Nicaragua's Political Crisis and Costa Rica's Resilience: Navigating Risk in Central America

The death of Violeta Chamorro, Nicaragua's last democratically elected president and a symbol of the country's brief democratic interlude, has intensified scrutiny of the authoritarian regime under Daniel Ortega. Her passing on June 14, 2025, underscores the fragility of Nicaragua's political landscape, where Ortega's grip on power has solidified through constitutional overhauls and repression. For investors, this raises critical questions: How do Nicaragua's escalating risks compare to opportunities in its politically stable neighbor, Costa Rica? And what does this mean for portfolios seeking exposure to Central America?

Nicaragua: A Perfect Storm of Political and Economic Risks

Since Chamorro left office in 1997, Ortega has dismantled democratic institutions, culminating in 2025 reforms that enshrined a “diarchy” with his wife, Rosario Murillo, as co-president. These changes eliminated checks on executive power, enabling crackdowns on dissent. Over 450 Nicaraguans have been stripped of citizenship since 2018, while protests are met with violence and imprisonment. The UN has labeled these actions crimes against humanity, urging targeted sanctions and legal accountability.

Economic Consequences:
Nicaragua's economy now faces a trifecta of risks. Foreign direct investment (FDI), once a pillar of growth, has dwindled to 6.4% of GDP in 2024, down from pre-sanction levels. U.S. penalties on sugar exports and gold mining—sectors accounting for 12% of GDP—have exacerbated the decline. While Chinese investments, including a Belt and Road Initiative-backed free trade zone, offer lifelines, they come with geopolitical strings. Inflation, though projected to fall to 4% by 2025 from 8.4% in 2023, remains volatile due to external shocks.

Investment Implications:
Nicaragua's reliance on remittances (28% of GDP) and its heavy external debt (80% foreign-held) amplify vulnerabilities. The IMF has suspended lending, and multilateral financing remains blocked. For investors, the risks—expropriation, currency controls, and sudden sanctions—far outweigh potential returns. Avoid exposure to Nicaraguan equities, bonds, or real estate unless willing to accept extreme volatility and political risk.

Costa Rica: Stability Amid Regional Turmoil

While Nicaragua descends into authoritarianism, Costa Rica offers a stark contrast. Its GDP growth, though slowing to 3.5% in 2025 from 5.1% in 2023, remains anchored by robust FDI (14% growth in 2024) and a diversified economy. Key sectors like high-tech manufacturing (microprocessors, pharmaceuticals) and tourism (8% of GDP) attract global firms.

Political Stability:
Costa Rica's “A4” country risk rating reflects institutional strength. While 2026 elections may introduce minor volatility, the absence of Nicaragua-style repression ensures predictability. Reforms like the “Jaguar Law” aim to streamline infrastructure projects, though legal hurdles persist.

Investment Opportunities:
- Tech Sectors: Costa Rica's educated workforce and English proficiency make it a preferred location for firms like Intel and Siemens. The microprocessor industry alone employs 15,000 people.
- Tourism: Post-pandemic recovery has been strong, with 3.5 million visitors in 2024. Upside exists in eco-tourism and luxury accommodations.
- Agro-exports: Free trade agreements (EU, U.S., China) support coffee and pineapple exports, which grew 7% in 2024.

Costa Rican bonds (rated BB+ by Fitch) offer higher yields than U.S. Treasuries, with manageable public debt (59.4% of GDP by 2026). Equity investors should favor firms like Grupo Harko (retail) and Grupo Empresarial Súper Chino (supermarkets), which benefit from domestic consumption growth.

Strategic Recommendations for Investors

1. Avoid Nicaragua: Its political repression and economic fragility make it a high-risk, low-return proposition. Sanctions and expropriation risks are too great.
2. Leverage Costa Rica:
3. Fixed Income: Invest in Costa Rican sovereign bonds for yield and stability.
4. Equities: Target high-tech and tourism stocks via ETFs like CRI (iShares MSCI Costa Rica ETF) or individual firms with export exposure.

5. Real Estate: Consider office spaces in tech hubs or eco-resorts in Manuel Antonio National Park.

6. Monitor Regional Dynamics:

7. U.S.-Central America trade policies, particularly tariffs on Costa Rican exports, could impact growth.
8. Nicaragua's humanitarian crisis may drive refugee flows, testing Costa Rica's infrastructure but also creating demand for healthcare and housing solutions.

Conclusion

Violeta Chamorro's death marks the end of an era in Nicaragua's fragile democracy, leaving investors with a clear choice: avoid the political minefield of Nicaragua or capitalize on Costa Rica's stability and growth. In a world of rising geopolitical risks, Costa Rica exemplifies how strong institutions and diversification can turn regional instability into opportunity. For emerging market portfolios, the message is clear: invest in resilience, not regime dependency.