Press Release No. 05/156

Press Release: Statement by Anoop Singh, Director of the IMF's Western Hemisphere Department, in Nicaragua

July 1, 2005

The following statement was released today in Managu, Nicaragua by the Director of the Western Hemisphere Department of the International Monetary Fund (IMF), Anoop Singh:

"It is a great pleasure for me to visit Nicaragua. Over the past two days, I had the privilege of meeting with President Enrique Bolaños; Finance Minister Mario Arana and Central Bank President Mario Alonso; and members of the Finance Committee of the National Assembly. I also participated in the Fourth Annual Regional Conference on Central America and the Dominican Republic, organized jointly by the Central American Monetary Council, the Central Bank of Nicaragua, and the IMF.

"Everybody I met over the past two days agreed that Nicaragua has made a lot of progress in the last three years. The economic program supported by the IMF has delivered impressive results, with a strong recovery of growth (to over 5 percent last year), more jobs, rising exports, and relatively low inflation, despite the recent sharp increase of oil prices. Successful program implementation has also brought Nicaragua strong support from the international community, concessional financing and, in early 2004, major debt relief under the Heavily Indebted Poor Countries Initiative, which cut Nicaragua's external debt by about US$4½ billion.

"However, since late last year the reform momentum has stalled and the core fiscal framework of the authorities' program has weakened, leading to the loss of financing support under the Poverty Reduction and Growth Facility (PRGF) arrangement from the IMF. There is a growing risk that the hard-won achievements of the program will slip away; on current trends, we see growth suffering progressively, inflation going up, and external support declining—putting at risk the gains made in reducing poverty, as well as the hopes for sustained improvements in living standards.

"Nicaragua, therefore, urgently needs to restore the economic program that worked so well before the recent set back. In fact, in my meetings with President Bolaños, his economic team, and members of the Assembly I sensed that there is strong support across the political spectrum for the core program elements of prudent macroeconomic policies and structural reforms to entrench financial stability and boost growth in a lasting way. We hope that a new basis of domestic consensus can be found on the economic policies and reforms for the period ahead, including especially the fiscal and structural reform framework for 2005-06, that will allow the PRGF arrangement to be resumed.

"This year's Regional Conference took place at a particularly important juncture for Central America, as the Free Trade Agreement with the United States (CAFTA-DR) is in the process of being ratified by national parliaments. Conference participants—which included finance ministers and central bank presidents from the region—strongly agreed that implementation of this agreement will bring important mutual benefits and provide another strong anchor for the region's efforts to integrate and compete successfully in the global economy.

"Participants also concluded—echoing a point made by Agustín Carstens, Deputy Managing Director of the IMF, in his keynote speech—that, in order to be successful, integration needs to be accompanied by strong domestic policies and increased cooperation across a broad range of policy areas. They therefore welcomed the opportunity offered by our annual conferences to advance the regional dialogue and consider important issues arising in the ongoing integration process.

"This year's conference focused on the particular challenges arising from growing financial sector integration, as well as the need for greater collaboration among tax authorities as trade and investment linkages between counties increase. It was reassuring to see how determined the region's senior policy makers are to work together on these key issues and, thus, maximize the benefits of integration. On our part, we at the IMF stand ready to continue to assist Central America in its efforts to meet these challenges."