Statement by the IMF Staff Representative June 18, 2003

The Financial Sector Assessment Program (FSAP) program has been brought back on track, after some difficulties, in early 2003 (which led to a delay in completing the first review). Although a start has been made in strengthening the banking sector, significant further work is needed. The central bank’s asset recovery plan is being implemented, despite strong opposition from vested interests. The authorities reaffirmed their commitment to their growth and poverty-reducing strategy presented in the December 2002 Poverty Reduction Strategy Paper (PRSP) progress report.

Abstract

The Financial Sector Assessment Program (FSAP) program has been brought back on track, after some difficulties, in early 2003 (which led to a delay in completing the first review). Although a start has been made in strengthening the banking sector, significant further work is needed. The central bank’s asset recovery plan is being implemented, despite strong opposition from vested interests. The authorities reaffirmed their commitment to their growth and poverty-reducing strategy presented in the December 2002 Poverty Reduction Strategy Paper (PRSP) progress report.

1. This statement provides additional information that has become available since the issuance of the staff report on June 4, 2003. This information does not alter the thrust of the staff appraisal.

2. Implementation of the central bank’s asset recovery program continues to be broadly on track, although with a slight modification in the schedule for the next and final auction. Despite strong opposition from several groups, the first and main auction of assets was successfully held on May 21, involving most real estate and loans acquired by the central bank during the 2001-02 banking crisis. Other smaller auctions involving the sale of artworks, furniture and other items, were held subsequently. Total proceeds from the auctions to date, as well as from recoveries of loans through the special scheme granted to the coffee sector (Paragraph 13 of the Staff Report) are estimated at about US$27 million. Remaining assets were scheduled to be disposed at a final auction on June 26, including assets unsold during previous auctions as well as the coffee-related and small debtor loans that had been excluded from the first auctions (completion of asset sales by end-June constitutes a performance criterion for the next review). However, at the request of the international firm selected to carry out the recoveries, the last auction has been postponed to mid-July in order to appropriately incorporate the experience gained during the first auction (in particular, to ensure smooth functioning of technical support which had experienced some glitches during the first auction).

Nicaragua: First and Second Reviews Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver and Modification of Performance Criteria
Author: International Monetary Fund