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© 2001 International Monetary Fund

October 2001

IMF Staff Country Report No. 01/171

Nicaragua: 2001 Article IV Consultation—Staff Report; Statement by Staff Representative; Public Information Notice on the Executive Board Discussion; and Statement of the Nicaraguan Authorities

As required under Article IV of its Articles of Agreement, the International Monetary Fund conducts periodic consultations with its member countries. In the context of the 2001 Article IV consultation with Nicaragua, the following documents have been released and are included in this package:

  • the staff report for the 2001 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 27, 2001, with the officials of Nicaragua on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 27, 2001. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff statement of September 19, 2001 updating information on recent economic developments;

  • the Public Information Notice (PIN), which summarizes the viewsof the Executive Board as expressed during the September 19, 2001, Executive Board discussion of the staff report that concluded the Article IV consultation.

  • a statement by the authorities of Nicaragua.

The document listed below have been or will be separately released.

Statistical Appendix

*May also be included in Staff Report.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to

Copies of this report are available to the public from

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Staff Report for the 2001 Article IV Consultation and the Staff-Monitored Program (SMP) for July-December 2001

Prepared by the Western Hemisphere Department

(In consultation with other departments)

Approved by Claudio M. Loser and Michael T. Hadjimichael

August 27, 2001


  • Executive Summary

  • I. Introduction

  • II. Recent Economic Developments

    • A. Background

    • B. Performance in 2000 and First Half of 2001

  • III. Policy Discussions

    • A. Fiscal Policy

    • B. Monetary and Financial Policies

    • C. External Sector Policies

    • D. Structural Policies and Governance

    • E. Poverty Reduction Strategy Paper (PRSP)

    • F. Quantitative and Structural Benchmarks

    • G. Medium-Term Macroeconomic Outlook

  • IV. Staff Appraisal

  • Text Box

  • 1. Recent Bank Resolutions

  • Tables

  • 1. Selected Economic and Financial Indicators

  • 2. Consolidated Operations of the Public Sector

  • 3. Summary Operations of the Central Government

  • 4. Summary Accounts of the Central Bank

  • 5. Operations of the Central Bank and the Financial System

  • 6. Balance of Payments

  • 7. Medium-Term Balance of Payments

  • 8. Medium-Term Macroeconomic Projections

  • 9. Public Sector External Debt and Debt Service

  • 10. Indicators of Financial Sector Vulnerability

  • 11. Social Indicators

  • Figures

  • 1 Exchange Rate Developments

  • 2. Economic Performance in 1998–2000 and Projections for 2001–03

  • Appendices

  • I. Fund Relations

  • II. Relations with the World Bank Group

  • III. Relations with the Inter-American Development Bank

  • IV. Statistical Issues

  • V. Bank Resolution Plans

Executive Summary

Economic performance deteriorated during the final months of 2000 and the first half of 2001, with economic growth decelerating as investment slowed from high post-Hurricane Mitch levels. The deficit of the combined public sector in 2000 turned out to be some 2 percent of GDP higher than anticipated at the time of the Board meeting in December, owing to substantial spending overruns in the fourth quarter of the year. During the first half of 2001, continued high spending and payments of domestic arrears (mainly to suppliers) resulted in central bank financing of the combined public sector of about 13 percent of the period’s GDP and a decline in net international reserves (N1R) of close to US$120 million. As of end-June, gross reserves stood at about 50 percent of short-term public sector debt (on a remaining maturity basis).

Structural reforms advanced substantially in 2000 and so far in 2001 Four weak banks were intervened (including Banco Nicaraguense de Industria y Comercio, on August 4, 2001), banking supervision continued to be strengthened and legislation to reform the social security system was approved. At the same time, the ongoing bidding processes for the telecommunications and electricity generation companies is expected to be completed in August. In addition, efforts to improve the efficiency of the Comptroller’s Office have continued and property rights have been strengthened with the establishment of mediation courts and the approval of a law on administrative procedures and dispute settlement.

The authorities have prepared an economic program for July-December 2001, aimed at improving fiscal performance by curbing spending and continuing the structural reform agenda. Discussions on the third annual Poverty Reduction and Growth Facility (PRGF), however, could not be completed because delays in addressing policy slippages made it unfeasible to bring the program back on track in 2001. Against this background, the authorities have requested the staff to monitor their program as a Staff-Monitored Program (SMP) to facilitate the transition to the new administration that will take office in January 2002 and to help build a track record for a possible new three-year PRGF arrangement in 2002. Under the SMP, the deficit of the combined public sector is targeted to decline during the second half of 2001. This would allow for an increase in NIR of US$50 million during 2001, on the basis of privatization proceeds and balance of payments support expected during the second half of the year. Structural actions include further steps to strengthen the financial system, privatization, the introduction of a private pension system, and improvements in governance.

The authorities’ program contains an appropriate package of measures to improve economic performance and reduce vulnerabilities, but there are uncertainties regarding their implementation. In particular, a higher than envisaged use of central bank credit by the government, delays in privatization and/or the actions needed to release disbursements of balance of payment support, or the inability to roll over short-term central bank paper, could increase external vulnerabilities. The authorities have recently completed their Poverty Reduction Strategy Paper and the joint Fund/World Bank staff assessment has been submitted for Executive Board consideration together with this report.

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September 19,2001

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Public Information Notice (PIN) No. 01/104


October 2, 2001

International Monetary Fund

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September 19, 2001