Announcement of Two Loan Granted to Nicaragua on September 4, 1953

• •f l f o ., .... ~ ... ~ .., ..... ~ .... ,#f' t •., ~ ••. "' ~... ·•·--r-'.'• ..... , '" •••. o • •. 1,1.. • •, .~-~-. . . . ., ..... ,~·.1- ..... .,-.. ,,,...,.;-,,:~i.; ' INTERNATIONAL BANK FOR RECONSTRuCTION .AND DEVELOPM!:NT • FOR THE ffiESS PRESS RELEASE NO. 334 The International Bank for Reconstruction and Development today made two FOR IMMEDIATE RELEASE Sept~mber 4; 1953 loans totaling $3,950 1 000 to Nicaragua: $3.,500,000 for highway construction., and $4,o,ooo for eJ.ectric power. The highway project is a further step in a long- range program to develop an adequate road system in Nicaragua. The power project will provide a ne,;·1 diesel electric unit which should help ease the serious power shortage in the area of Managua., the national capital. Although Nicaragua is an essentially agricultural country., large areas or cultivable land are still undeveloped because of inadequate transportation, and the construction of roads is of high priority. Under the highway program., a system of all-weather highways is being constructed to link Managua, the provincial • capitals a.nd seaports., and a. network of fa:nn-to-market roads will be built to the main highways and around the principal cities. Most of today's loan will be used to help finance the farm-to-market network. It consists of 43 all-weather feeder and access roads totaling 430 miles in 14 departments of the Republic, and should stimulate production in areas now in- capable 0£ full development. The loan will also help to finance the construction of two roads in the main highway system. These will complete a further step of the main highway program., for which the,JSank ient Nic(#,r~gua. ~.3.5 million in Jw1e ' ;, "·, 1951. When the secondary roads are completed trucks should be able to provide transportation at one-fif~h to one-tenth of present costs; commerce of all kinds ., • .J should be. greatly -stimulated; and rann production can be expected to increase by about .30%. The opening up of more extensive areas suitable fur: t~~ctor operations • will stimulate further mechanization in~.the production of staple crops. In  - 2 - addition, large increases can be expected in coffee and cattle production. Many • regions to be penetrated by the roads are highland areas where coffee could be grown in quantity. Nicaragua has long enjoyed a good market for live cattle. Now, however, only hard7 cattle of poor beef quality can survive the rigorous journey over rough mountain trails to market; and cattle growers have no incentive to raise better stock. Better roads and truck transportation can be expected to stimulate the production of improved strains of cattle. In some areas the new roads will encourage the· use of forest resources. Although both hardwoods and softwoods are abundant in Nicaragua, lumber is scarce and expensive. The new feed~r r-oads will serve a.lso as access roads into timbered areas which cannot at present be profitably exploited. The total cost of the present road project is estimated to be the equivalent of $5,170,000. The Bank's loa.n of $3.,500,000 wi.ll finance the imported equipment, • materials. and services required, and the remaining costs will be met by Nicaragua out of its own resources. The loan is for a term ot 10 years and carries interest at 4-3/L% including the 1% conuniesion which, under the Bank's Articles of Agree- ment, is allocated to a special reserve. Amortization payments will b~gin on I. March 15 ., 195 7. The development of hydroelectric resources is the ultimate goal of the Goverrunent' s power program. Preliminary surveys are now being made to determine the most suitable sites for hydroelectric installations. In the meantime, the Government, with the assistance of private consultants, is preparing an interim study of means to meet the growing industria.1 1 commercial and domestic needs of Managua and other major centers of popula.tion. This pr6j9.ct, besides furnishing' additional supplies of power, wo1.1ld make it possible to integrate the services of the Managua plants and those of other principal cities. • Immediate measures are needed,· however, to ease the serious power shortage  - 3 - •1 in the Managua area. Notwithstanding the installation of a 3,000 kilowatt unit • which went into operation early 1n 1953, demands have grown so rapidly that they still exceed supply. Power is rationed after S p.m. and no new customers of any kind are being served. The Bank's loan will be used to finance an identical imported 3,000 kilowat·t unit, already on order. This new unit should meet the unsatisfied demand or about 33% of the present load of just over 6,100 kilowatts. The power loan is for a. tenn of 10 years and carries interest of 4-3/1& including the 1% statutory commission. Amortization payments will begin on March 15, 1955. Today's loans are the fourth and fifth the Bank has made for the economic development of Nicaragua., and they bring the total lent to $9,200,000. In June 1951, at the same time as it made the $3.5 million highway loan, the Bank lent $1.2 million·to the Banco Nacional de Nicaragua. to .finance the purchase of • agricultural ma.chinery. In October 1951, the Bank lent the Government $550 1 000 for the purchase and installation of a grain storage plant. Good progress has been made under these earlier loans. Some of the roads under construction will be completed before the end of ·the year. The agricuitural equipment is being used by farmers throughout the most important agricultural areas. Although the first amo?'tization payment of $37 ,,oo was not due m1til March 1954, a prepayment of ~245,000 was made on the agricultural equipment loan in April 1953. The grain processing and storage plant was completed in February 1953 and is expected to be operating close to capacity after the August harvest. After haVing been approved by the Bank's Executive D.irectors., the loan dccunients were signed today by Dr. Don Guillermo Sevilla-Sacasa, Ambassador of Nicaragua in Washingtor.1.., on· behalf of the Republic of Nicaragua.., and by l=u.q~I'\.~ (<. (.?~, R:cbof#t l;i.::.:.Ga1 neP; V:Rte President, on behalf of the International Bank • •  ~ ... ..' ~ ~ ~ .• ,. . ~· ... .. 4 - Supplemental Statement-2!! Loans to Nicaragua • Present Economic Position There has been notewor-t.~ improvement in Nicaragua• s economic position in the last two years~ The serious infiationary situation which prevailed in 19Sl has ,\been brought almost completely under control. Government budgets for 1951 and 1952 were balanced, partly as a result of several administrative and fiscal reforms. Total receipts of the National Government rose from 95 million cordobas in 1949/So to an estimated 160 million cordobas in the current budget. Approxi~ mately 30% or the budget is devoted to development expenditures. Nicaragua's agricultural production has continued to expand. The acreage devoted to four major cash crops - cotton, sesame, rice and sugar - increased strikingly in 1951/52 over the preVi.ous year. Much or this has taken place on lands opened up by new roads and has bE=ien due largely to greater use of tractors • and to the productive credit program or the Banco Naeional de Nicaragua. International Bank loans for road construction and for the purchase of agri- cultural machinery have helped in this development, Exports of cotton., rice Earlier and sugar, as well as of coffee, continue to expand. As a result of increases in production, and generally favorable export prices, the value of Nicara.guan exports, other than gold and silver, increased from $26.S million in 1950 to $42.2 million in 1952. At the same time, effective exchange measures have kept imports below exchange earnings and the Nicaraguan balance or pal')nents, which had been in deficit in 19$0, showed SU?'Pluses or about $6! million in both 1951 and 19S2. The exchange reserves or the National Bank which were $3.4 million in 19SO, rose to $1S million at the end of 19,2 and to $29 million in June 19$.3. In view of this favorable financial situation, the Government has proceeded over • the past year to repay in advance of the due date certain of its. outstanding  -s- foreign loans. • ty' Nicaragua's improved economic position has enabled the Government to undertake a broad development program. In 19$1, the Bai.k, at the request of the Government, sta.ti(;.:.1ed a resident special mission in Nicaragua to advise the Goverrunent on its economic policies and to assist in drawing up a development program. The mission's final report, ttThe Economic Development of Nicaragua", was presented to the Government in S'eptember 1952. At the I request of the Government the Bank has continued its special.mission in Nicaragua to assist in carrying out the recommended development program. Before the ~dssion had presented its final report, the Government of Nicaragua had already taken action on several of the mission's recommendations and has made a promising start in the execution of the 5-year development program recoJl'llTlended by the miseion. It has reorganized the National Economic • Council which coordinates the general, fiscal and monet~ry policies of the country; it has created a National Develqpment Institute to promote agri- cultural and industrial development; greatly increased the appropriations ror the 19$2-1953 National Budget to finance the costs of the program; introduced an income tax system and improved budgetary procedures; and centralized in one department responsibility for directing and coordinating development works • •