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UNCLAS SECTION 01 OF 02 MANAGUA 000243 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN IMF PREL NU
SUBJECT: NICARAGUAN CENTRAL BANK HOSTS DEBT RELIEF EVENT 
 
REF: STATE 12263 
 
 ¶1.  (U) Summary: On January 20, 2006, with the encouragement 
of the Ambassador, Nicaraguan Central Bank President Mario 
Alonso invited resident G8 and other donor country 
Ambassadors to a well-attended press conference to showcase 
debt relief. Alonso devoted half of his regular monthly 
economic presentation to explaining how the MDRI and HIPC 
initiatives have benefited Nicaragua, thanking all of the 
multilateral and bilateral donors by name.  The Russian 
Ambassador responded on behalf of the G8 in support of the 
debt relief initiatives and outlined Russia's calendar of 
meetings and priorities for its G8 chairmanship:  energy 
security, combating contagious pandemic diseases, and 
education for development.  Embassy subsequently released a 
press statement highlighting U.S. support for Nicaragua's 
debt relief.  End Summary. 
 
¶2.  (U)  Central Bank President Mario Alonso took advantage 
of his monthly press briefing on macroeconomic trends to 
showcase Nicaragua's participation in multilateral and 
bilateral debt relief initiatives, inviting resident G8 and 
bilateral donors, and the IMF resrep, to participate in a 
special debt relief press conference January 20.  Alonso 
described the principle events of 2005 as macroeconomic and 
financial stability and greater debt relief.  He highlighted 
reactivation of the IMF program, prudent monetary policy 
permitting a record level of international reserves ($730 
million as of December 31, 2005), internal debt reduction 
which led to greater liquidity and a doubling of domestic 
credit, preservation of fiscal discipline and strengthened 
regulatory framework for financial markets, and modernization 
of the payments system.  On the debt relief front, Nicaragua 
negotiated $165 million in debt relief under HIPC, and 
achieved inclusion in the MDRI, which will mean an additional 
$827 million in relief. 
 
¶3. (U) In his macroeconomic overview, Alonso pointed to the 
monthly economic index (IMAE) which showed growth in almost 
all sectors of the Nicaraguan economy (the exceptions were 
mining and communications, and the communications data does 
not include cell phones), and an overall growth of 4.9% for 
October, compared to 5.4% in 2005 (note:  official GDP 
figures will not be available for another month, but the 
expectation is that growth slowed to around 4% from the 
previous year's 5.1%).  Annual inflation was 9.58%, below the 
double-digit figure that the GON had forecast in mid-2005. 
For 2006, the Central bank intends to maintain the 5% 
crawling peg depreciation, and predicts GDP growth of 3.7-4% 
and inflation of 7.3%. 
 
¶4. (U) Looking ahead, Alonso projected continuation of IMF 
and donor support, additional debt relief, the entry into 
force of DR-CAFTA, favorable prices for Nicaragua's export 
products, initiation of the Central American Customs Union, 
the start of Millennium Challenge Account disbursements, 
strengthening of the highway fund FOMAV, successful WTO 
resolutions, new port facilities at El Rama, internal 
political entente in an election year, and transparency and 
confidence in the economy.  Challenges for the country in the 
year ahead were:  maintaining macroeconomic stability and 
confidence to hand over the country in good condition to the 
new government in 2007, increasing exports and employment, 
improving the efficiency of the economy through 
competitiveness in general (infrastructure and transaction 
costs) and in the private sector, beginning to implement 
renewable energy sources, strengthening transparency and 
institutional development, and holding a democratic electoral 
process and elections. 
 
¶5.  (U)  Alonso explained that under the HIPC initiative, 
Nicaragua had received 91% debt relief from Paris Club, 
bilateral and commercial creditors, but only 73% from 
multilaterals, which is why the MDRI is so important.  Of a 
projected USD 6,328 million debt relief (nominal value as of 
December 2005), USD 3,761 (60%) had been formalized, and USD 
3,792 million negotiated.  Debt sustainability was still 
unsatisfactory, with the debt/export ratio still projected to 
be over the benchmark 150% in 2007.  The MDRI, which would 
bring Nicaragua an additional $87 million in debt relief 
($133 million from the IMF and $694 million from IDA), plus 
an acceleration of $355 million in HIPC relief, for a total 
of $1.182 million, brings the debt sustainability ratio to 
130% in 2006.  The total relief for Nicaragua will be USD 
7,155 million. 
 
¶7.  (U) Russian Ambassador Igor Kondrashev, as chairman of 
the G8 group, thanked Alonso for holding the gathering, and 
provided a brief history of the HIPC and MDRI initiatives 
from the donor perspective, mentioning that Russia had 
provided significant debt forgiveness to Nicaragua.  He 
outlined Russia's G8 calendar for financial meetings, and 
outlined Russia's priorities for its G8 year.  These were 
energy security, the global fight against contagious diseases 
such as avian flu, and providing education in developing 
countries for progress, employment and growth. 
 
¶8.  (U)  After the press conference, Ambassador Trivelli was 
mobbed by the usual scrum of journalists, all asking 
questions related to Nicaragua's political and economic 
situation.  Later that day, the Embassy issued a press 
release in which we congratulated the GON for qualifying for 
debt relief from the IMF and for its satisfactory 
macroeconomic performance, progress in poverty reduction and 
improvement in public spending.  The press release went on to 
say that continued debt relief under HIPC, Paris Club and 
MDRI are a recognition of Nicaragua's economic policies over 
the past four years.  The statement stressed that the USG has 
supported the HIPC initiative and has provided 100% relief 
for bilateral debt. 
TRIVELLI