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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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Nicaragua Table of Contents