Press Release No. 04/10

Press Release: IMF Completes Fourth Review of Nicaragua's PRGF-Supported Program, Completes Financing Assurances Review, and Grants Waivers

January 23, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Nicaragua's performance under a three-year, SDR 97.50 million (about US$144.6 million) Poverty Reduction and Growth Facility (PRGF) arrangement that was approved on December 4, 2002 (see Press Release No. 02/53). In completing the review, the Executive Board approved Nicaragua's request for waivers of the nonobservance of performance criteria. In addition, the Executive Board completed the financing assurances review under Nicaragua's PRGF arrangement. These decisions enable the release of a further SDR 13.93 million (about US$20.7 million) to Nicaragua, which brings the total amount approved under the program to SDR 41.79 million (about US$62 million).

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5½-year grace period on principal payments.

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

"Nicaragua's recent economic performance continues to be commendable. Prudent macroeconomic policies and structural reforms have strengthened economic prospects and enabled the country to reach the enhanced HIPC Initiative completion point. Economic growth is recovering, inflation remains low, and the external position has improved. With economic growth projected to rise further and the external environment becoming more favorable, the coming year presents an opportunity to capitalize on these hard-won achievements and move ahead forcefully with the reform agenda.

"The authorities have adopted a strengthened growth strategy, which emphasizes private-sector-led growth and social equity. The public sector is expected to play a supportive role by providing the necessary basic infrastructure, improved education opportunities, and a more certain and transparent legal framework. Important strides have also been made in improving governance and strengthening public institutions. Sustaining these efforts will provide a favorable environment for growth and poverty reduction, in line with the objectives of the PRSP and the new National Development Plan.

"Notwithstanding these achievements, Nicaragua continues to face important challenges. In particular, widespread poverty remains a major concern; the public debt burden is still high, even after the enhanced HIPC Initiative completion point; and the highly-dollarized financial sector needs to be strengthened further. The authorities' medium-term economic program, embodied in the PRSP and the National Development Plan, addresses these challenges through the continued implementation of prudent macro economic policies and structural reforms. In carrying the program forward, it will be important to deepen the broad political and social consensus that has supported enhanced HIPC Initiative completion point, in particular by strengthening further transparency and governance in public sector operations and by extending the national consultation process," Mr. Carstens said.