U.S.-Nicaragua trade grows 67% in two years despite sanctions

The sanctions applied by the United States to punish the regime of Daniel Ortega have not prevented the progressive establishment of a dictatorship in Nicaragua. The recent release and expulsion of 222 political prisoners does not appear to have been the result of US pressure; nor does it signal Ortega's repentance, but rather the opposite. As Nicaragua's main commercial partner , the US could be more effective in its aims with a reduction of imports from Nicaragua: Washington has considered excluding Nicaragua from the US-Central America free trade agreement , and has also considered the extreme of prohibiting the purchase of Nicaraguan products. However, despite proclaiming such intentions, the reality is that the U.S. continues to increase its trade - and its rare trade deficit - with Nicaragua.

Trade between the United States and Nicaragua reached a record $8.304 billion in 2022, an increase of 21.97% over the previous year, which also saw a significant jump after the trade moderation of the pandemic 2020. In those two years, while political Washington has sought ways to force President Ortega to retrace the path of authoritarianism, trade between the two countries grew by 67.15%, according to U.S. Census figures.

The Nicaraguan Economics depends enormously on this trade, since about 60% of its exports are destined for the United States. Nicaragua is the only Central American country that sells more to the U.S. than it buys from it: it only purchases about 25% of its total imports there. This Nicaraguan privilege status has been pointed out by those in Washington who highlight the incongruity of sanctioning the regime of Ortega and his wife, Vice President Rosario Murillo, with isolated measures, and yet continue to reward them with this trade surplus. In 2022, the deficit for the US in these transactions rose to $3,151 million, 25.89% more than the previous year.

It is possible that the volume of this commercial relationship will be affected throughout this year by some decisions adopted by the Biden Administration, such as the announced end of the attention favored sugar imports by 2023. Up to now, however, there has been a contrast between the declaration of intentions from the US in subject trade and the profit that Nicaragua continues to obtain (the Ortega-Murillo couple and their children control several important companies and benefit from exports; although it must be taken into account the damage that may be generated in the population as a result of certain economic sanctions).

The release on February 9 of 222 political prisoners, who were stripped of their civil rights and nationality and immediately sent to Washington, does not seem to respond to Ortega's need to negotiate the easing of existing sanctions. He himself has stressed that this decision was taken unilaterally, without any agreement with the U.S.; Washington was only asked about its willingness to receive the released prisoners. The White House, for its part, insisted that no concession had been made to the Nicaraguan authorities of the FSLN (Sandinista National Liberation Front) to carry out this gesture. The measure would respond, rather, to Managua's desire to get rid of a problem, while at the same time allowing it to display the humanitarian charter, even if it emphasizes its dictatorial character.

There has been, of course, no relaxation of the sanctions, although it could be asked whether the fact that the US has continued to give Nicaragua commercial privileges allows the Nicaraguan regime to think that by offering some compensation from time to time it can avoid more serious sanctions, such as the cut or prohibition of imports by the North American power.

agreement Free Trade Agreement

In 2006, the United States-Central America Free Trade Agreement (CAFTA) came into force, which was later joined by the Dominican Republic (DR-CAFTA). It was created to liberalize trade in goods and services in the region, including the elimination of tariffs, the opening of markets, the reduction of barriers to services and the promotion of transparency. Nicaragua has benefited the most: from 2006 until the Covid pandemic, Nicaraguan exports to the US grew 229% over pre- agreement levels, including such items as textiles, agricultural and food products, small machinery and electrical materials, as well as stone and glass.

Parallel to this evolution, the political and social control of Daniel Ortega's regime has been expanding. Already president of Nicaragua during the Sandinista Revolution in the 1980s, Ortega returned to the presidency in 2007 through elections, a few months after CAFTA came into force. Over the years, Ortega has been rolling back the country's democratic guarantees, with an increasing concentration of power and violation of human rights, as denounced by the US: elimination of the separation of powers, constitutional modifications to allow indefinite reelection, control over judicial rulings to justify government actions and electoral manipulation, among other aspects. It has also controlled the opposition by restricting freedoms, such as those of the press, expression and meeting, and resorting to police violence to terrorize the population through unjust arrests and aggressions, in a long list of rights violations harshly criticized by international organizations.

All these actions have damaged the socio-economic situation. The protests that broke out in 2018, whose repression exceeded three hundred dead, sank the Economics, then affected by the negative impact of the pandemic and widespread inflation. Nicaragua is the second poorest country in Latin America (after Haiti), with a GDP per capita of $2,100 in 2021; inflation reached 9.9% in 2022. Due to political persecution, violence, corruption and economic hardship, a large number of Nicaraguans decided to leave the country, some of them opting for Costa Rica, the usual migratory destination, but mostly heading this time to the United States: more than 180,000 Nicaraguans crossed the border with that country in 2022.

employee Washington has resorted to sanctions to try to force Ortega's anti-democratic turnaround, but this coercive diplomacy has not been used to its full extent so far, partly for fear of its effects on the local population. For his part, the Nicaraguan president has warned that a worsening of the Economics would only increase migration to the North, something not desired by the US.

Escalation of sanctions

The United States announced the first round of sanctions in 2018 in response to the brutal crackdown on mass protests at the time. In November of that year, the US congress approved the Nicaraguan Investment Conditionality Act(NICA), which provides for sanctioning anyone involved in abuses of power and against human rights in the Central American country. In this context of strong violence against the civil service examination and, increasingly, also against the Nicaraguan Catholic Church, Ortega obtained in 2021 a fourth mandate through fraudulent elections, which motivated the US congress to expand the legal framework for his actions through the RENACER Act (Reinforcing Nicaragua's Adherence to the Conditions for Electoral Reform).

The Trump Administration chose to impose sanctions on individuals (Specially Designated Nationals). The Biden Administration has continued with the same policy, attempting at times to act in concert with the European Union, with the shared purpose that free and fair elections be held in Nicaragua and that political prisoners be released.

But Ortega has not only not taken any steps backwards, but has deepened his confrontation with the US, the EU and regional institutions such as the Organization of American States (OAS), from which in April 2022 he withdrew the country after the denunciation of fraud in the municipal elections made by that forum. At the same time, Ortega has been particularly in tune with Putin after Russia's invasion of Ukraine, a country he has supported in its aggression. Managua and Moscow have strengthened military relations with the authorization of the entry of larger contingents of staff and Russian material into Nicaragua for border patrols and joint training. Ortega has also recently shown friendship towards Iran, with whose Minister of Petroleum he met in view of hypothetical oil explorations and investment in refinery activity, something interpreted as a desire of the Nicaraguan president to minimize future economic impacts of US sanctions.

Given the ineffectiveness of the measures that have been applied, in Washington, discussion was considered how to escalatethe pressure. Thus, they began to consider the possibility of promote the suspension of Nicaragua's participation in DR-CAFTA; however, this route was discarded for the moment, since there is no mechanism for this in the treaty, and it would have to be agreed upon with the rest of the member countries. Addressing other possibilities, such as the application of sanctions to certain industries, the Biden Administration has C a reduction in quotas, as well as the elimination of the reduced tariff on sugar imports by 2023. Other sectors that could be targeted include gold, since it is state-controlled and its profits sustain the regime. As a more extreme measure, the US could decree a ban on all purchases from Nicaragua, but it must be kept in mind that this would aggravate the humanitarian and migratory problems, and that Nicaragua could technically sue the US in application of the free trade agreement .

Another option to reduce the liquidity of the regime would be to restrict its ability to access foreign funds, such as loans from multilateral institutions like the IMF or the World Bank. Other proposals along these lines would be to deny the partnership of U.S. entities from financial aid to development such as USAID and the DFC with the Central American Bank for Economic Integration (CABEI) given the disproportionate amount of money it lends to Nicaragua because of its greater poverty.

But while the most appropriate sanctions are being determined, in fact in a context of doubts in the international community about the effectiveness of the various sanctions programs, the truth is that the United States has not only continued to trade without limitation with Nicaragua, but has also increased its volume of purchases.