VZCZCXRO0118
RR RUEHLMC
DE RUEHMU #2564/01 3461705
ZNR UUUUU ZZH
R 121705Z DEC 07
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 1784
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RHEHNSC/NSC WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 MANAGUA 002564 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, AND EEB/IFD 
TREASURY FOR SARA GRAY 
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN 
3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV NU
SUBJECT: Nicaragua Retires USD 1.4 Billion in Foreign Commercial 
Debt 
 
REF: Managua 1672 
 
¶1. (SBU) Summary: On December 5, the GON announced the successful 
completion of its foreign commercial debt buy-back operation, 
allowing it to retire USD 1.4 billion in foreign debt claims. 
Nicaragua will pay 4.5 cents on the dollar to over 111 commercial 
creditors, including all of the vulture funds which held judicial 
decisions against Nicaraguan assets overseas.  Seven donors, 
including the World Bank, contributed USD 71 million to the program. 
 An essential component of the operation was the agreement by the 
vulture funds to vacate their judicial claims on Nicaraguan assets. 
This buy back theoretically permits the GON to once again operate 
freely in the international financial market.  End Summary. 
 
USD 1.4 billion in Debt Retired 
------------------------------- 

¶2. (U) On December 5, the GON announced the successful completion of 
its foreign commercial debt buy-back operation, allowing it to 
retire USD 1.4 billion in foreign debt claims, paying only 4.5 cents 
on the dollar.  Nicaragua's nominal foreign debt is now USD 3.26 
billion, equivalent to 160% of exports (estimated 2007 exports total 
USD 2 billion), representing a debt-to-GDP ratio of 60% (estimated 
2007 GDP is USD 5.5 billion).  This program is the latest step in 
Nicaragua's Highly Indebted Poor Country (HIPC) initiative, launched 
in 2004.  The only remaining external arrears are non-Paris club 
bilateral debt, of which Costa Rica and Libya are the largest 
creditors (Reftel).  When the Sandinistas left power in 1990, 
Nicaragua's foreign debt totaled USD 10.7 billion, later reaching 
its peak at USD 11.7 billion in 1994.  Commercial debt relief will 
have no effect on Nicaragua's 2008 budget, as there were no 
scheduled payments. 
 
¶3. (U) Eighteen months since the GON first requested donor 
participation in the project, the program will complete its first 
closing on December 12 with 111 creditors subscribed, representing 
94% of all creditors.  Nicaragua will complete a second closing 
during the first quarter of 2008, when Ministry of Finance officials 
expect to secure further debt relief from creditors currently 
finalizing their tenders.  They hope to have all foreign commercial 
creditors signed up for the program by summer of 2008.  Nicaragua's 
debt-buy back operation is unique because it is the first time that 
all litigating creditors and vulture funds are participating in such 
an operation. 
 
Where the Money Came From 
------------------------- 

¶4. (U) The GON completed the buy-back operation with assistance from 
the World Bank (WB) and other donors.  The WB provided an IDA-Debt 
Reduction Facility of USD 32.5 million, and donors deposited USD 
28.5 million into a WB trust fund to assist the buy-back operation. 
The commercial creditors will receive USD 64.5 million, about 4.5 
cents on the dollar (i.e. on principal, interest charges, and 
penalties.) (Note: Excess funds will be used to pay for ancillary 
expenses such as the audit required by WB; any further excess will 
be returned to donors on a pro-rata basis. End Note.) 
 
¶5. (SBU) Donor contributions to the operation were: 
-- Norway       USD 9.9 million 
-- Sweden       USD 5.1 million 
-- UK           USD 3.5 million 
-- Netherlands  USD 3 million 
-- Russia       USD 5 million 
-- Finland      USD 2 million 
-- Nicaragua contributed USD 3.5 million of its own funds. 
 
The Benefits of Completion 
--------------------------- 

¶6. (U) Most of the original creditors on this commercial debt, 
accrued in the 1970s and 1980s, sold the debt to hedge/vulture funds 
when Nicaragua ceased servicing the debt in the 1980s.  All four 
vulture funds holding Nicaraguan commercial debt subscribed to the 
program and have agreed to vacate all legal claims against GON 
assets.  This buy-back will allo QvIN undertake 
international financial transactions and deposit its reserves in 
locations that earn better interest.  Due to the 2003 judgments held 
by the vulture funds, Nicaragua has kept all of its reserves at the 
Bank for International Settlements in Basel, foregoing an estimated 
USD 3 million in interest a year.  To protect funds for its 
embassies and consulates in the United States, the GON funneled the 
money through accounts held by the Ambassador and consuls.  The GON 
hopes that this operation will also pave the way for the 
normalization of Nicaragua's relationship with the international 
financial community and contribute to the improvement of Nicaragua's 
credit rating. 
 
Comment 
------- 

¶7. (SBU) While this program was devised by the Bolanos 
administration, credit goes to the Ortega administration for not 
letting the opportunity drop.  The true beQWQod9v- 
operations here can only hurt any renewed effort to tap into global 
capital markets. 
 
TRIVELLI