Q REPORTS (La Prensa) Despite authoritarianism, the Nicaraguan economy continues to grow. How long will remittances sustain this model? Various studies determine that when rulers become authoritarian, the economy suffers, but reality shows that this is not always the case.
After seven years of sociopolitical crisis, an unprecedented escalation of repression, and the consolidation of a new dictatorship that keeps Nicaragua isolated from the democratic world, the economy continues to grow.
Growth is supported by the increasing flow of remittances and exports, while external threats, which jeopardize this model, are compounded by a poor investment climate and structural deficiencies that affect productivity.
“For various reasons, authoritarianism, democracy, and the economy do not necessarily go hand in hand. Empirically, it is not a proven fact that democracies grow more than autocracies; or that autocracies grow more than democracies. There is a whole debate on the subject,” notes economist and exiled former political prisoner Juan Sebastián Chamorro.
What has happened in some democracies is that they succumb when the population’s discontent over economic problems spills over into the political sphere. Furthermore, authoritarianism isn’t always consolidated in weak economies. In some cases, when the economy isn’t growing, according to Chamorro, people look for a “strong hand” to pull the country out of the crisis; but in other cases, it’s the opposite, as Hugo Chávez (RIP) consolidated his dictatorship during a period of economic prosperity in Venezuela.
Authoritarianism isn’t always bad
“Even of the three major episodes of militarism in Nicaragua, those of Zelaya and Somoza had significant economic growth, despite human rights violations and authoritarianism. Only the Sandinista regime of the 1980s was accompanied by an economic collapse because its terrible policies destroyed the economy,” Chamorro maintains.
Another example that authoritarianism isn’t always bad for the economy are China and Singapore, which are examples of success. Although many argue that in this case, it should be taken into account that both countries were not created to be democracies.
For Chamorro, proof of the correlation between repression and the economy is the exodus generated by the Ortega-Murillo dictatorship. The departure of more than 12 percent of the population (around one million people) was a deliberate economic policy that guaranteed the astonishing growth in remittances.
Mass migration boosts remittances
According to data from the Central Bank of Nicaragua (BCN), in 2017, before the outbreak of the sociopolitical crisis, Nicaragua received US$1.39 billion in family remittances, and last year the amount rose to US$5.243 billion.
“The increase is immense… So we see how a deliberate authoritarian measure, which Cubans also promoted many years ago, is fundamental for the economy,” says Chamorro.
For his part, Enrique Sáenz, also an economist and exiled former opposition congressman, explains that remittances represent nearly 30 percent of the Gross Domestic Product (GDP) and are liquid, growing flows that stimulate consumption.
“Private consumption as a macroeconomic variable is registering an increasing weight, but not as a result of more jobs or better wages, but rather due to remittances, as families use a good portion of these resources to purchase essential goods and services; and with their purchases, they boost food production, wholesale and retail trade, small-scale industry, and other activities,” explains Sáenz.
Exports remain stagnant
For Sáenz, this is an aberrant phenomenon. He believes that the main evidence of the economic and social failure of the Ortega-Murillo dictatorship, expressed in underemployment, low wages, and poverty, led to mass migrations that transformed into a growing flow of remittances.
“More than 5 billion (dollars) in 2024, and the trend indicates that they will approach 6 billion (dollars) in 2025. In addition to boosting private consumption, this will also refresh international reserves, bank liquidity, and tax revenues, among other things,” explains Sáenz.
For specialists, another engine driving growth is exports. However, in recent years they have grown little, not due to increases in production volumes or improvements in productivity, but rather due to the rise in the international price of gold, coffee, meat, and other products that Nicaragua sends abroad.
“That is to say, at least at present, the increase in export revenue is the result of an external factor, and not a product of the economic management of the Ortega-Murillo dictatorship,” Sáenz asserts.
FDI at Record Levels
According to Chamorro, the stagnation of exports is due to the fact that the social uprising of 2018, which led to the breakdown of the model of dialogue and consensus between the private sector and Daniel Ortega, led to the abandonment of efforts to direct investment toward high-value-added activities.
In addition to remittances and exports, a third engine driving economic growth is Foreign Direct Investment (FDI). According to official reports, these have reached record levels in recent years, although primarily driven by capital reinvestment.
Currently, the Central Bank only publishes semiannual FDI reports and issues them with a significant delay. The FDI report for the first half of this year is not yet known. In 2024, the largest bank issuer reported $3,039.9 billion in gross FDI and $1,352.3 billion in net FDI. Before the start of the crisis, in 2017 the country received $1.67 billion in gross FDI inflows and $1.032 billion in net FDI.
Doubts about FDI growth
Sáenz doubts the record growth of FDI. “I must point out something murky, for the record while the following mysteries are unraveled: among the main destinations for FDI are the financial, mining, and electricity sectors, where the ruling mafia has significant interests. If we add to the above that Panama, Curaçao, and Barbados are now among the main countries of origin for FDI, the suspicion increases, since it is recognized that these three countries operate as ‘tax havens,’ home to shell companies and the circulation of capital of dubious origin,” says the former congressman.
One of Saénz’s hypotheses is that “the mafia in power” is recycling the profits obtained from its businesses and bringing them back to the country as FDI. “But in short, the statistical growth recorded in official figures is not due to endogenous dynamism, nor to the Ortega-Murillo dictatorship being attractive to domestic or foreign investors, but rather to factors external to economic management,” says the former opposition congressman.
Despite the fact that, according to specialists, the engines driving economic growth are at their lowest levels, the economy continues to grow. The sociopolitical crisis, compounded by the effects of the COVID-19 pandemic, caused GDP to decline for three consecutive years, between 2018 and 2020. But since 2021, growth has been maintained, with GDP growing 4.4 percent in 2023 and 3.6 percent in 2024.
“In short, remittances and consumption have saved the economy. Despite the political underworld, the rest of the country lives its own survival or business life. Therefore, it continues its quasi-normal life,” says a financial analyst.
What will happen to migrants and remittances?
The analyst acknowledges that authoritarianism and uncertainty pushed people to migrate en masse, and this, in turn, multiplied remittances, which boost consumption, drive growth, keep the economy afloat, and offset the decline in other growth drivers such as tourism. But he questions how sustainable this model is.
“We have no precedent, and we won’t know exactly what will happen with migrants and remittances, but the future doesn’t seem to indicate that this momentum can be sustained. In fact, this uncertainty is making us behave conservatively, and the truth is that the economy is slowing down,” he warns.
Specialists agree that freedom and democracy contribute to societies generating wealth; therefore, this is necessary to achieve higher and more sustained growth. “From that perspective, Nicaragua will be much better off, as it restores freedoms and its democracy,” the financial analyst asserts.
Reduce dependence on remittances
For his part, Chamorro is convinced that if democracy existed in Nicaragua, the economy would have greater production, higher levels of FDI, and tourism would continue to grow as it did before 2018.
Furthermore, with the restoration of democracy, experts believe that to ensure greater and sustainable growth, Nicaragua needs to diversify its growth drivers.
Among the efforts that experts believe should be promoted, it is essential to reduce excessive dependence on remittances; advance the diversification and improvement of productive sectors; attract FDI by guaranteeing legal security, property rights, and investment protection.
Also, boost climate resilience; invest in disaster-resistant infrastructure and climate-smart agriculture; modernize education and training to align workforce skills with the needs of productive sectors; and finally, rebuild trust with International Financial Institutions (IFIs) and other partners.
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