Share this story
Close X
Switch to Desktop Site

New law aims to woo foreign investors. SANDINISTAS CHANGE TUNE

Revolutionary Nicaragua, embroiled in a six-year war against United States-backed rebels, does not enjoy the reputation of a foreign investor's paradise. But with the passage of a new law last month, the Sandinista government is clearly opening the doors to foreign capitalists. It has taken its first step in search of private venture capital, and is holding out the prospect of surprisingly advantageous terms to new investors.

The law, due to come into force at the end of this year, has been in the pipeline for nearly six years. But its passage was timed well politically. Under the recent Central American peace treaty, which is still inching its way forward, Nicaragua has pledged to make itself a more open society.

About these ads

``This law fits nicely with the peace process,'' one foreign economist here says. ``It legislates for economic pluralism.''

More important, a senior government official says, the law offers a pointer to the Sandinistas' changing attitude to foreign capitalists. Reservations about allowing them into Nicaragua ``was one reason why it was necessary not to rush the law.'' Now, he adds, those prejudices have pretty much evaporated.

The law sets no limit on an investment's size nor any ceiling on foreign participation in a project. While many other Latin nations insist that locals hold at least 51 percent of any company, ``here it will all depend on the type of investment and on the country's needs,'' says Evaristo Garc'ia, of the Ministry of Foreign Cooperation. ``If there aren't enough resources here to help fund a project ... then we will allow 100 percent foreign ownership.''

The law lays some groundwork for the post-war development to which Managua is looking forward. ``If the war ends, Nicaraga will be faced with the tremendous challenge of rebuilding its economy,'' Foreign Trade Minister Alejandro Mart'inez Cuenca says. ``We will need complementary efforts by the international community'' to do so.

With this in mind, President Daniel Ortega Saavedra made an unlikely stop during a recent trip to New York. He went to the Jockey Club on Central Park South to address the Young Presidents' Organization - a group of high-flying under-40s.

His pitch for outside investment in Nicaragua is reflected in the ``framework law'' just passed by the National Assembly. The law is short on specifics, but offers broad possibilities for negotiation. It guarantees investors the right to repatriate capital and dividends, protects them against devaluation by promising a fixed exchange rate for their operations, and holds out the prospect of tax breaks.

All the details of an investment, such as how much profit can be remitted, and when, will be subject to case-by-case negotiations, officials say.

About these ads

``The vagueness of the law is what makes it very attractive,'' Mr. Mart'inez Cuenca says. ``Everything is negotiable.''

``In the end,'' says one international businessman with long experience here, ``it will all come down to horse trading. The better you can negotiate, the better deal you will get.''

For foreign firms established here before the 1979 revolution, it has been difficult to secure favorable operating conditions. With foreign exchange a scarce commodity in a shortage-plagued economy, few firms have been able to repatriate their earnings. The new law aims to overcome that problem by setting aside an investor's dollar earnings in an untouchable Central Bank fund, ready for repatriation or reinvestment at the end of a contract's term.

Nicaragua's exports have dropped annually since 1979 to little more than one-third their former level. The government now recognizes that is a critical problem.

Five years ago, the task of increasing exports was at the bottom of Managua's economic priorities list. This year, it's at the top.

Light-manufacturing enterprises, aimed at neighboring nations' markets, offer some hope. But the government would like to see foreign investors help develop Nicaragua's natural resources. Its rich fisheries, for example, are underexploited. Nontraditional export crops such as tropical fruits could sell well in the US.

But government planners acknowledge that practical problems abound in this economy, which has been nearly wrecked by six years of war and bad management. ``I don't expect to see lines of investors next month or next year,'' says Mart'inez Cuenca. ``But the new law opens up opportunities for further interest, further dialogue.''

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.