Since the colonial period, Nicaragua’s economy has been based on the export of raw materials, largely agricultural products. Coffee has been a major crop since the 1840s, and cotton, sugar, bananas, forestry, mining, cattle, and shrimp have also contributed to the economy. A small elite class traditionally controlled the bulk of Nicaragua’s land, and therefore its economic life.

Although Nicaragua historically has been one of Latin America's poorest countries, the cost inflicted by anti-Somoza and Contra wars, the United States' program of economic strangulation throughout most of the 1980s, and various errors committed by the Sandinistas and their conservative successors worsened the country's plight. The Sandinista policy of developing a mixed economy (about 60 percent private and 40 percent public) resulted in growth from 1980 through 1983. However, a sharp economic decline, shortages, war-driven inflation, and a growing foreign debt soon followed. In the late 1980s the Sandinistas implemented a harsh austerity program featuring some privatization and sharp reductions in public employment.

Nicaragua, one of the hemisphere's poorest countries, faces low per capita income, flagging socio-economic indicators, and huge external debt. While the country has made progress toward macro-economic stabilization over the past few years, a banking crisis and scandal has shaken the economy. Managua will continue to be dependent on international aid and debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. Donors have made aid conditional on improving governability, the openness of government financial operation, poverty alleviation, and human rights. Nicaragua met the conditions for additional debt service relief in December 2000. Growth should remain moderate to high in 2001.