Since peace was restored following the civil war in the 1980s, Nicaragua has made substantial progress in reducing economic imbalances and in moving toward a market-based economy. The government strengthened macroeconomic policies, eliminated most price controls, and liberalized the foreign exchange and trade system. As a result, inflation dropped to single digits in 1997, and real GDP growth accelerated to about 5 percent. This will entail a reduction in the size of the public sector and an increase in central government revenues brought about by a broadening of the tax base, increased transparency of the tax system, and the elimination of a large number of discretionary VAT and customs exemptions. Also, central government expenditures will benominally frozen, and export subsidies eliminated.
Monetary policy is designed to support the external sector and inflation objectives of the program.
The authorities plan to continue with public sector reforms to improve services and efficiency. They intend to implement a law that restructures the executive branch so as to reduce the number of government ministries and agencies reporting directly to the President. To improve governance and public accountability, the government is preparing a comprehensive judicial reform designed to improve legal procedures and enhance enforcement of contracts and property rights. The government will also phase out restrictions and eliminate discriminatory treatment against foreign and domestic investors. The authorities will complete the reform of the state banking sector and privatize public utilities, state oil distribution, and the services of the major ports.