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On February 20-23, a delegation from the Civil Coordinator travelled to Washington, supported and joined by OXFAM International, in the fulfilment of its advocacy work before the IMF, with a view to the negotiation of the fifth IMF Programme with Nicaragua. The aim of the visit was contributing to the broadening of the country’s scope for negotiation.

Our delegation held meetings with representatives from various countries before the IMF Executive Board. Said Executive Board runs the IMF at the highest level, between each meeting of the Board of Governors. There we met representatives from Germany, the Netherlands, the United Kingdom, Finland (which also represents Sweden and Denmark), Switzerland and Venezuela (which also represents Central America, Mexico, and Spain).

Also, we held a meeting with the IMF Mission Chief for Nicaragua, and the Director of the Policy Development and Review Department – who is in charge of assessing the development of IMF Programmes as regards Nicaragua.

Moreover, we met with two IDB Directors in order to become acquainted with the proposal for the cancellation of Nicaragua’s debt with the institution, approved by its Board of Directors.

Finally, we held meetings with representatives of the “Jubilee 2000” Network in the United States, which has firmly promoted external debt cancellation for developing countries.

In general, Directors and other IMF officials we met with, agreed on the fact that the new government has the opportunity to submit its own Economic Programme, mainly aimed at poverty reduction, while preserving economic stability.

They acknowledged the achievements attained in terms of economic stability had not been accompanied by poverty reduction, and that the future IMF Programme with Nicaragua ought to advance in this direction.

Furthermore, they made it clear that the new Programme should make sense, for Nicaragua and Nicaraguan people above all, respecting the country’s political reality and constitutional framework, while preserving macroeconomic consistency.

We were told some conditionality was bound to exist, but that the IMF intends it to be as global as possible rather than a conditionality related to very specific policies, as was common in the past (which has been called policy “micromanagement” by the IMF), allowing the country to define policy options and problem-solving strategies of their own, with the aim of creating the necessary conditions for the country’s sustainability.

We were assured that the elimination of exemptions would be approved by the IMF.

The visit paid by our delegation was referred to as being very timely, because on February 23 the Board was holding a meeting to discuss the assessment on the performance of IMF Programmes in Nicaragua, and the perspectives regarding a new Programme. The IMF itself is said to be subject to some thorough self-assessment, and that it is virtually searching “its own soul” (to which we remarked, indeed, exactly what you are thinking).

IMF Directors and staff showed an interest in learning about our assessment of past programmes, as well as our main points regarding a new one.

As regards our assessment, we pointed out that Nicaragua was overcoming a highly destructive war in the early 1990s, having undergone serious deterioration. Given those conditions, the best course of action to be taken was carrying out a strong investment process in order to reinstate the physical infrastructure and human capital (and the natural capital).

Instead, the IMF focused on imposing drastic “standard” stabilization and adjustment programmes, trying to obtain short-term economic balances at all costs, while giving priority to external debt service payment “at all costs” – payment which ended up monopolizing an average 51% of the country’s fiscal revenues. This is why Nicaragua was unable, during the 1990s, to make the necessary investments to regain basic perspectives as regards future development and poverty reduction. At the same time, rural areas, where the highest level of poverty is concentrated, were left aside, and the traditional institutions which foster agriculture and support small and medium-sized producers were dismantled.

The emphasis was put by the IMF – rather than on ensuring the creation of basic infrastructure conditions and human capital provision, which are vital prerequisites and elements for development, allowing the country basic future perspectives – on demanding the quickest privatisation of state-owned companies, and the total deregulation and liberalisation of the economy.

As a result, we find ourselves before a scenario of seriously deep-going deterioration and huge deficit in basic infrastructure, and a deplorable situation of great human capital shortfall.

Most importantly, there is the dramatic situation undergone by millions of human beings inhabiting the country, especially the rural areas. This picture is made worse by the existence of socio-demographical trends which only open a one-time window of opportunity, lasting 10-15 more years, before said opportunity vanishes and is lost forever, with irreversible consequences for the country.

When Nicaragua began to receive the “relief” of the HIPC Initiative, as from 2001, the promise was that resources freed up from external debt payment would finally enable the investment in human capital and basic infrastructure to be taken to higher levels, more consistent with the pressing needs of the country; but the IMF allowed the diversion of said relief to the onerous internal debt service. This overwhelming and expensive service – part of this debt being illegal – has currently turn into the main restriction faced by the country to carry out these investments.

When questioned about what our main priorities would be, in view of the negotiations concerning the new Programme, we answered that, in the first place and for the reason pointed out, it would be the fact that the IMF raised no objection or put up no resistance to an in-depth internal debt restructuring.

Whenever the IMF stated, in the past, that municipal transfers, salary increases regarding education and health, or an increase in the Budget of the Education Ministry provided for in the General Education Law were “fiscally unsustainable”, it actually meant that these variables should work as “adjustment variables”, and they must be restricted as far as possible so as to ensure payment of said debt at all costs.

On the contrary, instead of the investment in human capital and basic infrastructure being the “adjustment variables” that must be restricted to allow for payment of this debt, it is obvious that for the Millennium Development Goals and national goals regarding education and health, drinking water and sanitation, housing and famine reduction to be successfully achieved, THOROUGH internal public debt restructuring must be implemented. It is the internal debt service, not social spending, the variable that should be “adjusted”.

In this sense, Directors agreed on the fact that internal debt restructuring was a matter to be resolved upon internally, by Nicaragua itself.

Obviously, the other fundamental financial scope for Nicaragua would be to achieve tax progressiveness (for which IT IS NOT ENOUGH to eliminate exemptions at all), as a way of significantly increasing the necessary resources to finance the demanded increase in social spending.

Secondly, the inflexible criterion of the so-called “zero fiscal deficit” should be reconsidered.

Under this rule, the Venezuelan contribution to the Budget could not, for instance, be implemented – since an increase in the resources earmarked for housing, communication networks, education or health would raise the expenditure ceiling, thus expanding fiscal deficit in the books of accounts.

Said deficit would, nevertheless, be financed by means of highly concessional resources. What is more, this cooperation would be allocated to finance investments with high social return, which is what truly matters.

Within the frame of this “standard” – although thorough internal public debt restructuring would be successfully achieved and, as a result, a significant amount of budgetary resources were released from annual payment of its amortisation, for the same reason mentioned (it would raise the expenditure ceiling and increase fiscal deficit in the books) – said resources could not be allocated to raise the government primary spending ceiling, to finance investments in human capital, housing, drinking water and sanitation, or maintenance of rural roads.

Thirdly, as regards every delicate matter arising from these negotiations – especially the municipal transfers and decentralisation policy, social security reforms, 6% allocated to Universities, wage policy concerning education and health, the budgetary increase demanded for the achievement of MDGs – the analysis of various alternative policy options to face them must be considered, since there will always be a variety of options, every one involving different costs and risks, for different sectors of society.

We emphasized the fact that the most important thing was perhaps the existence of an opening allowing different policy options to be discussed, beyond IMF policy approaches and preferences being imposed so far.

These are not strictly “economic” or “technical” matters. Quite on the contrary, as matters which concern us all and affect the future of the country, they relate to the inalienable right of citizens to freely analyse and choose their own future options, rather than have these decisions made by external imposition of a “one-size-fits-all model” which allows for no choices or alternatives.

Economics, as a discipline that intends to become a science, can never leave out freedom or democracy, which imply in themselves the evaluation and the fully informed free choice between various options and alternatives. Democracy is the possibility people have to choose between alternative models.

This approach clashes with views purporting that there is only one development model. But whenever citizens are unable to choose between different alternatives, democracy loses all its significance.

In the fourth place, the IMF should stop pressing for alterations to the Political Constitution of the Republic as regards very delicate matters affecting the state’s political structure itself, such as the elimination of municipal autonomy. This is an open violation of the non-intervention principle concerning those matters belonging to the internal jurisdiction of States, stated as an obligation of States in the 2.625 (XXXV) Resolution of the United Nations (1970), which specifies that: “not only armed intervention but also all other forms of interference or attempted threats against the personality of the State, or against its political, economic and cultural elements are in violation of International Law”.

As regards meetings with the IDB, we were informed that the Board had passed a few days earlier a more generous debt cancellation for Nicaragua, Honduras and Bolivia than the one initially proposed, since it would now include the entire debt incurred until December 31, 2004 – whether disbursed or not. The previous proposal failed to cancel debts that had been incurred but not disbursed.

They voiced their interest that the resources freed up by means of this cancellation are not diverted to any purposes other than poverty reduction.

Related information:

About the negotiation of the fifth IMF programme with Nicaragua

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