Nicaragua - Current economic position and prospects

RETURN TO REPORTS DESK RESTRICTED WITHIN Report No. WH-118a ONE WEEK 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 The report may not be published nor may it be quoted as representing their views.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 August 14, 1962 Department of Operations Western Hemisphere CURRENCY EQUIVALENTS U.S. $1. 00 = Cordobas 7.0 (C$) C$l = 14 U.S. cents C$1 million = U.S. $142,857 TABLE OF CONTENTS Page No. 3ASIC DATA. * * * . . . . . . . . I * . . . . . . . * SU1ARY AND COHCLSIIS . . . . . . . . . . . . . . . ii I INTRODUCTION . . . . . . .. . . . 1 II ECONOMIC GROWTH . . . . . . . . . . . . . 2 III MONETARY POLICIES , . . . . . . . . 4 IV FISCAL DEVELOFENTS . . . . . . . . . * * 6 V FUTJURE PROSPECTS . . . . . . . . . . . . . 8 VI CONCLUSION . . . . . .... . . . . . . .12 APPENDIX I Prospects for Foreign Exchange Earnings APPENDIX II Statistical Tables 1 - 23 - i - BASIC DATA Area: 57,000 square miles 2oulation 1960: 1,477,000 Average annual increase 1957-1960: 3.5% Population density: 26 per square mile Gross Domestic Product 1959: U.S.$ 343 million Per Capita G.D.P. 1959: U.S.$ 237 Origin of Gross Domestic Product 1959 Percent of G.D.P. Agriculture 42 Manufacturing 11 Commerce and Transportation 23 Other TOTAL 100 Balance of Payments U.S. $ million 1252 1960 Exports (f.o.b.) 75.0 63.9 Imports (f.o.b.) -52.7 -56.4 Other current items =14- c15-0 Current Balance 7.8 - 7.5 Capital Inflow 3.0 6.2 Errors and omissions - 7.0 - 2.9 - 44 Comosition of Exports by Value Coffee Cotton Gold (Percent) 1950 50 5 23 1959 - 1960 25 33 10 Foreign Exchange Reserves (Net) U.S4 million 1) December 1960 8.4 2) i 1961 10.0 3) Ratio of 2) to 1960 Imports 18% Government Finances 1959/60 1960/6 Budget 1961/62 (million cordobas) Current Revenues 235.3 246.1 260.0 Expenditures 27LL 25 270.5 Balance - 39.1 - 13.8 - 10.5 Foreign Grants and Loans 8.3 4.4 11.5 Domestic Loans 31.6 --- 8. Surplus/Deficit 0.8 -9-4A Cost of Living Index (1953 = 100): 1960: 114 1961: 115 - ii - SUIKARY AD CONCLUSIONS 1. Agriculture is the mains tay of the Nicaraguan economy, providing four-fifths of total exports and employment for three-fifths of the working population. Coffee and cotton together account for more than half total exports. With the rise in coffee prices and a great expansion in cotton production after 1949, the economy grew extra- ordinarily rapidly during the six years ending in 1955, The value of exports aLmost quadrupled, and the real gross domestic product rose by 9j% a year. 2. During these years of prosperity the growth of output was much faster than the growth of population, and by 1955, per capita G.D.P. reached $245, more than 25% above the level of 1949. The distribution of income, however, continued to be very uneven, and advances in social ser- vices were slow; more than three-fifths of the adult population remained illiterate and health services continued to be minimal for the mass of the population. 3. The period of rapid growth ended in 1955. With the declines in prices of cotton and coffee in subsequent years, the value of exports fell, the growth of output slowed, and per capita income declined. The responses of the Nicaraguan authorities to the fall in prices of major exports and the decline in foreign exchange earnings were to some extent self-defeating. To assist producers of coffee and cotton, the Government gradually removed the export taxes on these commodities. With the con- sequential drop in fiscal revenues, however, deficits resulted and these were financed by the National Bank. In order to maintain overall credit restraint in these circumstances the nonetary authorities reduced credit to the private sector, which adversely affected production and exports, especially of cotton in the 1959/60 season. 4. At the same time, the authorities took steps to diversify the economy and promote new exports. The Government continued to invest in basic economic services of high priority, notably power and transportation. The National Development Institute provided increased financial and technical assistance for cattle raising, agricultural diversification and manufacturing industry. Tax benefits and in certain circumstances tariff protection were granted to new private ventures, and substantial private investments were made, especially in new production for export. 5. These efforts began to bear fruit in 1961. After the sharp fall in export earnings in 1960, increasing shipments of meat, sugar, copper - iii - concentrates and soluble coffee, together with a good coffee crop and a partial recovery in cotton production brought total exports in 1961 back almost to the level of 1957-59. On the basis of projects already under- way further increases in exports should be realized in the next few years, and foreign exchange earnings are expected to grow by about 5l annually, However, if a number of projects which are being promoted to serve the Central American market can be implemented, and the chances of this appear favourable, the growth in export earnings may be appreciably higher. While such an export performance may be considered satisfactory over the short-term, nevertheless export earnings by the middle 19601s would still be only oderately higher than in 1955. 6. The growth in exports will provide a needed stimulus to the economy. A further stimulus will result from the increase in public sector investments. The implementation of projects for which foreign loans have already been secured, notably the Rio Tuma hydroelectric project, the new highway program, a new housing project, and a school construction program, will result in an increase in public investment. If financing can be ar- ranged for other projects, including water supply, sewerage and an airport project for which plans are in preparation, the rate of public investment in the next three years could be about double the rate in 1960 and 1961. Such an expansion should be physically possible, and coming at a time of rising export earnings should have a favourable impact on business expec- tations and investment in the private sector. Plans are in hand for sub- stantial new private investments in industry, and if further financial and technical assistance can be provided to the private sector by the Development Institute, the rate of private investment is also likely to be significantly greater than in the past two years. 7. The prospective growth in exports and the expansion in investment, if realized, should provide the basis for rising per capita incomes in the years ahead. To achieve this objective Nicaragua will need to mobilize additional resources at home and to attract substantial capital imports on both public and private account. If all loan applications now before foreign lending institutions are successful, the Government and state entities might borrow abroad approximately $20 million over the next year or so. Borrowing on this scale, together with loans previously se- cured, could mean an annual contribution from external sources to public sector investment projects of the order of $12 million in the next several years. On present estimates, contributions from the Government and its agencies to such projects seem likely to be of the order of $4-5 million annually. Thus Nicaragua's contribution to the financing of public sector investments ray be little more than a quarter unless public savings can be stepped up. 8. After a series of fiscal deficits, amounting to about 13% of expenditures in the past three years, new taxes have been introduced and the Government is considering further tax measures which could add materially to - iv - fiscal revenues. This increase in revenues will probably be more than sufficient to balance the budget at current levels of spending, but if there is to be even a modest rise in current expenditures on health and education services, an increase in Government contributions to capital projects is unlikely. For Nicaragua to step up its contribution to the financing of public investment, therefore, a further increase in fiscal revenues will be necessary. This should be within the country's taxable capacity. 9. Nicaragua's external debt outstanding at December 31, 1961 was $42 million. The service on the existing debt reaches a peak of $5.59 million in 1963, equivalent to 5.2 percent of the foreign exchange earnings estimated for that year. Service payments decline rather slowly until 1967. 10. The relatively modest level of debt service suggests that Nicaragua could incur new foreign debt on conventional terms for projects of high priority. If investment is to be sufficient, however, to support a sustained rise in per capita income for the rapidly growing pop- ulation, large capital imports will be necessary for some years to come owing to the poverty of the country and the low level of domestic savings. At the same time, the low educational and health standards of the people, the smallness of the entrepreneurial class, the limited capacity of the administration, and political uncertainties, which tend to inhibit private investment, are factors which in the longer term are likely to hamper the rapid growth of output and exports. In these circumstances, Nicaragua could not prudently borrow all its prospective external capital require- ments on conventional terms, and it would be appropriate, therefore, if capital to meet part of these requirements were to be supplied on special terms. I. INTRODUCTION 1. Nicaragua is the largest of the Central American republics, and with only 26 inhabitants per square mile, the least densely populated. Agriculture is the mainstay of the economy, providing 80% of exports and employment for more than 60% of the economically active population. Cof- fee and cotton account for 50 - 60% of exports, which in turn contribute about 20% of the Gross Domestic Product. Most economic activity and the bulk of the population are concentrated in the western half of the coun- try. Here basic economic services are quite well developed. With the help of loans from the I.B.R.D., a network of roads linking the principal towns and cities has been built, a new wharf has been constructed at the port of Corinto, power supplies have been greatly increased and a new major hydroelectric installation is presently under construction. 2. The eastern half of the country is little developed, but small quantities of hardwoods have been extracted from the tropical forests, the pine savannah of the northern section has long been exploited, and gold and more recently copper have been mined in small quantities. 3. The average per capita income is about $220 but the distri- bution of income and property is very uneven. Illiteracy is high; almost 65% of the population over 10 years is illiterate and only 4% have com- pleted secondary education. Health services are minimal for the mass of the population and malnutrition is widespread. 4. The state plays an important role in the country's economic life. Highways, railroads, ports and telecommunications have been built and operated by the state or its agencies; the largest electricity under- taking is a state enterprise; the principal commercial bank is state owned; a state agency is primarily responsible for providing lower cost housing; and following a recommendation of the I.B.R.D.'s survey mission of 1951, the Government set up the National Development Institute which, through direct investments and loans to private borrowers, has made a major contribution to the expansion and diversification of production in recent years. 2- II. ECONOMIC GROWTH 5. The last economic report on Nicaragua (H-99 of July 1960) reviewed the progress of the economy from the end of the second world war to the early months of 1960. The report noted that economic growth had been especially rapid from 1949 to 1955; the value of exports almost quad- rupled to reach $80 million in 1955, reflecting the rise in prices of coffee and cotton after 1949, and an increase in cotton production from only 10,000 quintals in 1949 to more than 1 million quintals six years later. The ex- panding domestic market gave an impetus to the growth of manufacturing in- dustries and construction, and Government and other services expanded rapidly. The real gross domestic product grew by 9 1/2% a year, and per capita output is estimated to have risen from $170 equivalent in 1949 to $245 in 1955. 6. The pace of expansion was not maintained after 1955. While coffee output increased slightly with newer areas coming into production, export prices fell by 41% between 1956 and 1959. Over the same period cotton prices fell by almost 20%, and with rising costs many producers ex- perienced increasing financial difficulties. In the 1959/60 season bank credits to cotton growers were sharply reduced, and with an unfavourable season, output fell by 40%. 7. With the drop in returns from coffee and cotton, efforts were made, particularly by the National Development Institute, to diversify pro- duction and exports. The greatest success was achieved in the cattle in- dustry. B- comparison with only $1.7 million in 1957 and 1958, the value of meat and cattle exports in the next two years was well over $5.0 million. This development was due largely to the efforts of the Development Institute which began a cattle improvement program as early as 1954, importing high- grade breeding stock for distribution to cattle growers and advancing credits to the latter to expand their herds and make other improvements. The Insti- tute was also instrumental in establishing and financing to the extent of more than $1.5 million a modern slaughter house and meat packing plant near Managua. 8. Exports of sugar and sesame have also risen rapidly in recent years. With the interruption of sugar imports to the United States from Cuba, the U.S. quotas to the Central American countries were raised, and Nicaragua was able to expand its exports from 85,000 quintals in 1956 to more than 750,000 in 1960. Production of sesame recovered from the low levels of 1956/57, and exports more than doubled in quantity between 1957 and 1960. 9. The increases in exports of meat, sugar, sesame and some minor items, though substantial, were not sufficient to offset the decline in earn- ings from cotton and coffee after 1955, and, with the sharp drop in cotton production in 1960, total exports fell to ;63 million, aL7,ost 25% below the 1955 peak. With the decline in export incomes, the expansion of production - 3 - for the domestic market slowed. Except for textiles and edible oils, the output of manufactures did not increase; construction declined moderately after 1956; and partly as a result of the diversion of more fertile lands to cotton growing and of poorly regulated support prices, the output of basic food crops, especially beans and sorghum, fell. From 1955 to 1959 the average increase in gross domestic product was only 2.5%7 a year, less than the rate of growth of population. In 1959 the gross domestic product fell and while official estimates are not yet available for 1960, a further fall seems almost certain. 10. Despite these unfavourable trends, the last economic report pointed to developments which promised an increase in exports and income in the future. Investments in new projects to produce copper concentrates, soluble coffee, shrimps, bananas and cocoa, a further expansion in meat and sugar exports, and some recovery in cotton production in response to the strengthening of cotton prices after 1959 seemed likely to result in a steady growth in export earniqW in the early 1960's. These expectations have, in part, been realized. Although the results of the shrimp venture have proved disappointing so far, with a growing output of other products, exports in 1961 are estimated to have recovered almost to the 1959 level. A good coffee crop and a further recovery in cotton production in the 1961-62 season, to- gether with a continued expansion in exports of meat, sugar and soluble coffee promise an export performance in 1962 substantially better than in 1961. 11. It is not possible from the available statistics to determine the impact of the recovery of exports on production for the domestic market over the past year. There is no doubt, however, that there has been a marked change in the business outlook, and, flowing from this, a notable increase in interest in new industrial investments. Furthermore, the par- ticipation of Nicaragua in the Central American Integration movement has provided a stimulus for new investment, for not only does it offer Nicaraguan producers the prospect of free access to the markets of El Salvador, Guate- mala, and Honduras in five or fewer years, but it provides an incentive for producers to put themselves in a position to meet competition from those countries. 12. The Development Institute is playing a prominent part in financing new industrial ventures and in helping local industries to modern- ize to meet competition in the Central American market. Lending to industry by the Institute has increased in recent years to reach more than $2.0 million in 1961. A similar amount is expected to be lent in 1962. The greater part of these sums has been used to improve the processing of local raw materials, notably meat, milk, sugar, oil seeds and cotton. Further progress on these lines is expected this year, and new private investments are planned in the construction of a small oil refinery (5,000 barrels a day), a flour mill, a canning plant, and substantial additions to oil expressing and sugar mill capacity. III. MONETARY POLICIES 13. Nicaragua, in common with other Central American countries, has relied primarily upon monetary policy to preserve equilibrium in its external transactions. Freedom of capital movements and, with few ex- ceptions, of commodity trade has been maintained, and monetary policy has been adjusted to changes in the foreign exchange position. 14. The extension of ample credits through the banking system did much to stimulate the cotton export boom of 1950 - 1955. Credits to the agricultural sector more than quadrupled over the period, and accounted for almost 90% of new bank lending to the private sector. This great increase in credit was partly offset by an accumulation of cash balances by the Government and state entities and by increases in the bankst re- serves and in other non-monetary liabilities. The money supply little more than doubled over the period, and while imports rose rapidly the rise in exports and in capital inflows was accompanied by a recovery of foreign exchange reserves from $0.6 million in 1950 to almost $15 million five years later. 15. In the years since 1955, the monetary authorities have had to adjust their policies to the decline in export earnings. Restrictions on the use of foreign exchange were not imposed, and the need to conserve modest exchange reserves, which in 1956 fell by more than half, prevented the adoption of an expansionary policy to offset the effect of declining export receipts on income and employment. Within the overall framework of austerity, the authorities faced two further problems. The first was the change in the position of the public sector. The decline in export prices and foreign trade brought a sharp drop in Government revenues. Expenditures continued to rise and budget deficits resulted. The Govern- ment used its accumulated cash balances and then resorted to borrowing from the banks. In 1960 a similar change occurred in the position of state entities. In consequence, credit to the public sector increased by almost 100 million cordobas in the four years ending in 1960. To maintain overall credit restraint in these circumstances meant added pressure on the private sector: the reserve requirements of the private banks were raised; a ceiling was imposed on lending to commerce; rediscount facilities were reduced. Between 1956 and 1960, bank credits to the private sector fell by more than 70 million cordobas, that is by approximately 16%. 16. The second problem arose as a result of the inappropriate basis of extending agricultural credit formerly employed by the National Bank. Agricultural credit was extended on the basis of acreage planted, with insufficient regard being paid to the efficiency of farming operations. Moreover, the control of the uses of agricultural credit was inadequate and short-term credits were in part used to finance fixed investments or for purposes unconnected with agriculture. When prices of cotton and coffee declined, the less competent farmers found themselves unable to repay bank credits and a high proportion of the National Bank's loans, amounting by the end of 1959 to about 50% of its portfolio, became delinquent. The Bank was forced to reduce its lending, and in the next year adopted a new policy, restricting agricultural credits to those farmers who had a record of good yields and efficient operations in the past. Crop loans were re- duced from a high of 196 million cordobas in 1955/56 to 98 million cordobas in 1959/60, with the sharpest decline occurring in the 1959/60 season. Unusually large Government borrowings from the banks compounded the difficulties of that year. The reduction in lending fell most heavily on cotton and coffee growers, production declined, and, as mentioned in chapter II, exports fell sharply. 17. Despite the fall in exports, there was a slight gain in foreign exchange reserves in 1960, bringing them to a level more than two-thirds above that of 1956. During this four year period, domestic credit outstanding in- creased by only 10% and this was more than offset by an increase in bank re- serves, time deposits and other non-monetary liabilities. 18. The recovery in exchange reserves and the absence of Govern- ment borrowing from the banks in fiscal year 1961, made it possible to ease credit to the private sector in the 1960/61 season. Loans to cotton growers increased by 20% and total crop loans by 10%. Utilizing the counterpart of an $8 million Export-Import Bank loan, credits to the cattle industry also rose. The increased lending was closely geared to the expansion of export production, and, with the strong recovery of exports in 1961, foreign ex- change reserves were further strengthened. By the end of the third quarter, reserves were judged adequate to withstand the seasonal pressure at the year's end, and the Nicaraguan authorities did not seek a new standby agreement with the I.M.F. as they had done in four of the preceding five years. 19. In the 1961/62 season, there has been a further expansion in lending to agriculture especially to cotton and sugar producers and to the livestock industry. Government borrowings from the banks have increased moderately, but if lending to the public sector can be limited to present levels, the prospects for maintaining financial stability in 1962 are good, 20. In later years, the continued expansion of production and exports will require an adequate flow of bank credits to the private sector. This can only be assured if steps are taken to solve the fiscal problem which has emerged over the past five years. The monetary authorities are very conscious of the damage to production which would result from new restrictions on credit to the private sector, and they are, therefore, strongly in favour of tax increases which would enable the Government to meet its commitments without further borrowing from the banking system. - 6 - IV. FISCAL DEVELOPMENTS 21. With their heavy dependence on indirect taxation, and particularly on import and export taxes, fiscal revenues have followed closely the changes in Nicaragua's foreign trade over the past ten years. During the period of the export boom, current revenues rose dramatically, tripling between 1950/51 and 1955/56. Expenditures rose more slowly, surpluses resulted and the Government accumulated substantial cash balances with the National Bank. 22. Since 1956, revenues have fallen, largely as a result of the Government's efforts to assist exnort producers at a time of declining prices for coffee and cotton. Until 1958 Nicaragua operated two exchange rates, which brought substantial profits to the Government. In 1956 the higher rate was granted on cotton exports and two years later on coffee exports, and in addition the export taxes on coffee were gradually elim- inated. The consequential loss of revenue to the Government amounted to well over 10% of total fiscal revenues. Furthermore, with the decline in foreign trade, the yield of import dities fell, and notwithstanding an increase in receipts from direct taxation, total current revenues over the past five years declined by approximately 12%. Against this, expenditures have risen by about 8% and, after taking into account loans and grants from abroad, the deficit has averaged 27 million cordobas annually or about 10% of expenditures in the past three years. (Table 17) 23. By drawing on its accumulated cash balances, the Government was able to meet its deficits until the middle of 1959. In the next fiscal year it borrowed heavily from the National Bank. In fiscal 1961 it was able to avoid further substantial borrowing by paying statutory contributions to the Social Security Fund and the National Development Institute in bonds instead of cash. In the current fiscal year, new taxes have been introduced, and, with the recovery in exports and hence in incomes, tax yields should be higher. Budgeted expenditures are somewhat greater than in fiscal 1960 and 1961, but this increase is made possible only by drawing on a new highway , loan from the DEF and by borrowing from the banks. It is clear, therefore, that without some further increase in taxation, the balancing of the budget will continue to be difficult and might in practice be impossible. At the same time, continued borrowing from the banking system would not provide an acceptable solution; it would mean further restrictions on credit to the private sector, which, as indicated in the preceding chapter, would affect adversely, if it did not prevent, the growth of production and exports. 24. The need for an expansion of Government services makes the case for an increase in taxation even stronger. Expenditures on education and health services, which absorb some 20% of total expenditures, have hardly increased in the past five years despite the rapid growth of popu- lation. Expenditures on public works and economic development declined - their share in total expenditures having fallen to about a quarter - and though some recovery was budgeted for in the 1961/62 fiscal year, this was made possible only by an increase in drawings on foreign loans. Some obligations of the Government will cease or be reduced; for example, its subventions to the National Developnent Institute will be reduced after the final capital payment in the 1961/62 year, and its contribu- tion to the capital of the Corinto Port Authority ceased in the same year. Nevertheless, the Government is and will be faced with new obligations: it is required to contribute towards the cost of construction of the Rio Tuma hydroelectric project - its contributions being substantially larger than in the case of the Corinto Port Project - and it will have to provide increasing sums for road maintenance as the highway network grows. More- over, greater efforts will probably have to be made to meet more fully existing statutory obligations, for instance the obligation to provide 3 million cordobas a year to the capital of the National Housing Institute, which has been met so far only to the extent of 1 million cordobas an- nually. 25. Progress in expanding social and economic services - in reducing the high rate of illiteracy, in raising the low level of health services, and in providing a part of the finance required for new devel- opment projects - will necessitate greater Government spending unless economies can be made on other services, namely general administration and defence. Substantial economies under these heads are, however, un- likely and while the possibility of diverting expenditures from adminis- tration and defence to development services should be regularly reviewed, it is clear that the main source of new domestic funds for development must be increased taxation. The ratio of tax revenues of the central Government to G.D.P. (approximately 9% in 1958/59) indicates that there is room for additional taxation. While the proportion is slightly higher if tax revenues of local governments are included, it is low by compari- son with many under-developed countries and is the lowest.in Central America. 26. The Government has been aware of the need for fiscal re- form. In 1961, it set up a commission to recommend new taxes. Taxes of 3% of the F.O.B. value and five cordobas per head have been imposed on agricultural products and cattle, when exported or processed by local industries, as a means of collecting income taxes from the farming com- munity. New taxes on real property and on inheritances, a revision of the income tax and a number of minor tax changes are now being consid- ered. No official estimates of the full yield of the new taxes are available, but if these taxes can be speedily implemented and effectively administered, the yield should be large, one estimate being as high as 4O million cordobas annually, or about 15% of present revenues. An increase in revenues of this magnitude would be sufficient to cover the deficit at present levels of spending, even without aid from abroad on the level of the recent past, and it would leave some margin for increasing expendi- tures. This margin would be quickly absorbed, however, if progress were made in improving health and education services, so that little would - 8 - remain for aditional spending on new capital works. On present estimates the Government's annual contribution from domestic resources to public sector investment projects already underway and being planned may be of the order of $3.0 million in the next two to three years, but if the higher estimates of additional revenues from the new taxes are realized and if current ex- penditures are not rapidly increased, the contribution could be higher by perhaps $1 million or more. This contribution compares with a possible rate of spending on public sector projects from foreign loans of about $12 million annually. Thus the Government's contribution may be between a quarter and a fifth. This is modest and some increase will be necessary if Nicaragua is to carry a reasonable part of the burden of financing investment expenditures in the years ahead. The Government should, there- fore, be prepared to consider further measures to increase fiscal revenues as the magnitude of investment needs in later years becomes clearer. V. FUTURE MROSFECTS Prospects for Production and Rxnorts 27. The structure of the N"icaraguan economy is unlikely to change radically in the foreseeable future and the progress of the economy will be closely geared to the progress of the export sector. Export earnings will continue to depend mainly on coffee and cotton. The marketing prospects for coffee are poor; even if international marketing agreements are continued, coffee prices are expected to decline further in the next four or five years. Prospects for cotton are more favourable: prices are expected to remain near to present levels over the same period. 28. Notwithstanding the expected decline in coffee prices, pro- duction in Nicaragua may increase moderately, subject to year to year fluctuations, for the newer coffee growing areas are not yet in full pro- duction. The volume of exports may also increase slowly provided that such an increase is not precluded by new international marketing agreements. Production of cotton has already responded well to the rise in export prices since 1959. A further increase in output is expected, and the high levels of the years 1954 to 1958 may again be reached, or even surpassed. 29. The share of coffee and cotton in total exports will decline with the growth of new exports, but in the foreseeable future it is unlikely to be less than one half. Gold production will probably decline slowly unless new Lines are opened up, but the output of copper concentrates should expand moderately above the 1961 level. ieat production and exports are expected to grow quite rapidly, so that by 1963 or 1964 meat should overtake gold as Nicaraguats third major export, - 9 - 30. Because of the transfer from Nicaragua to Honduras of a large land area in the north-east as a result of the settlement of a boundary dispute, production of pine lumber will probably sharply de- cline in two or three years. The value of timber exports will then fall by approximately $2 million a year but this loss should be compensated by exports of naval stores (pine oil, rosin and turpentine) from a fac- tory now being built to utilize pine stumps and waste wood. 31. A development which will bring increased exports in the next two years is the production of bananas in areas near to the port of Corinto on the Pacific coast. This project has been promoted and largely financed by the National Development Institute on the basis of a market- ing agreement with the United Fruit Company. By the end of 1962, 2,000 hectares will be planted. Full production at the rate of 1.4 million stems annually should be reached one year later. 32. The Development Institute is also working on two further projects which, if brought to fruition, could add substantially to ex- port earnings. The first of these would involve the expansion of milk production for the manufacture of powdered milk to supply the Central American common market. The second, a project to produce caustic soda$ chlorine and insecticides, has been accorded by the common market mem- bers the status of an "integration industry", which gives Nicaragua alone the right to export without restriction the products of the indus- try to the common market countries. As both these projects are still in the planning stage, they have not been taken into account in estimating export earnings over the next few years. Even without them, however, it seems probable that Nicaragua will be able to increase export earnings at an average rate of about 5% annually during this period. Such a growth rate would be very much less than during the first post-war dec- ade, but it would be substantially better than performance during the past five years when, except for the sharp fall in 1960, export earn- ings remained almost unchanged. 33. The growth of exports and of the domestic market should provide the stimulus for a further expansion of manufacturing and farm production. The major new investments in manufacturing now in prospect have been mentioned in Chapter II. In addition, plans are in hand to expand the production, mainly for the domestic market, of cement prod- ucts, structural metal work, plywood, clothing, cosmetics, and a further range of the simpler producers' and consumers' goods. With the opening of the Central American market, the opportunities for expansion will be considerably enhanced. Nevertheless, it must be recognized that the economies of the Central American countries are more competitive than complementary and both El Salvador and Guatemala are more advanced industrially than Nicaragua, It is likely that in at least some lines of production, competition in the Nicaraguan market from El Salvador - 10 - and perhaps also from Guatemala will be severe, and some Nicaraguan plants may be forced to close. The outcome carnot at present be predicted, but if, with the assistance of the Development Institute, Nicaraguan industries take steps to improve their competitive strength, the opportunities offered by the integration of the Central American markets seem likely to outweigh the losses that particular industries may suffer. 34. In agriculture, production of basic food crops has not ex- panded in line with the growth of population in recent years, and marginal quantities of rice, corn and beans have been imported. With its good land resources, Nicaragua is well placed to produce its basic food requirements for the rapidly growing population, but this will require new penetration roads to open up unutilized land, better regulation of price supports, and the adoption of improved cultivation techniques. Progress is being made in the first and second categories; progress in the third will depend partly upon strengthening of agricultural extension services. The Nicara- guan Government has over the past year been preparing a land reform law which has as important objectives the settlement of landless laborers in farm colonies and the utilization for productive purposes of unutilized private land. The law, if wisely administered, could result in a sub- stantial increase in agricultural production. It has not yet been passed by the Nicaraguan Congress, but there seems quite a good chance of its passage this year. Public Sector Development Plans 35. The expansion and diversification of production, together with investments required to impove the living conditions and the health and education standards of the rapidly growing population will make large public investments necessary in the next few years. The responsibility for providing basic economic and social services rests mainly on the State or its agencies, as indicated in Chapter I. In contrast to the position in the early 1950's when, with the help of the I.B.R.D., the Government formulated and subsequently implemented a broad development program, there is at present no overall development plan for the public sector, but the Government and its agencies are implementing or planning a series of proj- ects. In formulating their plans, the Nicaraguan authorities have in general been realistic and have paid due regard to priorities. In the past, the main emphasis has been placed on expanding power supplies and transportation facilities and there can be little doubt that these in- vestments have done much to stimulate the expansion of production. Over the past ten years, electric generating capacity has been trebled, the length of all-weather highways has increased fivefold, and the new wharf at Corinto, when completed, will more than double the capacity of the port. The I.B.R.D. made a major contribution to these developments, lending almost $20 million for electric power, highways and the Corinto port project between 1951 and 1956. At present, a further expansion of electric generating capacity is underway with the construction of the 50 M.W. Rio Tuma project, for which the I.B.R.D. has lent a further $12.5 million. The highway network is also being further extended and improved with the help of loans from the Eximbank and the D.L.F. - 11 - 36. While substantial progress has been made in these two fields, other sectors, particularly railway and lake transport, housing, water supplies and sewerage services have been relatively neglected. Plans are, however, in hand for a new water project for the capital city, Managua, and a credit of $3 million is being sought from the IDA to as- sist in its financing. Studies are being made for a new sewerage project for Managua, and a loan is expected to be sought from the I.A.D.B. for this project. From domestic resources the National Housing Institute ex- pects to spend $1 million annually on new low-cost housing in this and the next two fiscal years, and it has obtained a loan of $5.2 million from the I.A.D.B. to expand this program. 37. The neglect of the railway system in recent years has been more or less deliberate as priority has been given to highway construc- tion. A decision must now be made, however, on the future of the rail- way. If a survey should show that a continuation of railway operations would be worthwhile, the investment needed to keep the railway operating is urgent. 38. Mbdest advances have been made in the provision of other services which fall wholly or largely in the public sector. The tele- communications system has been improved in the past three years. A new hospital has been built in Managua and,with the help of an Eximbank loan, is now being equipped. The pace of school construction has slowed in recent years, but in May 1962 A.I.D. made available approximately $1 million which, with a local contribution of $270,000 will make possible the construction of 500 rural classrooms. 39. In addition, the Government has applied to the I.B.R.D. for a loan to finance the Rivas irrigation project, and an application has been made to A.I.D. for about $1 million to finance airport exten- sions at Managua. Financing of Development [o. If all applications now before foreign lending institutions should be successful, Nicaragua might borrow approximately $20 million over the next year or so for investments in the public sector. This sum would probably be spent over three to four years. Together with expendi- tures financed from loans already secured, this could mean an annual con- tribution from external sources to public sector investment projects now being implemented or planned of the order of $12 million during this period. Contributions to such projects from the Government and its agencies, notably the electricity authority and the state housing insti- tute, seem likely on present estimates to be of the order of $4-5 million annually. Thus Nicaragua's contribution to the financing of investments in the public sector may be little more than a quarter unless public savings can be stepped up. - 12 - 4l. Some part of public sector savings will, however, continue to be made available to help finance private investment, notably through the National Development Institute, which from its own resources and from Government reimbursements expects to lend to the private sector about $2-3 million annually in the next several years. VI. CONCLUSION 42. Following the decline in exports after 1953 and the fall in per capita income in 1959 and 1960, the strong recovery of exports in 1961 and the further growth now in prospect should provide the basis for a re- newed growth of the domestic product and of per capita income. This growth would be more assured if the investment projects in the public sector now being planned could be speedily implemented in addition to the major hydro- electric and highway programs already underway. In this case, the level of public investment in the next several years could be more than double the level of the recent past. An expansion of this magnitude should be physically feasible, and, coming at a time of rising export earnings, should have a favourable impact on business expectations and investments in the private sector. As indicated in earlier chapters some major investments in the private sector are already in an advanced planning stage, and if the projects being prepared by the Developnent Institute can be implemented in cooperation with private interests, private investment should also be significantly greater than in the past two years. 43. If these results are to be achieved, Nicaragua will need to mobilize additional resources at home and to attract substantial capital imports on both public and private account. To increase resources for longer-term lending to the private sector, the National Bank is considering its first domestic bond issue, which is believed feasible if the bonds bear the Central Bank's guarantee. In the public sector, the Government should consider further measures to increase its contributions to financing investment, and steps should be taken to ensure that the earnings of public utilities, besides the electricity authority, are sufficient to provide part of their capital requirements. These measures will take time, however, and in the immediate future, Nicaragua will rely primarily on external sources to finance public investment. As indicated above, external borrow- ing by the Government and state entities may amount to about $25 million over the next year or so, and the need for additional loans in the years immediately following can already be foreseen. - 13 - 44. Nicaragua's external debt outstanding at December 31, 1961 was $42 million. The service on the existing debt reaches a peak of $5.59 million in 1973, equivalent to 5.2 percent of the foreign ex- change earnings estimated for that year. Service payments decline rather slowly until 1967. 45. The relatively modest level of debt service suggest that Nicaragua could incur new foreign debt on conventional terms for projects of high priority. If investment is to be sufficient, however, to support a sustained rise in per capita income for the rapidly growing population, for some years to come large capital imports will be necessary owing to the poverty of the country and the low level of domestic savings. At the same time, the low educational and health standards of the people, the smallness of the entrepreneurial class, the limited capacity of the ad- ministration, and political uncertainties, which tend to inhibit private investmrent, are factors which in the longer term are likely to hamper the rapid growth of output and exports. In these circumstances, Nicaragua could not prudently borrow all its prospective external capital require- ments on conventional terms, and it would be appropriate if capital to meet some of these requirements were to be supplied on special terms. APENDIX I PROSPECTS FOR FCREIGN EXCHANGE EARNINGS Merchandise Exports 1. While Nicaragua's two principal exports, coffee and cotton, are likely to account for more than a half of total exports in the foreseeable future, their share in the total will slowly decline with the growth of newer exports. 2. Production prospects for coffee have been discussed in chapter V. The average export price of Nicaraguan coffee has been assumed to decline slowly to 33 cents a lb. (f.o.b.) by 1965/66 compared with 37 cents in 1961. In estimating future export earnings, it has been assumed that production will be sufficient to allow a rise in the volume of exports during the next four or five years at an average rate of 3% per annum, in line with the expected annual growth in Free World demand. With regard to exports of soluble coffee, no in- crease in volume is at present planned, and the price is estimated to decline with the decline in prices of coffee beans. 3. Production prospects for cotton have been discussed in chapter V. Prices have been assumed to remain approximately at the present level, about 26 cents a lb. (f.o.b.) over the next four or five years. Gold exports are expected to decline moderately from about 1964, though preliminary investiga- tions have indicated new ore bodies which might prove exploitable on quite a large scale. 4. For the newer exports, it has been assumed that the New York price of refined copper will not vary greatly from a level of about 30 cents during the next five years, while a modest strengthening of meat prices has been as- sumed, reflecting the course of the cattle cycle in the United States. The bulk of banana exports will be sold to the United Fruit Company with a guaran- teed minimum price. 5. Small increases in export proceeds from sesame, cotton seed and minor products have been assumed for the next five years. VOLUE AND PRICES OF RINCIPAL EXPCRTS Year Coffee Cotton Volume Price (f.o.b.) Volume Price (f.o.b,) (000 quintals) (U.S. cents per lb.) (000 quintals) (U.S. cents per I 1959 355 39 1,341 22 1961 * 488 37 695 26 1962 $ 490 35 1,150 26 1964 $ 520 34 1,250 26 1966 $ 550 33 1,300 26 * provisional estimate VALLU OF 7XPCRTS U.S. 8millions Cattle Year Coffee Cotton Gold Copper and Bananas Other Total Meat 1959 13.9 29.3 7.2 -- 54 --- 16,4 72.2 1961 $ 20.4 * 183 7.7 2,0 6.3 --- 14.3 69.0 1962 j 21.0 * 30.0 7.0 3.5 68 1.3 16.4 86,0 1964 21.5 * 32,0 6.5 3.6 7.7 3.8 15.9 91,0 1966 $ 22,0 * 34.o 6.0 3.6 8.6 3.8 19.0 97.0 estimate including soluble coffee Invisibles 6, in recent years the most important sources of foreign exchange earnings on non-merchandise account have been transportation and insurance and expendi- tures by foreign governments on diplomatic and other missions in Nicaragua. Re- ceipts under the first head have declined since 1957, but this has been partly offset by an increase in earnings from tourism and in miscellaneous receipts. In7estment income and migrants remittances have not changed. In the future, a moderate increase in expenditures by foreign visitors seems likely and perhaps alo by foreign diplomatic and other missions. Some recovery in earnings fro:m freights and insurance also seems quite probable with the expected growth in Nic- aragua's foreign trade. RECEIFTS ON NON-MERCIAMISE ACCOUNTS U.S. $ millions Foreign Transport Investment Expenditures Misc. (incl. Year and by Foreign Migrants Tota Travel insurance Income Aissions Transfers) 1959 17 7.7 012 2.5 4.1 16.2 1960 2.0 5.7 0.2 2.9 4.9 15.7 1962 2.2 7.6 0.2 3.0 5.0 18.0 1964 $ 2,4 8.o 0.2 3.2 52 1910 1966 2.6 8.4 0.2 3.4 5.4 20.C 1 estimate -3- TOTAL CURRENT FORIGIT EXCIANGE EARNINGS U.S. $ millions Year Merchandise Non-Merchandise Total 1959 72.2 16.2 886. 1962 86.0 18.0 104.0 1964 91.0 19.0 110.0 1966 $ 97.0 20.0 117.0 $ estimate APPENDIX II STATISTICAL TABLES LIST OF TABLES TABLE NO. External Public Debt 1. Summary of External Public Debt, December 1961 2. Service on External Public Debt, 1961 - 1975 Population Growth 3. Population Growth, 1950 - 1960 National Income and Production Trends 4. Gross Domestic Product by Major Sectors, 1950 - 1959 5. Production of Basic Food Crops, 1951/52 - 1960/61 6. Production of Principal Export Crops, 1951/52 - 1960/61 7. Industrial Production, 1950 - 1960 8. Power and Transport Statistics, 1950 - 1960 Trade and Balance of Payments 9. Composition of Exports, 1950 - 1960 10. Composition of Imports, 1950 - 1960 11. Exports and Imports by Regions, 1950 and 1954 - 1961 12. Export and Import Prices and Terms of Trade, 1950 - 1960 13. Balance of Payments, 1950 - 1960 14. Gold and Foreign Exchange Reserves, 1950 - 1961 Government Finance 15. Government Revenues, 1951/52 - 1961/62 16. Government Expenditures, 1951/52 - 1961/62 17. Government Revenues and Expenditures, 1951/52 - 1961/62 Financial and Price Statistics 18. Summary Accounts of the Banking System, 1950 - 1961 19. Re-discount Ceilings, 1957 - 1961 20. Commercial Bank Credit to Businesses and Individuals, 1950 - 1961 21. Crop Loans from the National Bank, 1950/51 - 1960/61 22. Delinquent Loans of the National Bank, 1955 - 1961 23. Domestic Prices, 1951 - 1961 TABLE 1 NICARAGJA: EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECE.7BER 31,1961 (thousand U.S. dollars) Item I Debt outstanding plus undisbursed, Dec. 1961 TCTAL EXTERNAL PUBLIC DEBT 42,223 Outstanding 25,227 Undisbursed 16,996 Suppliers' and Private Bank Credits: 1,059 Cutstanding 1,014 Undisbursed 45 IBRD loans: 214,935 Outstanding 13,03 Undisbursed 11,882 Inter-American Development Bank loan: 2,000 utstanding 150 Undisbursed 1,850 U,S. Government loans: Export-Import Bank 13;645 Outstanding 10,496 Undisbursed 3,149 Development Loan Fund 584 autstanding Undisbursed 70 Source: IBRD - Economic Staff TABLE 2 NICARAGUA: ESTIMATED CONTRACTUAL INTEREST AND AMORTIZATION PAYMENTS ON EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DECEMBER 31, 1961 (thousand U.S. dollaxs) Year Debt out- Payments during Service Payments by Type of Loan standing Amorti- In- Suppliers' and Pri- IBRD IDB Export- January 1 zation terest Total vate Bank Credits Loans Loan Import Bank DLF 1962 42,223 4,253 1,321 5,574 892 2,072 - 2,559 51. 1963 37,970 4,035 1,559 5,594 89 2,176 294 2,983 52 1964 33,935 3,654 1,554 5,208 136 1,689 284 3,047 52 1965 30,281 3,128 1,565 4,693 16 2,026 274 2,325 52 1966 27,153 3,330 1,4)44 4,774 - 2,243 263 2,216 52 1967 23,823 1,753 1,287 3,040 2,207 253 528 52 1968 22,070 1,783 1,195 2,978 2,175 242 509 52 1969 20,287 1,847 1,101 2,948 2,177 232 487 52 1970 18,440 1,907 1,001 2,908 2,177 220 459 52. 1971 16,533 1,855 900 2,755 2,095 211 397 52 1972 14,678 1,829 803 2,632 2,001 200 379 52 1973 12,849 1,896 706 2,602 2,002 187 361 52 1974 10,953 1,569 610 2,179 2,001 - 126 52 1975 9,384 1,307 529 1,836 1,679 - 83 52 1976 8,077 964 468 1,1432 1,342 - 90 74 Gourco: IDRD - Economic Staff TABLE 3 NICATRAGUA: POPULTION GRO1TH 1950-1960 Year Population Births per 1000 Deaths per 1000 Total %Increase of the Population of the Population 1950 1,059,533 3.04 41.2 10,8 1951 1,092,760 3.19 41.2 9.2 1952 1,128,410 3.22 42.8 10,6 1953 1,164,788 3.14 42.3 10,2 1954 1,203,110 3.34 43.0 9.6 1955 1,245,351 3.37 42.9 9.2 1956 1,288,007 3.37 41.8 8.1 1957 1,332,498 3.43 43.0 1953 1,377,599 3.18 41.2 9.5 1959 1,423,511 3.34 44.5 8.6 1960 1,476,650 3.73 41,4 8/ 8.4 1/ 1/ Provisional Source: Direcci6n General de Estadistica y Censos TABLE 4 NICARAGUA: GROSS DOMESTIC PRODUCT BY MAJOR SECTORS 1950-1959 (million cordobas at 1958 prices) Sector 1950 1954 1955 1956 1957 1958 1959 Agriculture 681.6 863.1 933.5 889.9 1,000.7 1,030.3 1,017.3 Mining 33.6 34.8 34.4 32.3 30.3 32.7 35.3 Manufacturing 119.2 191.7 217.5 218.5 238.6 256.3 259.5 Construction (private) 32.6 44.3 54.1 62.3 51.6 57.5 57.5 Transportation 47.9 75.8 79.2 77.1 81.8 74.7 66.7 Commerce 259.9 446.2 466.8 474.3 531.9 516.1 479.5 Goverrnrent 52.1 76.5 96.1 134.2 143.3 151.8 148.4 Other Services 215.6 273.5 294.8 296.8 317.1 332.8 338.1 Total 1,442.5 2,005.9 2,176.4 2,185.4 2,395.3 2,452.2 2,402.3 G.D.P. per capita (cordobas) 1,341 1,638 1,713 1,668 1,767 1,752 1,656 G.D.P. per capita (US$) 192 234 245 238 252 250 237 Source: Working Group of Nicaraguan Government and E.C.L.A. TABLE 5 NICARAGUA: AREA, PRODUCTION AND YIELDS OF BASIC FOOD CROPS 1951/52 - 1960/61 (area and production in thousands) 1/ Crops 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 Co0rn Area 185 174 199 170 226 256 211 189 184 187 Production 2954 2667 3015 2083 3140 3010 2291 2348 2150 2588 Yields 15.9 15.3 15.2 12.3 13,9 11.7 10.9 12.4 11.7 13,8 S,rahuim: Area 58 54 63 69 74 80 74 60 69 72 Prcduction 1196 1165 1318 1055 1107 1067 930 827 853 847 Yields 20,8 21.4 21,0 151,4 14.9 13.4 12.5 13.8 12,3 11.8 Beans: Area 50 49 55 61 74 102 38 53 56 54 Production 679 651 682 683 778 1030 258 423 479 484 Yields 13,7 13.4 12,3 11.2 10,4 1011 6.9 7.9 8.5 8.9 Rice. Area 57 35 48 26 27 36 34 33 30 31 Production 826 485 760 358 311 411 451 454 442 462 Yields 14,4 14.0 15,7 13.8 11.3 11.4 13,1 13,9 14.8 15.1 Su.ar Cane: Area 27 27 23 25 21 26 28 31 28 31 Production 941 900 754 806 743 951 1002 1125 1038 1138 Yields 34.5 33.3 33.0 33.2 35.4 36.9 36.3 36.6 36.9 36.9 y/TArea is given in manzanas. Production is in Spanish quintals of 101 lbs. except for Sugar Cane for which production is given in short tons. Source: Direccion Gena.ral de Estadistica y Censos TABLE 6 NICARAGUA: AREA PRODUCTION AND YIELDS OF PRINCIPAL EXPORT ChOPS: 1951/52-1960/61 (area and production in thousands) 1/ Crops 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 Cotton Area 67 43 61 124 123 105 126 106 95 87 Production 407 268 421 1031 814 967 1150 1060 602 722 Yield 6.1 6.2 6.9 8.3 6.6 9.2 9.1 10.0 6.4 8.3 Sesame Area 33 38 30 24 23 12 18 25 23 20 Production 379 337 251 189 179 92 146 201 182 177 Yield 11.5 8.8 8.4 7.8 7.7 8.0 8.0 8.0 7.9 8.9 Coffee Area 81 n.a. n.a. n.a. n,a. n.a. 123 n.a. n.a. n.a. Production 2/ 411 408 371 495 368 479 498 354 473 473 Yield 5.1 ---- ---- --- -- --4.1 ---- ---- n.a. = Not available 2/ Areas are given in manzanas ( 1 manzana = 1.7 acres ) and production in Spanish quintals of 101 lbs. 2/ Exports Source: Direccion General de Estadistica y Censos, and direct information TABLE 7 NICARAGUA: INDUSTRIAL PRODUCTION 1950-1960 INDUSTRY UNIT 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 (millions) Vegetable oils lbs. 1.5 1.9 2.3 3.7 5.1 6.4 7.7 8.7 15.8 14.8 15.3 Sugar quintals 0.6 0.6 0.7 0.7 0.8 0.7 0.9 1.2 1.4 1.3 1.4 Beer litres 1.7 1.9 2.6 3.0 3.4 4.3 4.7 4.0 4.7 4.2 4.1 Rum litres 3.6 4,1 5.3 4.8 4.7 5.1 4.3 5.7 5.6 5.3 4.0 Cigarettes number 545 691 n.a. 654 724 778 790 767 777 789 819 Matches boxes 126 15.7 15.4 19.4 18.0 19.6 20.3 16.3 196 21.1 21.7 Candles lbs. 0.4 1.4 1.8 1.8 5.1 4.8 4.8 5.3 5.0 4.6 n.a. Soap lbs. 9.8 9.0 8.3 8.0 8.9 9.8 9.5 8.6 906 926 n.a. Cotton cloth yds. 3.9 3.8 3.6 4.0 6.3 7,2 5.5 6.3 7.2 10.0 10.7 Clothing pieces 0.7 1.4 1.1 1.7 3.1 3.0 3.4 3.6 3.6 2.3 n.a. Shoes pairs 0.3 0.3 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.6 Cement bags 0.4 0.4 0.5 0.5 0.5 0.6 1.0 1.0 0.9 0.8 0.7 Cement bricks number 3.3 4.0 4.3 7.5 8.1 7.9 7.1 7.0 6.3 4.9 4.3 Sawmills board feet 28.3 47.5 48.2 52.8 55.7 62.1 58.3 59.5 61.6 84.1 51.0 n.a. = not available Source: Direccion General de Estadistica y Censos TABLE 3 NICARAGUA: POWI AMD TRADS'CRT STATISTICS 195 -60 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Electric Power Generating Capacity (MW) 26 26 26 33 38 40 42 43 76 77 77 Power generated (millions of KWH) 80 84 90 96 105 110 119 128 143 166 184 Index (1950 = 100) 100 105 113 120 131 138 149 160 179 208 230 Paved Highways 150 170 195 210 250 280 300 362 515 548 669 (kilometers) Other all-weather highways 330 370 420 470 560 707 787 904 1164 1170 1868 Railway Transport Passenger-kilometers 100 95 113 118 123 135 125 114 101 100 651/ (millions) Ton-kilometers (millions) 21 23 21 21 31 35 31 32 30 37 24j/ Index (1950 = 100) 100 110 100 100 148 167 148 152 143 176 114 Fort Traffic Import traffic ('000 tons) 121 175 174 189 216 268 167 303 293 294 3372/ Export traffic ('COO tons) 125 121 149 195 188 236 185 230 266 274 230 TOTAL 246 296 323 384 404 504 352 533 559 568 567 Index (1950 = 100) 100 120 131 156 164 205 143 217 227 231 230 l/ Data supplied by the Pacific Railway 2/ Data supplied by the Controller of Customs Source: Direccion General de Estadistica y Censos TABLE 9 NICARAGUA: COMPOSITION OF EXPORTS 1950-1960 (million U.S. dollrs) Cotton Other Yar Coffee Cotton Seed Timber Cattle Gold Products TOTAL Value Volume Value Volune Value Valule Vaue Value Value- Value 1950 17.3 456.2 1.8 71.9 0,2 1.7 0.3 8.1 5.2 34.6 1951 18.5 350.3 5.5 94.9 0,1 2.0 1.1 8.7 10.3 46.2 1952 21.7 11.1 6.8 207.2 0M6 2.8 1.3 8.9 9.2 51.3 1953 21.3 408.1 8.h 277.9 0.9 3.9 1.5 8.8 9.7 5L.5 1954 25.1 371.2 16.8 504.7 1.5 2.9 1.1 8.1 7.3 62.8 1955 27.9 494.9 31.0 955.9 3,3 3.5 1.3 8.1 4.9 80.0 19-6 23.2 368.3 23.6 789.9 3,4 3.3 0.7 7.3 3.6 65.1 1957 28.5 479.0 21.8 782.9 3.5 3.4 1.8 6.9 5.3 71.2 1958 24.2 498.1 24.9 928.3 3.9 3.0 1.5 7.3 6.3 71.1 1959 13.9 354.5 29.3 1,341.0 4.1 3.7 3.7 7.2 10.3 72.2 1960 19.2 473.3 11.7 595.4 2.2 3.6 1.7 6.9 14.6 62.9 1/ Thousands of Spanish quintals of 46 kgm, i.e. approximately 101 lbs. Source: Banco Nacional, Revista Trimestral TABTE 10 AICARAGUA: COMPOSITION OF IMPORTS 1950-1960 (million U.S. dollo.rs) 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Foodstuffs 2.0 1.8 2.1 2.4 2.9 5.a 5.8 5.5 6.3 5.3 5.1 Oil and fats 1.0 1.4 1.9 1.8 2.3 3.5 3.3 4.2 4.5 3.3 3.8 Textiles 5.0 4.5 5.9 5.6 5.4 6.0 5.0 6.3 6.3 5.5 6.5 Metal manufactures 2.0 2.9 4.0 4.3 5.3 5.5 5.5 7.4 5.9 5.1 5.9 NAchinery and equipment 3.4 4.0 6.9 8.5 10.4 11.0 11.4 15.0 13.1 11.5 12.2 Vehicles and parts 2.1 3.8 5.3 5.1 9.7 9.9 6.6 7.0 6.5 4.9 4.7 Chemical products 2.2 3.2 3.3 3.7 6.6 9.0 9.3 11.0 12.2 10.2 11.4 Rubber and manu- factures thereof 0.7 0.8 1.2 1.2 1.3 1.8 1.9 2.0 2.4 1.9 2.4 Aper and manu- factures thereof 0.6 0.6 0.9 0.8 1.1 1.4 1.5 1.8 1.9 1.8 2.1 Gasoline 0.7 1.0 1.1 1.3 1.6 2.0 2.5 2.7 2.7 2.6 2.8 Other 4.9 6.0 7.0 8.7 11.8 13.3 15.9 18.0 16.0 14.7 14.8 Total 24.7 30.0 39.7 43.6 58.3 69.6 68.8 80.9 77.9 66.8 71.7 Values are given f.o.b. from 1950-1954; thereafter values are c.i.f Source: Banco Nacionall Revista Trimestral TABLE 11 NICARAGUA: EXPORTS AND IMPORTS BY REGIONS 1950 AND 195L-1961 (Percentages) Exports Imports 1950 1954 1955 1956 1957 1958 1959 1960* 1961* 1950 1954 1955 1956 1957 1958 1959 1960* 1961* United States 70 45 37 38 39 37 27 43 42 81 65 65 63 58 55 52 53 49 Other Western Hemisphere 6 7 5 3 4 3 4 4 2 9 13 14 14 14 16 17 16 18 UnitedKingdom 11 12 6 7 10 7 7 4 4 3 3 3 4 4 4 4 4 4 Germany (F.R.) -- 14 16 24 17 17 14 14 13 2 9 6 7 11 8 7 8 7 Other Western Europe 7 8 19 13 22 18 17 11 9 1 6 6 6 6 8 7 5 6 Japan 1 11 13 9 5 11 22 14 22 1 2 2 2 3 4 5 6 7 Rest of World 5 3 4 6 3 7 9 10 8 3 2 4 4 4 5 8 8 9 TOTAL 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 * Fron January to June Source: Banco Nacional, Revista Trimestral TABLE 12 NICA.AGUa: EXPORT AND I'PORT PRICES AND TFRiB OF TRADE 1950-19L (1953 = 100) Year Export Import Terms of Prices 1/ Coffee Cotton Sesame Prices 2/ Trade 1950 77 70 87 96 88 08 1951 111 97 192 142 101 110 1952 100 97 111 111 100 100 1953 100 100 100 100 100 100 1954 127 132 105 137 99 128 1955 108 107 100 130 100 100 1956 112 118 92 131 103 109 1957 101 104 88 141 107 94 1958 87 84 7 127 106 82 1959 75 69 75 111 106 71 1960 76 68 82 117 107 71 1/ Prior to 1953, the index is calculated on unit values of exports. Subsequently the index is a Laspeyres index of 8 commodities weighted with average relative values in 1948-52. 2 U.S. index of export prices. Source: I.M.F., International Financial Statistics TABLE 13 NICARAGUA: BALANCE OF PAYMENTS 1950-60 (million U.S. dollars) 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 19601/ A. Goods, Services, and Donations Exports, f.o.b. 35.4 46.7 51.6 54.5 62.5 79.9 65.5 70e6 70.4 75.0 63.9 Imports, f.o.b. -24.6 -29.9 -39,5 -1.3 -5L -59. -57,6 -68. -65.3 -52.7 -56.4 Trade balance 10.8 16,8 12.1 11.2 4.4 20.5 7.9 2.2 5.1 22.3 7.5 Investment income - 5.9 - 6.3 - 5.4 - 6.7 - 5,6 - 8.0 - 4.4 - 1.4 - 4.0 - 2.4 - 1.9 Other services - 4.6 - 4.5 - 6.8 - 8.2 -11.1 - 9.9 -12.6 -11.7 -14.5 -15.3 -16.0 Donations 02 0.4 1.0 0.9 1.0 2.2 2.2 2.8 4.1 3.2 2.9 Total 0.5 6,4 0.9 - 2.8 -11.3 4.8 - 6.9 -8.1 - 9.3 7.8 - 7.5 B. Canital Movements (other than Group E) Foreign direct investment 21 1.1 2.2 2.0 2.0 2.1 2.1 2.9 2,i4 1.2 1.7 Drawings on foreign loans - 0.1 4.4 7.4 5.8 2.7 4.0 10.5 6,6 3,9 2.2 Anortization - 1.3 - 0.5 - 0.5 - 2.3 - 2.2 - 3.6 - 3.7 -4.1 - 3.2 - 4.3 - 3.4 Private short-term capital - 1.1 1.9 -_AL 2.6 7.0 0.5 - 2.1 _4.2 - 0.6 2 2 5_7 Total - 0.3 2,6 2.1 9,7 12.6 1.7 0.3 13.5 5.2 3.0 6.2 C. Net Errors and Omissions - 0.7 - 0,6 3.9 - 5.5 - 4.2 - 5.7 - 0,8 - 1.8 1.1 - 7,0 - 2.9 D. Total (A through C) - 0,5 8.4 6.9 1.4 - 2.9 0.8 - 7.4 3.6 - 3.0 3.8 - 4.2 E. Net Reserve Movements Use of IMF resources (Net) - - - - - - 0.5 1.9 - 1.9 - 2.9 - Other bank liabilities - - 2.2 - 0M8 - 0.6 - 0.6 0.4 - 0.3 - 0.7 1.0 4.3 Bank assets (increase 0.5 6.2 - 6.1 - 1 1 2 - 0.2 6.5 5.6 -1.2 - 0.1 Total (increase-) 0.5 - 8r4 - 6.9 - 1.4 2M9 - 0.8 7.4 - 3.6 3.0 - 3.8 4.2 1/ Provisional Source: International Monetary Fund, Balance of Payments Yearbooks and I.F.S. TA73LE1 IICARACG.UA: !\ET GOLD AID FCREIGN EXCHANGE RESERVES .9,Q5-1961 Ratio of Reserves End of Year U.S.$ Million to Imports (f.o.b.) 1950 0.6 2.4% 1951 8.9 29.7% 1952 15.8 39.8/ 1953 1700 39.0% 1954 14.2 24.4% 1955 14.9 25.1% 1956 6.3 10.9% 1957 9.4 13.7/ 1958 5.9 9.0% 1959 8.3 15.8% 1960 8.4 14.9% 1961 10.0 n.ae End of M-bnth 1958 1959 1960 1961 U.S. Mi llion January 14.5 9.2 8.9 9.9 February 20.4 14.0 12.8 14.1 March 24,0 1S.2 14.7 18.2 April 27.6 21.6 15.5 18.7 May 27.1 23.3 15.2 19.4 June 25.6 22.8 13.6 20.1 July 21,4 20,2 11.4 19.5 August 17.2 17.8 9.6 16.7 September 12.9 13.3 6.6 14.3 October 9.7 11.5 7.6 12.5 November 7.4 9.8 7.3 10.3 December 5.9 8.3 8.4 10.0 n.a. = not available Source: Banco Nacional, Revista Trimestral TALE 15 NICARAGUA: GOVERNMENT REVENUE 1951/52 - 1961/62 (thousand cordobae) 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62 Budget Direct Taxes 2,574 3,186 12,021 20,540 23,313 22,221 23,658 25,267 32,350 29,207 29,600 Income Tax - - 6,113 16,207 18,324 17,282 17,926 18,523 23,)435 19,875 21,500 Property Tax 2,550 3,169 3,890 4,315 4,972 4,930 5,732 6,744 7,592 7,688 8,100 Other 24 17 18 18 17 9 - - - - - Export Taxes 8,639 11,081 9,729 10,139 47,791 35,327 36,167 8,829 5,215 7,469 6,855 General 3,553 4,044 3,521 3,354 5,199 5,041 5,825 5,166 5,108 5,901 5,655 Coffee 5,086 6,593 4,959 5,871 16,853 17,249 17,358 1,060 107 1,568 1,200 Exchange Tax - 444 1,249 914 25,739 13,037 12,984 2,603 - - - Import Taxes 58,632 84,059 97,810 108,683 134,734 114,630 122,053 128,382 128-529 134,593 139,840 GFneral 50,472 61,056 76,809 91,831 129,719 11h,630 122,053 128,382 128,529 1314,593 139,840 Excharge 8,160 23,003 21,001 16,852 5,015 - - - - - Consumption Taxes 24,186 27,686 32,760 37,682 38,293 36,977 39,012 40,954 38,415 43,077 h9,550 Other Revenues 16,473 18,897 18,307 20,979 28,751 28,106 30,909 30,715 30,151 32,884 33,6U6 Reirabursements 1,549 4,905 5,859 5,440 5,134 8,201 6,096 5,389 5,570 2,736 1905 Domestic 1,399 4,865 2,947 1,368 911 4,685 1,825 1,296 2,012 452 470 Grants from abroad 150 40 2,912 4,072 4,223 3,516 L,271 4,093 3,558 2,284 1,435 Loans Received 5,425 4,676 6,814 6,368 4,552 4,119 8,245 8,492 36,330 2,131 18,474 Foreign Loans 5,425 4,676 6,814 6,368 4,552 h,119 8,245 8,92 4,744 2,131 10,030 Domestic Loans - - - - - - - - 31,556 - 8,444 TOTAL REVENUES 117,478 154,490 183,300 209,831 282,568 29,581 266,1460 248,029 275,237 250,453 279,868 Source: Tribunal de Cuentas, Direccion General de Presupuesto, fIiinistry of Finance TABLE 16 NICARAGUA: GOVERNMENT EVPENDITURES 1951/52 - 1961/62 (thousand cordobas) 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62 General Administration 1 28,348 32,325 47,593 67,393 58,209 53,6142 58,131 55,21a 70,454 56,o66 55,025 Legislature and Judiciary 4,836 4,818 5,706 6,590 6,984 7,651 7,706 8,30 8,243 8,391 8,1b57 Defense and Police 18,462 21,125 20,505 L2,017 57,924 63,579 50,980 h8,h20 51,659 51,576 h7,638 Defense 14,918 17,103 16,645 37,638 45,782 51,087 33,852 31,186 34,225 35,4h1 31,503 Police 3,54 4,022 3,860 4,379 12,142 12,492 17,128 17,234 17,234 16,135 16,135 Communications 5,770 12,116 10,386 1U,696 10,303 12,592 11,306 14,963 12,742 12,817 13,433 Social and Cultural Services 16,638 24,708 27,937 30,871 37,537 43,555 52,000 56,508 58,240 52,755 58,139 Ministry of Education 12,336 18,091 19,589 21,719 25,333 27,754 31,657 34,296 35,130 36,270 38,893 Ministry of Public Health 4,302 5,923 7,275 7,949 8,604 11,538 19,116 20,906 21,734 27,166 17,753 Ministry of Labor - 694 1,073 1,203 3,600 1,263 1,227 1,306 1,376 1,500 1,93 Public Uorks and 7conomic Developm,nt 28,195 39,391 53,924 59,628 75,74 71,940 82,209 80,011 71,316 66,835 76,666 Ministry of Development and 22,923 2h,807 38,072 43,606 48,689 49,276 56,867 54,103 47,118 43,630 52,175 Public 1orks Ministry of Agriculture 2,371 3,314 8,011 7,815 9,827 9,705 9,626 8,723 9,653 9,682 9,050 Ministry of Economy 2,896 11,270 7,81 8,207 9,958 9,829 10,148 11,139 11,082 11,548 I 10,412 Subventions for economic develop- ment from 1inistry of Finance - - - - 7,000 3,130 5,568 6,046 3,463 6,975 5,029 Debt Service 9,785 11,211 8,350 11,457 6,91U 8,047 8,731 9,610 11,971 11,510 12,062 TOTAL 112,03 1145,694 174,101 232,652 253,345 261,006 271,063 273,057 271,125 277,131 270,420 1 Balancing item. .The Government paid in bonds CS12,1[l,C00 to & Revised. Instituto de Soguuo Social and CV5,000,000 to IJ10',AC. Source: Tribunal de Cuentas, Direccion General de Presupuesto, inistry of Finance TABLE 17 NICARAGUA: GOVERNMN T REVENUES AND EXPENDITURES 1951/52 - 1961/62 (million cordobas) 1951/52 1952/53 1953/54 1954/55 1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62 Budget Current Revenues 111,9 14908 173.6 199.4 273.8 242.0 253.6 235.4 235.3 246.1 260.0 Expenditures 112.0 145.7 174.4 232.7 253.3 261,0 271.1 273.1 274.4 277.1 270.4 Balance -0.1 4.1 -0.8 -33.3 20.5 -19.0 -17.5 -37.7 -39.1 -31,0 -10.4 Grants from abroad 0.2 - 2.9 4a1 4.2 3.5 4.3 4.1 3.6 2.3 1.4 loans from abroad 5.4 4.7 6.8 6.3 4.5 4.1 8.2 8.5 4.7 2.1 10,0 Surplus/Deficit 5.5 8.8 8.9 -22.9 29.2 -11.4 -5.0 -25.1 -30,8 -26,6 1.0 Bonds Issued i - - - - - - - - - 17o2 - Borrowings from Central Lank - - - - - - - - 31o6 - 8,4 5.5 8.8 8.9 -22.9 29,2 -11.4 -5o0 -25.1 0,8 -9.4 9.4 * Revised $ Bonds issued to state entities in lieu of cash Source: Tribunal de Cuentas, Direccion General de Presupuesto, Ministry of Finance TADLI 18 NICAAGUA: ciUKPARCY AGCOUHT; 0.F iHE BiiNKING SYST'i: 1950-1961 (million cordobas) As of December 31 1950 1955 1956 1957 1958 1959 1960 1961 A. .6oieign Assets (net) 7.4 97.0 47.2 73.2 51.4 78.0 70.3 87.5 1. Assets 19.9 105.1 59.3 95.9 57.1 69.7 69.5 101.3 2. Liabilities (including net I.M..F. position) -12.5 - 8.1 -12.1 -22.7 - 5.7 8.3 8.8 -13.8 B. Domestic CrUdit Outstanding 132.8 339.8 396.6 383.9 405.3 389.6 437.7 475.1 1. To Government (net) 18.8 -41.1 -35.6 -28.4 -24.6 15.5 39.4 38.5 2. To oficial entities (net) - 0.3 -27.8 -19.4 -14.6 -19.1 -20.6 4.8 11.0 3. To private sector 106.1 401.1 438.1 411.7 427.8 366.2 365.91/ 389.7 4. Unclassified (net) G.2 7.6 13.5 15.2 21.3 28.5 27.6 35.9 C. ioney Supply 109.7 241.2 242.4 240.9 234.4 239.9 249.7 260.8 1. Currency in circulation 59.7 124.2 131.1 130.2 124.1 130.6 134.9 131.2 2. Jenand deposits 50.0 117.0 111.3 110.7 110.3 109.3 114.3 129.6 D. Non-monetary Liabilities 30.5 195.6 201.4 216.2 222.4 228.7 266.3 301.8 1. inuporters' Advance Deposits 5.4 46.4 40.7 41.1 37.8 36.6 32.2 30.8 2. Eximbank Loan --- --- --- --- --- --- 23.0 56.0 3. Ca-ital andl !e.;erves 19.5 134.1 146.9 159.0 169.9 181.1 187.8 185.8 4. Other (i icludin, time depo-its) 5.6 15.1 13.8 16.1 14.7 11.0 18.3 29.2 l/ Until Deceiner 1960, credit to one staLe agency was classified under private sector; from January 1961 it was classified under official entities, and credit to the private sector fell by about 17 million cordobas as a result. Source: Banco Ce:Atral, 1-evista Trimestral and I.i.P. TABLE 12 NICARAGUA: RE-DISCOUNT CEILINGS 1957-1961 (million cordobas) National National National Private Bank Bank Extra- Bank Banks Total Ordinary Ordinary Effective Effective Infonac Effectivc Ceilings Ceilings Ceilings Ceilings e Incei Ceiling, M.y 16, 1957 200,0 72.0 272.0 17.0 a) 2.0 2910 J'ly 1, 1958 b) 106.0 72.0 b) 178.0 b) 6.0 c) 158.0 c) 230.0 c) 11.7 241.7 April 7, 1959 159.5 10.5 170.0 5.5 175.5 1y 5, 1960 154.4 5.6 160.0 5.5 165,5 Yay 11, 1961 148.0 148.0 5.5 12.0 d) 170.0 d) 170.0 d) 18.0 193.5 a) In December the ceiling for private banks was raised by 2 million cordobas b) Before the increase in the discount ceiling c) After the increase in the discount ceiling; increases were as follows: BANKING DEFARTIENT PRIVATE BANKS October 3, 1958: $ 7.0 October 31, 1958: 0 2.2 October 16, 1958: 15.0 November 21, 1958: 2.0 November 6, 1959: __Qg December 16, 1958: 1.5 LL52.07 d) In November 9, 1961 increase of 12.0 to B.N.N. and 6.0 to I"TF'NAC and INCEI. Source: Banco Nacional: direct information TABLE 20 NICARAGUA: COMMERCIAL BANK CREDIT TO BUSINESSES AND INDIVIDUALS 1950-1961 (million cordobas) Oct. Oct. 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1960 1962. Credit to: Agriculture 55.6 86.0 99.1 143.5 217.4 255.0 275.9 260,6 241.4 228.4 222.1 209.5 235.3 Industry 9.0 11.6 13.9 21.3 31.1 46.3 52.8 47.4 46.6 45.7 57.5 54.8 57.0 Commercel/ 33.1 40.6 56.8 83.4 106.8 93.3 97.4 91.4 122.6 72.5 54.2 77.6 57.1 Other 8.1 3.7 3.7 5.1 5.8 7.7 9.7 12.0 14.0 15.0 29.9 18.4 24.2 TOTAL 2/ 105.8 141.9 173.5 253.3 361.2 402.3 435.8 411.5 424.5 361.6 363.7 360.3 373.6 * Including the Banking Department of the National Bank. / Includes credit extended under the Cotton Pool: C$19 million in December 1957 and C$57 million in December 1958. 2/ These figures are unadjusted for certain claims on and liabilities to the private sector, and differ slightly from the figures shown in Table 18. Source: Banco Nacional, Revista Trimestral TABLE 21 HICARAGU ,: CROF-' LOANS3 FROn TlE -T,'L-. 1950/51-1960/61 (million cordobas) 1950/1 1951/2 1952/3 1953/4 1954/5 1955/6 1956/7 1957/8 1958/9 1959/60 1960/1 Loans authorized for: Cotton 11.4 22.8 22.6 42.1 94,8 108.2 89.6 77,7 73.6 463 59 0 Sesame 1.4 4.6 4.2 1,4 1.6 0.9 1.2 1,6 1.3 17 2.8 Corn 1.7 3.6 3.1 4.4 4.4 8.4 11,7 7.5 3.9 4,1 3.0 Rice 2.7 2.9- 4,.8 100 4.1 3.4 5.7 3.6 3.6 5.6 5.9 Sugar cane 3.5 3.5 4.3 5.1 3.1 2.7 2.9 3.9 4.4 2.6 2.? Other 0.4 0.7 0.5 0.9 1.2 1.7 2.6 1.7 0.6 0,6 0}7 Sub-total 21.1 38.1 39.5 63e9 189.2 125.3 113,7 9.0 87.4 60.9 74.3 0cffee --- 21.6 24.0 30.7 31.7 27.5 33.7 32.2 29.8 21.1 16.1 TOTAL 21.1 59.7 63.5 94.6 140.9 152.8 147.4 128.2 117.2 82.0 904 Source: Banco Nacional, Revista Trimestral TAIE 22 NICARAGUA: DELINW7-7 T:ANS OF THE NATIndTAL BANK 1955-1961 (million cordobas; end of period) Oct. 1955 1956 1957 1958 1959 1960 1961 Credit to: Agriculture 21.7 59.0 74.9 71.5 104.8 108.0 101.7 Industry 5.1 7.0 9.0 7.3 14.6 13.5 16.4 Commerce 3.0 6.0 5.0 7.1 17.6 4.2 2.9 Other 1.6 2.0 2.0 3.8 5t.2 17.1 13.8 TOTAL 31.4 74.0 90.0 89.7 142.7 142.8 134.8 Total portfolio 306.9 342.9 327.9 336.0 283.5 283.7 278.6 Ratio of delinquent credits to total portfolio 10% 22/7 27% 27% 50% 50% 48% Source: Banco Nacional: direct information TABLE 23 NICARAGUA: DOIIESTIC ,RICES 1951-1961 Yer Cost of Living Index 1953 = 100 1951 88 1952 89 1953 100 1954 108 1955 123 1956 118 1957 114 1958 110 1959 116 1960 114 1961 115 i/ The index is weighted by the family budget expenditures during October, 1953. Before 1957 the index refers to the average of 19 retail price roughly weighted by consumption. Source: I.M.F., International Financial Statistics