Transparency of the Regulatory System
The Nicaraguan government does not use transparent policies to establish clear “rules of the game.” Legal, regulatory, and accounting systems exist but implementation is opaque. The government does not foster competition on a non-discriminatory basis. The Ortega-Murillo regime maintains direct control over various sectors of the economy to enrich loyalists. Investors regularly complain that regulatory authorities are arbitrary, negligent, or slow to apply existing laws, at times in an apparent effort to favor one competitor over another.
The executive branch retains ultimate rule-making and regulatory authority. In practice, the relevant government agency is empowered to levy fines directly. In some instances, the prosecutor’s office may also enforce regulations. These actions are widely perceived to be controlled by the executive branch and are neither objective nor transparent. There have not been recent regulatory or enforcement reforms.
Prior to 2018, leading business chambers managed some informal regulatory processes. Leading business chambers filled policy voids left by inadequate government institutions and procedures, meeting with influential government officials to resolve common business issues. This model largely collapsed, however, as business chambers wanted to avoid the reputational risks of making ad hoc deals with the increasingly authoritarian Ortega-Murillo regime. There are currently few options to resolve commercial issues with the government.
There is no accountancy law in Nicaragua. International accounting standards are not a focus for most of the economy, but major businesses typically use IFRS standards or U.S. GAAP standards. The national banking authority officially requires loans to be submitted using IFRS standards.
There is no legal requirement to disclose environmental, social, or governance indicators.
Draft legislation is ostensibly made available for public comment through meetings with associations that will be affected by the proposed regulations. In practice, drafts are typically not published on official websites or made available to the public. The legislature is not required by law to give notice. The executive branch proposes most investment legislation, and the regime-controlled National Assembly rarely makes modifications. Nicaragua publishes regulatory actions in La Gaceta, the official journal of government actions, including official summaries and the full text of all legislation. La Gaceta is available online.
There are no effective oversight or enforcement mechanisms to ensure the government follows administrative processes.
Public finances and debt obligations are not transparent, with little accountability or oversight. The Central Bank has increasingly refused to publish key economic data starting in 2018, including public finances and debt obligations. The Central Bank published limited data in 2020 as a condition of funding from the International Monetary Fund.
International Regulatory Considerations
All CAFTA-DR provisions are fully incorporated into Nicaragua’s national regulatory system. However, authorities regularly flout national regulations, and investors claim that customs practices regularly violate CAFTA-DR provisions.
Nicaragua is a signatory to the Trade Facilitation Agreement and reported in July 2018 that it had implemented 81 percent of its commitments to date; however, Nicaragua’s trade facilitation is challenged by bureaucratic inefficiency, corruption, and lack of transparency. Nicaragua is a member of the WTO and generally notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
Nicaragua is a civil law country in which legislation is the primary source of law. The legislative process is found in Articles 140 to 143 of the Constitution. However, implementation and enforcement of these laws is neither objective nor transparent. Contracts are ostensibly legally enforced through the judicial system, but extrajudicial factors are more likely to influence rulings than the facts at issue. The legal system is weak and cumbersome. Nicaragua has a Commercial Code, but it is outdated and rarely used. There are no specialized courts.
Members of the judiciary, including those at senior levels, are widely believed to be corrupt and subject to significant political pressure and direction from the executive branch, specifically the President and Vice President. The judicial process is neither competent, fair, nor reliable. Regulations and enforcement actions are technically subject to judicial review, but appeals procedures are neither transparent nor objective.
Laws and Regulations on Foreign Direct Investment
Nicaragua has laws that relate to foreign investment, but implementation, enforcement, and interpretation are subject to corruption and political pressure. The CAFTA-DR Investment Chapter establishes a secure, predictable legal framework for U.S. investors in Central America and the Dominican Republic. The agreement provides six basic protections: 1) nondiscriminatory treatment relative to domestic investors and investors from third countries; 2) limits on performance requirements; 3) the free transfer of funds related to an investment; 4) protection from expropriation other than in conformity with customary international law; 5) a minimum standard of treatment in conformity with customary international law; and 6) the ability to hire key managerial personnel without regard to nationality. The full text of CAFTA-DR contains additional details.
Nicaragua’s Foreign Investment Law (2000/344) defines the legal framework for foreign investment. It permits 100 percent foreign ownership in most industries. (See Limits on Foreign Control and Right to Private Ownership and Establishment for exceptions.) It also establishes national treatment for investors, guarantees foreign exchange conversion and profit repatriation, clarifies foreigners’ access to local financing, and reaffirms respect for private property.
The Ministry of Growth, Industry, and Trade’s (MIFIC) information portal details applicable laws and regulations for trade and investment. It contains administrative procedures for investment and income generating operations such as the number of steps, contact information for relevant entities, required documents costs, processing time, and applicable laws. The site is available only in Spanish.
Competition and Antitrust Laws
The mission of the Institute for the Promotion of Competition (Procompetencia) includes investigating and disciplining businesses engaged in anticompetitive practices. In practice, it has no effective power, and the Ortega-Murillo regime controls decisions regarding competition.
Expropriation and Compensation
Nicaragua has a long history of government expropriation without due process. Considerable uncertainty remains in securing property rights (see Protection of Property Rights). Conflicting land title claims are abundant and judicial appeals are very challenging.
Since 2018, the government has cancelled the legal status of 118 NGOs, including 14 universities. The government seized six universities’ assets and is turning them into publicly administered and controlled institutions. In December 2021, the government broke diplomatic ties with Taiwan and officially recognized the People Republic of China (PRC). Subsequently, the government blocked Taiwan’s donation of its former Embassy, confiscated the property, and gave it to the PRC.
Multiple landowners have reported land invasions by government-affiliated actors since the political crisis began in 2018. Landowners were sometimes able to end these invasions through government connections or bribes. In instances where the government claimed legal right to the land, offers of compensation – if any – were calculated on cadastral value, a vast underestimate of market value. The Ortega-Murillo regime has stated on numerous occasions that it would not act to evict those who had illegally taken possession of private property.
In late 2020 and early 2021, the Government of Nicaragua disposed of real property seized from independent news outlets. The Government did not follow due process and transferred the facilities to the Ministry of Health to install health clinics.
ICSID Convention and New York Convention
Nicaragua has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) since 1995 and signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards in 2003. There is no specific domestic legislation providing for enforcement of either convention.
Investor-State Dispute Settlement
Nicaragua is a member of CAFTA-DR, which establishes an investor-state dispute settlement mechanism. An investor who believes the government has breached a substantive obligation under CAFTA-DR or that the government has breached an investment agreement may request binding international arbitration in a forum defined by the Investment Chapter of CAFTA-DR. There have only been two official claims or disputes by U.S. investors under CAFTA-DR, the most recent in April 2021. Both cases are still pending before the ICSID. There are no known instances of local courts recognizing and enforcing arbitral awards issued against the government.
Businesses operating in Nicaragua say the investor-state dispute settlement mechanism is not a viable means of enforcing CAFTA-DR obligations due to the high expense and likelihood of reprisal from the Nicaraguan government. Many investors report customs and other procedures are not compliant with Nicaragua’s obligations under CAFTA-DR. It does not appear that foreign investors have been targeted due to nationality.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution (ADR) is not common, and many Nicaraguan companies are unfamiliar with the practice. Nicaragua’s Mediation and Arbitration Law (2005/540) is based on the UNCITRAL model law and established the legal framework for ADR. The Nicaraguan Chamber of Commerce and Services (CCSN) founded Nicaragua’s Mediation and Arbitration Center. CCSN conducts trainings and other events to promote the value of ADR and encourage its use. Arbitration clauses are included in some business contracts, but their enforceability has not been tested in Nicaraguan courts.
There are no known cases of local courts enforcing foreign arbitral awards or recent domestic decisions involving investment disputes with a state-owned enterprise. Enforcement of court orders is frequently subject to corruption and favoritism.
Bankruptcy provisions are included in the Civil and Commercial Codes, but there is no tradition of bankruptcy in Nicaragua. Nicaragua’s rules on bankruptcy focus on the liquidation of business entities rather than the reorganization of debts and do not provide equitable treatment of creditors. Insolvent companies usually close without going through formal bankruptcy proceedings and set up a new entity. Creditors are effectively unprotected. Creditors typically attempt to collect as much as possible directly from the debtor to avoid an uncertain judicial process or abandon any potential claims.