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U.S. DEPARTMENT OF STATE
NICARAGUA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                            NICARAGUA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                      1992      1993     1994 1/

Income, Production and Employment:

Real GDP (1991 dollars)            1,781.2   1,765.2    1,800.5
Real GDP Growth (pct.)                 0.4      -0.9        2.0
GDP by Sector:
  Agriculture 2/                     434.6     437.8      448.3
  Energy/Water                        55.2      56.5       57.6
  Manufacturing                      399.0     391.9      397.9
  Construction                        53.4      54.7       55.8
  Rents                               74.8      74.1       75.6
  Financial Services                  57.0      56.5       59.4
  Other Services                      78.4      79.4       81.0
  Government/Health/Education        199.5     195.9      198.0
Net Exports of Goods & Services 3/  -567.0    -430.0     -426.1
Real Per Capita GDP (USD)            430.4     414.4      410.1
Labor Force (000s) 4/              1,445.4   1,489.5    1,543.7
Unemployment Rate (pct.)              17.8      21.8       23.5

Money and Prices:
  (annual percentage growth unless otherwise noted)

Money Supply (M2)                     21.1       8.0       16.5
Rediscount Rate (pct.) 5/             13.0      13.0       10.5
Personal Saving Rate 
  (pct. of GDP) 6/                   -15.2     -14.6      -13.3
Retail Inflation                       N/A       N/A        N/A
Wholesale Inflation                    N/A       N/A        N/A
Consumer Price Index                   3.5      19.5       13.5
Exchange Rate (cordobas:USD)
  Official                            5.00      6.32       7.08
  Parallel                            5.34      6.42       7.43

Balance of Payments and Trade:

Total Exports (FOB)                  223.1     226.9      328.9
  Exports to U.S. (FOB)               52.0     125.9      121.1
Total Imports (CIF)                  855.0     727.7      786.0
  Imports from U.S. (CIF)            220.0     149.8      164.5
AID from U.S. 7/                     114.7      80.5       80.9
AID from Other Countries 8/          644.8     306.2      482.1
External Public Debt              10,808.2  10,987.0   11,553.0
Debt Service Payment (paid)          194.0     178.0      272.0
Gold and FOREX Reserves (gross)      179.1      87.7      109.1
Trade Balance 9/                    -551.2    -390.0     -389.1
  Trade Balance with U.S. 9/        -147.2     -23.2      -28.6


N/A--Not available.

1/ Figures are all annual projections based upon 8-9 months of
data.
2/ Agriculture does not include livestock and fisheries.
3/ Does not include interest payments or debt service.
4/ Defined as working age population as reported by the
Nicaraguan Ministry of Labor.
5/ Central Bank rediscount rate.
6/ Based upon IMF figures.
7/ Includes all non-military aid granted.
8/ Includes total grants and credits received minus U.S. aid.
9/ Trade balance is calculated on FOB basis.

Sources:  International Monetary Fund (IMF), the World Bank,
and the Central Bank of Nicaragua unless otherwise noted.



1.  General Policy Framework

    Over the period 1990-93, the Government of Nicaragua
focused on making the transition from a centralized to a
market-oriented economy, and on reversing the severe
mismanagement of the economy during the Sandinista era, which
had resulted in a 25 percent drop in real GDP and 50 percent
drop in GDP per capita during the 1980's.

    During the first four years of the Chamorro Administration,
the currency was stabilized and inflation brought under
control.  The cordoba is presently devalued against the dollar
on a crawling-peg basis of 12 percent per annum, and inflation
has fallen from 13,490 percent in 1990 to an estimated 13.5
percent in 1994.  The executive implemented various structural
adjustment measures, including the successful privatization of
more than 300 of the 350 non-financial public sector companies
it inherited from the previous government.  A Superintendency
was created to supervise the banking sector, which now includes
nine private banks and three state-owned institutions.  The
Government of Nicaragua has also reduced tariffs, eliminated
most non-tariff trade barriers, and greatly relaxed foreign
exchange controls.

    All of these measures were designed to pave the way for
economic expansion.  To date, however, the anticipated growth
has failed to materialize, as real GDP growth has remained
stagnant, registering rates of 0.4 percent in 1992 and -0.9
percent in 1993.  Estimated growth of 4 percent in 1994 has
been revised downward to 2 percent due to a drought which
damaged the first agricultural  planting cycle and an
accompanying energy shortage which has resulted in mid-1994 in
power cutoffs of 4 hours per day.  The lack of credit to the
productive sector continues to be a major stumbling block to
growth, and private investment flows remain limited as concerns
over property rights and political stability persist.

    In June 1994, the Government came to agreement with the IMF
on an Enhanced Structural Adjustment Facility (ESAF) -- a
3-year program designed to maintain stability and generate
growth.  Consequently, the stage has been set for continued
lending from international financial institutions and other
bilateral donors, including an Economic Recovery Credit from
the World Bank.  These credit sources represent critical
elements for the nation@s economic stability, as Nicaragua
continues to suffer from a chronic balance-of-payments gap
estimated at 1.1 billion dollars for 1994.


2.  Exchange Rate Policy

    In January 1993, the Government of Nicaragua modified its
fixed official exchange rate system which since September 1991
had pegged the cordoba to the dollar at 5:1.  With its
devaluation, the Government set the cordoba at 6:1, with a
crawling-peg schedule adjusted daily, at an annual rate of 5
percent.  This schedule was accelerated in November 1993 to an
annual rate of 12 percent.  A parallel exchange market,
legalized in September 1991, continues to operate, supplying
foreign currency for virtually all types of exchange
transactions.  The spread between the official and parallel
markets has been generally maintained at 2-4 percent.

    Foreign exchange generated from the export of most
traditional products (e.g., beef, coffee, sugar, cotton) must
be surrendered to the Central Bank, although private banks can
accept the dollars as agents of the Central Bank.  Remittance
of profits generated through foreign investments, as well as
original capital 3 years following investment, is guaranteed
through the Central Bank at the official exchange rate for
those investments registered under the Foreign Investment Law. 
Investors who do not register their capital may still make
remittances through the parallel market, although these
transactions are not guaranteed by law.  Embassy is aware of no
investor who has encountered remittance difficulties since the
inception of the Foreign Investment Law in 1991.


3.  Structural Policies

    Pricing Policies:  Since taking office in April 1990, the
Chamorro Administration has lifted price controls with the
exception of those imposed upon "fiscal" goods (e.g., tobacco,
soft drinks, alcoholic beverages), pharmaceuticals and medical
goods, petroleum products, and public utility charges. 
However, the Central Government (i.e., the Ministry of Economy
and Development) commonly negotiates with domestic producers of
important consumer goods to establish voluntary price
restraints and, on several occasions, has purchased emergency
stores of important basic foods (sugar, beans, basic grains,
etc.) during periods of shortages to maintain domestic supplies
and moderate prices.

    Tax Policies:  Nicaragua maintains a maximum tariff level
(DAI) on virtually all imports of 20 percent of CIF value.  An
additional Temporary Protection Tariff (ATP) of 5-15 percent of
CIF value is levied on some 900 imported items, largely goods
also produced in Nicaragua.  Some 750 other products (whether
imported or locally produced) are assessed a Specific
Consumption Tax (IEC), generally limited to 15 percent of CIF
value.  A stamp tax of 5 percent (ITF) is levied on all
imports.  The country@s 15 percent sales tax (IGV) is charged
(in a cascading fashion) on entry of all imported goods that
are not categorized as basic food basket items.  Overall import
taxation levels on "fiscal" goods are particularly high.

    The highest income tax rate is 30 percent (for taxpayers
earning more than 180,000 cordobas yearly -- or about 25,000 
dollars at the official exchange rate.  Individuals earning
between 100,000 and 180,000 cordobas are taxed at a rate of 26
percent; between 60,000 and 100,000 -- 20 percent; between
40,000 and 60,000 - 12 percent; and between 25,000 and 40,000
-- 7 percent.  Individuals earning less than 25,000 cordobas
yearly are exempt from income tax.  Corporations are levied
taxes at a flat rate of 30 percent.  In addition, busines
income is subject to a series of municipal and special taxes,
such as the 2 percent tax on sales charged by the Municipality
of Managua.


4.  Debt Management Policies

    Although it inherited an enormous foreign debt burden from
the previous government, the Chamorro Administration succeeded
in clearing its total arrears to the World Bank and IDB in 1991
with the assistance of grant contributions from the
international community.  This made Nicaragua eligible to
receive new credits from the multilateral development banks,
and the country began to renegotiate its bilateral debt. 
Nicaragua entered into agreements with Mexico, the United
States, Venezuela, Colombia, and Argentina for rescheduling,
debt swaps, and/or debt forgiveness.  Over the past 2 years,
Nicaragua has held discussions with Russia over the large debt
owed to the former Soviet Union.  Similarly, Nicaragua
continues to seek renegotiation of its debt of roughly 1.7
billion dollars to private foreign banks, via a buy-back
mechanism.  However, Nicaragua's foreign debt still totals more
than six times its GDP and more than 35 times its annual
merchandise exports.

    In December 1991, the Paris Club creditors agreed to grant
Nicaragua the most favorable rescheduling terms offered by the
club to date.  In April 1993, Paris Club members made new
pledges of 46.8 million dollars, which, although significant,
still left Nicaragua with a substantial financing gap.  That
gap was closed by additional sources of assistance, new
austerity measures, and the suspension, beginning September
1993, of pre-cutoff day (October 31, 1988) Paris Club
obligations.

    In August 1994, Germany and Nicaragua reached agreement for
an overall 70 percent forgiveness of the 180 million dollars
subject to the 1991 Paris Club agreement.  This set the stage
for a second round of Paris Club talks to beheld in early 1995
to deal with the remaining bilateral debt, the majority of
which (approximately 500 million dollars) consisting of debts
to the former German Democratic Republic (East Germany).  It is
anticipated that Nicaragua will seek even more favorable
treatment ("enhanced Toronto Terms") at the talks, requesting
up to two-thirds forgiveness of its remaining debt.


5.  Significant Barriers to U.S. Exports

    Import Licenses:  In most cases the issuance of import
licenses is a formality, or at worst an inconvenience.  U.S.
pharmaceutical importers, however, continue to complain that
licensing procedures, continually under review due to a process
of regional harmonization of such regulations, can continue to
delay the entry of some U.S. pharmaceutical products.

    Service Barriers:  1991 legislation allowed the
establishment of the first private banks in Nicaragua in a
decade.  Nine private banks are now in operation in a
competitive financial market.  Although current banking law
does allow foreign banks to open and operate branches in
Nicaragua, no U.S. bank has initiated the necessary paperwork. 
Insurance activities are currently in the hands of a state
monopoly.  However, legislation is pending in the National
Assembly that would allow private sector participation in the
insurance sector.

    Investment Barriers:  An investment law, passed in June
1991, allows 100 percent foreign ownership in virtually all
sectors of the economy, guaranteed repatriation of profits, and
repatriation of original capital 3 years after the initial
investment.  However, to benefit from this law, investments
must be approved by the Foreign Investment Committee which
analyzes the proposal based upon various criteria.  The fishing
industry remains protected by requirements involving the
nationality and composition of vessel crews and a requirement
for repatriation of 100 percent of the catch (i.e., domestic
processing for eventual export).  In early 1993, the Government
of Nicaragua lifted its moratorium on lumbering in state
forests (representing over 50 percent of the country@s forest
area); but authorities painstakingly review all project
proposals in this sector.

    The Government continues to move forward with privatizing
state-owned companies in government-dominated sectors.  In the
mining sector, a private worker-owned consortium is active, and
several foreign companies have initiated operations.  In
October 1993, the Government began the pre-qualification bid
process for privatization of the national telecommunications
company, which was scheduled to be finalized by October 1994. 
However, the privatization still awaits National Assembly
approval and at this writing it is unclear when such approval
will be granted.  The Government also is in the process of
drafting legislation which would allow for the liberalization
of petroleum imports, establish an oil exploration regime, and
explicitly grant the private sector the right to generate
electrical power.  At this time, the legislation is still under
executive review.

    Definition of property rights continues to remain an
obstacle to both domestic and foreign investment.  Claims for
thousands of homes and businesses, as well as large tracts of
land, confiscated without compensation by the Sandinista
government of Nicaragua have yet to be resolved.  In early
1993, the Chamorro government's administrative property claim
resolution mechanism began to process claims for some
16,000-18,000 individual pieces of property.  A small number of
properties have been returned to original owners; other cases
have been settled through the issuance of long-term
compensation bonds.

    The current market value of these bonds remains a matter of
concern.  Trades of the securities on the stock market have
ranged from 17-28 percent of face value.  As of November 1994,
informal trading on the secondary market has settled at 19-21
percent of face value.  The bond compensation program remains
controversial, as the majority of U.S. citizen and Nicaraguan
claims have not been resolved, and most claimants believe their
properties should be more fully compensated.

    Customs Procedures:  Importers commonly complain of steep
"secondary" customs costs including custom declaration form
charges and consular fees.  In addition, importers are required
to utilize the services of licensed custom agents, adding yet
another layer of costs.  Legitimate importers also complain
that "black market" firms are able to bring in the same goods
at greatly reduced tariff rates and then offer these
under-priced goods on the open market.


6.  Export Subsidies Policies

    An export promotion decree, signed in August 1991,
established a package of fiscal exonerations and incentives for
exporters of non-traditional goods (for this purpose, goods
other than coffee, cotton, sugar, wood, beer, lobster, and
sea-harvested shrimp).  Export operations for such products
receive exemption on payment of 80 to 60 percent of income tax
liabilities on a sliding scale from 1991 to 1996, after which
the benefit will be eliminated.  In addition, exporters of both
traditional and non-traditional goods are allowed to import
inputs (used to produce exports goods) duty-free and are exempt
from paying the current 15 percent value-added tax on this
merchandise.  The decree also allows for preferential access to
foreign exchange at the official rate for exporters of
non-traditional goods.

    One of the more attractive benefits of the export promotion
law is the right to a Tax Benefit Certificate equivalent to 15
percent of the FOB value of exported non-traditional goods. 
(The percent of FOB value eligible decreases to 5 percent in
1996.)  In May 1993, the first group of Nicaraguan exporters
received the certificates, valid for payment of tax and duties,
or payable 24 months from the date of issue.


7.  Protection of U.S. Intellectual Property

    In 1990, the Nicaraguan government committed itself to
"provide adequate and effective protection for the right to
intellectual properties of foreign nationals" in the context of
requesting designation as a beneficiary of the Caribbean Basin
Initiative Recovery Act.  Current levels of protection,
however, still do not meet modern international standards.

    Although unfortunately unable to dedicate extensive
resources to the protection of intellectual property rights,
the Government of Nicaragua is in the process of evaluating and
modernizing its intellectual property rights regime.  Drafts of
a new patent law and a new copyright law are under review.  The
trademark law in Nicaragua, codified in the Central American
Convention for the Protection of Industrial Property, is
currently undergoing revision by the four signatory countries
(Nicaragua, Costa Rica, Guatemala, and El Salvador).

    The Government has publicly committed itself to accede to
the Paris Convention for the Protection of Industrial Property,
and to the Bern Convention on Copyrights.  As of this writing,
the Government has acceded to neither convention.  However,
Nicaragua is a signatory to the following copyright conventions:

--Mexico Convention on Literary and Artistic Copyrights (1902)

--Buenos Aires Convention on Literary and Artistic Copyrights
(1910)

--Inter-American Copyrights Convention (1946)

--Universal Copyright Convention (Geneva 1952 and Paris 1971)
Brussels Convention on Satellites (1974)

    Trademarks:  Notorious trademarks represent a problem area
for Nicaragua.  Current Nicaraguan procedures allow individuals
to register a trademark without restriction, at a low fee, for
a period of 15 years.

    Copyrights/New Technology:  Pirated videos are readily
available in nation-wide video rental stores, as are pirated
audio cassettes.  In addition, cable television operators are
known to intercept and retransmit U.S. satellite signals -- a
practice which continues despite a limited trend of negotiating
contracts with U.S. sports and news satellite programmers.  One
of Managua's private television stations similarly transmits
(often from video cassettes) pirated U.S. films.  A report
prepared in September 1992 by the International Intellectual
Property Alliance estimated that losses in Nicaragua due to
copyright infringements involving books and the motion picture
industry cost U.S. firms 1.3 million dollars annually.


8.  Worker Rights

    a.  The Right of Association

    Legally, all public and private sector workers, with the
exception of the military and the police, are entitled to form
and join unions of their own choosing; they exercise this right
extensively.  New unions must register with the Ministry of
Labor and be granted legal status before they may engage in
collective bargaining with management.  Some labor groups
report occasional delays in obtaining legal status.  Nearly
half of Nicaragua's workforce, including agricultural workers,
is unionized.  Unions may freely form or join federations or
confederations and affiliate with, and participate in,
international bodies.

    b.  The Right to Organize and Bargain Collectively

    The Constitution provides for the right to bargain
collectively, and, despite unfamiliarity with the practice
following 10 years of central planning under the Sandinista
regime, collective bargaining is becoming more common in the
private sector.  The International Labor Organization@s
Committee of Experts on the Application of Conventions and
Recommendations issued a report in 1992 asserting that the
Nicaraguan law which requires collective agreements to be
approved by the Ministry of Labor before they come into force
violates the Convention on the Right to Organize and Bargain 
Collectively, ratified by Nicaraguan in 1967.  No action has
been taken to modify this provision, although the Labor Code is
currently being revised by the National Assembly.

    c.  Prohibition of Forced or Compulsory Labor

    The Constitution prohibits forced or compulsory labor, and
there is no evidence that it is practiced.

    d.  Minimum Age for Employment of Children

    The Constitution prohibits child labor that can affect
normal childhood development or interfere with the obligatory
school year.  Education is compulsory to age 12, and children
under the age of 14 are legally not permitted to work. 
Nevertheless, because of the prevailing economic difficulties
in Nicaragua, reportedly more than 100,000 children are members
of the workforce, particularly in the agricultural and informal
commercial sectors of the economy.  The child labor law is,
however, generally observed in the modern, formal segment of
the economy.

    e.  Acceptable Conditions of Work

    The standard legal work week is a maximum of 48 hours with
one day of rest.  Health and safety standards are extensive,
but not strictly enforced due to an insufficient number of
inspectors.  Sectoral minimum wages were set in mid-1991, but,
according to a study by the Government's National Commission on
the Standard of Living, the minimum wage does not provide a
family of four with the income to meet its basic needs. 
Minimum wage levels were not adjusted following the 20 percent
devaluation of the cordoba in January 1993.  However, Ministry
of Labor surveys indicate that some 86 percent of urban area
workers earn more than the minimum wage.

    f.  Rights in Sectors with U.S. Investments

    The above rights are observed in sectors with U.S.
investment and overall working conditions do not differ
adversely from the general description above.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                              (1)
Total Manufacturing                                    (1)
  Food & Kindred Products                   (1)
  Chemicals and Allied Products               0
  Metals, Primary & Fabricated                0
  Machinery, except Electrical                0
  Electric & Electronic Equipment             0
  Transportation Equipment                    0
  Other Manufacturing                         


Wholesale Trade                                           2
Banking                                                  0
Finance/Insurance/Real Estate                            0
Services                                                 3
Other Industries                                         0
TOTAL ALL INDUSTRIES                                   (1)     

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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