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IMF Adjustment Maintained Relentlessly

By Roberto Fonseca, IPS, 18 November 1998

MANAGUA, Nov 18 (IPS) - The International Monetary Fund (IMF) offered Nicaragua 50 million dollars in soft loans in the wake of the devastation caused by Hurricane Mitch, but the nation will not ease up on adjustment said a Central Bank spokesman.

"In fact Nicaraguan access to soft loans is more important that the pardonning of foreign debt," said Central Bank President Noel Ramirez, "and we will be working to get more."

Before leaving the country Monday, French president Jacques Chirac promised to request a pardon for between 67 and 80 percent of Nicaragua's bilateral debt with the 15 countries of the Paris Club.

But World Bank director general Michel Camdessus, topped Chirac's offer at the end of a 24 hour whirlwind visit to the nation Tuesday, which included meetings with president Arnoldo Aleman, the economic cabinet, representatives of the Catholic Church, entrepreneurs and leaders of the opposition Sandinista National Liberation Front (FSLN).

The IMF chief was particularly impressed by the Nicaraguan government's decision to keep up with the Structural Adjustment Programme (SAP) subscribed to run from last May until the year 2000.

"What most encourages us to support Nicaragua is the fact President Aleman decided to reconstruct while maintaining the SAP - a programme which is essential to preparing a better future for the country," Camdessus told a press meeting.

"This decision should encourage Nicaragua's bilateral and multilateral friends to offer support not only with immediate aid and reconstruction, but also in building a new country," he added.

However, this same government decision bore the brunt of harsh criticism from several sectors demanding adaptation of the agreement in view of the damage caused by Mitch and the new priorities of the nation.

Some of the most heated criticism came from the FSLN, which suggested Camdessus completely revise and redefine a programme prioritising the fulfilment of macroeconomic aims agreed with the IMF.

"The direction of the Nicaraguan economy needs urgent change, going from an oligarchic urban market economy to developing an agricultural economy, especially for the impoverished smallholders," Orlando Nunez, FSLN economy adviser, told IPS.

The FSLN is demanding a total waiver of Nicaragua's foreign debt, both bi and multilateral, and the creation of two funds, one to lighten the domestic debts of producers hit by hurricane Mitch and another for reconstruction.

"A reconstruction and development fund is needed to begin building a new Nicaragua. No solution can be found leaving things as they are. Nicaragua was already in a very bad way before the hurricane hit," said Nunez.

"We need a concerted development programme as a starting point, not something unilateral like the SAP. The solution to this disaster is still a big challenge for the government, which needs the support of all the political, civil, religious and productive forces," he said.

Even before Hurricane Mitch struck, Nicaragua ranked 126th out of the world's 174 countries according to the most recent Human Development Index drawn up by the United Nations Development Programme.

And while the nation had moved up the scale one place compared with the previous year - showing a general tendency toward recovery - Mitch proceeded to knock the country back 30 years in one fell swoop.

Given this situation, the Sandinistas and other critics have demanded the suspension of debt service payments, redirecting these resources toward the most vulnerable sectors of the country.

According to official figures, Nicaragua will assign 250 million dollars to foreign debt servicing this year, 277 million dollars in 1999 and 325 million in the year 2000.

However, Ramirez said the country has no choice but to continue with the SAP, with "marginal modifications" which he did not describe in more detail.

"The adjustment programme will continue. There will be some marginal modifications, but without abandonning the core, which is to guarantee financial stability. This way, Nicaragua will have access to soft loans," said Ramirez.

The country has been promised 170 million dollars of aid from multilateral credit bodies, with the IMF providing 50 million, the World Bank 70 million, and the InterAmerican Development Bank the remaining 50 million.

These initial resources wil provide the Aleman administration the wherewithall to kick off house building, job creation and infrastructure repair programmes, said Ramirez.

Camdessus said if Nicaragua continues to fulfil the SAP, before the year 2000 it could qualify for the Initiative for Highly Indebted Poor Countries, whereby 80 percent of its 1.6 billion dollar multilateral debt would be written off. (END/IPS/tra-