Identifier
Created
Classification
Origin
06MANAGUA243
2006-02-01 15:09:00
UNCLASSIFIED
Embassy Managua
Cable title:  

NICARAGUAN CENTRAL BANK HOSTS DEBT RELIEF EVENT

Tags:  EFIN IMF PREL NU 
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PP RUEHLMC
DE RUEHMU #0243/01 0321509
ZNR UUUUU ZZH
P 011509Z FEB 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC PRIORITY 5102
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHRL/AMEMBASSY BERLIN PRIORITY 0117
RUEHLO/AMEMBASSY LONDON PRIORITY 0079
RUEHMO/AMEMBASSY MOSCOW PRIORITY 0170
RUEHOT/AMEMBASSY OTTAWA PRIORITY 0218
RUEHFR/AMEMBASSY PARIS PRIORITY 0033
RUEHRO/AMEMBASSY ROME PRIORITY 0071
RUEHDG/AMEMBASSY SANTO DOMINGO PRIORITY 0490
RUEHKO/AMEMBASSY TOKYO PRIORITY 0193
RUEHBS/USEU BRUSSELS PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC PRIORITY
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

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