MANAGUA – The beleaguered business sector this week finally had something to cheer about following the government’s announcement that it has reached an agreement to sign a three-year, $112-million economic package with the International Monetary Fund (IMF).
The IMF program, the third in the country’s history, comes after nearly a year of difficult negotiations between President Daniel Ortega’s economic team and the international lending organization.
The economic program, which was drafted by the Sandinista government to reflect a commitment to social spending and povertyrelief programs – a focus not normally associated with IMF programs – is being hailed as an important international stamp of approval on the country’s investment climate, which has gone through some rocky moments in recent months.
The IMF program, said Humberto Arbulú, Nicaragua’s resident representative of the IMF, is aimed at achieving better “governability, transparency and an improved climate for investment” by securing macroeconomic stability while at the same time providing clear and generous spaces for poverty-relief programs.
Unlike the last IMF program signed with the previous administration of President Enrique Bolaños (2002-2006), the new program is based on new economic realities, such as increased international reserves, controlled inflation and increased tax revenues. The healthier macroeconomic situation therefore allows the new government to concentrate more on social spending, Arbulú said.
“This is new for us,” the IMF representative admitted. Still, Arbulú added, the annual 4.5% increase in social spending, while considered “substantial,” is calculated to be a level considered sustainable, with the end goal of boosting overall economic growth, predicted to reach 5% annually by the end of the three-year period.
In that sense, the program represents a compromise between the private sector’s demand for continued macroeconomic stability and the Ortega administration’s commitment to increasing social spending in areas such as food security, health, education and housing.
“This is the beginning of the solution to the problem of poverty in this country,” Arbulú told a group of the country’s top business leaders during an Oct. 9 luncheon of the U.S.-Nicaraguan Chamber of Commerce (AMCHAM).
Arbulú explained that the IMF program requires that the Ortega government must commit to fiscal and monetary policies aimed at bolstering foreign reserves, maintaining an annual 5% devaluation rate for the córdoba, controlling public spending and shooting to reduce deficit spending to 1% by 2009.
The program, which will be evaluated every six months to make sure the government stays on track, will also carry a series of complimentary agenda items to tackle the energy crisis and reform social security.
José Adán Aguerri, president of the Superior Private Business Council (COSEP), told The Nica Times this week that the government’s signing of a plan with the IMF shows an important “commitment to macroeconomic stability in the country” and sends a positive sign to investors.
Still,Aguerri said, the IMF program doesn’t necessarily undo all the damage caused in recent months to Nicaragua’s business climate, which suffered greatly from the image of the Sandinista government temporarily embargoing petroleum storage tanks owned by Esso Standard Oil (NT, Aug. 31).
“We still have to see if (the government) complies with the program in practice,” Aguerri said.
For the IMF’s Arbulú, there is no doubt the government intends to follow the program it has signed up for.
“What I can say is that (Ortega’s) economic team is totally committed to the program, totally in line,”Arbulú told The Nica Times.