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