Set on the western shore of Lago de Nicaragua some 45km southeast of Managua, GRANADA was once the jewel of Central America. The oldest Spanish-built city in the isthmus, it was founded in 1524 by Francisco Hernández de Cordoba, who named it after his home town in Spain. During the colonial period Granada became fabulously rich, its wealth built upon exploitation: sited only 20km from the Pacific, the city was a transit point for shipments of gold and other minerals that were mined throughout the Spanish empire, with the help of indigenous slave labour. Laden Spanish galleons would sail from Granada across the lake, down the Río San Juan, out to the Caribbean and then to Europe. The wealth of the city also attracted traffic in the other direction: Granada's gold stores proved tempting to buccaneers and it was sacked several times by English and French pirates , until the Spanish built their Castillo , a fort on the banks of the Río San Juan.

Granada's wealth and the generations of criollos - people of Spanish descent born in the New World - who made it their home contributed to its conservative character. The split between liberal León, the only other city of any size in the country, and conservative Granada developed as early as the eighteenth century, and persists to this day. At the beginning of the nineteenth century, feelings of rivalry between the two cities were ignited by Nicaraguan independence. With the departure of the Spanish, a power vacuum developed and the elite of León decided to fill it by inviting the troublesome American, William Walker to fight their cause. Walker attacked and captured Granada, from where he ruled the country for two years until being finally driven out. On his retreat from Granada Walker ordered the city burned, and most of it subsequently fell into ruin (you can still see the black marks on the facade of the cathedral).

Granada never recovered its original splendour, though it's still the most architecturally arresting town in Nicaragua, while the city's recent tourist boom has led to a large-scale restoration of the old colonial buildings, many of them newly re-painted in pastel shades. Today Granada is central to the Nicaraguan government's tourism ambitions, and a burgeoning network of foreign-owned bars, restaurants and hostels has already sprung up to service the increasing number of visitors. The city also makes a good base from which to explore the lake, volcanoes, the Zapatera archipelago and Isla de Ometepe, while more adventurous travellers might head on to the Solentiname Islands and San Carlos.