Nicaraguans pray that US avoids default

Since Daniel Ortega's election to the Nicaraguan presidency in 2006, the country and he personally, perhaps, have become increasingly dependent upon their relationship with Venezuela. However, they are starting to feel the pinch that many feared might follow Hugo Chavez's death.

During the first half of 2013, Nicaragua received $314 million from Venezuela through a variety of programs, including loans, direct transfers, and foreign direct investment. The intake was over 4 percent less than during the same period of 2012. Venezuela's foreign direct investment in Nicaragua also fell 40 percent. The Nicaraguan government has als decided to pick up a $65 million tab to continue to deliver $30 "bonuses" each month to 150,000 public employees that will no longer be coming from Venezuela..

And it's not just money flowing from Venezuela to Nicaragua that has taken a hit. Venezuelan imports from Nicaragua also decreased 6 percent. The Nicaraguan government, businesses, and citizens are going to take a hit.

Even with increasingly relations between Nicaragua and Venezuela, the US remains Nicaragua's main trading partner. A slowdown in trade with Venezuela would probably hurt but could be overcome. However, a slowdown in the US economy coupled with reduced economic cooperation with Venezuela is going to be tough to overcome.

In a report issued in April last year, non-governmental Nicaraguan Foundation for Economic and Social Development (Funides) projected that the country's economy would grow by 4.5% in 2013.

However, that body also made calculations based on a less optimistic "alternative scenario," taking into account the crisis in the United States, the main destination of Nicaraguan exports, and uncertainties regarding Venezuelan aid.

Such "alternative scenario" estimates that if the US grows 0.5% less than last year, then Nicaraguan exports to the US would drop between 10% and 20%; and if Venezuela stops allocating USD 300 million to Nicaragua, then the growth rate would drop by 2.5% in 2013-2015.

Not catastrophic, but not good. And the consequences will not just be felt economically. Germany's Konrad-Adenauer Foundation recently released it annual Democratic Development Index in which Nicaragua, among others, marked democratic gains "largely for improving the economic welfare of their citizens."

In addition to the economic effects of a slowdown in the US and decreasing support from Venezuela, Ortega is likely to confront growing criticism for his weakening of democratic institutions and processes in Nicaragua.