The five Central American presidents continued to seek a strictly Central American diplomatic solution. They held a meeting in May 1986 in Esquipulas, Guatemala, in an effort to work out their differences over the revised Contadora draft treaty. This meeting was a precursor of the process that in early 1987 superseded Contadora. The leading proponent and architect of this process was the president of Costa Rica, Oscar Arias Sánchez. After consultations with representatives of Honduras, El Salvador, Guatemala, and the United States, Arias announced on February 15, 1987, that he had presented a peace proposal to representatives of the other Central American states, with the exception of Nicaragua. The plan called for dialogue between governments and opposition groups, amnesty for political prisoners, cease-fires in ongoing insurgent conflicts, democratization, and free elections in all five regional states. The plan also called for renewed negotiations on arms reductions and an end to outside aid to insurgent forces.

Including the Nicaraguan administration in the negotiations was a sensitive issue. The first formal negotiating session to include representatives of that government took place in Tegucigalpa on July 31, 1987. That meeting of foreign ministers paved the way for an August 6, 1987, gathering of the five Central American presidents in Esquipulas. The negotiations, reportedly marked by blunt exchanges among the leaders, produced an agreement that many had considered unachievable only months before. The agreement, signed on August 7, called for the cessation of outside aid and support to insurgent forces but did allow the continuation of such aid to government forces. As a democratic government free from domestic insurgent problems, Honduras could easily comply with the terms of the Esquipulas accord.

The Central American Peace Agreement, variously referred to as "Esquipulas II" or the "Arias Plan," initially required the implementation of certain conditions by November 5, 1987. The conditions included establishing decrees of amnesty in those countries involved in insurgent conflicts, initiating dialogue between governments and unarmed political opposition groups or groups that had taken advantage of amnesty, undertaking efforts to negotiate cease-fires between governments and insurgent groups, ceasing to allow outside aid to insurgent forces, denying the use of each country's national territory to "groups trying to destabilize the governments of the countries of Central America," and ensuring conditions conducive to the development of a "pluralistic and participatory democratic process" in all of the signatory states.

Nicaragua's compliance with the Arias Plan was uneven by late 1988, and the process appeared to be losing momentum. The Nicaraguan government took a number of initial steps to comply with the treaty. These included allowing the independent daily La Prensa to reopen and the radio station of the Roman Catholic Church to resume broadcasting, establishing a national reconciliation committee that incorporated representatives of the unarmed opposition, and eventually undertaking cease-fire negotiations with representatives of the Contras. The optimism engendered by the signing of a provisional cease-fire accord on March 23, 1988, at Sapoá, Nicaragua, however, had largely dissipated by July. During that month, the Nicaraguan government broke up a protest demonstration in the southern city of Nandaime, expelled the United States ambassador and seven other diplomats for alleged collaboration with the demonstrators, and again shut down La Prensa and the Roman Catholic radio station.

Data as of December 1993