Nicaragua - Current economic position and prospects

RETURN T0 CIRCUlATING COPY Report No. WH-179a REPORTS DE-S BE RETURNED TO REPORTS DESK OWITHIN IN CENTRAL FILES ONE WLEEK ______________ This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF NICARAGUA May 3, 1968 Western Hemisphere Department  CURRENCY EqUIVALENTS U.S. $1.00 = Cordobas 7.0 (C$) C$ 1 14 U.S. cents C$ 1 mill. = U.S. $142, 857  TAMJ5 OF CO1oT1r\JETS Page No. BASIC DATA i - SULT'FARY AND CONCLUSIONS i - iii I. HISTORICAL PERSPECTIVE 1 II. MAJOR DEVELOPMENTS, 1958 - 1967 3 A. Public Sector Finances and Fiscal Policy 4 Public Sector Revenues 4 Public Sector Current Expenditures 5 Public Sector Savings and Investment 6 B. Monetary and Credit Policies 8 C. Development and Trade Policies 10 Development Policies Affecting the Private Sector 10 Public Sector Development Programs 11 III. PROSPECTS FOR 1968 - 1970 13 A. The Fiscal Situation Outlook 13 B. External Finance and Creditworthiness 15 TABIES HAP This report is based on the findings of a mission to Nicaragua in November-December 1967 composed of Mr. Marto Ballesteros (IBRD).  BASIC DATA Aa anp tion Area 50,000 sq. miles Population (mid-1967) 1.7 million Population density per sq. mile 30 Annual rate of population increase (1963-67) 2.9 percent GP_percaita (19R 7 US$357 Orign of GDP at market prices (C$4U320 million in 1967) (percent) Agriculture 30 Manufacturing 14 Commerce 21 Other 35 Ratios to GDP (1967) Exports of goods and services 28.1 Imports of goods and services 39.1 Central government revenues 11.4 Central government expenditures 12.7 External public debt (end of year) 15.7 Savings ... Investment ... Money and quasi-money (end of year) 18.5 Annual changes in selected economic Average 1967 indicators 1963-65 1966 (Est.) (percent) Real GDP 7.9 3.6 j4.2 Real GDP per capita 4.8 0o6 1.3 Domestic expenditure (at constant prices) 4.0 9.8 .. Investment (15.9) (23.1) (O) Consumption (5.9) (7.0) G.) Cost of living (Managua) 3.4 4.8 ... Central government revenues 16.0 7.1 4.5 Central government expenditures 12.1 20.5 5.5 Money and quasi-money 26.1 11.3 -1.0 Money (16.1) (4.7) (-.40) Quasi-money (96.3) (33.2) (14.O) Net domestic bank assets 18.4 30.3 24.0 Credit to public sector (net) (-u.o) (3.2) (3.7) Credit to private sector (22.5) (30.4) (17.6) Merchandise exports (f.o.b.) 18.1 -5.1 1.5 Merchandise imports (c.i.f.) 17.8 13.5 7.2  Central government finances 196 1966 1967 N(m1.3i.ons of c6rdobas7 Revenues 440e8l&72.l 79.4 Expenditures 431.5 520.0 548.7 Over-all surplus or deficit (-) 9.3 -47.9 -55.3 External financing (net) 8.3 33.0 22.1 Internal financing (net) -17.6 14.9 33.2 Central Bank financing (net) 32.6 (17.3) (29.2) Other internal financing (net) (15.0 (-2.4) (4.0) Balance of payments (millions of U.S. doIlars) Merchandise exports (f.o.b. 149.2 11.9 144.0 Merchandise imports (f.o.b. -132.8 -150.6 -163.0 Services and transfers (net) -380.4 -40.5 -42.2 Balance on current and transfer accounts *.22a0 -49.2 -61.2 Official capital (net) 6.8 15.7 20.6 Private capital (net) 12.0 15*9 21.5 Errors and omissions 4.0 5.5 -1.0 Surplus or deficit (-) o.8 -12.1 -20.1 Comwdity concentration of exports 1961-65 1967 (coffee and cotton) 56.2% 52.1% International reserve pssition Dec. 31 Dec. 31 Dec. 31 1965 1966 1967 (miillions of U.S. dollars) Central Bank (net) 47.9 49.5 31.2 Rest of banking system (net) -19.7 -33.3 -35.2 Total banking system (net) 28.2 16.2 -4.0 External public debt 1961 1967 Total debt outstanding (US$ million) 42.2 97-W Tbtal annual debt service (US$ million) 5.6 13.0 Debt service ratio 6.2% 9.0% Relationshjptp to.lae net2a and trade areas Member, Central American Comwn Market and Central American Clearing House. Bank Group qperations (as of April 15,1968) Committed Disbursed (US$ millions) IBRD 44.8 38.8 IDA 3.0 3.0 1/ Mission estimate  SUMMARY ETD COMCITUJO0TS 1. The Nicaraguan economy has grown substantially during the last decade0 Between 1957 and 1967, per capita income rose by approximately 23 percent. However, given the heavy dependence of the economy on exports of coffee and cotton, changes in production and world market conditions for these products have resulted in periods of considerably rising and falling rates of growth. The latest boom started in 1961 and was almost entirely traceable to sharp increases in cotton production and exports, facilitated by the expansion of road and port facilities which constituted the major area of public investment during the mid and late 1950ts. The latest doirswing started in 1966 as unfavorable weather and spread of disease greatly reduced cotton production and exports. 2. With a responsive private sector, the economic base has been broadened on each upturn, so that the Nicaraguan economy of the mid-1960ts is a considerably more diverse economy, with much more developed infra- structure and industry, than it was a decade ealier. Outside of agricul- ture, private investment had played a modest and stationary role in economic activity until the late fifties. It began to expand in 1959, and gained momentum after 1962, once government policy in this area was clearly defined. It was the increase in private investment which accoun- ted for most of the impressive growth in total investment since the early 19601s; 14.5 percent of GDP in 1962 and 21.3 percent in 1966. In 1958, legislation was passed guaranteeing the repatriation of capital and profits on foreign investments, and the Industrial Development Law was enacted, granting numerous tax exemptions and favored treatment to industrial acti- vities. Nicaragua's entry into the Central American Common Market in 1961 undoubtedly provided additional encouragement to private investment. The ratio of private investment to GDP fluctuated from 9 to 10 percent from 1957 to 1961, and rose thereafter to 13,5 percent in 1965 and 16.2 percent in 1966. 3. During the last decade the propensity to import of the INicaraguan economy has been high and rising. Periods of lagging exports have accor- dingly tended to be accompanied by fiscal and balance of payments deficits. Credit restriction measures bave been the normal response to these periods of financial difficulty, but in 1948 and 1955 the exchange rate also had to be adjusted to further dampen import growth and stimulate exports. 4. The 1966 slowdown brought about the appearance of new govern- ment deficits, and a new policy of credit restraint. Within this frame- work, credit policy was aimed at a selective expansion in medium and long-term loans for agriculture and industry designed to increase and diversify production and exports and reduce the traditional dependence on coffoe and cotton. Overall credit expansion, however, was far larger than anticipated by the Central Bank owing to noncompliance by private commercial banks and the state-owned National Bank with established ceilings. Furthermore, the production diversification program was inadequately carried out, and credits granted to that effect did not show and do not promise appreciable results. As a consequence, import growth  - ii - continued high while exports stagncrted, creating a sharp deterioration in the bal&nce of payments, loss of resei-es and sharp increase in short-term external debt. These developments promptecd the Nicaraguan authorities to request an IMF standby agreement for US$19 million in December 1967. 5. The standby request has been approved. As part of the agree- ment, the Nicaraguan authorities have expressed their intention to reduce considerably domestic credit and short-term foreign borrowing during 1968. As a consequence some public agencies, particularly the National Bank, will experience a marked decline in funds available to carry out their development programs. The fiscal situation of the Central Government is expected to remain tight, and under present policies current savings will not be sufficiently large to allow budgetary transfers to those agencies to substitute for limited access to bank credit. 6. The outlook for government savings in 1968 is that they will be maintained at approximately the 1967 level. Looking beyond to 1969 and 1970, the prospects uncler present policies are equally little promi- sing. Current expenditures cannot be expected to be held down indefine- tely to 1967 levels, as they are to be in 1968, and new transfer programs, such as price supports for grains may impose an additional burden on the Government. Growth of current revenues will continue to be hindered by existing tax exemptions, and may be halted and even reversed if the Govern- ment in fact goes ahead with its plan to establish new tax incentives for agricultural production. 7. Public investmenlt decisions were taken during the last decade without the existence of an effective mechanism to coordinate projects, determine priorities and supervise execution. These deficiencies were not serious when the bulk of Nicaragua's public investment was in large discrete projects in transportation and power, and was complemented by external financial and technical assistance. More recently, however, as public investment reached away from infrastructure projects into more complex sectors such as agriculture and industry, the efficiency of expen- ditures has declined sharply and their financing has become increasingly uncertain. 8. Efforts to mobilize additional resources simply to accomodate existing programs would perpetuate existing inefficiencies in expenditures. However, improvement in the mechanism for project preparation, execution and coordination is beginning. There is certainly awareness of the pro- blem among the authoritiesO Major reorganizations in some agencies are a]ready in motion. But given the very limited scope for growth of savings under the present revenue structure, the effort presently being made to generate the additional revenues and savings required by an expanded invest- ment program needs to be considerably strengthened. 9, The outlook for the balance of payments in 1968-70 is not bright. Some improverment in exports may be expected from development of new products and expansion of minor ones, but cotton exports, which were again affected by bad weather in 1968, will be increasingly subject to pressures from rising domestic costs and prices of inputs necessary to fight the spread  - iii - of' disease. Cotton accounts for over one-third of total e:.ports. Growth in import demand may be cliecked in 1968 by the credit restriction policies, but continued restraint may be difficult to enforce in view of the markedly high propensity to import consumer goods as well as capital goods and raw materials necessary for increasing domestic production. The financial program agreed upon with the International Monetary Fund bars the introduction of any restrictions on payments and transfers, as well as the imposition of uny prohibitions or quantitative restrictions on imports. Increased drawings on official long-term loans are contem- plated for 1968-70, but it is doubtful that the increase envisaged will materialize fully unless measures are taken to increase domestic savings sufficiently to complement the expected increase in foreign borrowing. 10. The debt service ratio is approximately 9 percent of export earnings in 1967. Even if the substantial increase in utilization of external loans expected in 1968 and beyond materializes fully, the increa- sed drawings will be virtually entirely from official sources at long-term and the debt service ratio is not expected to rise above 10-11 percent in the early 1970's. 11. Nicaragua is creditworthy at this time for additional lending on conventional terms. But its ability to borrow will be severely limited quite soon if needed measures to raise public savings and to promote growth of exports are not taken shortly. Its longer term pros- pects which are considerable given its vigorous private sector and resource potential, depend equall.y on these same measures; they are necessary if much needed development expenditures as well as continued growth of private investment are to be carried out and achieved without further weakening Nicaragua's external finances.  I. HIsm7nBICAL P7-s-,CTIvv 1. Nicaragua's economic fortunes during the last three decades have been closely dependent on developments in coffee and cotton production and world markets. Soon after the end of W4orld War II, deterioration in coffee markets and production, and declines in output of cotton owing to rising incidence of disease, brought about a marked reduction in export earnings, budgetary deficits, and a foreign exchange crisis. With exchange rate adjustments, import restrictions and surcharges, and an upturn in coffee and cotton prices after 1950, prosperity returned. By 1955 export earnings reached US$80 million, compared to US$24 million in 19490 But another downswing in cotton and coffee prices started in 1956, whdch initiated a corresponding period of financial problems and economic decline with falling per capita incomes, and the need for another exchange rate adjustment. A new period of recovery and rapid growth began in 1961, following a vigorous expansion in cotton cultivation and output. Export earnings more than doubled between 1960 and 1965, and gross domestic product grew at an average rate in excess of 8 percent; annually during the period. However, unfavor- able weather, weakening export markets, and spreading disease combined to bring about yet another downswing in production and exports of Nicaragua's two major crops in 1966, causing still another slowdown in economic activity, which Nicaragua is still experiencing. 2. This vulnerability of the Nicaraguan economy to developments in her two major crops has persisted in spite of deep structural changes which took place during the period. Heavy public investment outlays during the 1950's and early 60's resulted in vast improvements in the country's infra- structure, particularly in highways, power and port facilities. The net- work of paved roads expanded from 150 kms in 1950 to 675 kms in 1960 and 880 kms in 1965, and the total road network from 3,690 kms in 1955 to 6,165 kms in 1960 and 6,480) kms in 1965. Power generating capacity rose from 28 NW in 1950 to 77 M14 in 1960 and 135 Orl in 1965. The port of Corinto, on the Pacific coast, was expanded during the years 1957-62, re- sulting in a doubling of cargo handling capacity. These capital expendi- tures, which were partly financed with external loans from international agencies (IBRD, Eximbank), opened the road network and export facilities which were undoubtedly a major factor behind the notable expansion in cotton cultivation. 3. Outside of agriculture, private investment had played a modest and stationary role in economic activity until the late fifties. It began to expand in 1959, and gained momentum after 1962, once government po'licy in this area was clearly defined, It was the increase in private invest- ment which accounted for most of the impressive growth in total investment since the early 1960's; 145 percent of GDP in 1962 and 21.3 percent in 1966. In 1958, legislation was passed guaranteeing the repatriation of capital and profits on foreign investments, and the Industrial Development Law was enacted, granting numerous tax exemptions and favored treatment to industrial activities. Nicaragua's entry into the Central American Common Market in 1961 undoubtedly provided additional encouragement to private investment. The ratio of private investment to GDP fluctuated from 9 to 10 percent from 1957 to 1961, and rose thereafter to 13.5 percent in 1965 and 16.2 percent in 1966.  4. Public sector consumption movemorets have roughly parallelled those in public investnment, althiough the intensity of relative changes is considerably smaller. In general, public consumption and investment ex- penditures increased in proportion to GDP during the early fifties, de- clined during the late fifties and early sixties, and began a new increase after 1962. In 1967 public investment declined considerably, but consump- tion expenditures continued to increase at a rate far in excess of that of GDP, aggravating the fiscal imbalance that had already been felt in 1966. Restraint in the growth of current expenditures and improvement in the level and quality of public investment loom large as problems to be con- fronted by Nicaraguan authorities in the years ahead. Public investment in 1966 represented 5.1 percent of GDP. 5. Total exports of goods and services have reflected the fortunes of cotton and coffee, and imports have followed, with a lag, Starting in 1962, the level of both exports and imports increased notably, reflecting the cotton boom and the impact of rapidly rising income and of industrial- ization and credit policies respectively. Export growth tapered off in 1965 and ceased in 1966. Imports, however, continued rising into 1967, creating a new balance of payments problem. 6. The ratio of exports of goods and services to gross domestic product experienced marked swings in response to changed conditions in coffee and cotton markets, without any apparent underlying upward or downward trend. The ratio, which stood at 36.6 percent in 1955, declined to 22.9 percent in 1957 and rose to 33,0 percent in 1966. Imports of goods ancd services show swings which parallel with a lag those of exports. Over the period, however, and particularly since 1962 the average propensity to import increased appreciably: the ratio of imports to GDP, which stood at 26.6 percent in 1955, 27.7 percent in 1958, and 23.4 percent in 1961, rose sharply and steadily thereafter, reaching 38.3 percent in 1966. This increase in the average propensity to import, at a pace beyond that which carL be supported by Nicaragua's current export performance, warrants early re-examination of the policies which have contributed to the extraordinary growth of imports in the past few years. 7. Population has been growing during the last decade at a rate of approximately 3 percent. Given the considerable still unexploited re- sources of the country, this rate of population growth has elicited no concern on the part of the authorities.  II. MAJOR DEJET,OPK4','NrS ; 1958 - 1967 8. The preceding chapter described the cyclical export-induced pattern followed by the Nicaraguan economy during the last three decades. Periods of rapidly rising exports have led to rapid increases in public revenues, savings and investment. The growth in revenues has been due not only to increases in import tax collections derived from growing im- ports during the upswings, but also to far-reaching tax reforms intro- duced during expansionary periods. Downswings in exports have led to diminished growth of public revenues, and declines in savings and invest- ment. 9O Development policy since 1960 has been dominated by measures to encourage industrialization and substitution of imports from outside the Central American Common Market. Available evidence suggests that only modest gains in employment and value added domestically have resulted from these policies, and that growth in tax collections has been hindered by the increasing level of revenues foregone as a consequence of exemption from customs duties under Central American treaties and the Industrial Development Law. Current expenditures, on the other hand, have increased rapidly, particularly since 1965, thus further limiting possible growth of savings. 10. Monetary and credit developments have likewise reflected closely the marked swings in exports. In years of growing exports, private commer- cial bank deposits have increased rapidly and so has banking system credit to the private sector. Relative price stability has been maintained, however, partly because of the anti-inflationary impact of public sector surpluses, and partly because the increase in private demand has largely been directed to imports of goods and services. In years of declining ex- ports, growth of private deposits has slackened, the public sector has incurred deficits, and restrictive policies have been put into effect in credit extension to the private sector. In addition, specific measures to discourage imports have occasionally been adopted. ill, Since 1965 credit policy has been primarily oriented to encourag- ing. diversification of agricultural and industrial production and exports, while curtailing commercial credit expansion. The policy has not been successful, even though the objectives were the right ones. First, the substantial expansion in agricultural and industrial credit has thus far had a negligible impact on production and exports. Second, the commercial credit restriction has not been successfully enforced. There was instead excessive overall credit expansion, resulting in a marked increase in imports and a serious balance of payments problem which the authorities are now seeking to overcome by more effective credit limitation. In view of the modest prospects for export growth during the next two or three years, the credit restraint that will be needed to keep the external finances orderly may well depress for a time the level of overall domes- tic activity.  - 4 - A. Public Sector Finances and Fiscal Policy 1/ Public sector revenues 12. Approximately two-thirds of public sector revenues consist of tax collections which accrue largely to the Central Government. However, non-tax revenues, consisting mostly of fees or rates charged by public enterprises, have been assuming increasing importance in the last decade, reflecting the growth in demand for electric power, use of port facilities, etc., and the sound pricing practices followed by the agencies providing those services, which have been able to operate without subsidies. 13. The tax structure of the Central Government has undergone con- siderable changes since 1950. The most significant improvements concerned income taxation, which was introduced in 1952, whose enforcement was con- siderably strengthened in 1961-62 with the adoption of export retentions as advance payment of income tax liabilities. Property taxation was also considerably improved in 1962, separating real and personal property, raising the rates and strengthening the adiministration of the tax. As a consequence, the ratio of income and property tax collections to gross domestic product doubled between 1961 and 1967, although it still stands at a modest 2.4 percent. 14. Internal indirect taxation has undergone fewer changes during the last decade; in general they have consisted in increased rates on some existing excises, such as those affecting cigarettes and alcoholic beverages, and assessment of excise duties on domestic production of a few previously imported goods, notably petroleum products and detergents, in an effort to partially compensate the Treasury for import tax revenues foregone. The ratio of internal indirect tax collections to gross domestic product in- creased from 2.5 percent in 1961 to 4.1 percent in 1967. 1/ The public sector of Nicaragua consists at present of the Central Government, centralizecl public enterprises (Post Office, National Radio, National Lottery, and fiscal monopolies), decentralized enter- prises (Power Company (ENALUF), Corinto Port Authority, Pacific Railroad, and Managua WATater Company), financial intermediaries (National Development Institute (INFONAC), National Bank, Housing Bank, National Institute of External and Internal Trade (INCEI), Popular Credit Bank, and Social Security Institute), and a number of local and municipal governments. The present structure evolved largely during the 1950's, when some of the largest autonomous agencies were created (INFONAC in 1954, Corinto Port Authority in 1956), others were reorganized (ENALUF), and the Central Government itself underwent a considerable expansion and reorganization, with the creation of new basic departments such as the Bureau of Roads and the Budget Bureau. Many of these initiatives were adopted following the recommendations of an IBRD mission which visited Nicaragua in 1951 and prepared guidelines for a development program for the period 1952-1957. Until 1961 Central Bank functions were performed by the Issue Department of the National Bank of Nicaragua. With the creation in 1961 of an independent Central Bank, the process of institutional build-up of the public sector was largely completed,  - 5 - 150 Collections from import duties have failed in recent years to grow apace with the growth of imports; indeed, there was a decline in actual yield since 1964. Since import taxes constituted the largest source of government revenue, their stagnation has limited the increase in the ratio of total tax collections to gross domestic product between 1961 and 1967, in spite of the gains achieved through internal direct and indirect taxes: the overall tax ratio rose from 9.4 percent in 1961 to 10.6 percent in 1965 and has declined slightly since. 16. The unresponsivensss of import tax collections to import growth can largely be traced to the growing proportion of imports exempted under Central American treaties and industrial incentive legislation. Trade with the rest of Central Ame-ica has growm rapidly since the establishment of the Common Market in 1961; Nicaragua's imports from the other Common Market countries increased from US$209 million in 1961 (3.9 percent of total imports) to US$35r8 in 1967 (183 percent of total). Since these imports are not subject to duty, their growth has implied increasing reven- ues foregone by the Treasury, the estimated loss in 1967 being C$172 million, compared with actual import tax collections of C$158 million. The application of the Industrial Development Law, which grants exemption from customs duties to capital goods and raw materials imported by the benefitted firms, has likewise resulted in growing revenues foregone, estimated at C$59 million in 1967. 17. The record of the last twenty years shows two periods of rapidly growing tax revenues, the early 1950's and the early 1960's. Growth in revenue resulted not only from accelerated increase in income and economic activity, but from the introduction of deep structural and administrative reforms as well. Tax revenues fell off in the second half of the 1950's as exports declined and the economy stagnated. The slowdown that started again in 1966 brought about a corresponding deceleration in growth of tax collections, partly as a consequence of the diminished rate of increase of internal direct and indirect tax yields in the face of declining growth in income, and, particularly, as a consequence of the reduction in import duities collection due to exemptions granted to Central American products and industrial inputs. Looking ahead to the next two or three years, the tax system as it now stands should be expected to generate levels of revenues increasing only in about the same proportion as aggregate income. Public sector current expenditures 18. Public sector current expenditures expanded rapidly during the early fifties, reflecting primarily the growth in public sector activity: employment is estimated to have grown from 26,000 persons in 1950 to 43,000 in 1957, the largest relative increase occurring in the working force employed in public works projects which went from 5,000 to 13,000 during those years. Growth of current expenditures slowed down during the late 1950's, and regained momentum once more after 1962, reflecting again to a large extent changes in the level of employment and, particular- ly since 1963, increasing levels of wages and salaries.  - 6 - 19. Current expenditures appear, therefore, to have followed the swings in growth of public sector current revenues, although at somewhat lower year-to-year rates of change. Consequently, current account sur- pluses have tended to increase during periods of rapidly rising revenues and to decline when the latter levelled off. Central Government figures, however, indicate that this behavior may not have held true after 1963, when substantially larger rates of growth are observable for current ex- penditures than for revenues, While Nicaragua does not have the pressing fiscal problems at this moment that most of its Common Market partners have, this trend cannot continue in the face of modest revenue growth prospects without giving rise to serious problems quite soon. The author- ities recognize the extent to which such a deterioration would undermine their present investment plans, and have expressed a firm intention to contain current expenditure growth. Given the strong position of the Government, there is reason to expect considerable success in implementing this decision. Public sector savings and investment 20. During the entire period under review the public sector has been able consistently to generate surpluses on current account although their magnitude has varied considerably with the rate of growth of current reven- ues. Because of the cyclical savings and lags so characteristic of Nicaragua in past years, these savings were adequate to finance investment expenditures in boom years, but not in others. 21. Public sector investment grew rapidly from 1950 to 1957, declined somewhat between 1958 and 1961, and increased again substantially after 1962. As proportion of gross domestic product, public investment increased from 1.4 percent in 1950 to 5.2 percent in 1957, declined to 2.9 percent in 1960 and rose again to 5.1 percent in 1966. A considerable deteriora- tion in the quality and effectiveness of public investment has, however, accompanied its growth during the mid-1960's. 22. The bulk of this investment has consistently been financed domestically. In no instance have external funds financed as much as 40 percent of public investment expenditures. During the boom period 1950-56, rapidly growing public savings kept well ahead of rapidly increasing in- vestment expenditures, resulting in an overall surplus in every year. This, in combination with net drawings on foreign loans, permitted a build- up of considerable cash balances by the public sector. During the slow period 1957-1961, public savings fell below investment expenditures, re- sulting in an overall deficit in every year. WTithout exception, the deficit exceeded net foreign loan utilization and recourse to internal credit was necessary. aDring the boom period 1962-1965, savings exceeded investment expenditures in some years and fell short in others, but drawings of ex- ternal loans were more than sufficient to compensate any emerging overall deficit and there was again a substantial accumulation of cash balances. Road construction and power were the main components of public investment. Starting in 1962-1963, housing, water supply and education projects began to receive increasing attention. Since 1965 substantial outlays have been made in agricultural investment projects in efforts to diversify the pro- ductive and export base of the economy.  - 7 - 23g. With this pattern of surpluses and deficit, public sector activity may have had a considerable countercyclical stabilizing impact over this period, one that was sustainable externally because of the appropriate offsetting savings in import levels. Recent developments suggest that this self-adjusting pattern of response is no longer functioning as it did. 24.. One of the reasons the investment effort since the late 1950's has been lagging has been shortcomings in project preparation and execu- tion. Recently, the Planning Office made a special study to ascertain the extent to which projects budgeted for 1965 and 1966 had been carried out and to identify causes for lags and delays. The investigation revealed substantial shortfalls in actual project execution in both years, particu- larly in the field of road construction, 25. The Planning Office attributes the lag in road building projects to lack of machinery and materials, insufficiency of funds for the Bureau of Studies and Projects, and problems arising in connection with adjudica- tion of the work to private contractors. Traditionally, road construction had been carried out in Nicaragua directly by the Highway Department of thes Ministry of Public lWorks, advised and assisted by the U.S. Bureau of Public Roads. In the early sixties, however, execution by private contrac- tors became more widespread, partly in response to the requirements by some international lending agencies as prerequisite for their loans. As the record shows, the changeover has been far from smooth. 26, Shortfalls in project execution were not limited to Central Government investments. The Planning Office evaluation report points out that lags also existed in some of the autonomous public agencies, although on the whole their performance was more satisfactory than the Central Government's. 27. The performance of Managua Water Company and ENALUF was quite satisfactory in both years. INCEI, however, proved unable to make headway in its grain storage program, for which the Export-Import Bank had granted a loan in 1963. No progreais was made in 1967 either; the failure is ex- plained by INCEI s management as due to disagreement with the recommenda- tions of the Consultant's report, 28. The significance of these findings is that, rather than lack of adequate financing, problems of coordination and organization have been the serious limitation to the public sector's capacity to implement exist- ing investment projects during the past three or four years, There are indications that steps have been taken to overcome some of these problems, particularly in the field of road-building, where a number of private con- tracting firms have finally been formed which are expected to carry on the bulk of construction activity in the future. Much remains to be done, however, to strengthen the project preparation capacity in this and other sectors, and to coordinate activities of different Ministries of Central Government and autonomous agencies, principally the financial intermediaries (National Bank and INFONAC) on which much of Production Development Program effort rest, as the following sections indicate. But as improvements are made, and development expenditure capacity increased, the internal develop- ment financing problems in prospect will, without new fiscal measures, be- come correspondingly more acute.  - 8 - B. Monetary and Credit Pclicies 29. The monetary authorities have attempted during the past decade to influence the composition of commercial bank credit to the private sector, seeking a curtailment of credit for commercial purposes and an expansion of medium-term credit for agricultural activities. This policy has not been entirely successful, and has in the process contributed to a notable over-expansion of credit during the past few years. 309 The selective credit expansion policy was clarified in stages over the last five years. In 1963 conditions were established for commer- cial banks' access to rediscount facilities, one being that loans to non- agricultural sectors not exceed specified levels. In 1964 the total amount of credit that each private commercial bank could extend to sectors other than agriculture was fixed in relation to its capital and reserves. In 1965 the policy was broadened to include industry as a preferred activity. 31. At the same time, the Central Bank decided to devote some of its resources directly to medium-term agricultural and industrial loans rather than to commercial bank rediscounts. Commercial banks were instructed to resort to foreign short-term borrowing rather than Central Bank rediscounts to finance the seasonal credit demands for the 1965-66 cotton crop. As a consequence, Central Bank credit to commercial banks declined in 1965 by C$91 million; delays in the formulation of specific programs, however, pre- vented the extension of the medium-term credits that were to have been financed with Central Bank funds. Moreover, commercial banks' short-term foreign indebtedness increased by C$135 million, an amount considerably in excess of the reduction in their Central Bank rediscounts (C$91 milLion) and the increase in their outstanding loans for cotton (C$13 million). The overall increase in credit to the private sector in 1965 was 27.4 percent and, so far as can be inferred from reported figures, its destination did not conform to the objectives of the monetary authorities. In fact, credit tc, finance the cotton crop grew by 15.2 percent and total credit to agri- culture by 12.6 percent, while credit to industry and building increased by 32.5 percent and loans for commercial activities by 33.6 percent. 32. By 1966, the Central Bank had beccme increasingly conscious of the slow progress of commercial bank lending for agriculture and industry and decided on a more direct approach, adopting a Plan for Immediate Action to expand medium-term loans, channeled through the National Bank and the National Development Institute (INFONAC), to finance projects in tobacco, rice, bananas, coffee, textiles and metal products. In order to mobilize financial resources to carry out the plan a new credit policy was adopted which stipulated: (1) commercial banks could not increase their short- term portfolios beyond the level outstanding at the end of December 1965; (2) seasonal credit demands for cotton, coffee and cattle fattening were to be financed by short-term foreign borrowing; (3) commercial banks were a:Llowed to raise interest paid on time and savings deposits from 4 to 6 percent, and reserve requirements on such deposits were lowered from 18 to 10 percent; and (4) private banks were required to invest resources  -9- released by the reduction in re5erve racu memnents and credit ceilings as well as any acdditional resources they might receive in 8 percent five-year National Development Bonds issued by the Central Bank. The Central Bank in turn would make these funds available to National Bank and INFONAC for meclium-term loans for projects within the plan. 33. Falling exports and a diminished rate of economic expansion in 1966 resulted in less than expected growth in holdings of money and quasi- money by the private sector, and the Central Bank was able to place with banks only C$56 million of Development Bonds instead of the C$75 million anticipated. The 1966 government deficit, moreover, caused a drawing down of Treasury deposits at the Central Bank and a consequent drain on its resources. Commercial banks increased their short-term foreign borrowing by C$107 million during the year, in spite of an increase of only C$17 million in their seasonal loans for cotton, coffee, and cattle, and con- tiniued to expand credit outside the ceilings established by the Central Banik0 OveraLl bank credit increased by nearly 29 percent during 1966; credit to the private sector by 24 percent. 34. A rapid deterioration followed in 1967. A new fiscal deficit caused further demands on the Central Bank by the Government. A loss of confidence and possibly capital flight may be the reason for the much smaller rate of increase than in previous years of time and savings de- posits and the actual decline in currency in circulation and sight deposits, The Central Bank was able to place only C$16 million of Development Bonds with private banks until April, and nothing since. The National Bank, faced with withdrawals of deposits and non-repayment of loans following two successive bad harvests, recurred to the Central Banlk for fuinds to meet its short-term foreign obligations, obtaining C$75 million. During the twelve-month period ended October 1967, total bank credit increased by 24 percent, and credit to the private sector by 16 percent. 35., The sharp deterioration of the current account of the balance of payments in 1966 and 1967, and the considerable increase in short-term foreign liabilities during 1965-67 caused net international reserves to vanish and, in fact, become negative by approximately US$4 million at the end of 1967. The Nicaraguan authorities requested in December 1967 a standby agreement for US$19 million from the International Monetary Fund, which has now been approved. As part of the agreement, the Nicaraguan authorities will limit bank credit expansion to approximately 10 percent during 1968, and allow no appreciable increase in net short-term foreign borrowing by commercial banks. 36. Monetary and credit policy during the past three years has thus been heavily oriented toward expansion of medium and long-term credits for agriculture and industry primarily under the auspices of the two pub- lic financial agencies, the National Bank and INFONAC. The efforts, as crystallized in the execution of the Plan for Immediate Action, have not proved altogether successful. Agricultural projects, in particular, were apparently not sufficiently studied in advance, and production, super- vision and marketing problems precluded expected progress. At the same time, the Central Bank was not successful in enforcing the credit limits set for National Bank as well as private banks, and credit expansion was  - 10 - substantially larger than anticipated, with the corresponding impact on import demand. C. Development and Trade Policies 37. Development effort during the 1950's consisted by and large of public investmnent projects, mainly in roads, power and port facilities, from which emerged an infrastructure which permitted rapid expansion during the 1960's in agricultural production and exports0 More recently, the Govermnent has sought to influence private activity by more direct measures, of which industrial incentives - the Industrial Promotion Law (1958) - and selective credit policy - the Plan for Immediate Action (1966) - were the principal examples. Development policies affecting the private sector 38. The 1952 income tax law already allowed complete deduction from taxable income of profits invested in agricultural and industrial activities. The 1958 Industrial Promotion Law established the usual distinction between "fundamental", "necessary" and "convenient" industries, and granted the customary exemptions from import and income taxes for correspondingly measured periods. When the Central American Common Market (CACM) came into effect in 1961 with Nicaragua as a member, an additional stimulus was pro- vided to domestic production by the greatly heightened protective customs barrier built around CACMo 39. Import substitution within the context of CACM may have imposed a considerable burden on the Nicaraguan economy. It appears to have brought forth the customary quality deterioration, price increases and government revenue foregone with only modest gains in increased employment and value added domestically. The available information does not permit an assess- ment of changes in prices or quality of import-substitutes nor a complete quantification of taxes foregone. Import duties remitted alone, however, were substantial in 1967, exceeding in fact duties actually collected. 40. The Plan for Immediate Action, described in the previous section, was an effort to speed up expansion and diversification of agricultural production and exports and to promote industries allegedly using primarily domestic raw materials. The mechanism for implementing the plan was a credit program whereby funds obtained from domestic private banks and foreign banks were made available for approved programs by the National Bank and the Development Institute. The exact amount of resources made available under the Plan is not known: in addition to the US$10.5 million of development bonds placed by the Central Bank with private banks, the National Bank contracted short-term foreign loans to finance some of its medium-term credits for Plan activities in an undefined amount. 41. The immediate impact of the credit program on increased output was extremely modest. In some of the favored activities, particularly in the field of agriculture (rice, tobacco) project preparation, selection and execution do not appear to have been sufficiently sound, and no large  - 11 - medium or long-term response is expectad. The beaana program seems to have had limited success but marketing problems may limit continued growth. The two industrial activities under the Plan, textiles and metal products, were designed to modernize and expand existing plants, and effects on production should be gradually felt in the years ahead. 42. Agricultural development ranks high among economic policy goals of the Nicaraguan Government. A new set of incentives for producers to expand output and improve productivity is under consideration, including price supports for grains, income tax exemptions and duty free importa- tion of farm machinery. There is no evidence that much consideration has been given to likely side effects of these measures, such as further losses of government revenues and increased levels of transfer payments. Nor is there evidence that compatibility of policies within the public sector is being carefully considered: a case in point is the INFONAC-sponsored petrochemical complex which has already progressed to the insecticide pro- duction stage and is expected to eventually reach production of fertilizers, among other products. Insecticide prices are expected to go up by approxi- mately 20 percent as a consequence of import substitution and in view of the high incidence of this input within total costs of growing some crops, notably cotton, some adverse effect on production seems unavoidable. 43. On the whole, the impact of public policies on private invest- ment appears to have been either negligible, as in the case of the credit program, or of doubtful value for the overall economy, as in the case of industrial tax exemptions and import substitution. A re-examination of these policies appears to be in order if the private sector and its con- tribution to the growth of the economy are to be strengthened without further isolating it from the world economy. Public sector development programs 44. A comprehensive development program setting forth coordinated investment projects and priorities in different sectors does not exist in Nicaragua. Individual agencies prepare and execute their own projects wLth varying degrees of success, but no overall coordination exists among them. This lack of coordination has not been a serious problem in the past, but promises to become one as the need to allocate funds to an ex- panding investment effort becomes more pressing. 45. The bulk of infrastructure investment outside the Central Govern- ment has been carried out by the Power Company (ENALUF) and the Corinto Port Authority. They have shown a high level of competence and efficiency. A project to expand power generation capacity has been prepared by ENALUF, and is ready for immediate execution. The Port Authority has underway studies to increase facilities at Corinto, and a definite project should be available early in 1969. In both instances, external financing is being sought from the World Bank. 46. The Government has announced its intention to give high priority to investment in agriculture. Agricultural projects in general present a higher degree of complexity than infrastructure, and their preparation and execution are far more demanding processes. Insufficient attention to these problems undoubtedly lies behind the quite limited success of agri- cultural projects undertaken in Nicaragua during the past few years.  - 12 - 47. Development of the Atlantic Coast also ra.jk- high among general government plans. The National Bank has been put in charge of the prepara- tion of a program which presumably would include road and port construc- tion, agricultural production and fisheries projects. Little progress has been made to date, aside from identifying bananas as a possible crop to be grown in the area. Given the scope of the program, and the complexity and diversity of projects that it would encompass, it would appear that its preparation and execution would require skills and competence beyond those presently at the command of any single agency. 48. Industrial investment is carried out principally by INFONAC, which identifies and prepares projects and seeks financing from international agencies, and domestic and foreign private banks to supplement its own re- sources. The largest single project to date is the petrochemical complex, the first stage of which, leading to the production of insecticides, was completed in 1967. INFONAC has secured for this project the classifica- tion of "integration industry", which gives it a virtual monopoly position in all of Central America. Production of the first and of future stages of this complex is exclusively geared to the Central American market. Total investment in the two plants already built has exceeded US$9.1 mill- ion; it has created employment for 145 persons. The likelihood of some advrerse impact on agricultural production through an increase in the price of basic inputs has already been mentioned; in fact, in anticipation of local insecticide production and the accompanying boost in customs duties anci domestic prices, a six-month supply had been stocked up throughout Central America by December 1967. 49., INF0NiAC is also engaged in the preparation of projects that may lead to new exports outside the Central American market expected to yield an increase in export earnings of US$6-8 million by 1970. There are two projects dealing with wood products which are expected to start operations in 1969, as well as several smaller projects to expand capacity to catch and process seafood (shrimp and lobster) which are expected to accelerate the rhythm of export growth achieved since 1961. Exports of seafood have increased from US$o.5 million in 1961 to US$5.o million in 1967, and mar- ket prospects for increased exports appear good. 50. Investment activities of the Central Government for 1968 and be- yond are dominated by road and school construction projects and the prepara- tion of a national cadaster. Most of the bottlenecks that greatly delayed execution of these projects in previous years appear to have now been alleviated, and actual construction is expected to be close to targets. 51. Looking at the development policies of the Nicaraguan Government as a whole, a number of shortcomings and deficiencies in project prepara- tion and execution have become apparent during the last few years, as the investment effort underwent substantial growth and branched out into more complex fields such as agriculture and industry. Since government policy contemplates increasing efforts in these areas and others of similar com- plexity like education, there is a need to strengthen project preparation and execution capacity, particularly in the agencies on which the responsib- ility for those more complex projects rests. Also, an expanding investment program will make necessary the adoption of adequate revenue measures as well as the establishment of an effective coordinating mechanism that can begin to set project priorities and allocate limited local funds.  III. P'ROSPECTS FOR 1908 - 1I70 520 Nicaragua faces in 1968 a year where major policy decisions must be taken in order to set the stage for recovery from the slump that started in 1966. Most of the decisions center around the public invest- ment planning effort as outlined in the previous chapter. Others con- cern trade and balance of payments policyQ Aa The Fiscal Situation Outlook 53. Exposition and analysis has been limited here to the Central Government, since information is unavailable for the autonomous sector. Central Government Finances 1965 - 1968 7Ml-lion o`rdobas) Estimate BUdget 1965 1966 1967 1968 Revenues 4h1 h72 493 5h3 Current expenditures -316 -357 -428 -463 Savings 125 115 65 71 External debt amortization -5 -6 -14 -17 Savings available for investment 120 109 51 54 Investment expenditures 115 163 120 169 Overall surplus or deficit 5 -54 -69 -115 Financing -5 54 69 115 Internal borrowing (net) -18 15 33 15 External borrowing (gross) 13 39 36 100 Sources: Tables 15, 16, 18 54. The 1968 budget envisages some improvement in the fiscal situa- tion with respect to 1967. On the basis of an expected growth of GDP of approximately 8 percent, improvements in tax administration and increases in warehousing fees at the customs, an increase of 8.2 percent in current revenues is projected. The projection is probably an overestimate, since the yield of direct taxes should respond to the much smaller growth in GDP in 1967, while that of indirect taxes, particularly customs duties, will probably decline if the proposed credit policies succeed in curbing import growth. The underlying 8 percent rate of growth of GDP is itself optimistic.  5';. Current expenditures are expectod to increase by 841 percent; a qualification, however, is necessary since approximately C$25 million for the cadastral survey program and C$15 million for malaria eradication appear inclucled in current expenditures. While it may be argued that such expenditures might properly be considered investment, thereby raising the level of both current savings and investment expenditures, the fact remains that no allowance for increased current expenditures is made in the 1968 budget. This may be unrealistic: there are, however, indica- tions that a reduction in public employment may in fact be taking place, particularly in the Bureau of Roads where the changeover from direct ex- ecution to contract work will permit a substantial decrease in employment. Social problems should not loom large, as most of the redundant workers are expected to find employment with private contractors. 56. On balance, the outlook for current savings in 1968 is that they will be maintained at approximately the 1967 level. Looking beyond that to 1969 and 1970, the prospects are equally little promising. Current expenditures cannot be expected to be held down to 1967 levels, and anmounced price support programs for grains may impose an additional bur- den on the Government. Growth of current revenues, on the other hand, will continue to be hindered by existing tax exemptions, and would probably be halted andl even reversed if the Government in fact adopts the new tax irncentive measures for agricultural production. 57. The adequacy of a given level of savings carnot of course be judged except in the context of the demands for local funds made by the investment program adopted. Here again much depends on whether or not steps are taken to formulate an adequate program and strengthen the agen- cies, wTithin and without the Central Government, on whom the design and execution of programs rest. The fact that the new credit program adopted in 1968 as part of the standby agreement wiflth the IMF will severely limit access to credit of some agencies, especially the National Bank, might be interpreted to imply a need for Central Government savings to increase in order to permit larger transfers to those agencies which would allow them to carry on their programs on a largely undiminished scale. Some of those programs, however, appear to have contributed little to the growth of the economy, and their design and execution should be subjected to close scrutiny. 58. There are reasonably good prospects for improvement in project preparation and coordination0 There is certainly awareness of the problem Eaqong the authorities, and major reorganizations in some agencies are in motion. The increasing expenditure levels that this implies points immediately to the very limited scope for growth of savings under the present revenue structure. It would be advisable for the Nicaraguan auth- orities to begin a revision of that structure and to take appropriate in- terim measures that will malce additional revenues and savings forthcoming as they may be required by an expanded investment effort, 59. Central Government investment expenditures are expected to in- crease sharply in 1968, all of the increase being financed by a very sharply stepped-up utilization of foreign loans. The loans are already contracted and have been, in fact, for some time, so that progress of the  investment program during 1968 should not be impeded by lack of credits. The expected level of local funds appears adequate to accommodate in- vestment at the level planned. But even in these circumstances, con- tinued effort will be required to prevent administrative difficulties of thte kind which prevailed in previous years from leading again to lower than programmed utilization of external loans or from a diversion of local funds for planned expenditures into activities not contemplated in the budget. Central Government investment projects and expenditures after 1968 are still undefined at the time of this writing. It is clear, however, that the cost-sharing implicit in the 1968 budget is not sus- tainable and that an expanded investment program should be accompanied by measures to increase considerably the level of domestic savings. 60. Domestic borrowing in the 1968 budget is limited to payment in bonds of some obligations, especially contributions to the Social Security Institute. No bank borrowing is contemplated, in accordance with the standby provisions. B. External Finance and Creditworthiness 61. The outlook for the balance of payments in 1968 is unpromising. Some growth is expected in export earnings from coffee as a consequence of a larger quota under the Coffee Agreement and largely unchanged prices, and in some minor products like bananas and seafood. Cotton exports, however, will fall short of the 1967 volume as production was considerably damaged by unseasonal rains, and the expected increase in prices will not be sufficient to compensate the decline in volume. Thus, on balance, ex- port earnings may approach US$150 million, barely above 1967 levels and lower than originally projected. Unless import demand is correspondingly further restrained, Nicaragua may face a new loss of international reserves in 1968. 62. Some improvement in exports may be expected from development of new products and expansion of existing minor ones in the next two or three years, but cotton exports will be increasingly subject to pressures from rising domestic costs and prices of inputs necessary to fight the spread of disease. Overall, export values may at best increase by 4 to 5 percent annually, and approximate US$160 million by, say, 1971. Import demand has been increasing at more than three times this rate over the past few years. 63. VWhile it may be feasible to restrain import demand during a relatively short period of time, it is clear that the Nicaraguan economy has undergone structural changes as a consequence of industrialization policies and adoption of improved production techniques in agriculture and other sectors which have rendered it relatively more dependent on imports for sustained economic growth. The authorities are well aware of this and have during the past few years strived to achieve an expansion and diversification of exports. There is a clear need to push ahead more vigorously with export-promoting programs, particularly the Atlantic Coast project now under study, and to focus fiscal, monetary, development and  trade policies more clearly toward expansion of exports than merely toward containment of imports as they are at present. 64ho During 1966 and 1967 drawings on external medium and long-term loans to the public sector were stepped up considerably, increasing from US$13 million in 1965 to US$26 million in 1966 and US$28 million in 1967. Most of the increase represented growing utilization of IDB and U.S.AID loans by National Bank and INFONAC for their agricultural and industrial programs, and of Export-Import Bank, UoS.AID, U.S. commercial banks and private suppliers' credits by the Central Government to finance importa- tion of road building equipment, expansion of the Managua water supply, construction of the new Managua international airport and installation of the automatic telephone network respectively. 65. Debt service payments are estimated by the Central Bank at US$13 million in 1968, equivalent to approximately 8-9 percent of expected export earnings, and are scheduled to increase to US$14o5 million in 1970, without any substantial rise in the debt service ratio. Given a reasonable degree of success in credit and production diversification policies and in the adoption of additional measures along the lines outlined above, the longer run prospects are equally satisfactory. 66. Nicaragua is creditworthy at this time for additional lending onl conventional terms. But its ability to borrow will be severely limited quite soon if needed measures to raise public savings and to promote growth of exports are not taken shortly. Its longer term prospects de- pend equally on these same measures, which are necessary if much needed development expenditures as well as continued growth of private invest- ment are to be carried out and achieved without further weakening Nicaragua's external finances.  LIST OF TAIThES Table No. 1 External Medi.um- and Long-Term Public Debt Outstanding Including Undisbursed as of June 30, 1967 2 Estimated Contractual Service Payments Due in Future on External Medium- and Long-Term Public Debt Outstand- ing including Undisbursed as of June 30, 1967 3 External Public Debt, 1961-1967 4 Population, Gross Domestic Product, and GDP per capita, 1957-1967 5 Gross Domestic Product by Major Sectors, 1957-1967 6 Composition of Gross Domestic Product, 1957-1967 7 CGross Domestic Expenditure, 1957-1966 8 Crop, Industrial and Mining Output, 1964-1967 9 Money and Quasi-Money 10 Summary Accounts of the Banking System - Four parts: I. Central Bank IIe National Bank III. Private Banks IV. Banking System 11 Origin, Destination, and Financing of Bank Credit, 1963-1967 12 Bank Credit Flows, 1964-1967 13 Consumer Price Index 14 Indices of W1ages in Managua 15 Current Revenues of the Central Government, 1961-1968 16 Central Government Expenditures, 1963-1968 17 Expenditures of the Central Government by Department 18 Financing of Central Government Investment, 1963-1968 19 Central Government Revenues and Expenditures as Percentage of Gross Domestic Product, 1961-1967 20 Operations of the Central Government and Centralized State Enterprises 21 Operations of Decentralized Agencies 22 Consolidated Public Sector Finances, 1950-1965 23 Balance of Payments, 1961-1967 24 Exports by Principal Products, 1961-1967 25 I'mports by Economic Category, 1961-1967 26 Trade with Central America, 1961-1967 27 Drawings on Medium- and Long-Term Loans, 1961-1967 28 International Reserves of the Banking System, 1961-1967  Table 1: NICARAGUA: External Medium- and Long-Term 1/ Public Debt Outstanding Including Undisbursed as of June 30, 1967 Debt Repayabe in Foreign Currency (In thousands of U,S dollars) Debt Outstanding June 30, 1967 Item DisburseTTi7Tuding only undisbursed TCTAL EXTERNAL PUBLIC DEBT 63,608 107,356 Privately-placed debt 114. 10 15 716 Suppliers' credits 3^i - - T 3 Private bank credits 10,h445 ll>82 IBRD loans 2,g356 2h 004 IDA credit 2,995 2,995 IDB loans 5,304 13,302 Loans from Banco Centroamericano de Integracion Economica 2;900 10,112 U.S. Government loans 15,743 41,227 Export-Import Bank 5501 5,986 AID loans 11,242 35,241 1/ Debt with an original or extended maturity of one year or more. Source: IBRD, Statistical Services Division Note: Information regarding some loans, particu'arly those made to Central Government by commercial banks and suppliers, was not made avail- able until early in 1968, and consequently the historical external debt series prepared on the bases of previous reporting under- estimate the actual. amount of debt outstanding at the end of 1967. On the basis of information provided by the Central Bank and the lending agencies, a revised table has been prepared (Table 3) which shows debt outstanding in December 1967 to be US$97.6 million.  T'able 2. NICARAGUA: Estimated Contractual Service Payments Due in Future on External Medium- and Long-Term Public Debt, Outstanding Including Undisbursed as of June 30, 19671/ Debt Repayable in Foreign Currency (In thousands of U.S. dollars) Debt Outstanding (Beginning of Period) Payments During Period Year Including Undisbursed Amortization Interest Total Grand Total 1.967 103,155 J 6,340 2,824 9,164 1968 100,156 6,405 3,618 10,023 1969 93,751 5,492 3,936 9,428 1.970 88,259 5,512 3,705 9,217 1.971 82,747 5,186 3,381 8,567 1.972 77,562 4,103 3,088 7,187 1.973 73,458 3,877 2,844 6,720 1974 69,581 3,6LL 2,618 6,229 JL975 65,971 3,847 2,,451 6,298 ]L976 62,124 3,389 2,313 5,702 1977 58,734 3,314 2,263 5,576 1978 55,1420 3,1451 2,158 5,609 1979 51,970 3,520 1,955 5,475 1980 48,1449 3,290 1,749 5,039 ]L981 45,159 3,0Q42 1,572 4,613 V2 Includes service on all debt listed on Table 1 prepared February 27, 1968 except for thie following, for which terms are not available: Total $4,201,000 Suppliers' credits 1,335,000 Private bank credits 1,866,000 IDB loan 1,000,000 2 Amount outstanding is as of June 30, 1967; payments are for the entire year.  Table 3: NICARAGUA: D0tor-l. Pblic Debt, osi-1967 (Thocoand U.S. dollars) -- - ~~~~~~~~~~~~~~''~~~~~~~Th~~~~~~~6 Y 962-~~~~~~~~~~~~~~1963 __--_ ' 2766.Y