The impact of structural adjustment programs on manufacturing: lessons from Nicaragua

Since 1988, Nicaragua has applied structural adjustment programs, including stabilization and liberalization measures. As of 1991, these measures succeeded in combating inflation but they did not lead to increased production, nor to an improved trade balance. The Nicaraguan manufacturing sector was especially vulnerable because of a decade-long lack of investment and the non-market environment in which firms operated in the 1980s. The combination of trade liberalization with an overvalued exchange rate, and financial liberalization had, in particular, negative effects on manufacturing production and investment. In addition, specific industrial policies are necessary to increase manufacturing competitiveness.