Assessing the Effects of the NICA Act (2018–2023)
The United States passed the Nicaragua Investment Conditionality Act, or the NICA Act, in 2018 as a response to the regime’s manipulation and fraud in the 2016 Nicaraguan presidential election. The NICA Act required US directors at international finance institutions such as the World Bank or the Inter-American Development Bank to vote against providing loans or assistance that would benefit the regime, authorized sanctions on Nicaraguan officials, and required the State Department to provide yearly certifications on whether Nicaragua was taking “effective steps” towards restoring the rule of law and free elections. This page examines the impact of the bill given its relevance for contemporary legislation.
The NICA Act seems to have imposed some financial burdens on the regime but did not change its domestic behavior.
World Bank and IDB lending
Stopped, but not only because of NICA
$1.6 billion
less approved in 2019–2025 than at the pre-crisis pace: an upper bound
The law helped lock in the end of new World Bank and IDB lending to the Ortega government. If the two banks had kept their 2010–2017 pace of about $277 million a year, their approvals for 2019–2025 would have totaled about $1.94 billion; actual approvals were $311 million, and mostly went to COVID-19 and hurricane relief. The freeze began as a response to the regime’s 2018 crackdown, which took place before NICA was signed, so not all of it can be attributed to NICA. DTotal multilateral money
Did not fall
$307M → $636M
average multilateral disbursements a year, 2010–2017 vs. 2019–2023
The law did not reduce Nicaragua’s total multilateral financing. CABEI, where the United States has no vote, more than quadrupled its average annual disbursements ($84 million a year in 2010–2017 to $387 million in 2019–2023). CABEI’s approvals above its own old pace offset 47% of the World Bank and IDB gap over 2019–2025 (87% over 2019–2023), and Chinese supplier credits ($991.7 million in 2023–2024) covered the rest. A DBorrowing terms
Worse
26.6 → 16.5 yrs
average maturity of new external public loans, 2010–2017 vs. 2019–2024; peers were flat
Worsening borrowing terms are the clearest change that is identifiably specific to Nicaragua, though the deterioration was already visible before NICA came into effect. Grace periods fell from 8.4 to 2.6 years and the grant element of new loans from 31.7% to 7.3%, far more than in Honduras, the region as a whole or most neighbors. The interest-rate rise is not distinctive: peers’ rates rose as much or more. See Figure 6. A DThe regime’s conduct
No lasting change
0 of 5
conditions on which the State Department found “effective steps” in 2019 and 2020
There is no evidence that the law changed the regime’s conduct. In the first half of 2019 the government released hundreds of detainees under an agreement with the opposition and passed an amnesty law (June 8, 2019), but the State Department certified in July 2019, and again in May 2020, that Nicaragua was taking effective steps on none of the law’s five conditions (rule of law, corruption, civil rights, accountability for the 2018 killings, free elections). Of seven top security officials designated while in post, four are still in post, and none left within 12 months of designation. AWho stopped lending to Nicaragua, and how did Nicaragua replace these losses?
Figure 3 shows how the halt in new lending has played out so far. Loans approved before 2018 kept paying out, so it took until 2023, about five years after the IDB stopped approving non-emergency loans, for Nicaragua to begin repaying more than it received in new loans. Neither the NICA Act nor REFORMAR, as introduced, can influence CABEI, where the United States is not a member. If CABEI’s members stopped approving new loans, the corresponding squeeze would likely be larger: Nicaragua already repays CABEI about $200 million a year in principal, about three times what it repays the IDB. A D
Could CABEI’s loans have passed NICA’s “basic human needs” test?
The NICA Act allowed US directors to support World Bank and IDB loans to Nicaragua for basic human needs. The United States is not a CABEI member, so the test never applied there. These figures examine what would have happened if the same policy had been applied to CABEI loans to determine which CABEI loans would have been approved anyway.