For more information, see Nicaragua and the IMF

The following item is a Letter of Intent of the government of Nicaragua, which describes the policies that Nicaragua intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Nicaragua, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Managua, Nicaragua
August 30, 2000

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1.  This letter updates the Memorandum of Economic and Financial Policies of August 19, 1999 relating to the second annual arrangement under the Poverty Reduction and Growth Facility (PRGF) that was approved on September 15, 1999. The attached Memorandum of Economic and Social Policies (MESP) describes performance through June 2000 under the program and sets out macroeconomic objectives, policies, and targets for the remainder of 2000.

2.  As discussed more fully in the MESP, certain quantitative performance criteria of the program for end-December 1999 and end-June 2000 could not be met mainly reflecting delays of programmed multilateral balance of payments support and unavoidable increases in domestically financed expenditures; also, certain structural performance criteria for December 1999 and January 2000 were not met because the implementation of the corresponding structural reforms was delayed. However, to help achieve the objectives of its economic program for 2000, while helping improve transparency and promoting good governance, the Government is implementing a policy package that includes actions in the fiscal, credit, structural, and governance areas. In this context, important actions already have been taken to ensure that performance will return toward the original program path by end-2000. On this basis, the Government requests: (1) waivers for noncompliance with (a) the end-December 1999 and end-June 2000 quantitative performance criteria, and (b) the December 1999 and January 2000 structural performance criteria; and (2) the satisfactory conclusion of the first and second reviews under the second annual PRGF arrangement.

3.  The Government of Nicaragua remains committed to achieve the objectives and policies detailed in the letter of August 19, 1999, subject to the modifications requested in the MESP. The Government believes that the measures and policies described in the MESP are adequate to achieve these objectives and will continue to work with the International Monetary Fund to take any additional measures that may be required for that purpose.

4.  The Government appreciates the continuing support of the International Monetary Fund, which is critical to maintaining confidence in Nicaragua's macroeconomic management and in mobilizing the official external support (including through the Enhanced Initiative for the Highly Indebted Poor Countries) necessary to implement its medium-term Enhanced Poverty Reduction Strategy, which currently is being developed with broad consultation from civil society.


Noel Ramírez Sánchez
President of the Central Bank
Esteban Duque Estrada
Minister of Finance




Memorandum of Economic and Social Policies (MESP)

1.  This memorandum provides an update of the economic and social policies adopted by the Government under its program for 1999–2000, which is supported by the second annual Poverty Reduction and Growth Facility (PRGF) arrangement approved by the IMF's Executive Board on September 15, 1999. The objectives of the program remain largely as stated in the Memorandum of Economic and Financial Policies of August 19, 1999, although policies and targets have had to be modified to take account of recent developments, as outlined below. To continue on the path toward fiscal and external viability, the Government is undertaking a number of actions (as specified in the attached Box). Performance through June under the modified program's quantitative benchmarks was satisfactory, and it is expected that performance will continue satisfactory by end-2000. The Government will take additional measures as necessary to achieve the modified program's objectives.


2.  Nicaragua's good macroeconomic performance continued during 1999, despite the devastation wrought by Hurricane Mitch in late 1998. Real GDP grew by 7 percent (faster than envisaged in the program for 1999), while inflation declined from 18.5 percent at end-1998 to 7.2 percent at end-1999 (lower than foreseen in the program) as the rate of crawl of the cordoba vis-à-vis the U.S. dollar was slowed in the second half of the year from 12 percent to 6 percent a year. The combined public sector deficit (after grants) rose to 6.9 percent of GDP, compared with 5.6  percent of GDP in the program, as stronger investment spending (financed with higher project-related external assistance) more than offset higher-than-programmed savings. The external current account deficit widened by more than envisaged, mostly reflecting a greater-than-anticipated deterioration in the terms of trade and a surge in imports of capital goods financed by direct foreign investment, official grants and concessional loans, the latter related to the reconstruction process after Hurricane Mitch. While official net international reserves increased substantially, they did not rise as much as envisaged in the program because of delays in multilateral balance of payments support partly associated with slower-than-envisaged structural reforms (see below). Because of this, the end-December 1999 performance criteria on the central bank's net international reserves and net domestic assets, as well as net domestic financing of the nonfinancial public sector, could not be met.

3.  In the wake of Hurricane Mitch, spending focussed on disease prevention, re-supplying of local medical and educational facilities, and infrastructure reconstruction. With significant international support, social expenditures increased to 15 percent of GDP in 1999 from 11 percent in 1998, permitting improvements in related social indicators. By end-1999, basic maternal and infant health care was available to 39 percent of the relevant population, compared with 35 percent at end-1998. In the area of education reform, the curricula in the primary schools were modernized, and performance incentives were introduced for teachers in 31 percent of autonomous schools.

4.  In the structural area, the National Assembly passed legislation to help improve transparency and efficiency in government procurement. Laws relating to the central bank, commercial banks and the Superintendency of banks approved in the fourth quarter of 1999 strengthened the autonomy of the central bank and improved the legal basis for prudential regulation and supervision of financial institutions. At the same time, the remaining state-owned bank (which was financially weak) was closed and the divestiture of its assets will soon be completed. Moreover, stricter prudential requirements on banks (including phased-in higher capital adequacy requirements) began to be implemented. To improve government efficiency and increase resources for funding high priority poverty reducing programs, some 1,100 government positions were eliminated in 1999, bringing the total streamlining under this administration to about 7,900 positions (equivalent to 11 percent of government employment at end-1996).

5.  However, some structural reforms that had been envisaged in 1999 had to be delayed to 2000: the state-owned telecommunications (ENITEL) and electricity (ENEL) companies could not be offered for privatization because technical considerations regarding the new tariff structure proved more time consuming than anticipated. Also, reaching consensus in the National Assembly on the law for the reform of the social security system and the law for administrative dispute settlement took more time than had been anticipated. The Center for Property Mediation and Arbitration as well as the property courts did not become operational because of unavoidable delays in arranging donor financing and staffing the institution.

6.  The Government's original economic program for 2000 aimed at reducing inflation further and promoting the growth of output and employment, while advancing efforts to alleviate poverty and reduce economic vulnerabilities, on a sustainable basis. However, during the first quarter of 2000, the public finances began to diverge from the original program path primarily because of higher-than-expected domestically financed spending associated with (1) reconstruction from a tropical storm in the third quarter of 1999 that destroyed roads and bridges; (2) litigation of a border dispute with Honduras; and (3) the preparation for the municipal elections to be held in November 2000 (which earlier had been envisaged to take place together with the presidential elections in 2001). Moreover, broad money growth slowed, while bank credit to the private sector decelerated only slowly from very high rates. The above developments were reflected in a decline in official net international reserves. At the same time, 12-month inflation increased from 7 percent at end-1999 to 15 percent in April 2000, in part reflecting the surge in international fuel prices.

The modified program for 2000

7.  To firm up external support and help achieve the objectives of the program for 2000, the Government in April began implementing a package of policy measures that included actions in the fiscal, credit, structural, and governance areas. At the same time, to help protect external competitiveness, it was decided that the current crawling exchange rate policy would continue unchanged during the remainder of the year.

8.  On this basis, and taking into account the unavoidable unprogrammed expenditure commitments mentioned in paragraph 6 above, the Government's modified macroeconomic program envisages that the combined public sector deficit (after grants) will be limited to 6.5 percent of GDP, compared with 5.6 percent of GDP in the original program. This additional public sector financing requirement will be covered by concessional external borrowing. At the same time, credit policy will be tightened. In this context, inflation is targeted to be held to 10 percent during 2000 (8 percent in the original program), while the central bank's gross international reserves are expected to be equivalent to 3.9 months of imports (4.2 months in the original program) by year-end. The modified program is predicated on output growth of 5.5 percent (6.5 percent in the original program). The financial benchmarks of the government's modified program are set out in Tables 1–7 (attached).

9.  To meet the modified program's fiscal targets, the Government has decided to: (1) save most of the resources from the adjustment of pension contribution rates from 5.5 percent to 10.5 percent in June (yielding 0.6 percent of GDP in 2000, net of the cost of the recent increase in the minimum pension (0.3 percent of GDP)); (2) change the assessment procedures for collecting excise taxes on cigarettes and alcoholic beverages as of April, as recommended by the recent IMF technical assistance mission (yielding over 0.3 percent of GDP in 2000); and (3) reduce domestically financed capital spending by 0.5 percent of GDP, while protecting priority poverty alleviation outlays. Also, electricity tariffs were increased in January 2000 and will be adjusted further if necessary to safeguard the savings target of the program. In order to help ensure sustainable employment growth, the Government has decided to refrain from raising economy-wide minimum and/or public sector wages any further beyond the increases that were budgeted.

10.  To tighten credit conditions, open market operations have been undertaken and some government resources previously deposited in the commercial banks have been sterilized at the central bank. The Superintendency of Banks and Other Financial Institutions (SBIF) has continued to phase in higher capital adequacy requirements and tighten its supervision of the financial system with the introduction of strengthened in situ inspections in July. Also, regulations limiting commercial banks' short-term external borrowing (which reached record levels at end-1999) were introduced in June, and credit risk classification is being improved to include exchange rate risk.

11.  In early August, the SBIF learned of some large financial operations that undermined the quality of the loan portfolio of the largest commercial bank in the country (Interbank, with about 14 percent of total bank deposits), allegedly related to fraud and mismanagement. The SBIF acted decisively by intervening the bank on August 7, 2000. It is presently assessing the magnitude of the problem loans and developing a plan for the bank's recapitalization or liquidation. At the same time, criminal proceedings against those allegedly involved in criminal behavior are underway. To maintain confidence in the banking system, the Government has announced that it is backing fully Interbank's deposits, while the central bank has begun mopping up the liquidity that it had to inject following the intervention of Interbank (through open market operations, and/or by shifting public sector deposits to the central bank and/or introducing a temporary marginal reserve requirement). The Government has requested technical and financial assistance from the IDB and the World Bank to help carry out the bank resolution process.

12.  Cognizant of the need to contain demand pressures, as well as to buttress official international reserves and private confidence in the short run, the modified program provides for depositing a large amount of the receipts from the privatization of ENITEL and ENEL in the central bank. In 2000, the other uses of privatization receipts will be limited to: (1) canceling external commercial debts that were taken over by the Government in preparation to ENEL's privatization; and (2) funding certain poverty alleviating outlays consistent with existing legislation and in prior consultation with World Bank, IDB, and IMF staff.

13.  In the structural area, a major effort is being made to implement fully the reforms envisaged in the 1999–2000 program (Table 8), notwithstanding the difficulty of mobilizing political support for many of them. In April 2000, the National Assembly approved the social security law that reforms the existing, financially nonviable public system and provides for the introduction of funded individual retirement accounts managed by appropriately regulated private firms, while providing for a government guaranteed minimum pension to eligible individuals. The revised pension system parameters became effective in June, and a law on the supervision of the private pension funds will be submitted to the National Assembly by September 2000. Also, legislation was passed to allow for a restructuring of the internal revenue and customs departments to help improve tax administration and bolster collection. All the envisaged preparatory actions for the privatization of ENITEL and ENEL (which is necessary to increase the supply of electricity and telecommunication services and reduce the costs of these essential services in the medium term) have been taken, including inviting the final bids from the prequalified investors. ENEL's distribution and thermo-generating units will be awarded shortly and its hydroelectric plant will be sold in the fourth quarter of 2000. Port facilities will be offered for long-term lease to the private sector by end-2000.

14.  In the area of governance, with the aim of improving the efficacy of the Comptroller's Office (CO) the National Assembly is expected to pass shortly revisions to the law on the CO, which, inter alia, define the role of its board consistent with international best practices. Also, the CO has completed several high-priority audits and is expected to develop soon an action plan for its technical strengthening. The National Assembly approved in May an administrative dispute settlement law that will clarify and strengthen citizens' rights in contesting administrative decisions when it enters into effect in 2001. The resolution of property rights claims and the issuance of urban and rural property titles continue and, after some delay, the property mediation and arbitration centers, as well as the other property courts, have started operations. The judiciary system will be strengthened by the approval of a new penal code, and laws on penal procedures and public prosecutors are expected in the fourth quarter of 2000.

15.  To improve transparency, accountability and efficiency in the use of public funds, a new government procurement law has been approved and its implementing regulations issued. A modern system of government procurement and contracting is being designed with IDB assistance and will begin later this year. In addition, a centralized and computerized treasury cash-management system (caja única—covering all revenue and transfers from domestic sources) will become effective shortly. Implementation of the financial control and audit system—SIGFA—continues, albeit with delays associated with the longer-than-anticipated time needed to procure the equipment and introduce the modern computerized systems under a revised implementation schedule agreed with the World Bank.

16.  Social policies will continue to focus on improvement in human capital through reforms of the education and health sectors. In both areas, important progress has been made in institutional strengthening and decentralization of management and delivery of services. Also, a pilot social safety net project was initiated in the first half of 2000, with financial and technical support from the IDB, which will provide financial incentives to some 10,000 extremely poor households to improve the nutrition of children under five years of age, seek preventive health care, and encourage school attendance.

17.  Work on a comprehensive poverty reduction strategy paper (PRSP) started in October 1999, with the results of the 1998 living standard measurement survey (financed by the World Bank and other donors) serving as a basis for a country poverty profile. This document has benefited from several months of public discussion, facilitated by the National Council for Economic and Social Planning, which includes representatives of the private sector, NGOs, labor unions, political parties, universities, and community service organizations and the government. In August, the government completed a strengthened Poverty Reduction Strategy (SPRS), including monitorable targets and intermediate indicators, an action plan, information on programs and projects, and its estimated financing requirements, which is to be submitted to the Executive Boards of the IMF and the World Bank shortly.




Prior Actions for the Completion of the Second Review
under the Second Annual PRGF Arrangement

Conditions for, or actions to be taken prior to, Executive Board consideration of the second review under the second annual PRGF arrangement are:

  • Compliance with the modified quantitative benchmarks for June 2000.

  • Fiscal policy: Implementation of the following revenue measures to help close the fiscal gap:

(i) From April 2000, withhold the excise tax on spirits sold by small producers at the time of their alcohol purchases.

Status: Done in April 2000. Supplemented by modifications of the reference prices used to calculate excises on cigarettes and alcoholic beverages, for a total yield of 0.3 percent of GDP in 2000.

(ii) From June 2000, increase the pension contribution rate from 5.5 percent to 10.5 percent.

Status: The increase became effective in June 2000; however, it is being challenged in the courts. The yield of the measure, net of the cost of the concomitant increase in the minimum pension, is 0.6 percent of GDP in 2000.

  • Credit policy: Introduce a prudential measure to discourage additional short-term external borrowing. Status: Done in June 2000.

  • Privatization: Approval of regulations on future telephone and electricity tariff adjustments for the privatized companies and issuance of final invitations of bids for the privatization of the telephone and electricity companies. During the privatization process of the distribution and generation units of ENEL, the Government will not negotiate or contract new electricity purchase commitments for the national grid beyond those in existence as of end-December 1999, in order to maintain valid the approved tariff structure for private sector participation.

    Status: Done in June; the opening of bids (award) expected in the first half of September.

  • Social security reform: Approval of a satisfactory social security reform bill by the National Assembly. Status: Done in April 2000.

  • Transparency:

a. Implementation of steps to ensure that all domestic receipts (revenue and transfers) of government entities are covered by the treasury's centralized cash-management system ("cuentaúnica")—implement a payments module and sign agreements with the central bank and commercial banks.

Status: Mostly done. The accounting and reporting procedures for the commercial banks, the central bank and the Ministry of Finance as well as the shared software have been implemented. A formal agreement between the Ministry of Finance and the central bank on remuneration of government's deposits is pending.

b. Issuance of satisfactory regulations to implement the recently passed law on public sector procurement.

Status: Done in May 2000.

Satisfactory assurances that actions have been taken for the release in short order of the US$51 million of multilateral disbursements delayed from 1999.

Status: Following completion of the external examination of the BANIC privatization process, which did not find evidence of corruption, the World Bank disbursed US$16 million in July 2000. Following issuance of the electricity tariff regulation and the final bidding documents for the privatization of ENEL, the IDB disbursed US$10 million in August 2000. Adoption of a satisfactory plan for the private recapitalization of BANIC and of a satisfactory resolution plan for Interbank (conditions for a US$25 million tranche from the IDB) is pending.


Table 1. Nicaragua: Ceilings on the Cumulative Net Domestic Financing Of the Nonfinancial Public Sector1 2
(In millions of cordobas)

Period Limits

December 31, 1999–March 31, 2000 –80
December 31, 1999–June 30, 2000 –375
December 31, 1999–September 30, 2000 –920
December 31, 1999–December 31, 2000 –1,460

1The net domestic financing of the nonfinancial public sector is defined as the change from their respective stock at end-1999 of the sum of (i) outstanding stock of indebtedness of the nonfinancial public sector to the domestic banking system (central bank and commercial banks including the FNI) net of deposits (including arrears that correspond to obligations considered eligible for refinancing or rescheduling, or other debt-reduction mechanism) with the foreign currency part of the net debt to the banking system converted into cordobas at C$12.7 per U.S. dollar; (ii) outstanding stock of domestic public debt (excluding compensation bonds) held by the private sector; (iii) outstanding stock of supplier credits; and (iv) outstanding stock of floating debt. In addition, the net domestic financing includes the net financial support provided by the government to commercial banks.
2These ceilings will be adjusted: (i) cumulative from end-1999 downward (upward) in the event of higher (lower) disbursements of balance of payments support resources (as described in Table 3, fn. 2, (iii) and (iv)); (ii) downward (unlimited) by the proceeds from privatization of ENITEL and ENEL (as described in Table 3, fn. 2, (iv) and (v)); (iii) downward (unlimited) by the proceeds of donor aid for the financing of the municipal elections; and (iv) upward (by no more than the equivalent of US$8.5 million) in the event of higher than programmed debt service payments to CABEI (to facilitate the privatization of ENITEL) or to other creditors (to conclude satisfactory debt agreements).


Table 2. Nicaragua: Floors on Cumulative Savings of the Combined Public Sector1
(In millions of cordobas)

Period Limits

December 31, 1999–March 31, 2000 240
December 31, 1999–June 30, 2000 790
December 31, 1999–September 30, 2000 1,180
December 31, 1999–December 31, 2000 1,490

1Defined as the difference between current revenue and current expenditure of the nonfinancial public sector plus the operating results of the central bank.


Table 3. Nicaragua: Floors for Cumulative Flows of Net International Reserves of the Central Bank1 2
(In millions of U.S. dollars)

Period Limits

December 31, 1999–March 31, 2000 –86
December 31, 1999–June 30, 2000 –50
December 31, 1999–September 30, 2000 –30
December 31, 1999–December 31, 2000 33

1Net international reserves are defined as the difference between the (i) foreign assets of the central bank; and (ii) central bank's reserve liabilities (including outstanding purchases from the IMF), plus arrears on foreign debt service, plus foreign currency deposits of commercial banks at the central bank.
2These floors will be adjusted: (i) upward (unlimited) with respect to the net issue during 2000 of CENIs plus other central bank or government paper held by the private sector in excess of C$435 million; (ii) upward (unlimited) by any increase in the stock as of March 30, 2000 of short-term central bank or government paper; (iii) cumulative from end-1999 upward (unlimited) in the event of higher disbursements of balance of payments support resources with respect to US$8.4 million up to the first quarter of 2000, US$20.4 million up to the first half of 2000, US$68.0 million up to the first three quarters of 2000, and US$106.9 million over 2000; (iv) downward (by no more than US$35 million) in the event of lower disbursements of balance of payments support with respect to US$106.9 million over 2000; (v) upward (unlimited) by the proceeds from privatization of ENITEL, except those used for debt reduction operations and to finance poverty alleviating capital expenditures in prior consultation with the staffs of the Fund and the World Bank; (vi) upward (unlimited) by the proceeds from the privatization of ENEL except for: amounts used to cancel commercial debts taken over by the government in preparation to ENEL's privatization, and up to US$10 million used to finance poverty alleviating capital outlays in prior consultation with the staffs of the Fund and the IDB; (vii) upwards (unlimited) by the proceeds of donor aid for the financing of the municipal elections; and (viii) downwards (by no more than US$8.5 million) in the event of higher than programmed debt service payments to CABEI (to facilitate the privatization of ENITEL) or to other creditors (to conclude satisfactory debt agreements).


Table 4. Nicaragua: Ceilings on the Cumulative Change in the Net Domestic Assets Of the Central Bank1 2
(In millions of cordobas)

Period Limits

December 31, 1999–March 31, 2000 970
December 31, 1999–June 30, 2000 430
December 31, 1999–September 30, 2000 150
December 31, 1999–December 31, 2000 –210

1The change in the net domestic assets of the central bank (NDA) is defined as the difference between the change in the stock of currency issue and in the net international reserves (as defined in footnote 1 of Table 3) valued at C$12.7 per U.S. dollar.
2Corresponding offsetting adjustments will be made to the ceilings on the net domestic assets of the central bank for the adjustments in net international reserves (as described in the footnotes of Table 3).


Table 5. Nicaragua: Ceilings on the Cumulative Disbursements of Nonconcessional External Loans
Contracted or Guaranteed by the Public Sector1

(In millions of U.S. dollars)

Period Limits

More than one year maturity  
December 31, 1999–March 31, 2000 0.0
December 31, 1999–June 30, 2000 0.0
December 31, 1999–September 30, 2000 0.0
December 31, 1999–December 31, 2000 0.0
One year or less maturity2
December 31, 1999–March 31, 2000
December 31, 1999–June 30, 2000
December 31, 1999–September 30, 2000
December 31, 1999–December 31, 2000

1These ceilings refer to loans contracted or guaranteed by the public sector, with maturity of more than one year and grant element of less than 35 percent calculated on the basis of currency specific Commercial Interest Reference Rates (CIRR) as discount rates. These limits exclude reserve liabilities of the central bank and the capitalization of interest resulting from rescheduling or refinancing operations.
2Excludes normal import-related credits.


Table 6. Nicaragua: Indicative Ceilings on the Cumulative Deficit of Combined Public Sector1
(In millions of cordobas)

Period Limits

December 31, 1999–March 31, 2000 –1,390
December 31, 1999–June 30, 2000 –2,420
December 31, 1999–September 30, 2000 –3,430
December 31, 1999–December 31, 2000 –4,100

1The balance of the combined public sector (excluding grants) is measured from above the line and is defined as the savings of the combined public sector (as given in Table 2) plus capital revenue less capital expenditure (including net lending) of the nonfinancial public sector.


Table 7. Nicaragua: Indicative Ceilings on the Cumulative Total Expenditures of the Central Government1
(In millions of cordobas)

Period Limits

December 31, 1999–March 31, 2000 2,880
December 31, 1999–June 30, 2000 5,660
December 31, 1999–September 30, 2000 8,610
December 31, 1999–December 31, 2000 11,400

1Total expenditures include current spending, capital spending, and net lending operations.


Table 8. Nicaragua: Structural Benchmarks and Performance Criteria for 1999–2000

Policy Measures


Expected Date and Status

1. Preliminary HIPC document

Approval by the national assembly of the three  financial   Done
  sector laws.    
Approval by the national assembly of the public sector   Done
  procurement law.    
Submission to the national assembly of a social security   Done
  reform bill.    
Satisfactory progress in improving governance:    
- transparency and accountability in the management   Pending; see below
  of public finances.    
- settlement of property claims.   On track; see below
- strengthening of the judiciary.   On track; see below
Social Safety Net: Start to implement a pilot project.   Done
2. Second annual arrangement under the PRGF    
Public sector reform    
Restructuring of the revenue and customs departments:    
- Approval of a law on transformation of the revenue and   Done in March 2000; November 1999 in PFP.
  customs department.    
- Start implementation of performance indicators for tax
  and customs collection, as recommended by the IDB.
  Delayed, expected for October 2000; January 1999in PFP.
Continue to implement a labor mobility program aiming
  at reducing public sector positions (excluding
  reductions resulting from privatization of public
  Done; 1,085 positions were eliminated in 1999, the plan of reducing 3,300 positions in 1997-99 was exceeded.
National System of Public Investment (SNIP): issue a
  decree strengthening its status and mandate.
  Delayed, expected for October 2000; January 1999in PFP.
Privatization and public sector tariffs    
ENITEL (reactivated privatization program):    
- Implement a program to reduce the enterprise's   Done. Employment reduced by about 830 or 26
  operating expenditure by at least 20 percent in 1999.   percent since October 1998, of which about 540
    during June-September 1999.
- Approve tariff adjustment along the lines   Done. Tariffs raised to increase revenue by about
  recommended by the World Bank and the   10 percent in January 1999 and by about another
  advisory investment bank.   10 percent in September 1999.
- Approve a three-year tariff adjustment plan along the
  lines recommended by the World Bank and the
  advisory investment bank.1
  Done in May 2000; November 1999 in 2nd. year PRGF.
- Complete the pre-qualification process.   Done in November 1999 as envisaged.
- Invite final bids of pre-qualified investors for 40 percent
  of ENITEL assets.1 2
  Done in June 2000; January 2000 in 2nd. year PRGF.
- Announce results of the bidding (award).   September 2000.
- Continue adjusting water and sewerage tariffs by   On track: In January 2000 the average tariff was
  1.5 percent a month   raised by 21 percent compared with the average tariff in 1999.
- Offer concession for private management of regional
  water and sewerage sub-systems:
  Delayed; for December 1999 in preliminary HIPC document.
  - Leon and Chinandega   Expected to be offered in September and awarded in November 2000.
  - Matagalpa and Jinotega   Expected to be offered in January and awarded in April 2001.
- Issue regulation on setting tariffs for electricity
  generation and distribution by the units to be privatized,
  as recommended by the investment bank and IDB.1
  Done in June 2000; October 1999 in 2nd. year PRGF.
- Issue final bid documents for ENEL's generation and
  distribution units (invite offers).1 2
  Done in June 2000; December 1999 in 2nd. year PRGF.
- Announce results of the bidding (award):    
  The distribution units   September 2000.
  The thermal generating plants   October 2000.
  The hydroelectric plant   December 2000.
- Divest or lease 75 percent of assets   For December 1999 in PFP. Done. Facilities
    accounting for 80 percent of capacity have been leased to the private sector.
-  Offer to private investors long-term concessions for
  ports facilities (Puerto Cabezas, Potosi, Corinto, San Juan
  del Sur).
  December 2000.
Governance (additional benchmarks below)    
Ensure that all domestic receipts (revenue and transfers)   For September 1999 in 2nd PRGF: Delayed; most
  of the public sector entities are recorded at the treasury
  (cuenta unica).1
  elements functioning; implementation of an agreement between the Ministry of finance
    and the central bank is pending.
Achieve full coverage of treasury operations in the
  financial control system (SIGFA).
  Done in January 2000; September 1999 in 2nd. PRGF.
    A decentralized accounting and integrated communication system to record in real time
    all stages of expenditure (including commitments)
    is expected to be in place by January 2001.
Ensure transparency and accountability in public sector    
  procurement of goods and services and in awarding    
  public works:    
- Approval of the law.   Done in December 1999; September 1999 in the 2nd. PRGF.
- Issue the regulations.1   Done in March 2000; September 1999 in 2nd. year PRGF
Establish a National Center for Property Mediation.   Done in June 2000; September 1999 in 2nd PRGF.
Approval of the administrative dispute settlement law.   Done in May 2000; December 1999 in PFP.
Approval of the laws on the reform of judicial process:    
- A new law on public prosecutors (fiscalia).   October 2000.
- A new penal code.   December 2000.
- A new law on penal procedures.   December 2000.
Accelerate issuing of property titles and settlement of    
  property rights claims. Property titles issued in 1999:    
  - Urban: 10,000   6,720 titles issued.
  - Rural: 4,000   4,640 titles issued.
Property rights claims settled: 1,000   The administrative process completed for 1376
    claims; of which for 960 claims properties returned or payment made.
Financial system reform:    
Implement fully according to the initially established   Ongoing
  schedule the prudential norms on banks' capital    
  adequacy and lending to related parties.    
Issue a revised prudential norm on asset-risk classifi-   For October 1999 in 2nd. PRGF: Delayed in
  cation and provisioning along the lines recommended
  by the World Bank.
  consultation with the World Bank staff; technical support is required.
Social security reform:    
Approval of the social security reform law by
  the National Assembly.1 2
  Done in April 2000; December 1999 in 2nd. year PRGF..
Implement the revised pension system parameters (the   For January 2000 in 2nd. PRGF. Effective from June
  retirement age, minimum contribution period, and the
  level of contribution).
  2000, but being challenged by the Controller's Office and in courts.
Submit to the Assembly a law on supervision of private   September 2000.
  pension funds.    
Trade and investment policy:    
Submit to the National Assembly a revised law on foreign
  Done in December 1999; September 1999 in 2nd. PRGF.
- Approval of the law on foreign investment.   Done in May 2000; January 2000 in 2nd. PRGF.
- Adopt new procedure for selecting directors of   For December 1999 in Preliminary HIPC; Delayed;
  autonomous schools   will be set in a law on school autonomy, submitted to the Assembly in May 2000.
- Management by local boards of 95 percent of secondary   Done; by end-1999 secondary schools accounting
  schools and 65 percent of primary schools.   for 95 percent of students and primary schools
    accounting for 62 percent were managed by autonomous local boards.
3. Additional governance measures    
Enable normal operations of the Comptroller's General    
  Office (CGR):    
- Complete the review of pending cases and announce the   Done in July 2000; two major cases assessed and
  list of priority cases to be audited.   follow-up actions taken; a list of priority outstanding cases identified.
- Approval by the National Assembly of a 
  September 2000.
  satisfactory law on the CGR.    
- Adopt and announce an action plan for CGR, including   September 2000.
  a program for its technical strengthening.    
- Implement improved mechanism and procedures for    October 2000.
  accepting and processing allegations of misuse of public
- Submit to the Assembly a draft law on accountability of   October 2000.
  public officials.    
- Approval by the National Assembly of a civil  service 
  September 2000.
4. Poverty reduction strategy    
Issue the results of the poverty survey, establish and   Done; November 1999.
  start a consultative process with civil society    
Prepare an outline of the strategy and consult it with civil   Done; December 1999-April 2000.
Complete a broadly consulted interim policy reduction   Done in August 2000.
  strategy paper (I-PRSP).    

Sources: Nicaraguan authorities and staffs of the IDA, IDB, and IMF.
1Prior action for proposing completion of the first midterm review under the 2nd annual PRGF arrangement.
2Performance criterion under the 2nd. Annual PRGF arrangement.