Understanding Nicaragua’s adoption of its One-China policy

Article tags EconomyPoliticsRiskAmericasGlobalCountry AnalysisEIU Store

On December 9th the Nicaraguan government, led by Daniel Ortega, announced that it was breaking official ties with Taiwan by switching diplomatic recognition to China. In doing so, the Ortega regime jettisoned a loyal ally that has been furnishing Nicaragua with a small but important amount of financial assistance for more than 30 years. EIU believes that a complex mix of foreign policy and domestic political considerations lie behind the shift, all of them aimed at preserving Mr Ortega’s authoritarian dynasty. Although Nicaragua stands to gain considerably from Chinese “chequebook diplomacy”, the policy shift will raise tensions with the US and its allies.

Mr Ortega has severed relations with Taiwan once before, in 1985, when he was leader of the revolutionary Sandinista junta. However, diplomatic ties between Nicaragua and Taiwan were subsequently restored in 1991, under a former president, Violeta Chamorro (1990-97). Since Mr Ortega returned to power in 2007, Taiwan has provided the Nicaraguan government with more than US$200m in foreign assistance, and eventually signed a free-trade agreement that generates US$120m annually in bilateral exchanges, all in an attempt to maintain Nicaragua’s diplomatic recognition of the island as a sovereign state. However, in recent months, Taiwan has been distancing itself politically from the Ortega regime, calling the future of its assistance into question.

Timing is telling

The reasons for Mr Ortega’s decision to abandon Taiwan and adopt a “One China” policy are numerous. The timing of the move suggests that one motive is to parry immediate pressure from a large swathe of the international community. Following the Ortega regime’s repressive handling of its recent electoral process, it has faced strong international condemnation, a new raft of diplomatic and financial sanctions by the US, and a looming threat of suspension from the Organisation of American States (OAS), to which Mr Ortega has responded by threatening to withdraw from the body first.

The announcement of a strategic alignment with China appears to be Mr Ortega’s latest response to this pressure. Nicaragua’s adoption of a One China policy flies in the face of US efforts to shore up Taiwan’s military and diplomatic defences against increasing pressure from China. It is likely that this act of defiance from Nicaragua was co-ordinated with the Chinese authorities to coincide with the US’s Democracy Summit, to which neither country was invited.

We believe that both Nicaragua and China see mutual benefit in their new alliance. For Nicaragua, it sends a message to the US and its allies in the OAS that the country will have access to an alternative source of financial assistance and will therefore be unaffected by further pressure. For China, meanwhile, bringing Nicaragua into its fold yields foreign policy accomplishments on two fronts. First, it serves to further isolate Taiwan diplomatically on the international stage. Secondly, it puts a Chinese ally solidly in the US’s backyard, at a time when the country has been seeking to expand its influence in the region. In recent years China has successfully courted other Central American countries including the Dominican Republic, El Salvador and Panama; it appears increasingly likely that Honduras will join their ranks as well. These developments will also exert pressure on Taiwan’s government, even if we do not expect Nicaragua’s defection to affect Taiwanese foreign policy, which accords much higher priority to deepening unofficial economic and security ties with the US, Japan and other developed nations.

In addition to bolstering its external flank against pressure, it is likely that the Ortega regime intends its foreign policy démarche to shore up its flagging domestic support base. It can now argue to wavering supporters that, after years of decline and international siege, and despite the prospect of unremitting US sanctions in the short term, both the regime and the country have a China-powered future. In addition, the government will probably use the prospect of significant Chinese investment and assistance in infrastructure projects to lever private-sector companies into increasing domestic investment. This objective will figure prominently in a “dialogue” that is rumoured to begin early in the new year.

Achieving these short-term objectives would help the regime to weather the prolonged sanctions pressure that the US seems to have programmed for its relationship with Nicaragua over the medium term. Success for the Ortega regime, however, is by no means guaranteed. Ultimately, much will depend on the volume of financial assistance that China is willing to provide, how domestic entrepreneurs respond, and how the US reacts to the change in Nicaragua’s international alignment. Once these factors become known, it will become clearer whether Mr Ortega’s longer-term objective, which we believe is to dissuade a major escalation of economic aggression towards Nicaragua and to ultimately encourage the western hemisphere to accepting Nicaragua’s “popular democracy” as a fact of life, is feasible.

Wed, 15th Dec 2021 Article tags EconomyPoliticsRiskAmericasGlobalCountry AnalysisEIU Store