Caribbean & Central America - May 2023

Nicaragua has been bolstering relations with Russia and China as the US has imposed multiple rounds of sanctions, citing ongoing human rights abuses taking place under the government led by President Daniel Ortega. However, it remains unclear whether these deepening alliances would be able to compensate for a complete cessation in relations with Washington, which remains Nicaragua’s largest trading partner.

Nicaragua has become increasingly isolated from the US and its allies since President Ortega deepened the country’s authoritarian shift by brutally repressing mass protests in 2018 – a situation which has intensified following the November 2021 general elections, which produced a re-election victory for Ortega in a contest widely slammed as fraudulent. His government has sought closer ties with Russia and China since.

In recent months, there have been a number of developments that have indicated this tendency, including a visit from Russia’s foreign minister, Sergei Lavrov, in April. At the time, Lavrov hailed the establishment of “important agreements in areas such as education, transport, agriculture and health,” as well as the development of cooperation regarding “supplies of Russian cars, fertilisers, and food” and “the implementation of transport infrastructure projects”. This followed a visit by Nicaragua’s foreign minister, Denis Moncada, to Moscow in March, during which the two countries signed an agreement to develop the use of atomic energy for peaceful purposes.

At the same time, Nicaragua has been moving closer to China. The two countries established diplomatic relations in December 2021 after Nicaragua cut ties with Taiwan, and one of the first concrete agreements with Beijing to have emerged since the switch in allegiance is for more than US$60m in funding for the housing sector. In April, the first stage of the ‘Nuevas Victorias’ housing project was launched, with 920 homes in Managua. As a whole, the project envisages more than 12,000 houses in dozens of municipalities around the country.

Other developments include plans to rehabilitate a power plant, as well as negotiations over a free trade agreement, which Nicaraguan officials hope could be finalised by the end of 2024. The country is also seeing increasing involvement of Chinese telecommunications technology from firms such as Huawei which opened a Huawei Academy in collaboration with Universidad Nacional Autónoma de Nicaragua (UNAN-Managua) in October 2021.

Nicaragua has also signed memoranda of understanding with Chinese firms related to infrastructure projects, and leaked US intelligence documents released in April revealed negotiations over a deep-water port in Bluefields, the capital of the South Atlantic autonomous region (RAAS), in the southeast of the country. According to these leaked documents, Nicaragua “still views Russia — also interested in Bluefields — as its primary security partner,” but it has also expanded ties with China since Russia invaded Ukraine in February 2022.

These moves come as ties with the US and its allies have deteriorated in recent years. For example, in November 2021, Nicaragua announced its withdrawal from the Organization of American States, a Washington-based regional bloc, and it refused to accept a new US ambassador to the country. It also declared the European Union’s ambassador persona non grata in September 2022, and rejected a proposed replacement in April. Managua has also cut diplomatic ties with the Netherlands and shut down hundreds of foreign (and national) NGOs.

During this time Washington has imposed multiple rounds of sanctions on Ortega, First Lady and Vice President Rosario Murillo, and high-ranking officials, as well as most recently on the country’s police force. In October 2022, the White House explicitly cited “increasing security cooperation with Russia” in a statement announcing “targeted pressure” on the Nicaraguan government, including new powers to impose future restrictions on trade, as well as investment in certain sectors of the Nicaraguan economy. This included Nicaragua’s lucrative gold sector [EB-22-11]. There have also been increasing bipartisan efforts from US lawmakers to pressure the Central American development bank (BCIE) to stop lending to Managua.

• BCIE

In March US Representative Michael McCaul (R-TX) and Senator Bob Menendez (D-NJ) sent bipartisan letters to the presidents of Costa Rica, El Salvador, Guatemala, and Honduras urging them to leverage their position in BCIE to stop its development funding from “propping up the Nicaraguan regime”. BCIE has approved nearly US$3.5bn in funding for initiatives to be implemented under the Ortega government, according to the letter which notes that in recent years the US has taken steps to “increase the scrutiny of and curtail funding from multilateral institutions that would directly benefit” the Ortega government. It highlights the Renacer Act (approved by the US legislature in November 2021) under which the US government has taken steps to ensure that any such multilateral funding only passes through entities with “full technical, administrative, and financial independence” from the Ortega government.

Interestingly though, the US remains Nicaragua’s largest trading partner, the source of just over a quarter of Nicaragua’s imports and the destination of nearly half of the country’s exports according to central bank (BCN) figures. In addition, Nicaraguan imports from the US increased from US$1.76bn in 2021 to US$2.19bn in 2022, and Nicaraguan exports to the US increased from US$1.75bn to US$1.8bn for the same period, according to the BCN.

As a result, the US wields huge influence over the fate of the Nicaraguan economy, and commercial relations with both Russia and China pale in comparison. For example, Nicaraguan exports to Russia and China totalled just US$4.2m and US$12m in 2022 respectively. As for imports, Nicaragua received US$84m worth of goods from Russia and US$1.07bn from China.

As things stand, the outlook for Nicaragua is mixed. In late April, the United Nations Economic Commission for Latin America & the Caribbean (Eclac) projected that Nicaragua’s GDP will grow 2.3% in 2023, below the 3.1% average for Central America. This follows 3.8% growth in 2022, according to the BCN, following on from 10.3% growth in 2021. This suggests that the country has weathered the economic storm of the 2018 political crisis, as well as hurricanes Eta and Iota and the coronavirus (Covid-19) pandemic in 2020, which saw significant contractions of -3.4% of GDP in 2018, -2.9% in 2019, and -1.8% in 2020.

However, remittances are playing an increasingly important role in sustaining the economy, totalling US$330.6m in February, a 63.5% increase compared to the same period last year, with a record number of Nicaraguans seeking to enter the US last year. Herein may lie one explanation why Washington hasn’t taken firmer action to strangle the Nicaraguan economy: doing so would likely encourage far more people to make the journey north, adding to a complicated domestic political situation for President Joe Biden. 

As for Nicaragua’s willingness to risk trade relations with the US, Ortega appears to be betting on the development of a multipolar world in which he can hold on to power with the support of Washington’s geopolitical rivals. At the end of April his son, Laureano, a presidential advisor on investment, spoke about the end of the “dictatorship of the dollar” and the start of a new world order. While Ortega may hope that those who have pointed to the dollar’s declining share of global currency reserves as evidence of its dwindling influence are proved correct, it appears that for the moment Washington retains the power to plunge the country’s economy into crisis if it sees fit.