San José, Costa Rica, since 1956

Foreign Budget Support in Limbo

MANAGUA – A lack of transparency in the management of Venezuelan aid, postponed elections on the northern Caribbean coast, and a politicized judicial branch are some of the reasons Nicaragua might not receive all $120 million in foreign budget aid scheduled for this year.

The so-called “budget support group,” which includes representatives from the European Commission, the World Bank and other financial institutions, are meeting this week with the Nicaraguan government to discuss the situation.

“It’s not a blank check,” said Francesca Mosca, head of the European Commission in Nicaragua, regarding the European Union’s pledged $20 million of the $120 million budget support. The EU’s total aid slated for Nicaragua in 2008 is around $45 million.

The budget support group began negotiations with Nicaragua officials last week to assess whether the country meets standards required to receive the full $120 million in support for Nicaragua’s $1.7 billion budget this year. Including budget support, Nicaragua has received an average $545 million over the past decade in annual foreign aid, most of which is distributed through non-governmental organizations or toward specific projects.

“There are some areas that are lacking and I can’t say that we’ll necessarily release funds for those projects,” Mosca told The Nica Times last week.

Mosca’s concerns come as national and international observers have expressed apprehension over the lack of transparency in the President Daniel Ortega administration (NT, April 27, 2007). Several European countries have already withdrawn aid and budget support as Europe shifts its aid focus to poor nations in Africa to address that hemisphere’s immigration issues.

With the budget support group expected to come to an agreement next week, their decisions whether to release aid will set the tone for an International Monetary Fund (IMF) meeting held here next month, in which officials for the U.S.-based international lending institution will make a similar decision on Nicaragua’s compliance for aid.

Political concerns coupled with Europe’s restructuring of foreign-aid priorities could amount to a major blow for an impoverished country that over the past two decades was one of the largest recipients of foreign aid per capita in the world.

Germany decided last year to suspend its 2008 budget support for Nicaragua – which in 2007 was some $6 million – and Sweden announced last year plans to phase-out its aid to Nicaragua by this year (NT, Sept. 14, 2007).

More recently, Great Britain has announced that in 2009 it will pull $8 million in budget support for Nicaragua and will instead put that funding toward nongovernmental organizations here.

The daily El Nuevo Diario recently reported that the amount of foreign aid released to Nicaragua in 2007 was less than half the annual average released between 1997 and 2006. Though Foreign Ministry spokeswoman Vilma Aburto said that report was based on “outdated” numbers, she didn’t offer up any new figures.

Nicaraguan political analyst Julio Icaza says the trend of reallocating aid not only represents Europe’s new focus on its own hemisphere, but a shift in ideology on the most effective way to help developing countries.

“The European strategy is moving from cooperation to commerce with the (EU’s) negotiation of this association agreement (with Central America),” said Icaza, adding that the new focus seems to follow the U.S. model of “trade not aid.”

“It’s like they’re saying the donation phase is coming to an end and now we’re coming to the business phase,” Icaza said.

As for the United States, U.S. Agency for International Development spokeswoman Jan Howard said the U.S. government gives no direct aid to the Nicaraguan government, though U.S.-backed institutions such as the World Bank do.

Government’s Purse Shrinking

German legislator Werner Hoyer, of the German Liberal Party, has been rocking the diplomatic boat in a series of recent interviews with the local Nicaraguan press and international news agencies by claiming the German government will suspend aid to Nicaragua due to the country’s opaque relations with Venezuela and Iran, and its “absurd” management of foreign aid.

In an interview with the daily La Prensa, Hoyer compared Nicaragua’s transparency to that of countries like Uganda.

“Daniel Ortega obviously can’t resist the seduction of large quantities of money, which is why he allows himself to be bought out by countries like Venezuela and Iran for their own ends,” Hoyer said.

But the spokesman for the German Embassy in Managua, Gunter Sautter, said that despite the opinion of Hoyer, whose party is a minority in the German parliament, the German government will continue giving aid to Nicaragua through 2008.

Though the Germans gave $6 million in budget support to Nicaragua in 2007, Germany decided late last year, as part of a larger decision to cut budget support to all countries, to eliminate that program. But other forms of German aid to Nicaragua continued in 2008, and no decision has been made about extending those programs beyond this year, according to Sautter.

“Germany and Nicaragua had negotiations about future cooperation in November 2007. The result was that Nicaragua receives 14.5 million euros ($22.6 million) for 2007 and 2008. Thus Nicaragua remains a priority country for foreign cooperation,” Sautter told The Nica Times. “No decision whatsoever has been taken by the German government concerning development aid (for Nicaragua) after 2008.”

Sautter said a German delegation will likely begin talks with the Nicaraguan government later this year about future aid.

Then came Great Britain’s decision, announced more than a month ago, to cut budget support for Nicaragua beginning in 2009, though the country will continue to give aid to Nicaragua by means of NGOs and other programs. British Ambassador to Nicaragua Tom Kennedy said the aid shift was the a result of a recent decision by the Organization for Economic Cooperation and Development (OECD) to change Nicaragua’s status from a low-income country to a middle-income country based on Nicaragua’s statistical improvement in some economic areas.

“It’s a technical reason, basically, it’s not politically linked,” Kennedy said.

A Useful Tool?

Mosca said budget support is an important incentive used by donor countries to hold aid recipients accountable to certain criteria.

“Budget support is a very useful tool and we want to continue giving it,” she said.

Though Mosca said she won’t know for certain which aid programs to Nicaragua could be suspended until the conclusion of the EU’s current negotiations with the government, she said some of the Ortega administration’s policies have been “worrisome.”

“We’re worried about the fact that elections have been postponed in three municipalities,” said Mosca, referring to the municipalities of Waspam, Bilwi and Prinzapolka in the Northern Atlantic Autonomous Region (RAAN). She said that decision could affect aid the European Commission is scheduled to give the Supreme Elections Council to encourage voter registration.

She also noted as “worrisome” Nicaragua’s inability to de-politicize and professionalize the judicial system with a series of proposed reforms known as the Ley de Carrera Judicial, which have been discussed for more than three years, but not passed (NT, Jan. 18, 2008). She said $3 million worth of European Union aid to train judicial officials is riding on whether that reform is passed.

Finally, Mosca scrutinized Nicaragua’s relationship with Venezuela.

“We’ve always asked for transparency of Venezuelan aid as we do with aid from all countries,”Mosca said.

She said that the government’s response to the commission’s demands for transparency have been positive, though results have been minimal.

Under pressure from the transportation sector protesters who have been demanding that Venezuelan aid be used to subsidize gas prices, Ortega made his first effort – albeit vague and incomplete – to publicly explain in a speech last week how his administration has been spending some $520 million in Venezuelan assistance (see separate story, page N4).

Some Encouraging Signs

Mosca stressed that Nicaragua’s response to the budget support group’s demands for transparency haven’t been “all negative.” She applauded the Ortega administration’s audit of the 2005 budget, and welcomed the first draft of the Ortega administration’s National Human Development Plan for 2008-2012, parts of which were made public last week. The Ortega administration presented the draft – which reportedly admits that 25 percent of the oil Nicaragua receives from Venezuela is being assumed as public debt – to the Table of Cooperators, a group of 48 donor countries and institutions that form the budget-support group.

The Ortega administration’s “concept of human development fascinates us,” said Walter Lacayo, the United Nations Development Program’s (UNDP) spokesman in Nicaragua. Lacayo said the UNDP and other donors are preparing formal responses to the development plan.

Donor countries demand such national plans be elaborated as a requisite for continued support, Lacayo explained. Mosca encouraged the Ortega administration to complete a final draft of the plan.

Icaza, however, says the plan is a mixed bag. Though it may give the budget support group a document by which to hold the Ortega administration accountable for use of foreign aid, the first draft is “insufficient” in that it would put Ortega’s Councils of Citizen Power (CPCs) – controversial Sandinista neighborhood groups that critics say undermine local governments and civil society – in charge of carrying out the plan.


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