PHOTO GALLERY: See the sights of Nicaragua

A midwinter sun slinks toward the Pacific horizon, casting a flattering glow over the crescent bay where thousands of fortune seekers set sail for California during the Gold Rush. Today, it's lined with palm-thatched restaurants where Jimmy Buffetts-in-training kick back with $1 beers and concoctions fueled by smooth, Nicaraguan-made Flor de Caña rum.

Two blocks away at La Posada Azul, a just-opened bed-and-breakfast inn owned by expatriates from Santa Fe, guests loll by the pool and contemplate dinner at a new fusion restaurant in the surrounding hills that an earlier American visitor, Mark Twain, praised as "welcome, enchanting, (and) altogether lovely."

But at a garage across the street from La Posada Azul, the mood changes.

A sympathetic local crowd gathers around a man with a bullhorn and a complaint: Residents whose families have been here for generations, including some who sold properties to foreign investors for around $10,000 a few years ago only to see them "flipped" for 40 times the price, are being denied beach access at gated developments along the coast. Just recently, adds one bystander, a group of fishermen claimed they were threatened by armed security guards when their boat veered too close to the shore of an upscale eco-resort north of town.

While strain between foreign haves and local have-nots may be a familiar story in other Third World tourist destinations, it's news in Nicaragua, which itself is back in the headlines after last month's presidential inaugural of former Marxist guerrilla and U.S. antagonist Daniel Ortega.

The 61-year-old Sandinista leader who once railed against "Yanqui imperialism" has pledged to protect free trade and private property and accelerate international investment in his nation's nascent tourism industry. The largest country in Central America — and according to several studies, its safest — has earned "flavor of the month" status from such influential taste arbiters as Arthur Frommer, Lonely Planet and Yahoo Travel. About 773,000 foreigners were drawn here last year, up 8% from the year before.

Like many visitors, Rob and Carol Wilson of Seattle were seduced by stories touting Nicaragua's friendly people, untrammeled coastlines, volcanic landscapes and colonial architecture — and the satisfaction of exploring a place that mainstream American tourists haven't even considered

"Cozumel is just like Miami, except they don't speak Spanish," says Rob, a college professor. "We're always pushing the horizons." His recent 10-day trip included attending a traditional fiesta in a coffee-growing region south of Managua, peering into the smoking maw of the Masaya volcano and kayaking in Lake Nicaragua, the eighth biggest in the world.

In addition to trailblazing vacationers like the Wilsons, an estimated 6,000-7,000 Americans live at least part time in Nicaragua. Many have gravitated to San Juan del Sur and other stretches of the Pacific coast, where the number of real estate developments has expanded from about two dozen to nearly 100 in less than three years, and to Granada, a proposed UNESCO heritage site on the northwestern shore of Lake Nicaragua.

Founded by Spanish conquistadors in 1524 and rebuilt after American soldier-of-fortune (and self-appointed Nicaraguan president) William Walker burned it to the ground in 1857, Granada is reminiscent of better-known Antigua, Guatemala — before the latter's saturation with backpackers and Internet cafes. Tourism has made inroads here, too: More than a dozen hotels and tour companies have opened in the past year, and foreigners have bought so many of the colorful colonial homes along the main drag, La Calzada Street, that one local tour guide says its new nickname is "gringo land." But the town remains a low-key, unpolished place where residents gather companionably on doorsteps in the early evening, watching the passing parade from hand-made wooden rocking chairs.

For both visitors and expats, "these are the good old days," says Terry Leary, a former Peace Corps volunteer turned co-owner, with her sister Nancy Bergman, of Casa San Francisco, a small hotel in the heart of Granada's compact historic district.

Ortega's conciliatory rhetoric notwithstanding, his re-election with 38% of the vote "was everyone's worst fear," admits Bergman. But now, she adds, "the skeleton is out of the closet, and we need to move forward. The last few presidents really haven't done much to advance this country, and if Ortega can keep a balance between Chavez on the left and the U.S., I think it will be fine."

That task, like so many others in Nicaragua, won't be easy. Second to Haiti as the poorest nation in the Western Hemisphere, it's a place where 80% of the population lives on less than $2 a day. Oxcarts can outnumber cars on cratered country roads, and power outages have been so frequent they're mentioned in hotel brochures. And while tourism is viewed as key to economic growth, a rough-around-the-edges Wild West mentality prevails.

On a bird-watching kayak tour of Lake Nicaragua's Las Isletas, an archipelago of 350 islands that formed near Granada when the Mombacho volcano blew its stack thousands of years ago, the scenery includes egrets, herons and occasional cattle — and plastic bags that, according to one joke, have become the national flower of Nicaragua.

Many of the tiny islands have for-sale signs, including one deserted, quarter-acre outpost that is a dense tangle of trees and tropical vines. Its future? "They'll probably TNT it" to put up a vacation home, says tour guide Jalro Robles.

Back in San Juan del Sur, efforts to create a marine park in the nearby waters are proceeding carefully, says Colin Pope, Canadian general manager of Scuba Shack, a diving and surfing shop that opened here a few months ago.

Nicaragua "absolutely needs controlled development," says Pope, "but this is a very poor country, and they've got issues more pressing than someone catching too many sailfish."

But San Juan del Sur's Sandinista mayor, Eduardo Holmann, who spoke at the recent town meeting in support of efforts to strengthen and clarify existing legislation guaranteeing public beach access, is optimistic. The Notre Dame graduate has won praise for enacting a law that limits the height of new buildings to three stories, and for a successful, ongoing campaign to clean the town's wide, half-moon beach every morning. An old fish processing plant has been turned into a cultural center, and there's talk of building a new boardwalk. And from a scenic perch overlooking the town, former San Franciscan Chris Barry's Pelican Eyes has become one of the country's most popular hotels — where nightly rates starting at $120 help finance a school uniform program, educational scholarships and hands-on job training.

The country's political agenda "is not Robin Hood robbing the rich to feed the poor," Holmann says. But "tourism comes with a responsibility — to nature and to the people."

E-mail lbly@usatoday.com

 IF YOU GO ...

Where to stay: Offering spectacular hillside views, San Juan del Sur's Pelican Eyes ( 866-350-0555  ; piedrasyolas.com) charges $120-and-up per night, double occupancy, including breakfast; just off the beach in town, the new six-room La Posada Azul (011-505-568-2524; laposadaazul.com) costs $100, double, including breakfast. A half-hour north, Morgan's Rock Hacienda & Ecolodge (011-506-232-6449; morgansrock.com) sells remote luxury from $390 per couple, per night, including meals and some tours. (Note: Prices don't include 15% tax.)

In Granada, the just-opened Hotel Dario (011-505-552-3400; hoteldario.com) offers 22 upscale rooms in a restored, neoclassical mansion for $100 per night, double, including breakfast. Another popular choice is the comfortable, 14-room Casa San Francisco (011-505-552-8235; csf-hotel-granada.com), run by two American sisters; rates start at $45 per night, double, including breakfast.

Where to eat: In San Juan del Sur, longtime favorite El Timon specializes in local seafood and lobster (about $10 for dinner). The restaurant at Granada's elegant La Gran Francia hotel offers Nicaraguan, Italian and French fare (about $15).

Information: The official tourist board site (http://www.visitanicaragua.com/) doesn't offer info in English.

Also visit the web site site of RICA NICA NICARAGUA REAL ESTATE, Travel and Tourism for Hundreds of links of Nicaragua

Posted 2/15/2007 3:42 PM ET

Updated 2/15/2007 8:35 PM ET