	Background

Daniel Ortega was a leader of the Sandinista National Liberation Front (FSLN) when it overthrew the corrupt and repressive Somoza family dictatorship in 1979. When the pro-Soviet Sandinistas gained control of the government and pursued increasingly radical social policies, including redistribution of land and wealth, the United States backed opposition "contras" who launched an eight-year war (1982-1990) against the government. As part of the Central American Peace Plan, Ortega's Sandinista government agreed to internationally monitored democratic elections in February 1990, which he lost and peacefully ceded to Violeta Chamorro. Since 1990 Nicaragua has developed democratic institutions and a framework for economic development. Nonetheless, significant challenges remain: Nicaragua is still very poor, the second poorest nation in the western hemisphere. Its institutions are weak and often corrupt. Recent Political Developments

		2006 Elections3

Three elements were key to Ortega's victory: a change in Nicaraguan electoral law, an effective political machine, and a divided opposition. Ortega won only 37.9% of the vote, but was able to avoid a run-off vote because he was 9.6% ahead of the next closest candidate, Eduardo Montealegre of the Nicaraguan Liberal Alliance (ALN). Montealegre, who gained 28.3% of the vote, is a Harvard-educated banker and former finance minister. He was regarded by many as the U.S.-favored candidate. Montealegre's second place position garnered him a seat in the legislature. The PLC then came in third place with 26.2% for candidate José Rizo, an ally of Alemán and critic of President Bolaños. Critics accused both U.S. officials and Venezuelan President Hugo Chávez of trying to influence the election's outcome. Conversations between Ortega and U.S. officials, including President Bush, indicate both sides are seeking a cooperative relationship. Nonetheless, since taking office, Ortega has continued to vacillate between populist, anti-U.S. rhetoric, and pragmatic reassurances that his second administration will respect private property and pursue free-trade policies. Issues in U.S.-Nicaraguan Relations

		Level and Focus of U.S. Assistance

Some Members of Congress have criticized the Administration's reduced levels of some funding to Latin America, including to Nicaragua. The Administration notes, however, that it has supported forgiveness of Nicaraguan debts, and is providing significant amounts of aid through the Millennium Challenge Account (MCA) (see " Development and Poverty Reduction ," below). President Ortega has said he will honor the CAFTA-DR agreement. Property Claims

Resolution of property claims by U.S. citizens has been a contentious area in U.S.-Nicaraguan relations for decades, since the Sandinista regime expropriated property in the 1980s. Congress has also expressed concern over improving civilian control over defense policy.
Sandinista leader and former President Daniel Ortega was inaugurated to a five-year term as President on January 10, 2007. Three elements were key to Ortega's victory in the November 2006 presidential election: a change in Nicaraguan electoral law, an effective political machine, and a divided opposition. Ortega won only 37.9% of the vote, but was able to avoid a run-off vote because he was ahead of the next closest candidate, Eduardo Montealegre of the Nicaraguan Liberal Alliance (ALN), by more than the 5% required by law. Montealegre, who gained 28.3% of the vote, was regarded by many as the U.S.-favored candidate. His second place position garnered him a seat in the legislature. The Liberal Constitutional party (PLC) then came in third place with 26.2% for candidate José Rizo, an ally of the corrupt former President, Arnoldo Alemán. Critics accused both U.S. officials and Venezuelan President Hugo Chávez of trying to influence the election's outcome.
Ortega was a leader of the Sandinista National Liberation Front (FSLN) when it overthrew the Somoza family dictatorship in 1979. When the pro-Soviet Sandinistas gained control of the government the United States backed opposition "contras" who launched an eight-year war (1982-1990) against the government. Ortega's government agreed to democratic elections in February 1990, which he lost. Since 1990 Nicaragua has developed democratic institutions and a framework for economic development. Nonetheless, significant challenges remain: Nicaragua is still very poor, the second poorest nation in the western hemisphere. Its institutions are weak and widely viewed as corrupt.
In his first three months in office, Ortega has continued to vacillate between anti-U.S. rhetoric and pragmatic reassurances that his second administration will respect private property and pursue free-trade policies, as he did during his campaign. Ortega and U.S. officials have indicated that both sides are seeking a cooperative relationship, however.
There is debate among some Members and the Administration over what the appropriate level and focus of U.S. aid to Nicaragua should be. The Administration says its top priority in Nicaragua is consolidating democratic processes, including reforming the judicial system, implementing good governance, and combating corruption. Another issue is promoting development and poverty reduction; the Millennium Challenge Account compact between the two countries focuses on reducing rural poverty through road-building, increased wages, and strengthening property rights. Supporting the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) is the dominant trade issue; President Ortega has said he will honor the agreement. Resolution of property claims by U.S. citizens and immigration are contentious areas in U.S.-Nicaraguan relations. Other issues in U.S.-Nicaraguan relations include improving respect for human rights, improving civilian control over defense policy, the state of Nicaraguan missiles, and increasing Nicaragua's capacity to combat transnational crimes such as narcotics trafficking. This report will not be updated.