Although for years the International Monetary Fund (IMF) praised the alliance between the private sector and the government, the institution decided to overlook, in its 2023 economic assessment on Nicaragua, the dismantling of the organized private sector ordered by the regime last year. This is reflected in the comprehensive Article IV report released by the organization last week.
The Article IV is a comprehensive and thorough assessment conducted by an IMF mission on the economy of each of its member countries. During this evaluation, observations and recommendations are made to the government to enhance performance indicators. Once the assessment is completed, it goes to the IMF’s board, responsible for giving the final approval, and subsequently, the full report is released. The report encompasses all aspects that the technical mission discussed with the government during its visit and the government’s response to the observations.
In March of last year, the Daniel Ortega regime ordered the closure of all 18 business chambers and the Superior Council of Private Enterprise (Cosep), revoking their legal status. This meant the dismantling of the entire private sector, which also included the elimination of the Nicaraguan Council of Micro, Small, and Medium-sized Enterprises (Conimipyme). These were the two main blocs that sat at the negotiating table with the Ortega regimen.
Even though the private sector’s break with the regime occurred in 2018, following the social upheavals that resulted in the deaths of more than 300 Nicaraguans, it was not until March 2023 that the organized private sector was dismantled. This is something that the technical mission that visited in November of last year chose to overlook in its report, but it includes an analysis of migration.
They used to meet with the private sector
Before the disappearance of Cosep, delegations from the IMF that visited Nicaragua to assess the state of the economy used to meet with Cosep and each of its business chambers to understand, on the ground, the health of the Nicaraguan economy. However, now the source of guild information has completely disappeared.
Despite this, the Fund «welcomed the authorities’ efforts to sustain medium-term growth through continuous investment in infrastructure and human capital. It recommended implementing policies to increase the workforce, participation, and improving the business climate by strengthening government institutions and frameworks in the areas of contract enforcement, protection of property rights, and insolvency resolution».
In terms of improving the business climate, it adds: «Ensure that the current observed increase in private investment is maintained or increased, including: (i) strengthening government institutions and frameworks in the areas of contract enforcement, protection of property rights, and insolvency resolution; (ii) enhancing dialogue with the business community to ensure that their feedback is taken into account before making changes that affect them; and (iii) strengthening anti-corruption and governance frameworks, including the rule of law.»
More than 500,000 left Nicaragua
What the IMF Board did not omit was the impact of migration, indicating that between 2019 and 2022, the country lost 8.7 percent of its population due to this relatively new «phenomenon.»
According to the Nicaragua in Figures report from the Central Bank, in 2022, the population was 6.7 million, resulting in a loss of 582,900 nationals from the labor force, not including those who left in 2023.
«While the rapid increase in emigration from Nicaragua is a relatively recent phenomenon (starting in the summer of 2021), understanding the drivers of emigration is crucial for assessing its trends and impact on growth. The data indicates that around 8.7 percent of the Nicaraguan population emigrated during 2019-22, primarily to the United States and Costa Rica,» states the report.
They expect the labor market to adjust
And although the Fund warned the government that migration would take a toll on economic growth, regime delegates downplayed such remarks. «The authorities do not see migration as a significant drag on long-term growth, as they expect the labor market to adjust given the high rate of underemployment (estimated at 40 percent). In the medium term, the authorities view the China Free Trade Agreement as an opportunity for export and foreign direct investment growth in the country,» reported the IMF.
However, the organization insisted that there will be economic growth in the medium term, «although at a slower pace than historical averages. In 2024 and the medium term, real GDP is expected to increase by around 3.5 percent, primarily supported by private consumption, below historical averages (2000-17) of 3.9 percent, given the cautious recovery of investment, limited new official financing approved, and the reduced contribution of labor to growth due to recent emigration.»
«There are no studies explaining the causes of emigration»
In the 2023 report, the IMF stated that «given the recent rapid increase in emigration in Nicaragua, there are no studies explaining the current causes of emigration in Nicaragua.» Therefore, it suggests looking into the «literature,» disregarding the fact that the migratory surge in Nicaragua originated from the intensification of state repression against the population after 2018 and particularly after 2021.
Specifically, the IMF tends to attribute Nicaragua’s migration to factors found in studies conducted on countries comprising the Northern Triangle (El Salvador, Honduras, and Guatemala). «The literature shows that economic conditions, particularly income and job opportunities in both the home country and the United States, are the strongest attraction and push factors for undocumented migration, and that the unemployment rate in the home country has the highest explanatory coefficient in a panel.»
Regarding this, it indicates that in Nicaragua, the unemployment rate jumped from 3.3 percent in 2017 to 5.9 percent in 2020, due to the prolonged recession and multiple shocks. Although it has since decreased to around 3.5 percent, underemployment remains high.
Climate impacts have been recurrent
It is worth mentioning, however, that the unemployment rate in Nicaragua has remained within the ranges mentioned by the Fund for years. Furthermore, since 2007, when Ortega assumed the Presidency, the purchasing power of wages has remained stagnant, and the impacts of climate change have been recurrent. Even so, the level of migration from Nicaragua to the United States was among the lowest in Central America.
Real wages have steadily decreased since their previous peak in 2018 and remain well below historical levels. At the same time, the unemployment rate for Hispanics in the U.S. and real wages in the U.S. also play a significant role, and during 2020-22, these attraction factors have performed well compared to historical and pre-pandemic levels, especially real wages in the lower quartiles (associated with lower educational levels). Additionally, natural disasters, as well as climate change (rising temperatures negatively impacting coffee producers and rural agricultural employment), are also strong driving factors for migration.
For the IMF, remittances are not enough to counterweight emigration
Nevertheless, the IMF pointed out to the government that «looking ahead, it is important to better understand the net combined impact of remittances and emigration on long-term growth. Estimating the net combined effect of emigration and remittances on real GDP growth is challenging due to endogeneity issues.»
The report states that to ascertain the actual impact, it would be necessary to know «the skills of the migrants; the impact of emigration on productivity and, therefore, the wages of the remaining workers in the country, and the propensity to invest the income received from remittances.»
However, the IMF notes that studies in Latin America and the Caribbean (LAC) on the effect of migration have shown that it «slows down economic growth, although remittances provide some mitigating factors, the overall effect appears slightly negative in LAC. Emigration negatively affects workforce participation, especially among the youth; and in LAC, individual effects vary, with larger remittances in some countries helping to mitigate the adverse impact of emigration.»
Remittances to Nicaragua «exploded» compared to the region
What is clear to the IMF is the impact of migration on remittances. «Nicaragua is experiencing a very large and sustained increase in remittances. Before 2022, the remittance growth rate in Nicaragua followed a trend and developments similar to those of other countries in CAPRD (Central America, Panama, and the Dominican Republic).»
«In 2022, total remittances increased by more than 60 percent compared to the end of 2021 in Nicaragua. In 2023, the level of monthly remittances to Nicaragua remained high, even as the growth rate slowed down (to around 50 percent year-on-year from January to September).»
This increase stands out even in the CAPRD region, which receives significant remittances, particularly in the northern countries of the triangle (El Salvador, Guatemala, and Honduras). Remittances in CAPRD increased according to pre-pandemic trends in 2022-23, while remittances to Nicaragua increased exponentially,» specified the IMF.
In numerical terms: «Remittances in Nicaragua have risen from approximately $100 million in 2016 to over $400 million in 2023. More than 90 percent comes from the U.S.»
