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Viewing cable 09MANAGUA754, NICARAGUA: 2009 ECONOMIC INDICATORS BLEAK SO FAR

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Reference ID Created Released Classification Origin
09MANAGUA754 2009-08-03 16:41 2011-08-19 20:00 UNCLASSIFIED Embassy Managua
R 031641Z AUG 09
FM AMEMBASSY MANAGUA
TO SECSTATE WASHDC 4395
INFO WHA CENTRAL AMERICAN COLLECTIVE
DEPT OF COMMERCE WASHINGTON DC
MILLENNIUM CHALLENGE CORP WASHDC
DEPT OF TREASURY WASHINGTON DC
UNCLAS MANAGUA 000754 
 
 
STATE PASS OPIC 
 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ECON PGOV PREL NU
SUBJECT: NICARAGUA: 2009 ECONOMIC INDICATORS BLEAK SO FAR 
 
Summary 
------- 
 
1. (U) Key Nicaraguan economic indicators from the first quarter of 
2009 forecasted a challenging future for the rest of the year.  Not 
surprisingly, remittances from Nicaraguans working abroad have 
suffered declines given the economic slowdown in the United States. 
Imports and exports have both slowed as well, resulting in a decline 
in Nicaragua's trade deficit. Agricultural production, a mainstay 
income-generator for the country, has dramatically decreased across 
most commodities.  Nicaragua's level of indebtedness remains largely 
the same at approximately $4.6 billion in total.  One positive sign, 
however, is a dramatic decrease in the rate of inflation from one 
year ago.  Accumulated year-to-date inflation in May 2009 was only 
0.12%, whereas in May 2008 it stood at 9.43%. End Summary. 
 
Remittances Suffer 
------------------ 
 
2. (U) According to data from the Nicaraguan Central Bank (BCN), Nicaragua benefited from $199.7 million in overseas remittances during the first quarter of 2009, a slight decrease of 0.8% compared to the same period in 2008 ($201.3 million). In 2007, by contrast, remittances were growing at a quarterly average rate of 7%, and grew annually by 11% from 2007 to 2008. By mid-2008, however, growth rates between the first and second quarters amounted to zero. Independent economist Adolfo Acevedo recently estimated that between January and May of 2009, remittances were 4% lower compared to the same period in 2008. Note: This data excludes remittances that are sent via unconventional means (e.g., not sent through money transfer agencies such as Western Union).
 
Imports and Exports: Both Down 
------------------------------ 
 
3. (U) During the first quarter of 2009, total exports from 
Nicaragua were $475 million in goods and services, a 6% decline from 
its exports during the first quarter of 2008 ($505 million). 
Imports also experienced a substantial reduction of approximately 
22%, decreasing from $1.1 billion during the first quarter of 2008 
to $909 during the first quarter of 2009.  As a result, the trade 
deficit declined between the first quarters of 2008 and 2009. 
 
Economic Growth Sluggish 
------------------------ 
 
4. (U) Nicaraguan GDP grew by 1.2% during the first quarter of 2009, a significant decrease compared to 3.1% growth during the same period in 2008. The manufacturing sector, particularly sugar, meat and dairy processors, were among the most important contributors to economic activity during the first quarter. Government spending, retail, hotels, and restaurants also made positive contributions. This growth, however, was offset by a decrease in the forestry, fishery, and construction sectors. Private consumption decreased by 2.3%, particularly as a result of the limited availability of credit, a decline in remittances, and a decrease in real salaries. In terms of annual growth, the GON predicts a 0.5% economic increase for 2009, while the Economic Commission for Latin America and the Caribbean (ECLAC) and the Nicaraguan Foundation for the Economic and Social Development (FUNIDES) have forecasted a far more negative picture, predicting a 1% and 1.5% economic decline, respectively.
 
Inflation Down Dramatically 
--------------------------- 
 
5. (U) A welcome positive economic sign was a dramatic decrease in 
the rate of inflation.  Accumulated year-to-date inflation in May 
2009 was 0.12%, a significant decrease from its 9.43% year-to-date 
rate in May 2008.  Inter-annual inflation has decreased 
substantially as well, declining from 21.74% in May of 2008 to 4.1% 
in May of 2009. The GON estimates that 2009 will conclude with an 
accumulated inflation rate of 6%.  The dramatic decrease in the 
inflation rate is largely a result of the sharp decline in worldwide 
petroleum prices, and also a decrease in the prices of key 
foodstuffs.  The best measurement of the decrease in local food 
prices is the cost of the basic Nicaraguan consumption basket (the 
so-called "canasta basica"), composed of 53 basic commodities 
including dairy, grains, meat, produce, tortillas, bread, utilities, 
housing, transportation, and fuel.  Between 2007 and 2008 the price 
of the basket increased by 11.6%, whereas between 2008 and 2009 it 
showed an increase of only 1.4%. 
 
Debt 
---- 
 
6. (U) During the first quarter of 2009, total GON debt stood at 
$4.6 billion, equivalent to 72.4% of GDP.  This figure demonstrates 
a 1.7% increase from December of 2008 due to greater internal 
indebtedness.  During the same period, external debt totaled $3.5 
billion, representing 76% of total debt and 55% of GDP.  Nicaragua's 
external bilateral creditors include members of the Paris Club and 
Latin America (60.4%); multilateral creditors include the World 
Bank, the Inter-American Development Bank, the International 
Monetary Fund and the Central American Bank of Integration (39%), 
and private creditors such as commercial banks (0.3%).  Internal 
debt totaled $1.1 billion, comprising 24% of total debt and 17% of 
Nicaragua's GDP.  The GON's internal debt obligations are primarily 
indemnification bonds, representing 65% of internal debt.  These 
bonds were issued as compensation to individuals whose property was 
confiscated by the Sandinista National Liberation Front (FSLN) 
government during the 1980's. The remainder of Nicaragua's debt is 
made up of bonds and notes issued by the GON and the Central Bank. 
 
Comment 
------- 
 
7.  (U) The Nicaraguan economy, like many others in the region, has 
significantly deteriorated since last year and most independent 
observers agree that the forecast is dire, at least in the short to 
medium term.  Key challenges that remain are difficult negotiations 
with the IMF over Nicaragua's next disbursement under its Poverty 
Reduction and Growth Facility program and efforts to make up for the 
cancellation of budget support funds from European donors who 
withdrew such support in the wake of the fraudulent 2008 municipal 
elections.