Agreement with IMF getting closer

Nicaragua Network Hotline, 4 November 2002

According to Mario Alonso, the President of Nicaragua's Central Bank, parts of the long awaited (and dreaded) agreement with the International Monetary Fund (IMF) are already being implemented. The agreement, however, still has to be approved by the Ministry of the Treasury and the Directors of the IMF. Alonso said that the Letter of Intent, in which a country lays out its commitment to the IMF's usual austerity program, might be signed next week, and the final meeting with the IMF to sign the agreement is programmed for November 27.

Alonso said that the negotiation has included five main topics: fiscal sustainability, increasing monetary reserves, selling assets of banks that went into bankruptcy, reinforcing bank supervision norms and capacity, and consolidating poverty reduction programs.

The agreement includes sale of the 49% of the total shares of ENITEL (the Nicaraguan Telecommunications Company) which are still owned by the government. Alonso said that the government hopes to sell its ownership in ENITEL by the end of next year, although he was careful to say that the IMF is not conditioning its loan on completing this timetable.

Even the Central Bank will be privatized. An international firm will be chosen by the government to determine the value of the assets of the Central Bank in order to sell them off. According to Alonso, this will financially strengthen the so-called poverty reduction program, without having to create new taxes to collect more money.

Civil society in Nicaragua has criticized not only the austerity and privatization aspects of the IMF agreements, but also the secrecy surrounding the Nicaraguan government's negotiations with the international financial institution. In answer, Alonso replied that the negotiations were not a State secret, what we are negotiating is our fiscal sustainability: by reducing our 14% deficit, increasing our monetary reserves, and decreasing our internal debt by selling the assets of those banks that went into bankruptcy in June 2001.

He said that the government is also negotiating to strengthen bank supervision, and will be continuing poverty reduction programs.

The president of the Nicaraguan Central Bank said the IMF agreement will allow the acquisition of fresh funds (about US$53 million in the rest of the year) which will be used to support Nicaragua's balance of payments.

According to the analysts of the Nitlapan-Envio team, the IMF's first objective in cutting the budget of the Nicaraguan government is to maintain Nicaragua's single-digit annual inflation levels. This low level of inflation has been achieved, according to the Nitlapan-Envio commentators, by heavy public spending cuts in areas which would benefit the impoverished population, while Nicaraguan banks which hold the internal debt of the country are paid their exorbitant interest of 18%. The analysts cite Nobel economist Joseph Stiglitz' view that this very restrictive public spending policy has never had any real or positive impact on the economic growth of any developing country. But, they say, He might as well whistle into the wind, because the IMF is sticking to its dogmas.