Nicaragua's Political Quagmire: How the Bayardo Arce Case Exposes Systemic Risks for Foreign Investors

In July 2025, the Nicaraguan government placed Bayardo Arce, a 76-year-old economic adviser and longtime confidant of President Daniel Ortega, under de facto house arrest. This move, part of a broader purge of Sandinista elites, underscores a regime in flux—and for foreign investors, it signals a deepening crisis of governance, corruption, and political instability. Arce's fall from grace, from a key architect of Ortega's economic policies to a figure under police surveillance, is not an isolated event but a microcosm of the systemic risks haunting Nicaragua's investment landscape.

The Arce Case: A Window into Institutional Decay

Bayardo Arce's career has been defined by his dual role as a Sandinista revolutionary and a gatekeeper of Nicaragua's economic policies. Appointed to his advisory role in 2007, Arce helped shape the Ortega administration's approach to privatization, foreign relations, and fiscal management. Yet his recent house arrest—and the scrutiny of his financial dealings—reveals a regime grappling with internal power struggles and a lack of transparency.

Arce's removal follows similar actions against other Sandinista leaders, including former army chief Humberto Ortega and National Directorate member Henry Ruiz. These purges, led by First Lady Rosario Murillo, are framed as efforts to consolidate power amid Ortega's declining health. But they also highlight a critical issue for investors: the absence of rule-based governance. When political loyalty supersedes legal accountability, asset mismanagement and corruption thrive.

The European Union sanctioned Arce in 2021 for alleged ties to the regime's repression, while a Spanish court investigation linked him to the activities of Nicaragua's honorary consul in Las Palmas, José Herrero de Egaña, who allegedly charged commissions for government contracts. These allegations, if proven, exemplify the broader pattern of financial impropriety that has eroded public trust and deterred foreign capital.

Political Risk as a Capital Deterrent

Nicaragua's political instability under the Ortega-Murillo regime has created a toxic environment for foreign investors. The government has systematically dismantled civil society, expropriating the assets of over 3,600 NGOs, universities, and health care providers. In 2023, it revoked the legal status of 19 business chambers, stripping the private sector of collective bargaining power and leaving companies to navigate an authoritarian bureaucracy alone.

Repressive laws passed in 2020, including a foreign agents law and a consumer protection law, further strangle economic freedom. Tax authorities routinely issue arbitrary assessments, and legal due process is often ignored. For example, the 2018 Social Security reform—defended by Arce as a “necessary” austerity measure—triggered mass protests and exposed the government's willingness to prioritize political expediency over economic stability.

The regime's alignment with China, while promising new trade routes, has not offset its isolation from Western markets. U.S. sanctions, the EU's asset freezes, and the withdrawal of international lenders have left Nicaragua increasingly dependent on opaque financing. This creates a paradox: while the country boasts $5 billion in foreign reserves and a 3.5% GDP growth forecast for 2024, these gains are unevenly distributed and built on shaky foundations.

Macroeconomic Illusions and Structural Weaknesses

Despite superficial indicators of stability, Nicaragua's economy is fragile. Remittances, which reached $4.7 billion in 2023 (30% of GDP), have cushioned the blow of declining investment, but they are not a substitute for sustainable development. The formal sector has lost 120,000 jobs since 2017, and average family incomes remain 20% below 2017 levels.

The government's control over civic spaces and media exacerbates these challenges. In 2024, the Ministry of Interior gained authority to regulate public artistic events, stifling cultural expression and signaling a broader crackdown on dissent. Such measures deter not only foreign capital but also the human capital needed for innovation and growth.

Investment Advice: Proceed with Caution

For investors considering exposure to Nicaragua, the Arce case serves as a stark warning. Political risk here is not a temporary blip but a systemic issue. The regime's inability—or unwillingness—to enforce the rule of law, coupled with its reliance on repression and arbitrary policy shifts, makes long-term investments perilous.

However, opportunities exist for those with a nuanced approach. Nicaragua's geographic advantages—its access to major shipping lanes, agricultural potential, and proximity to the U.S.—remain untapped. Investors who prioritize resilience and diversification might explore indirect channels, such as regional ETFs or companies with robust compliance frameworks that can mitigate political risk.

In the short term, the focus should be on risk mitigation. Engaging with local partners who understand the political landscape, securing insurance against expropriation, and avoiding sectors vulnerable to state interference (such as energy or telecommunications) are prudent strategies.

Conclusion: A Nation at a Crossroads

Bayardo Arce's house arrest is more than a political maneuver—it is a symptom of a regime in crisis. As the Ortega-Murillo administration consolidates power through purges and repression, Nicaragua's governance model becomes increasingly unattractive to foreign investors. The Arce case, with its implications of corruption and instability, should serve as a red flag for capital seeking predictable returns.

For now, the path forward for Nicaragua—and for investors—is clouded. The regime's grip on power may persist, but without institutional reforms and a commitment to transparency, the country will remain a high-risk, low-reward proposition. In the world of investment, as in politics, the devil is in the details—and in Nicaragua, the details are damning.