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Despite increasing international concerns about Nicaragua's governance issues, the International Monetary Fund (IMF) – which President Daniel Ortega has long railed against – threw the Sandinista government a much-needed lifeline yesterday by approving the second and third reviews of the country's economic performance, qualifying Nicaragua to receive a combined total of $85.9 million, with an immediate disbursement of $37.8 million, according to the IMF.
The decision by the agency, which had effectively frozen aid to Nicaragua since the end of 2008, will provide much needed funding to the cash-strapped government. Nicaragua has already had to cut its 2009 budget on three occasions this year.
Takatoshi Kato, deputy managing director and acting board chair of the IMF, said in a statement that as part of the agreement, the Nicaraguan government will have to gear monetary policy to keep inflation low, while protecting international reserves.
He said Nicaragua's banking system remains sound, though “increased vigilance will be required in light of growing non-performing loans.” He said the government will encourage a “market-friendly and voluntary resolution in the case of troubled debtors” in Nicaragua's unregulated microfinance sector.
The IMF also stressed the need for Nicaragua to implement a series of structural reforms, in the energy sector and pension system, as well as improvements to revenue administration and fiscal policies.
Kato also said that “Strengthening governance and the business climate will be critical to leverage donor support and improve growth prospects.”
Nicaragua's Central Bank, for its part, said the IMF's decision shows that the government is committed to maintaining macroeconomic stability, “even though the Nicaraguan economy has been affected by the global economic and financial crisis.”
The opposition says the IMF's decision will give Nicaragua “more breathing room,” but worries that it will send a message of appeasement to President Ortega.
“This may cause Ortega to maintain an aggressive tack on governance issues,” said opposition lawmaker Francisco Aguirre, of the National Assembly's Budget Commission.
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