A year away from elections, it seems Nicaraguan President Daniel Ortega may still have the strength to govern for another five-year term, but diminishing aid from Venezuela will complicate Nicaragua's economic planning in the near term and could eventually erode the Sandinista National Liberation Front's tight control over national politics.
Since the implementation of the Central American Free Trade Agreement in 2005, reduced tariff barriers have given Nicaragua greater access to the U.S. market, and foreign investors have increased their cash flow into Nicaragua accordingly. But waning assistance from Venezuela could threaten the continuance of this economic success story. Though Venezuelan aid to Nicaragua is a small portion of Venezuela's total foreign aid, declining oil revenue has forced Caracas to make some cuts. At its height in 2012, Venezuelan aid to Nicaragua totaled $728.7 million — less than 1 percent of Venezuela's reported oil export income for that year. But because Venezuela's oil revenue was cut nearly in half this year and because Caracas is concentrated on making foreign debt payments and investments into the oil sector, Venezuela has cut some of its aid abroad. In Nicaragua's case, aid in the first half of 2015 declined 23 percent from the year before, totaling some $193 million. Nicaragua depends on Venezuelan aid to augment public spending, and if assistance continues to fall, Nicaragua stands to lose a key source of political patronage.
Venezuela's heavy subsidization of Nicaraguan public finances guaranteed some measure of financial stability throughout Ortega's presidency. Direct loans from Venezuela's state-owned oil firm, Petroleos de Venezuela, not only cushioned the blow of rapidly rising oil prices in the late 2000s but also helped Nicaragua fund food imports and subsidize public transport fares. Although the subsidies are only a small part of PDVSA's total operating revenue, the aid given in 2014 represented about 32 percent of Nicaragua's total budgeted income for 2015. And if Ortega's government fails to fund socially sensitive programs such as public transport, on which it spent $16.5 million in the first half of 2015, it risks losing political support in the long run.
