Press Release No. 03/175

Press Release: IMF Completes Third Review of Nicaragua's PRGF-Supported Program, Grants Waivers and Approves Additional Interim HIPC Assistance

October 20, 2003

The Executive Board of the International Monetary Fund today completed the third review of Nicaragua's performance under a three-year, SDR 97.50 million (about US$139.2 million) Poverty Reduction and Growth Facility (PRGF) arrangement that was approved on December 4, 2002 (see Press Release No. 02/53). This decision enables the release of a further SDR 6.97 million (about US$9.9 million) to Nicaragua, which brings total disbursements under the program to SDR 27.86 million (about US$39.8 million).

The Executive Board also approved Nicaragua's request for waivers of the nonobservance of performance criteria, as well as the request for additional interim assistance under the Heavily Indebted Poor Country (HIPC) Initiative through end-2003 of SDR 664,664 (about US$1 million).

Following the Executive Board's discussion on Nicaragua, Agustín Carstens, Deputy Managing Director and Acting Chair, said:

"Nicaragua's recent economic performance has been commendable. The authorities have shown strong commitment to their economic program and, as a result, Nicaragua faces improved prospects for growth, financial stability, and poverty reduction.

"The authorities have recently adopted a strengthened growth strategy aimed at enhancing Nicaragua's growth potential while preserving macroeconomic stability. Continued fiscal consolidation, coupled with debt relief and concessional lending, will be necessary to ensure sustainable debt dynamics. The revised growth strategy seeks to raise public investment financed by concessional donor assistance. To be effective, the strategy must ensure that public spending is directed to high-quality projects.

"Important progress is being made in strengthening Nicaragua's financial sector, and the authorities have prepared an agenda for carrying this work forward in specific areas. The completion of the central bank's asset recovery plan is an important achievement. Key reform priorities include granting legal protection to bank supervisors and central bank staff and the authorities' plan to revise the legal framework in line with the Basel Core Principles. Nicaragua's forthcoming participation in the Financial Sector Assessment Program will help identify the major remaining vulnerabilities and reform needs in this area.

"Reaching the HIPC completion point by year's end is an important goal for Nicaragua and the authorities are making good progress toward that goal. It will make permanent the interim debt relief that has been granted in recent years, which is a prerequisite for sustained rapid growth and poverty reduction. Successful implementation of the PRGF-supported program has brought Nicaragua close to achieving this goal, although progress is still needed in key areas to ensure that all trigger conditions are met. The broad domestic consensus on the importance of attaining the HIPC completion point has facilitated the implementation of prudent macroeconomic policies, structural reforms, and better governance. It is important that this consensus on good economic policies be sustained for Nicaragua to reap the full benefits of HIPC debt relief," Mr. Carstens said.