Following the peace agreement which ended the Nicaraguan Civil war in the late 1980s, Nicaragua, with pressure from internal and external actors, opened up to the international community by adjusting to new policies of Neoliberal free-market economics, promoting tourism as its leading development industry. These policies were aimed at addressing wealth inequality and poverty, two of Nicaragua’s largest development problems, through economic gain. Despite initial economic and social progress, these policies have not adequately addressed the problems Nicaragua is currently facing. Although indicators of progress do exist, restructuring current policies, along with creating additional policies, is necessary for successful development.

Introduction: A Country under Change

Recently I spent a number of weeks with a family in San Juan del Sur, a small coastal village in Southwestern Nicaragua (see figure one) which has recently come under a barrage of tourists and international investment, due to the 1990 change in economic policy which opened up Nicaragua to the international community. Since the Civil War ended in the late 1980s Nicaragua has adjusted to the new terms of a neoliberal economy by turning to tourism development as a leading industry (Babb). I couldn’t help but notice as I traveled throughout the country that the effects this change in government policy had are now profoundly evident; rented SUVs crowd pothole-dented roads alongside horse-drawn carts; pristine tourist accommodations tower over nearby shanties, and international tourists, unbelievably rich through the eyes of locals, invest in land and purchase local commodities at a growing rate. As I witnessed generation, technology, and wealth gaps collide, interact and communicate, one thing was clear; Nicaragua is changing at a profound pace.

“War, natural disaster, and foreign interference have shaped Nicaragua’s history” (Nielsen). In 1522 Spaniards arrived on the Eastern coast of Nicaragua to find a relatively prosperous, subsistence-based society which they quickly colonized. Since Nicaragua’s independence in 1838, the country has been under the influence of another world power, the United States which currently provides $471 million in economic aid per year to the country (The World Factbook). An enormous earthquake in 1972, which leveled an estimated 75% of the capital Managua, left the country in shambles. A Marxist-Leninists organization dubbed the Frente Sandinista de Libeeracion Nacional (FSLN), or better known as the “Sandinistas,” gained support in the late 1970s due to the general dissatisfaction with the current economic policies and social situation. In fear of a Soviet presence in the Americas, the Reagan Administration armed counter-revolutionaries, the “Contras,” and placed economic embargoes on the Sandinistas resulting in an incredible inflation rise of 13,500%. A cease fire in 1988 sponsored by Costa Rica returned relative peace to the region (Nielson).

Since the Sandinistas lost the democratic elections in 1990 there has been a program of neoliberal free-market development (Babb), emphasizing opening up tourism and international investment (IMF Country Report) so that Nicaragua can address its development needs, the primary of which are extreme wealth inequality and poverty. In a country where “the wealthiest 10% of the population receive 45% of the total income of the country, while the poorest 40% receive only 10%” (Rios-Morales) poverty alienation and equality increases are a priority. Can tourism, which many view as the “potential goldmine for Nicaragua” (Weaver, et al), along with economic gain promoted via the free market, benefit local populations, increase social well-being, promote equality, and function as the driving force behind development? Or should the Nicaraguan government and other international actors diversify and rely less on tourism for development? Are tourism, international investment, and a neo-liberal economy the best answer to Nicaragua’s development needs?

Methods: Inquiry, Research and Assessment

In visiting Nicaragua, where I spent significant time in the San Juan del Sur region, as well as taking trips North to Rivas, Managua and Jinotega, the extreme differences in wealth struck me profoundly. I was amazed at how prosperous some areas were in San Juan del Sur; for example the Pelican Eyes resort overlooking the bay has a nicely paved entrance, armed guards, multiple fine restaurants, pools and flat screen televisions, compared to how poor others were where large families housed throngs of shoeless children in dirt huts. The Nicaraguans, or “Nicas” as they are commonly called, were friendly and welcoming; I used this opportunity to ask children in various areas about school, what activities they do for fun, and what life was like for them. All the children I asked attended school, and the people I talked to seemed content with their lives, but despite this fact I couldn’t help but noticed some Nicas seemed healthier and happier than others.

Those with whom I spent the most time, locals integrated into Christopher Robertson’s community development project “Finca las Nubes” (FLN), which means “Farm in the Clouds,” seemed more prosperous than many others I met. Tourism in Nicaragua has risen 300% since 1994, making it Nicaragua’s top source of income (Nielsen). Since tourism has been identified by the Insituto Nicaraguense de Turismo (INTUR), the government’s tourism office, as the main component of Nicaraguan economic development (Babb), I couldn’t help but wonder, after experiencing first hand the effects of the free-market, driven by tourism, what economic development and international tourism would bring to those in need throughout Nicaragua, especially in San Juan del Sur, one of “Nicaragua’s most popular beach towns” (Rogers).

I have often heard people say that Nicaragua looks now as Costa Rica looked 20 to 30 years ago; new to the free-market, open to international investment and an object of interest to the outside world. Upon my return I wanted to look at the effects of tourism in Costa Rica, research the government’s new policies and their effects in Nicaragua, and then critically assess if tourism and a neo-liberal economy could potentially help those I met and saw during my stay in Nicaragua. I interviewed Dr. Galen R. Martin, an International Studies and Environmental Studies professor at the University of Oregon, who has spent extensive time doing field work in the Cahuita region of Costa Rica, to learn more about the effects tourism has on local communities. Not surprisingly I learned that tourism has created problems along with its benefits. According to Dr. Martin tourism has brought in revenue, but due to the way it’s been handled, it has reinforced inequalities and created divides within Costa Rica as locals become dependant, competing between one another for tourist dollars (Martin).

The fostering of dependencies is rarely viewed as progress in terms of development and I wanted to see if tourism and international investment in San Juan del Sur were experiencing similar effects. In a phone interview conducted with Christopher Robertson, a developer who has spent his last 10 years in Nicaragua conducting community-based projects such as “Finca las Nubes,” which looks to “create a sustainable lifestyle through partnership with the local community,” and “Finca Java,” an ecologically responsible, organic coffee farm (Robertson), I found similar results. Since the San Juan del Sur region is so dependent on international tourism to support local business, the failing world economy (Robertson) has hindered development and tourism in San Juan del Sur. This has adversely limited poverty alienation, basic infrastructure development such as the creation of roads and access to sanitary water sources.

In addition, in an article written by Eduardo Soto I learned that the new development model in Chile, which started in 1973 and was based on neoliberal ideas, also created increased levels of monopoly and a greater level of dependence in the Bio-Bio region of Chile (Soto). If indeed tourism and the free-market have created dependencies in first Costa Rica and Chile, and now are doing so in Nicaragua, then perhaps the notion of development, which is supposed to be about people (Escobar), needs to be reassessed. Development, which has traditionally meant economic gain, should incorporate social development and the human element as well. Granted there is a strong connection between economic gain and human development, for example increased earning (economic gain) are proven to be associated with increased education opportunities (an important aspect of human development), but “policy reforms which focus on only economic growth are unlikely to succeed” (Ranis and Francis).

The United Nations Development Programme (UNDP), ranked Nicaragua’s Human Development Index (HDI) as 110th out of 177 in 2007 (Human Development Reports). The HDI is a more accurate measurement of development than the GDP because it takes into account social factors rather than just economic factors. In providing a composite measure of “three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrollment at the primary, secondary and tertiary level) and having a decent standard of living (by measured by purchasing power parity and income)” (Human Development Reports), the HDI more adequately defines and address development in Nicaragua. However, in comparing the UNDP’s human development reports I found that Nicaragua, which is ranked low in the HDI measurements, produces very low levels of carbon dioxide (CO2) and other greenhouse gases (GHGs), just an average of 0.7 tons per person. Compare this to the United States which ranks 12th in the HDI measurements and accounts for 20.9% of global emissions, a stunning average of 20.6 tons per person (Human Development Reports). The differences between these two countries should not go unnoticed, most would agree that the US is a “developed” nation and Nicaragua is “developing,” but what does this mean exactly?

Nicaragua, in hoping to develop, has turned to tourism and international investment, promoted via the free-market and neo-liberal policy, since the end of the Civil War. In researching government policy since the early 1990s, along with the influx of tourism and international investment, I hoped to find what exactly this has resulted in for Nicaragua and more specifically the Nicas who reside there. How has the free-market affected Nicaragua and its population, 82.3% of which still live on less than a dollar a day (Rios-Morales)? Is tourism the answer to development questions in Nicaragua? Perhaps if the free-market and tourism alone can’t address in their entirety the problems facing Nicaragua, what are some other solutions to development?

Observations: Progress, Drawbacks and Standstills

Following the Civil War “salaried employment in the private sector was practically non-existent” (Lazarte, et al), Nicaragua was primarily a subsistence economy, but now that is changing. Nicaragua has a history of a rapidly changing institutional framework, currently there is no exception. Recently the Nicaraguan National Assembly approved Law No. 466 which mandated the transfer of 10% of tax revenue to the 152 municipalities by 2010 (Ballivian, et al). This bill was passed in an attempt to enhance municipal competitiveness in sectors of Nicaragua with a local comparative advantage, (see figure two) which would allow for the goals of the National Development Plan (NDP) to be more adequately addressed (Ballivian, et al). The NDP looks to facilitate the incorporation of objectives of economic growth and poverty reduction (IMF Country Report), through decentralization which will increase the private sector, increasing tourism and investment.

Between 1990 and 2000 the GDP increased, however due to a plunge in international coffee prices (Babb) the Nicaraguan economy experienced a decelerated growth rate of 2% between 2000 and 2003. At that time tourism became the leading industry in Nicaragua and since 2004 the GDP has grown at a rate of 5.1% (see figure three) (IMF Country Report), making the Nicaraguan economy the fastest growing economy in Central America (Rogers). As the GDP increases, poverty decreases and the HDI level raises. According to the IMF “both infant and maternal mortality fell, and the number of people with access to drinking water has increased” since 1998 (see figure four) (IMF Country Report). With support from the IMF and the international community, the NDP’s economic goals are being met as recent government “policies have facilitated growth and some improvement in social indicators” (IMF Executive Board).

According to the IMF if economic growth continues at an annual rate of 5%, the percentage of extreme poor will fall from 15.1% in 2004 to 11.5% in 2010 (IMF Country Report). This requires increases in economic gain through international investment and tourism. However, conditions for many Nicaraguans still aren’t great; half of the country lives below the poverty line and 72% of the urban population (which makes up 58% of the total population) still lacks access to basic sewage systems (Stein). This parallels levels from fifteen years prior when 68% of the urban population lived without sewage systems (see figure five).

“At the beginning of the 1990s Nicaragua faced enormous political, social and economical problems. Among them a collapsed economy, hyperinflation, political polarization and a highly vulnerable population affected by displacement, demobilization, repatriation and also natural disasters” (Stein). Through tourism, decentralization, privatization, and international investment, many of the issues Nicaragua faces are slowly being remedied, for example foreign debt which reached its highest levels in 1994 at $11.695 billion has been reduced through the government’s new economic program, and the Heavily Indebted Poor Countries (HIPC) initiative, to roughly $6 billion (Rios-Morales). However many problems, such as poverty, persist and some argue that “the current economic policies in Nicaragua aren’t oriented towards the poor” (Rios-Morales).

The lack of economic opportunity in the recent past has hindered development in Nicaragua, it’s estimated that 19% of Nicaraguans are living on foreign land (Angelo, et al) where economic opportunities are more readily available and social benefits are greater. For example in rural Nicaragua a woman can earn $25 a month, but working in Costa Rica she can make $100 a month doing similar work. Estimates of remittances which 64% of Nicaraguan families receive, from the US alone are as high as $800 million, if these estimates are accurate, this makes up 36% of the Nicaraguan GDP, a significant portion (Angelo, et al). However, as the government attempts to “direct industry towards producing higher-quality items for tourist consumption as part of a national initiative to support small industries,” and INTUR promotes tourism development through an incentive law that benefits tourist accommodators such as restaurants and hotels, economic opportunities in Nicaragua are on the rise (Babb).

“Nicaragua has always been an object of interest to the outside world because of her geographical situation” (Munro). 76 conservation areas, the longest stretch of coral reefs in the Caribbean, the largest tropical rain forest north of Amazonia (Weaver, et al) and countless lakes make Nicaragua a perfect tourist destination. In 2000, 500,000 tourists visited Nicaragua, which at the time had a population around four million (Babb); this is one tourist for every eight Nicas, a significant ratio. This ratio has increased steadily since then, rendering areas such as San Juan del Sur, which works hard to attract cruise ships and environmentally friendly tourists (Babb), reliant on tourism (Robertson).

The infrastructure problems of poor roads, inadequate health systems, and the lack of access to sanitary water sources, are starting to be addressed. INTUR and the IMF acknowledge that the “lack of basic infrastructure produces barriers to accessing public and private goods and services that are essential for economic and social development” and also tourism (IMF Country Report). Due to the influx of tourists, “road infrastructure is improving at the record rate of 16.7km of newly paved road per month” (Rogers). Due to the increase of direct foreign investment in the last decades, the government has laid plans for a new 156km Pacific coastal highway that would link tourist destinations in the North, such as Lyon, with those in the South, such as San Juan del Sur (Rogers).

Access to drinking water has been on a slow, but steady increase since 1998. In 1998 65.5% of the population had access to drinking water, up to 75.8% in 2004 (see figure four), but regardless 50% of rural inhabitants, living in the most popular tourist destinations such as San Juan del Sur, still lack access to water (Robertson). With tourism revenue, sanitary water sources are being developed slowly, which is beneficial for the Nicas as “the inadequacy of water services contributes to poor living conditions, disease, and a high mortality rate” (Webster, et al), but still most infrastructure development continues to progress at a molasses pace. Social health programs are surprisingly sufficient in areas; of 1298 people interviewed in the Rivas area, nearly 80% have “access to a public health facility within 5km or one accessible within less than half an hour” (Claeys). The national rate of immunization against measles for infants is also on the rise and has now reached 99% (Rios-Morales).

Some tourist projects, such as the Finca Esperanca Verde (FEV) and Finca las Nubes (FLN) have been extremely successful in providing employment, education and stability for local populations. The FEV is an eco-lodge based in San Ramon which reinvests 10% of its income generated through tourism back into the local community, helping to build schools and fund water projects (Nielsen). Similarly FLN respects local cultures and environments, while providing locals with stable job opportunities. Tourist access to the property is through invitation only, as Robertson looks to accommodate those who have a vested interest in the region (Robertson). Despite the benefits from well planned tourism projects such as FEV and FLN, poorly planned tourism has a destructive potential.

Often tourist accommodations and accompanying infrastructure destroy local ecosystems and displace local populations as is the case in Nicaragua and certain parts of San Juan del Sur. Deforestation in Nicaragua, which is estimated at 150,000 hectares of forest per year, is a “major environmental problem that is adversely affecting the surface and ground water resources in Nicaragua” (Webster, et al). This in turn directly limits development. During the 1990s “Nicaraguan rain forests disappeared at a rate 10 times faster than those in Amazonia” (Weaver, et al). Tourism, if poorly managed, can lead to unregulated deforestation, hardly a positive indicator of development.

Nicaragua is currently experiencing immense wealth inequality problems, an issue development and new government policies are looking to address and remedy. However if poorly managed, tourism can add to these existing inequalities; in Nicaragua the new program of neoliberal development has created new tourist commodities, new restaurants and clubs, however it’s only the small portion of elites that benefit through their use and the revenue they generate (Babb). Before making tourist dollars a top priority, Nicaragua should look at past and current examples of tourism development, such as Costa Rica, where only some have benefited from tourism, those with money to advertise for example. Tourism has created uneasy tensions and competition between and within communities in Costa Rica as locals compete for tourist revenue (Martin); the same might prove to be true in Nicaragua.

A high reliance on outside sources of income, such as tourism and international investment for development has left Nicaragua vulnerable to the international community and international market (Rios-Morals). The Nicaraguan economy “remains highly dollarized and exposed to reversals of investor sentiment and external shocks” (IMF Executive Board). International investors have been known to temporarily freeze tourism-related projects for a variety of reasons; this makes tourism in Nicaragua difficult and patchy, one of the reasons FEV is only operating at about 37% of its yearly capacity” (Nielson). This dependency can clearly be seen as Nicaragua continually needs to import over double what it exports (see figure six).

Conclusions: Additions, Continuations and Proper Management

The recent transition to a neo-liberal economy, and the tourism it has brought with it, has not yet been in vain. Economic growth alone won’t solve Nicaragua’s development problems. Despite the fact that recent economic programs have managed to strengthen macroeconomic stability (IMF Executive Board), slowly increase basic infrastructure such as roads which are being built at a record rate of 16.7km new road per month (Rogers), and significantly decrease inflation rates from 13,490% in 1990 to 6.5% in 2003 (see figure seven), more is required for Nicaraguan development. There is a strong connection between economic growth and human development (Ranis and Francis), but economic gain alone cannot sufficiently address the whole picture.

Tourism has the potential to destroy communities or strengthen them. Poorly managed tourism can lead to deforestation (Webster et al) and inequality increases (Martin). However the international community and the Nicaraguan Government alike realize that “tourism is a potential gold mine for Nicaragua,” and if properly managed could benefit all involved. Ideally, and with proper marketing and management, tourism “could expand rural economies to the point that they would benefit more from protecting biodiversity than from initiating activities that would negatively impact it (Weaver, et al). The change in government policy following the Civil War has resulted in an undesired reliance on uncontrollable, international forces. This dependency has hindered development as reversals of investor sentiment (IMF Executive Board) and seasonal tourism (Nielsen) limit Nicaragua’s progress.

In San Juan del Sur the effects of these policies can be seen with mixed results. The free-market has allowed for international investment; since then the real-estate market has “skyrocketed” (Rogers) bringing in millions of dollars in revenue, but this adversely has led to land speculation and the dispersion of locals who cannot compete internationally (Robertson). Tourism has become the backbone for development in the region; every person in town feels the trickle-down effect of tourist spending (Robertson), but tourism can also potentially feed existing wealth inequalities (Rios-Morales) as has been seen in similar situations in nearby Costa Rica (Martin).

Tourism, along with economic gain promoted via the neoliberal free-market, is an important part of the solution to Nicaragua’s development needs, but not the solution. Other than an increased sense of dependency, it would be hard to argue that the change in government policy in the 1990s has resulted in “undeveloping” Nicaragua. Due to tourism and international investment, the GDP is growing steadily, poverty alienation and infrastructure are slowly increasing, health and education services are reasonable, foreign debt has been drastically decreased, and inflation rates have been low. However to address the social needs of the Nicas, and fully develop, the government should continue to decentralize, address environmental concerns such as deforestation and water contamination, and emphasize “people development” over “economic development.” In diversifying the economy, by emphasizing other industries such as agriculture, increasing community-based development projects such as Finca las Nubes and Finca Esperanza Verde, along with promoting well-managed tourism and international investment, Nicaragua should be able to address a majority of its development needs.

Nicaragua

Figure One: Nicaragua is bordered East and West by the Caribbean Sea and the Pacific Ocean respectively. Nicaragua’s Northern border is shared with Honduras, its Southern with Costa Rica. Nicaragua is divided by volcanoes and lakes which has resulted in the majority of the population residing in the Western half of the country.

Figure Two: Recently passed by the Nicaraguan National Assembly, Law No. 466 mandates the transfer of 10% of tax revenue to the 152 municipalities by 2010 to enhance municipal competitiveness. This chart shows government responsibilities and municipal responsibilities in Nicaragua.

Figure Three: Nicaragua’s GDP has been affected greatly by international forces, such as the plunge in international coffee prices in 2000, which is evident in this graph. Recently the GDP has been growing at 5.1%, the fastest rate in Central America.

Figure Four: With the increase in economic gain, some improvements in social conditions have been made. Both infant mortality and maternal mortality have decreased, while the number of people with access to drinking water has increased, since 1998.

Figure Five: Currently social conditions for Nicas are moderate at best. Urban access to sewage systems is currently at 72%; this parallels access levels from fifteen years prior in 1993.

Figure Six: A high reliance on external sources of income has left Nicaragua vulnerable to the international community. This dependency can be seen clearly as Nicaragua continually needs to import over double what it exports.

Figure Seven: As a result of recent economic progress, a change in government policy, and international debt forgiveness due to the Heavily Indebted Poor Countries Initiative (HIPC), Nicaragua has been able to significantly lower inflation rates and keep them low.