MANAGUA, Nicaragua — Nicaraguans driving along their capital's main boulevard in recent months have passed a novel sight: For the first time in the quarter-century since a killer earthquake shattered this city's lakefront downtown, new construction is underway.
The silhouette of peasant hero Augusto Cesar Sandino--a sculpture erected by a past Marxist government--now overlooks the site where Taiwanese investors are building a $6-million shopping center, part of a $33-million expansion of the renovated Intercontinental Hotel.
Farther south, on the highway to Masaya, investors from neighboring El Salvador are laying the foundation for a $12.7-million hotel-shopping center complex. Out by the airport, the Las Mercedes Industrial Park--a free-trade zone converted to a prison under socialism has leased all its manufacturing sites, 90% of them to Taiwanese-owned export factories.
After 25 years of natural disaster, civil war and socialism, foreign investors are rediscovering Nicaragua. Foreign companies have put more than $100 million into Nicaraguan mines, telephone service, hotels and other industries over the last few years. The Foreign Investment Committee has approved twice that amount for future investments. Those figures exclude investments in land--for agriculture and tourism--and other projects that don't require government approval.
"In the perspective of the Nicaraguan economy, this is a lot of money," said Alejandro J. Carrion, general director of investments and export promotion.
Economists note that Nicaragua, the second-poorest country in the Americas after Haiti, still has many serious problems. But belt-tightening and fiscal discipline have cut yearly inflation from the 33,000% that the Marxist National Sandinista Liberation Front racked up in 1988 to a single digit last year. After a few years of modest growth, the country now appears stable enough to attract investors.
Reinforcing this view was January's peaceful transition of power from conciliatory former President Violeta Barrios de Chamorro to unabashed free-market advocate Arnoldo Aleman.
The changeover has given added impetus to investments that had begun to trickle in shortly after Chamorro became president in 1990, because investors "perceive that Aleman will defend the interests of the private sector and assure respect for private property," economist Raul Lacayo said.
After the U.S.-backed 1980s civil wars ended, other Central American economies also began to recover. Export factories have opened to the north in El Salvador, Honduras and, most recently, Guatemala.
Those countries are currently working to develop a three-country bloc for negotiating entry to international trade accords, such as the North American Free Trade Agreement. In the south, Costa Rica has preferred to go it alone.
Thus, in one sense, the rest of Central America is leaving Nicaragua behind. Nicaragua has been held back by the strikes and economic instability created by Sandinista unions in the cities and the security threat from roving armed bands in the countryside.
Yet its location in the middle of the isthmus and its relatively large size--rivaled only by Guatemala--mean that it impedes regional economic integration efforts. A Nicaraguan strike earlier this year, for example, closed the Pan-American highway, cutting off overland traffic to Panama and Costa Rica for a week.
But ironically, Nicaraguan's economic backwardness has given it a comparative advantage in attracting foreign investment.
With unemployment estimated at 50%, it is inexpensive. Labor and land are cheap even by Central American standards. Prime agricultural land in Nicaragua's Chinandega province costs less than $1,000 an acre, about a quarter what comparable farmland goes for in El Salvador and Guatemala.
"Nicaragua is like an island surrounded by countries that are growing," Lacayo said.
For most of this century, Nicaraguan land was prized. The country was Central America's breadbasket during the four-decade Somoza family dynasty, which began in 1937. Four years before, a withdrawal of U.S. troops ended two decades of intermittent civil war and occupation. In the 1970s, when then-President Anastasio Somoza Debayle stole half the aid sent after the '72 earthquake, he added momentum to the revolutionary movement that overthrew him in 1979.
The Sandinista guerrilla commanders who took power nationalized private industry, throwing out most foreign investors. A U.S. embargo combined with socialist policies and an ongoing civil war drove the country deeply into debt, destroying the economy. Chamorro's administration renegotiated debt and privatized government-owned companies, laying the foundations for restoring investor confidence.
Nicaragua remains primarily a farming country, relying on coffee, tobacco, sugar cane and other crops--along with ranching--for 60% of its exports. Foreign investors are helping to modernize agriculture and diversify the economy.