NICARAGUAN FISCAL PROCESS FAIRLY TRANSPARENT

UNCLAS SECTION 01 OF 02 MANAGUA 000266

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/CEN, WHA/EPSC -PMAIER, AND EEB/IFD/OMA - ASNOW AND
RFIGUEROA

E.O. 12958: N/A
TAGS: EAID ECON EFIN PREL NU
SUBJECT: NICARAGUAN FISCAL PROCESS FAIRLY TRANSPARENT

REF: A)STATE 16737, B)07 MANAGUA 2479, C)07 MANAGUA 2255, D)07

MANAGUA 1771


1. (SBU) Summary: Per Ref A request, Post reports that Nicaragua's
budget is a public document published by the Ministry of Finance on
its web site. The budget, which must be reviewed and approved by
the National Assembly, does not, however, reflect funds coming from
Venezuela. The USG and other donors are working with the GON to
improve fiscal transparency. Nicaragua's current IMF program also
includes work on improving the quality and transparency of capital
expenditures and increasing tax revenues. End Summary.

The Budget is Published
--------------

2. (U) Per Ref A request, Post reports that Nicaragua's budget
process meets acceptable standards for transparency. The official
budget is made public, both in its proposed and National Assembly
approved versions, on the Ministry of Finance's web site
(www.hacienda.gob.ni). The web site details overall revenues and
expenditures and breaks out the budget by ministry and agency. Each
ministerial budget details salaries, current expenditures, donor
projects, and capital expenditures. Nicaragua's budget development
and administration is governed by Law 550, the Public Administration
and Budgetary Regime Law, which requires that the National and
Municipal budgets meet World Bank and IMF standards.

But Not All Numbers are Reported
--------------

3. (SBU) The information available on the Ministry of Finance Web
site is an accurate representation of the official budget. Since
the inauguration of the new administration in 2007, however,
Venezuela has been providing assistance to the GON in cash and
in-kind, which the GON has kept off-budget. While President Ortega
claims Nicaragua received USD 356 million from Venezuela in 2007, no
one has been able to account for this sum. We believe this number
includes small electricity generation plants (which are on loan) and
disaster assistance after Hurricane Felix. An important part of
Venezuelan aid, particularly in upcoming years, emanates from an
agreement to return to Nicaragua 50% of the payment for Venezuelan
oil products in the form of development funds and projects. It is
unclear how the funds derived from the oil sales flow into
Nicaragua. As part of the Poverty Reduction Growth Facility
agreement, the IMF is trying to establish an accurate accounting of
these funds.

USG Efforts to Improve Fiscal Transparency
--------------

4. (SBU) The USG has two Department of Treasury assistance programs
currently operating with the GON to increase fiscal transparency and
efficiency. The tax program, operating directly with the Tax
Directorate (DGI),is implemented through a series of temporary
advisors. The advisors assist the DGI with collection, planning and
management, human resources, taxpayer's service, and IT issues. The
debt program, operating in the Ministry of Finance and the Central
Bank, is run by a resident advisor. This program's objective is to
help Nicaragua develop a market-based means of public finance with
the aim of creating sound and sustainable approaches to managing
domestic and foreign debt obligations.


5. (U) USAID funds a project aimed at institutional strengthening of
management systems which includes restructuring the budgets of the
Ministries of Family and Health towards results based budgeting.
This process increases the transparency and accountability on the
use of public funds. USAID presented to model to the Minister of
Finance, who is exploring how to use it in several other ministries.



6. (U) Continued disbursement of funds under Nicaragua's five-year
Millennium Challenge Corporation compact is contingent upon
continued country eligibility based on a set of seventeen indicators
measuring various aspects of fiscal transparency, corruption, and
good governance, among other things.

Other Donors Working on Fiscal Transparency
--------------

7. (SBU) Seven donors provide almost USD 100 million in direct
budget support (BSG) to the GON (Reftels B and C) -- the World Bank,
Inter-American Development Bank, Finland, European Union, United
Kingdom, Netherlands, Switzerland, and Norway. The framework
agreement for this assistance stresses fiscal transparency and
requires that the previous year's expenditures be audited to examine
variances with the published budget. The BSG uses Law 550 on Fiscal
and Budgetary Transparency as the basis for its discussions with the
GON.


8. (U) Other donor programs include:


MANAGUA 00000266 002.2 OF 002


- World Bank: Project to increase efficiency, productivity and
transparency in the public sector. Total: $23.5 million. Began:
March 2004. Ends: June 2008.

- Inter American Development Bank: National Budget Audit. Project
helps the Controller General's Office in preparing a reference
framework and action plan to prepare financial audits and comply
with budget execution, as required by the BSG. Total: $407,000.

- GTZ: Local Development and Fiscal Transparency. The program
promotes a tax paying culture, strengthens local governments, and
creates cooperation mechanisms between DGI and municipalities.


9. (SBU) The GON is currently in its first year of a three-year
Poverty Reduction Growth Facility agreement with the IMF (Reftel D).
Two structural components of the agreement are capital spending
controls and tax administration. Both of these programs are focused
on improving quality and transparency of these issues.

TRIVELLI