Nicaragua: The Economic Dilemmas of Peace and Democracy in 1988

Abstract

This paper explores the complex economic conditions that Nicaragua faces at the end of 1988. It focuses, in particular, on the policy dilemmas that the Nicaraguan government confronts as domes tic economic conditions continue to deteriorate, as the prospects of continued war drag on, and as public opinion begins to associate economic problems more closely with the government and less closely with the war. The paper presents a summary of overall Nicaraguan economic performance since 1979, places it in the context of the broader Latin American economic crisis over the same period, and analyzes some of the principal characteristics of the economic model that has evolved under the Sandinista Front. Special attention is paid to the dramatic economic policy changes implemented in February and June 1988 and to the changing external assistance levels received by Nicaragua, especially the rapid increase and then decline in Soviet economic assistance. Two alternative scenarios for future economic policy are then explored, one under the assumption of continued war and economic isolation, the other under an assumption of a definitive cease fire in the war and economic reactivation with international assistance.