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Nicaragua Diversification and Growth, 1945-77
The period after World War II was a time of economic
diversification. The government brought in foreign
technocrats to
give advice on increasing production of new crops;
hectarage in
bananas and sugarcane increased, livestock herds grew, and
cotton
became a new export crop. The demand for cotton during the
Korean
War (1950-53) caused a rapid increase in cotton
production, and
by the mid-1950s, cotton was the nation's second largest
exportearner , after coffee.
Economic growth continued in the 1960s, largely as a
result
of industrialization. Under the stimulus of the newly
formed
Central American Common Market (CACM; see Appendix B),
Nicaragua
achieved a certain degree of specialization in processed
foods,
chemicals, and metal manufacturing. By the end of the
1960s,
however, import-substitution industrialization
(ISI--see Glossary)
as a stimulus for economic growth had been
exhausted.
The 1969 Soccer War between Honduras and El Salvador, two
members
of the CACM, effectively suspended attempts at regional
integration until 1987, when the Esquipulas II agreement
was
signed. By 1970 the industrial sector was undergoing
little
additional import substitution, and the collapse of the
CACM
meant that Nicaragua's economic growth, which had come
from the
expanding manufacturing sector, halted. Furthermore, the
manufacturing firms that had developed under the tariff
protection of the CACM were generally high-cost and
inefficient;
consequently, they were at a disadvantage when exporting
outside
the region.
Although statistics for the period 1970-77 seemed to
show
continued economic growth, they reflected fluctuations in
demand
rather than a continued diversification of the economy.
The gross
domestic product
(GDP--see Glossary)
rose 13 percent in
1974, the
biggest boom in Nicaragua's economic history. However,
these
figures largely represented the jump in construction as
the
country struggled to rebuild after the disastrous 1972
earthquake. Likewise, the positive growth in 1976-77 was
merely a
reflection of the high world prices for coffee and cotton.
Positive GDP growth rates in the 1970s masked growing
structural problems in the economy. The 1972 earthquake
destroyed
much of Nicaragua's industrial infrastructure, which had
been
located in Managua. An estimated 10,000 people were killed
and
30,000 injured, most of them in the capital area. The
earthquake
destroyed most government offices, the financial district
of
Managua, and about 2,500 small shops engaged in
manufacturing and
commercial activities. About 4 percent of city housing in
Managua
was left unstable.
Government budget deficits and inflation were the
legacies of
the earthquake. The government increased expenses to
finance
rebuilding, which primarily benefited the construction
industry,
in which the Somoza family had strong financial interests.
Because earthquake reconstruction generated few new
revenues,
except through borrowing, most of the resulting public
deficits
were covered by foreign loans. In the late 1970s,
Nicaragua had
the highest level of foreign indebtedness in
Central America (see Glossary).
Most of the benefits of the three decades of growth
after
World War II were concentrated in a few hands. Several
groups of
influential firms and families, most notably the Somoza
family,
controlled most of the nation's production. The Banamérica
Group,
an offshoot of the conservative elite of Granada, had
powerful
interests in sugar, rum, cattle, coffee, and retailing.
The Banic
Group, so-called because of its ties to the Nicaraguan
Bank of
Industry and Commerce (Banco Nicaragüense de Industria y
Comercio--Banic), had its roots in the liberal families of
León
and had ties to the cotton, coffee, beer, lumber,
construction,
and fishing industries.
The third interest controlling the nation's production
was
the Somoza family, which had wide holdings in almost every
segment of Nicaraguan society. Financial dealings for the
Somozas
were handled by the Central Bank of Nicaragua (Banco
Central de
Nicaragua), which the Somozas treated as if it were a
commercial
bank. The Central Bank made frequent personal loans to the
Somozas, which often went unpaid. Although the other
financial
groups used financial means primarily to further their
interests,
the Somozas protected their financial interests by
controlling
the government and its institutions. The Somoza family
owned an
estimated 10 percent to 20 percent of the country's arable
land,
was heavily involved in the food processing industry, and
controlled import-export licenses. The Somozas also
controlled
the transportation industry by owning outright, or at
least
having controlling interest in, the country's main
seaports, the
national airline, and Nicaragua's maritime fleet. Much of
the
profit from these enterprises was then reinvested in real
estate
holdings throughout the United States and Latin America.
Some
analysts estimated that by the mid-1970s, the Somozas
owned or
controlled 60 percent of the nation's economic activity.
When
Anastasio Somoza Debayle (president, 1967-72, 1974-79)
fled
Nicaragua in 1979, the family's worth was estimated to be
between
US$500 million and US$1.5 billion
(see
The End of the Anastasio Debayle Somoza Era
, ch. 1).
Data as of December 1993
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