VZCZCXRO7360
RR RUEHLMC
DE RUEHMU #0266/01 0661618
ZNR UUUUU ZZH
R 061618Z MAR 08
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2186
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHCV/AMEMBASSY CARACAS 1210

UNCLAS SECTION 01 OF 02 MANAGUA 000266 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC -PMAIER, AND EEB/IFD/OMA - ASNOW AND 
RFIGUEROA 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN PREL NU
SUBJECT: NICARAGUAN FISCAL PROCESS FAIRLY TRANSPARENT 
 
REF: A)STATE 16737, B)07 MANAGUA 2479, C)07 MANAGUA 2255, D)07 
 
MANAGUA 1771 
 
¶1. (SBU) Summary:  Per Ref A request, Post reports that Nicaragua's 
budget is a public document published by the Ministry of Finance on 
its web site.  The budget, which must be reviewed and approved by 
the National Assembly, does not, however, reflect funds coming from 
Venezuela.  The USG and other donors are working with the GON to 
improve fiscal transparency.  Nicaragua's current IMF program also 
includes work on improving the quality and transparency of capital 
expenditures and increasing tax revenues.  End Summary. 
 
The Budget is Published 
----------------------- 
¶2. (U) Per Ref A request, Post reports that Nicaragua's budget 
process meets acceptable standards for transparency.  The official 
budget is made public, both in its proposed and National Assembly 
approved versions, on the Ministry of Finance's web site 
(www.hacienda.gob.ni).  The web site details overall revenues and 
expenditures and breaks out the budget by ministry and agency.  Each 
ministerial budget details salaries, current expenditures, donor 
projects, and capital expenditures.  Nicaragua's budget development 
and administration is governed by Law 550, the Public Administration 
and Budgetary Regime Law, which requires that the National and 
Municipal budgets meet World Bank and IMF standards. 
 
But Not All Numbers are Reported 
-------------------------------- 
¶3. (SBU) The information available on the Ministry of Finance Web 
site is an accurate representation of the official budget.  Since 
the inauguration of the new administration in 2007, however, 
Venezuela has been providing assistance to the GON in cash and 
in-kind, which the GON has kept off-budget.  While President Ortega 
claims Nicaragua received USD 356 million from Venezuela in 2007, no 
one has been able to account for this sum.  We believe this number 
includes small electricity generation plants (which are on loan) and 
disaster assistance after Hurricane Felix.  An important part of 
Venezuelan aid, particularly in upcoming years, emanates from an 
agreement to return to Nicaragua 50% of the payment for Venezuelan 
oil products in the form of development funds and projects.  It is 
unclear how the funds derived from the oil sales flow into 
Nicaragua.  As part of the Poverty Reduction Growth Facility 
agreement, the IMF is trying to establish an accurate accounting of 
these funds. 
 
USG Efforts to Improve Fiscal Transparency 
------------------------------------------ 
¶4. (SBU) The USG has two Department of Treasury assistance programs 
currently operating with the GON to increase fiscal transparency and 
efficiency.  The tax program, operating directly with the Tax 
Directorate (DGI), is implemented through a series of temporary 
advisors.  The advisors assist the DGI with collection, planning and 
management, human resources, taxpayer's service, and IT issues.  The 
debt program, operating in the Ministry of Finance and the Central 
Bank, is run by a resident advisor.  This program's objective is to 
help Nicaragua develop a market-based means of public finance with 
the aim of creating sound and sustainable approaches to managing 
domestic and foreign debt obligations. 
 
¶5. (U) USAID funds a project aimed at institutional strengthening of 
management systems which includes restructuring the budgets of the 
Ministries of Family and Health towards results based budgeting. 
This process increases the transparency and accountability on the 
use of public funds.  USAID presented to model to the Minister of 
Finance, who is exploring how to use it in several other ministries. 
 
 
¶6. (U) Continued disbursement of funds under Nicaragua's five-year 
Millennium Challenge Corporation compact is contingent upon 
continued country eligibility based on a set of seventeen indicators 
measuring various aspects of fiscal transparency, corruption, and 
good governance, among other things. 
 
Other Donors Working on Fiscal Transparency 
------------------------------------------- 
¶7. (SBU) Seven donors provide almost USD 100 million in direct 
budget support (BSG) to the GON (Reftels B and C) -- the World Bank, 
Inter-American Development Bank, Finland, European Union, United 
Kingdom, Netherlands, Switzerland, and Norway.  The framework 
agreement for this assistance stresses fiscal transparency and 
requires that the previous year's expenditures be audited to examine 
variances with the published budget.  The BSG uses Law 550 on Fiscal 
and Budgetary Transparency as the basis for its discussions with the 
GON. 
 
¶8. (U) Other donor programs include: 
 
 
MANAGUA 00000266  002.2 OF 002 
 
 
- World Bank: Project to increase efficiency, productivity and 
transparency in the public sector.  Total: $23.5 million. Began: 
March 2004. Ends: June 2008. 
 
- Inter American Development Bank: National Budget Audit.  Project 
helps the Controller General's Office in preparing a reference 
framework and action plan to prepare financial audits and comply 
with budget execution, as required by the BSG.  Total: $407,000. 
 
- GTZ: Local Development and Fiscal Transparency.  The program 
promotes a tax paying culture, strengthens local governments, and 
creates cooperation mechanisms between DGI and municipalities. 
 
¶9. (SBU) The GON is currently in its first year of a three-year 
Poverty Reduction Growth Facility agreement with the IMF (Reftel D). 
 Two structural components of the agreement are capital spending 
controls and tax administration.  Both of these programs are focused 
on improving quality and transparency of these issues. 
 
TRIVELLI