How Nicaragua Made Our Modern Foreign Policy

By Sarah Sklaw

We live in a sanctioned world. Sanctions are a key, if not the key, component of U.S. foreign policy today. The U.S. government maintains embargoes and sanctions on at least twenty five countries, but the U.S. sanctions regime is so complex that the Treasury Department does not publish a complete list of sanctioned countries. Recently, arguments about how the U.S. should respond to Russia’s invasion of Ukraine have coupled questions about arms supplies with heated debates about the most effective use of sanctions to constrain Russia’s war power and Putin’s political control.

When we think about how we arrived here, a few countries come to mind, namely Cuba, Iran, Iraq, and Venezuela. But there is another country has played a key role in the evolution of U.S. sanctions policy to this very day: Nicaragua. Between 1977 and 1995, four different U.S. presidents imposed a gamut of sanctions on three different Nicaraguan governments. This period, the late Cold War and its early aftermath, was also a key turning point in the formulation and deployment of U.S. economic warfare, of which sanctions are the central component. Centering sanctions in our analysis of U.S. interventions in Nicaragua illuminates how our modern sanctions regime came into being and illustrates how sanctions actually influence the political, economic, and social dynamics of the targeted country.  

Iran-Contra, in Brief

There’s a pretty simple reason that Nicaragua does not figure prominently in our discussions of sanctions. When most people in the U.S. think about Nicaragua, their mind goes to the Iran-Contra scandal, in which the Reagan administration covertly redirected profits from embargoed arms sales to Iran to finance right-wing Contra insurgents in Nicaragua. It is not surprising that Iran-Contra has soaked up so much of the air in the United States’ historical memory of both Nicaragua and Ronald Reagan. It is a genuinely bat-shit story. Iran-Contra had all the connivance, illegality, and bad behavior from powerful people to make for a headline-grabbing scandal, with some cocaine thrown in for good measure. 

In the broadest sense of the phrase, “Iran-Contra” acts as shorthand for a host of illegal actions undertaken by the Reagan administration to undermine the left-wing Sandinista government in the 1980s. More precisely, Iran-Contra refers to the illegal arms for hostages deal that Reagan’s underlings brokered with Iran in contravention of policy prohibiting arms sales to nations accused of supporting terrorism. Part of the profits (about $2 million from the $30 million sale) were then channeled to Nicaraguan paramilitaries. This was done in open defiance of the U.S. legislature, which had repeatedly prohibited the U.S. government from providing military support aimed at overthrowing the Nicaragua government. 

It was a truly wild scandal involving back-room deals among shady businessmen, even shadier paramilitaries, and mind-bogglingly corrupt U.S. government agents who continue to exert political influence today. Part of the reason that Iran-Contra looms large is that many of its key players still hold levers of political power. Former Assistant Secretary of State Elliott Abrams, charged with multiple felony counts for his involvement in Iran-Contra, served as President Trump’s Special Representative for Venezuela. Oliver North, the mastermind behind whole shebang, was president of the National Rifle Association. If you’re looking for a compelling story of political malfeasance and the absurdities of the Cold War, there are few better examples than Iran-Contra. 

Guerilla War by Other Means

Yet while covert and plainly illegal activities were central to the Reagan administration’s approach to Nicaragua, it was the completely legal aspects of U.S. warfare that had the deepest impact on the stability and legitimacy of the Sandinista government and the most long-lasting effects on the lives of everyday Nicaraguans. U.S. economic warfare was more durable and widespread than military operations. Administered by the U.S. Treasury department and supported by a bi-partisan roster of domestic politicians, economic sanctions served practical, ideological, and geostrategic aims.

Activists, academics, and anti-war activists have challenged the assumed wisdom that economic sanctions are somehow an alternative to war. Scholars like Joy Gordon, Nicholas Mulder, and Esfandyar Batmanghelidj have painstakingly demonstrated that sanctions are not an alternative to military confrontation but a key component of contemporary warfare. Sanctions kill children through malnutrition, destroy basic social services and physical infrastructure, and are most dire for the poorest segments of local populations. Their power to influence political decisions comes from their power to maim and kill. While sanctions’ efficacy in achieving their underlying (although often publicly repudiated) goal of regime change is highly debatable, they function by devastating the everyday economies where poor and working-class people secure their daily bread. Sanctions target civilians, shift the boundaries of formal and informal economies, and frustrate efforts at economic development.

This was no different in Nicaragua, where sanctions and the economic destruction they wrought contributed to many women’s alienation from the revolutionary government. Sanctions, and the Sandinistas’ responses to them, upended women’s domestic and working lives, unleashing slow, insidious violence that tore the already tattered fabric of Nicaraguan society. Contra attacks in the countryside and the multiple failures of the Sandinistas’ programs for peasantry (a common theme in many leftist revolutions) undeniably contributed to Nicaragua’s economic collapse and social instability, but without accounting for sanctions we cannot understand Nicaragua’s trajectory in the 1980s or the contradictions of its current government.  The Sandinistas lost elections to the conservative opposition in 1990 because they could not meet their own promises to improve the living standards of the country’s poor majority. 

Overt economic warfare was as much a part of Reagan’s foreign policy toward Nicaragua as covert paramilitary operations to overthrow the Sandinista government. When Reagan came to power in January 1981, his administration immediately canceled development funds allocated for reconstructing war-torn Nicaragua and suspended wheat imports, threatening to leave much of Nicaragua’s urban population without a staple food. In 1983, the U.S. drastically reduced Nicaragua’s sugar quota (as it had for Cuba) and lobbied against Nicaragua receiving development loans from multilateral and private banks.

Reagan further ramped up the economic weapon as paramilitary operations were bogged down in the field and attracted public criticism from Congress. Reagan’s covert war in Nicaragua was the worst-kept secret in Washington. In 1981 CIA officials met with and authorized support to Argentine and Honduran officials already training former members of Nicaragua’s despised National Guard to act as the ground troops for counter-revolution (contrarrevolución hence Contra).1 CIA operatives blew up Nicaragua’s air and sea ports and air-dropped lethal weapons to Contra guerrillas sheltered in the mountains. It was this hidden and illegal behavior, not affinity for the Sandinista party, that led the U.S. Congress to vote down a funding bill to the Contras in April 1984.

The paramilitary campaign was also ineffective. Surveying the battlefield in 1983, Reagan’s Intelligence Director judged the military war to be at a stalemate. Concentrated in rural regions far outside centers of power, Contra attacks wreaked havoc on rural life and particularly on food production. But destroying rural communities was not enough for the Reagan administration, who wanted a full national crisis that reached into the heart of the revolution’s primarily urban power base. 

Reagan responded to the failures of paramilitary strategy by emphasizing sanctions. We know this because Reagan’s intelligence officers stated as much in their war plans.2 In May 1985 Reagan imposed a unilateral embargo through executive order. Nicaraguan ships could no longer land in the ports of its largest trading partner, nor could they receive the imports necessary for a country whose economy was still primarily agricultural. The sliver of a humanitarian exemption contained within the embargo’s regulations merely served to increase Nicaragua’s dependence on foreign states, solidarity workers, and charity. 

The Impact of Sanctions

Sanctions shifted sites of conflict from the battlefield to the household. Budget shortages and ruptures in international trade networks led to the hollowing out of social services and exacerbated the scarcity of basic goods. Supply shortages had plagued the Sandinista state since at least 1983, but the effects of the embargo, the escalation of the Contra war, and discrepancies between the state’s model of agrarian reform and peasant networks of production deepened conflicts between the revolutionary government and everyday Nicaraguans. While Nicaragua’s economy had already begun to contract by 1985, with the embargo it slumped into a severe recession in which Nicaraguans experienced increased shortages of basic goods, an ever-greater spread between official and black market prices, and spiraling inflation. As the purchasing power of wages declined, individual consumption fell and hunger rose.3  

Sanctions proved harmful on three levels. First, they provoked sheer material suffering and economic disruption. Second, they delegitimized the government by undermining its ability to address these harms. Third, sanctions’ impact on the national economy discredited alternatives to the capitalist model that the U.S. sought to consolidate internationally. The Reagan government deployed sanctions to destroy heterodox economies that challenged market-based prescriptions for economic growth. The U.S. government’s economic warfare aimed to destroy the revolution’s capacity to develop an economic model that would feed, house, educate, and care for the population. In this way, the U.S. government could “prove” that socialism was destined to fail, while denying its own responsibility in ensuring said failure.4 Economic sanctions served an ideological purpose, working hand in hand with military warfare to short-circuit attempts at radical transformation. 

In the aftermath of the embargo, the Sandinista government imposed an escalating set of structural adjustment policies that undercut the very promises of redistribution and social welfare on which their legitimacy relied. By mid-1988 the leftist government had adopted the “new Neoliberal Orthodoxy” of severe austerity, mass layoffs, and the curtailment of worker’s rights adopted by their conservative opponents on the isthmus and across the world.5 The Sandinistas had abandoned their promises to reconfigure Nicaragua’s economy for the benefit of the poor. Living conditions for many were quantifiably worse than they had been in the early 1970s. 

The U.S. government, by then under George H.W. Bush, made clear that it would only end the economic strangulation of Nicaragua if the Sandinistas lost power. Supporters and opponents alike went into the 1990 election convinced that the Sandinistas would still win the contest. They were wrong. In retrospect, the collapse of the Sandinistas’ popular support was clear in economic statistics, mortality reports, and nation-wide exhaustion.

Ironically, the end of the Sandinista government did not mean the end of sanctions. Under the Bush and Clinton administrations, Congress sanctioned the U.S.-backed government of Violeta Barrios de Chamorro because of Nicaragua’s failure to return redistributed properties to their pre-revolutionary owners and the ongoing presence of Sandinistas in military and political positions.6 These new sanctions, and the lingering effects of the embargo, contributed to failures to demobilize former soldiers on both sides of the conflict and Nicaragua’s inability to build a new social safety net. This in turn led to continued violence in the countryside that made the post-war years as violent as the years of formal conflict.7 Sanctions, in other words, were the most important factor in bringing about the results that the U.S. government wanted to see in Nicaragua: the end of the Sandinista government.

Nicaragua Today

A final word is necessary on the contemporary situation in Nicaragua, as sanctions again form a cornerstone of U.S. policy towards the country. Currently Nicaragua, or more accurately, the Ortega regime, is under a series of “targeted” sanctions. The 2018 NICA Act requires the U.S. government to oppose loans from international financial institutions unless the Ortega government makes progress toward holding free, fair, and transparent elections. Under the Global Magnitsky Act, the U.S. government has also sanctioned members of Ortega’s inner circle, barring them from travel to the United States or engaging in commercial dealing with U.S. citizens. Yet even targeted sanctions have unappreciated effects on the wider population, as dictators on the defensive engage in increasingly radical and aggressive acts.8 Ortega’s response toward both sets of sanctions has been to further crackdown on civil society, press, and international NGOs.   

I must insist that the contemporary Ortega government is not one that self-identified Leftists in the U.S. should root for. In 2007, Daniel Ortega, President of Nicaragua from 1985-1990, returned to the presidency, a position he has held for the last fifteen years. Nicaragua’s prisons are full of Daniel Ortega’s political opponents –individuals ranging from members of the business council to historic Sandinistas who literally freed Ortega from the dictatorship’s jails in the 1970s. Ortega paints himself as an anti-imperialist hero but has happily collaborated with the U.S. in the drug war, deportations, and profit making ventures premised on the starvation wages paid to workers in free trade zones. Despite Ortega’s claim to be running a government that is “Christian, Socialist, and Solidaristic,” joining a labor union, bringing water to elderly women on hunger strike in a church, or simply carrying a Nicaraguan flag are activities that land individuals in exile if they’re lucky and prison if they’re not. 

Still, sanctions of any kind contribute to the immiseration of Nicaraguans rather than political change. Targeted sanctions, which focus on the assets and travel permissions of key figures in politics, business, and media, are themselves a response to strenuous criticism of sanctions’ impacts on civilians. But much like general sanctions, there’s little evidence to show that targeted sanctions lead to positive changes in the behavior of their targets. Instead, they’ve likely contributed to the Ortega government’s wholesale destruction of civil society and NGOs, whom he casts as foreign agents hell bent on his ouster. Ortega has made clear that when his associates are targeted, he will retaliate by crushing or expelling the national and international NGOs that function as the most delicate threads of Nicaragua’s privatized social safety net. 

Perhaps targeted sanctions will have a less dire impact on the welfare of the general population. This would be a laudable advance, but the case of Nicaragua’s NGOs suggest that even targeted sanctions have secondary effects that harm poor populations. If targeted sanctions primarily serve to reinforce the U.S. government’s habit of throwing its economic weight around to achieve its own political ends, then they merely reinforce the bad habits of our foreign policy. What we need in the 21st century is a new approach to how the U.S. relates to the world.

Sarah Sklaw is a historian of US foreign policy, gender, development & Nicaragua.


1. Molly Avery, “Connecting Central America to the Southern Cone: The Chilean and Argentine Response to the Nicaraguan Revolution of 1979,” The Americas 78 no 4, Oct 2021, 571-572.

2. Director of Central Intelligence, “Nicaragua: The Outlook for the Insurgency,” Jun. 30, 1983, CIA Covert Operations: From Carter to Obama, 1977-2010, Digital National Security Archive.

3. Cristiane Berth, Food and Revolution: Fighting Hunger in Nicaragua, 1960-1993 (Pittsburg: University of Pittsburgh Press, 2021), 120

4. There were several factors internal to the Sandinistas own economic strategy that led to its failure to deliver better living conditions for Nicaragua’s rural population. They often had to do with gender, an inadequate understanding of class structures in rural areas, and the all too common hubris of vanguard parties.

5. Orlando Mendoza Fletes, Distribución del ingreso y seguridad alimentaria en un ambiente de ajustes cambiario: los precios relativos en Nicaragua (1986-1992), (Managua: UNAN, 1992), 24.

6. Senator Jesse Helms (R-NC) used his influence on the Senate Foreign Relations Committee to prohibit the US from sending development aid to Nicaragua between 1992 and 1995.   

7. Verónica Rueda Estrada, “Movilizaciones campesinas en Nicaragua (1990-2018): De los Rearmados a los Auto-convocados,” Cuadernos Inter 16 no 2 (Jul.-Dec. 2019), 9, 8. 

8. Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (New Haven: Yale University Press, 2022), 227.

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