For years, Nicaragua  has been one of the most highly indebted nations of the world. When Somoza fled the country, he took the capital reserves of the banks with him, leaving behind $1.6 billion of debt. The Sandinistas, through a combination of gross economic mismanagement, extensive borrowing (primarily from Eastern bloc nations), the U.S. economic embargo, and high defense expenditures augmented the national debt by a factor of 10, nearly half of which was in arrears.
By 1994, Nicaragua had the highest ratio of debt to GDP in the world, a challenge every successive administration has had to deal with. Germany, Russia, and Mexico were the first nations to forgive Nicaraguan debt entirely.
Propitious to Nicaragua’s future economic growth was its inclusion in the Highly Indebted Poor Countries (HIPC) debt relief initiative in 2000. Inclusion in the initiative means Nicaragua will be exonerated from the majority of its international debt upon compliance with an International Monetary Fund (IMF) and World Bank program, but that program mandates several austerity measures, debt restructuring, and the opening of its economy to foreign markets.
More hotly contested is the mandated privatization of public utilities, including the telephone system (privatized in 2002) and municipal water distribution. City water systems have not yet been privatized and the issue is extremely controversial with those who consider water a human right rather than a commodity.
Central to the HIPC initiative is Nicaragua’s continued effort toward macroeconomic adjustment and structural and social policy reforms, particularly basic health and education.