Foreign Trade and the Balance of Payments

In 1992 Nicaragua's foreign trade consisted almost entirely of agricultural exports (mostly coffee, cotton, bananas, sugar, and beef) and imports of petroleum, consumer goods, and machinery. Although the country's major trading partners have changed in response to the political orientation of the administration in power and the trade balance has fluctuated with the world price for agricultural products, Nicaragua's basic pattern of imports and exports has remained unchanged throughout the twentieth century.

The late 1970s and 1980s saw the country's trading partners shift dramatically (see table 6, Appendix A). Prior to the outbreak of large-scale fighting in 1977, the country's main trading partner was the United States. The period of widespread hostilities from 1977 to 1979, along with dwindling worldwide support for the Somoza administration, halted almost all foreign trade. When peace returned in 1979, the new Sandinista government encouraged trade with the Soviet Union, Cuba, and Eastern Europe. This shift in trading partners gathered momentum in the 1980s when the United States trade embargo forced the Sandinista administration to strengthen ties with socialist countries. Nicaraguan exports to Soviet bloc countries went from nil in 1979 to 31 percent in 1987 in the same time period, imports from socialist nations rose from less than 1 percent to more than 44 percent.

As trade with the socialist countries increased, trade with the United States and neighboring Central American countries decreased. The growth of the Contra insurgency in border areas made overland trade to Nicaragua's neighbors difficult. The disruption of trade routes, along with political opposition to the Sandinista government by the other Central American republics, caused trade between Nicaragua and the rest of Central America to decline 75 percent from 1982 to 1985. Trade with the United States in the 1980s also fell. In 1983 the United States lowered the sugar import quota from Nicaragua, and sugar exports from Nicaragua to the United States declined 90 percent. The 1985 United States embargo on trade with Nicaragua ended what exchange was left between the two nations the United States accounted for 23 percent of Nicaraguan exports and 31 percent of Nicaraguan imports in 1980 trade between the two was practically nonexistent after 1985.

The change of administrations in Nicaragua in 1990, along with the overthrow of communism in Eastern Europe and the Soviet Union and the collapse of the Cuban economy, caused Nicaraguan trade patterns to shift yet again. Trade with Cuba, Russia, and Eastern Europe plummeted. The end of the United States trade embargo in 1990 resulted in 16.4 percent of Nicaragua's exports going to the United States and 21.3 percent of Nicaragua's total foreign purchases coming from the United States in the following year.

Nicaragua's balance of trade has shown a sizable deficit every year since 1980. Export income declined in the 1980s because of poor harvests, low p451 prices for agriculture exports, difficulty in obtaining foreign credits and foreign exchange, the decline of the Central American Common Market (CACM) as a trading bloc, and the loss of United States markets. Despite a decrease in export earnings, imports of petroleum and consumer goods continued at roughly the same pace throughout the 1980s. The yearly trade balance for that decade ranged from US$230 million to US$562 million (in constant 1980 United States dollars), and the negative trade balances were paid for by a rapid increase in the country's external debt. Ironically, resumption of trade with the United States exacerbated the balance of payments situation because imports of consumer goods and machinery from the United States increased much faster than exports of agricultural products.

Data as of December 1993