CAFTA-DR: Stabilizing Nicaragua

CAFTA-DR's Role in Stabilizing Nicaragua

Nicaragua's courage to embrace democracy and reject violence made it possible to negotiate and ratify a free trade agreement, not only with United States but also with its neighbors. These agreements solidified the growing relations, after years of disputes and lack of cohesive and mutually supportive policies for the region. The following outlines the role of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) in securing a brighter future for Nicaragua and the region as a whole.

• The United States is committed to Nicaragua's economic development and fostering prosperity throughout the Central American region.

• Second only to Haiti as the poorest country in the Western Hemisphere, Nicaragua has made considerable economic progress the past 16 years.

• Civil war, economic mismanagement, ballooning public debt, and poorly implemented land reform meant the new government at the time of the transition to democracy in 1990 was also faced with re-orienting the Nicaraguan economy toward private sector-led growth and development.

• Successive administrations have contributed to macroeconomic stability, dramatic debt reduction through the Heavily Indebted Poor Country Initiative, rising tax revenues, greater social investment, and steady economic growth.

• Since 1995, the economy has grown at an average annual real growth rate of 4%, achieving 3.7% in 2006. To build upon these important achievements, Nicaragua must maintain fiscal responsibility, foster greater investment (especially in the power and transportation sectors), better educate its population, reform the judicial system, and regularize its land titling system.

• As Nicaragua's largest trading partner, the United States is the source of roughly one-fifth of Nicaragua's imports and the destination for approximately one-third of its exports. The CAFTA-DR, which came into force on April 1, 2006, is already paying dividends toward generating greater economic prosperity for the country and the region.

  • In 2006, Nicaraguan exports to the United States, including free trade zone products, increased 29% over 2005 levels. Nicaraguan imports of U.S. goods increased almost 21%. Leading Nicaraguan exports to the United States include clothing and apparel, automobile wiring harnesses, coffee, seafood, beef, sugar, tobacco products, gold, and vegetables.

  • Total Nicaraguan exports of non-free trade zone products surpassed $1 billion for the first time in 2006.

• The United States has made significant efforts to provide trade capacity building and related programs as part of a coordinated effort to integrate our trade, assistance and development programs.

  • The Overseas Private Investment Corporation (OPIC) announced financing and insurance in support of $332 million in new investment in Central America, driven by the CAFTA-DR.

  • Nicaragua was approved for a $175 million Millennium Challenge Compact July 14, 2005, which will focus on property regularization, improving Nicaragua's transportation infrastructure, and rural development of agricultural production.

  • The U.S. Agency for International Development (USAID) program for Nicaragua is directing part of its $35.2 million in FY 2007 funds to programs assisting Nicaraguan producers to take full advantage of the CAFTA-DR.  

Nicaragua must continue to implement its economic reforms under the CAFTA-DR and its $175 million Compact to help increase its competitiveness, spur job creation, and advance its economic prosperity. Promoting the development of commercial skills that empower small farmers and entrepreneurs to enter into national, regional, and global markets is crucial. This is essential to building a civil society and democratic model of development in Nicaragua.