.12. Vegetable. 39.21. 30.14. 20.77. 31.85. 30.44. 30.32. 19.88. 14.84. 15.98. Total Export (U.S. dollars)33. $759 Mil.. $1.19 Bil.. $2.54 Bil.. $1.39 Bil.. $1.85 Bil.. $2.28 Bil. $4.55 Bil.. $4.59 Bil.. $5.01 Bil.. goods. Source: World Bank.. As a result, textiles and clothing grew from a share in exports of 0.3 percent in 2007 to a 22.37 percent in 2008 (see table 5). The exports of such goods plummeted in 2009 due to the global financial crisis, the Nicaraguan Association of Textile and Apparel Industry (ANITEC). 政治大. calculated that approximately 19,000 jobs were lost in the textile clothing sector of the free. 立. zones.34 The sector later recovered in 2012, improving its percent of exports share to the. ‧ 國. 學. world from 2012 to 2018 to an average of 27.97 percent due to expanding its exports to neighboring countries in Central America, such as Honduras and Mexico, effectively. ‧. establishing it as one of the top exports among consumer goods and raw materials, despite. y. Nat. sit. having to cope with the absence of the Tariff Preference Level (TPL) extension that came. n. al. er. io. with the CAFTA-DR from 2013 to 2024, which allowed certain clothing and apparels made. i Un. v. and assembled in Nicaragua to enter the U.S. market duty free.35. Ch. engchi. 2.2. Demographic dividend. In regards to the population of Nicaragua, according to the OECD Economic Surveys of Costa Rica published on April 2018, it indicated that the labor productivity of Central America. 33. Exports made included in Free Trade Zones. Portocarrero (2010). The Textile and Clothing Sector and Sustainable Development in Nicaragua, p.18. 35 ―CAFTA-DR: Nicaragua TPL.‖ USFIA - United States Fashion Industry Association, 18 June 2013, available at: https://usfashionindustry.com/policy/global-trade/cafta-dr-a-nicaragua-tpl 34. 29. DOI:10.6814/NCCU202001514.

(40) was lower than the average level of the entire Latin America.36 The proportion of working age population from 15 to 65 in relation to the total population has risen. INIDE estimated that Nicaragua has about 42 percent of people under 20 years old, 19 percent from 20 to 29, 15 percent from 30 to 39, 10 percent from 40 to 49, 7 percent from 50 to 59, and finally, 7 percent of people over 60 years old in accordance with the total population (see figure 3).37. Figure 3. Population of Nicaragua by age group 7%: over 60 yr 7%: 50 to 59 yr. 15%: 30 to 39 yr. 學. ‧ 國. 立. 政治大10%: 40 to 49 yr 19%: 20 to 29 yr. y. ‧. Nat. n. er. io. al. sit. 42%: 0 to 19 yr. Ch. engchi. i Un. v. Source: INIDE. Available at: http://www.codeni.org.ni/datos-socio-demograficos/demografia/ poblacion-por-sexo-grupos-de-edades-y-edades-simples/. The statistics indicated a demographic dividend, which means that there are shifts in the age of population structure where the working age population turned out to be larger than the non-working age population that may result in a potential increase of economic growth in. 36. Costa Rica, Overview. April 2018. Retrieved May 2019. http://www.oecd.org/economy/surveys/Costa-Rica-2018-OECD-economic-survey-overview.pdf 37 Population by sex and age groups. Federación Coordinadora Nicaragüense (CODENI). Retrieved March 2020.http://www.codeni.org.ni/datos-socio-demograficos/demografia/poblacion-por-sexo-grupos-de-edades-y-e dades-simples/ 30. DOI:10.6814/NCCU202001514.

(41) terms of productivity, as defined by the United Nations Population Fund. This signifies that the foreign investments in Nicaragua are able to utilize the young labor force, about 42 percent of workers under 20 years old plus 34 percent of workers from 20 to 39 years old, yielding about 4.97 million people under age of 39 eligible to work in the service sector and manufacturing sector if calculated from the total population of 6.546 million people38 in Nicaragua (see table in appendix A for more detailed numbers).. Juan Sebastian Chamorro, a representative of the private sector in the national dialogue for Nicaragua and chief executive of the Nicaraguan Foundation for Economic and Social. 政治大. Development (FUNIDES), a think tank related with the private sector, stated that political. 立. policies should make good use of the demographic dividend during the demographic. ‧ 國. 學. transitional stages. It is necessary to draw on the relevant experience of other countries to. ‧. formulate policies, such as improve the level of education, improve the professional occupations of the labor force, provide vocational and technical training, and make full use of. y. Nat. n. al. er. io. sit. the human resources in Nicaragua to accelerate economic growth.. Ch. i Un. v. In order to improve the economic well-being of the people of Nicaragua, the increase of. engchi. total income and consumption capacity of the labor force, the establishment of pensions and health insurance should also be prepared immediately. The Nicaraguan government could refer to its neighboring countries facing similar demographic changes to adjust its social services, labor and national health insurance, and other needs, so as not to cause greater financial stress and social pressure that has been demonstrated throughout prolonged sociopolitical crisis that has started since 2018, where mostly students protest against the pension reform that reduced payments to retirees and increased social contributions of workers.. 38. Estimates calculated in reference to the data from World Bank. Retrieved in June 2020. 31. DOI:10.6814/NCCU202001514.