NICARAGUAN CENTRAL BANK HOSTS DEBT RELIEF EVENT

UNCLAS SECTION 01 OF 02 MANAGUA 000243 SIPDIS SIPDIS E.O. 12958: N/A TAGS: EFIN IMF PREL NU SUBJECT: NICARAGUAN CENTRAL BANK HOSTS DEBT RELIEF EVENT REF: STATE 12263 ¶1. (U) Summary: On January 20, 2006, with the encouragement of the Ambassador, Nicaraguan Central Bank President Mario Alonso invited resident G8 and other donor country Ambassadors to a well-attended press conference to showcase debt relief. Alonso devoted half of his regular monthly economic presentation to explaining how the MDRI and HIPC initiatives have benefited Nicaragua, thanking all of the multilateral and bilateral donors by name. The Russian Ambassador responded on behalf of the G8 in support of the debt relief initiatives and outlined Russia's calendar of meetings and priorities for its G8 chairmanship: energy security, combating contagious pandemic diseases, and education for development. Embassy subsequently released a press statement highlighting U.S. support for Nicaragua's debt relief. End Summary. ¶2. (U) Central Bank President Mario Alonso took advantage of his monthly press briefing on macroeconomic trends to showcase Nicaragua's participation in multilateral and bilateral debt relief initiatives, inviting resident G8 and bilateral donors, and the IMF resrep, to participate in a special debt relief press conference January 20. Alonso described the principle events of 2005 as macroeconomic and financial stability and greater debt relief. He highlighted reactivation of the IMF program, prudent monetary policy permitting a record level of international reserves ($730 million as of December 31, 2005),internal debt reduction which led to greater liquidity and a doubling of domestic credit, preservation of fiscal discipline and strengthened regulatory framework for financial markets, and modernization of the payments system. On the debt relief front, Nicaragua negotiated $165 million in debt relief under HIPC, and achieved inclusion in the MDRI, which will mean an additional $827 million in relief. ¶3. (U) In his macroeconomic overview, Alonso pointed to the monthly economic index (IMAE) which showed growth in almost all sectors of the Nicaraguan economy (the exceptions were mining and communications, and the communications data does not include cell phones),and an overall growth of 4.9% for October, compared to 5.4% in 2005 (note: official GDP figures will not be available for another month, but the expectation is that growth slowed to around 4% from the previous year's 5.1%). Annual inflation was 9.58%, below the double-digit figure that the GON had forecast in mid-2005. For 2006, the Central bank intends to maintain the 5% crawling peg depreciation, and predicts GDP growth of 3.7-4% and inflation of 7.3%. ¶4. (U) Looking ahead, Alonso projected continuation of IMF and donor support, additional debt relief, the entry into force of DR-CAFTA, favorable prices for Nicaragua's export products, initiation of the Central American Customs Union, the start of Millennium Challenge Account disbursements, strengthening of the highway fund FOMAV, successful WTO resolutions, new port facilities at El Rama, internal political entente in an election year, and transparency and confidence in the economy. Challenges for the country in the year ahead were: maintaining macroeconomic stability and confidence to hand over the country in good condition to the new government in 2007, increasing exports and employment, improving the efficiency of the economy through competitiveness in general (infrastructure and transaction costs) and in the private sector, beginning to implement renewable energy sources, strengthening transparency and institutional development, and holding a democratic electoral process and elections. ¶5. (U) Alonso explained that under the HIPC initiative, Nicaragua had received 91% debt relief from Paris Club, bilateral and commercial creditors, but only 73% from multilaterals, which is why the MDRI is so important. Of a projected USD 6,328 million debt relief (nominal value as of December 2005),USD 3,761 (60%) had been formalized, and USD 3,792 million negotiated. Debt sustainability was still unsatisfactory, with the debt/export ratio still projected to be over the benchmark 150% in 2007. The MDRI, which would bring Nicaragua an additional $87 million in debt relief ($133 million from the IMF and $694 million from IDA),plus an acceleration of $355 million in HIPC relief, for a total of $1.182 million, brings the debt sustainability ratio to 130% in 2006. The total relief for Nicaragua will be USD 7,155 million. ¶7. (U) Russian Ambassador Igor Kondrashev, as chairman of the G8 group, thanked Alonso for holding the gathering, and provided a brief history of the HIPC and MDRI initiatives from the donor perspective, mentioning that Russia had provided significant debt forgiveness to Nicaragua. He outlined Russia's G8 calendar for financial meetings, and outlined Russia's priorities for its G8 year. These were energy security, the global fight against contagious diseases such as avian flu, and providing education in developing countries for progress, employment and growth. ¶8. (U) After the press conference, Ambassador Trivelli was mobbed by the usual scrum of journalists, all asking questions related to Nicaragua's political and economic situation. Later that day, the Embassy issued a press release in which we congratulated the GON for qualifying for debt relief from the IMF and for its satisfactory macroeconomic performance, progress in poverty reduction and improvement in public spending. The press release went on to say that continued debt relief under HIPC, Paris Club and MDRI are a recognition of Nicaragua's economic policies over the past four years. The statement stressed that the USG has supported the HIPC initiative and has provided 100% relief for bilateral debt. TRIVELLI