Announcement of Donors Meeting on Nicaragua Concluded Today on March 26, 1991

I FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. • Telephone: (202) 477 -1234 BANK NEWS RELEASE Contact: Ciro Gamarra (202) 473-8721 DONORS MEETING ON NICARAGUA CONCLUDED TODAY WASHINGTON, March 26, 1991 -- Representatives of 15 countries and 6 international organizations concluded today in Washington a two-day informal meeting addressing Nicaragua's recently announced economic stabilization and adjustment program and its arrears with the World Bank and the Inter-American Development Bank (IDB). The international community applauded the government's commitment to reform, and established a mechanism for · arrears , clearance that will facilitate continued fund raising and the pre·paration of a detailed workout plan that will conclude with a formal meeting planned for mid-May 1991. This informal meeting of the Consultative Group followed on an earlier conference in Paris in December in which the donor community expressed strong support for Nicaragua's efforts to introduce economic reforms and urged the government and the international financial institutions to continue to work together in formulating plan to address the economy's most pressing needs. The meeting was chaired by Mr. Rainer Steckhan, the World Bank's Director for Mexico, Central America and Panama. Mr. Enrique Iglesias, President of the Inter-American Development Bank led that delegation. The Nicaraguan delegation was presided by the Minister of the Presidency, Mr. Antonio Lacayo, accompanied by Ministers Emilio Pereira of Finance; Silvio de Franco, of Economy and Development; Erwin Kruger of External Cooperation, and by the President of the Central Bank, Raul Lacayo. Members of the National Assembly Mr. Luis Sanchez and Mr. Sergio Ramirez, leaders of the majority and minority parties respectively, also formed part of the delegation and made statements of strong support for the government program. At the meeting, the Nicaraguan delegation described the measures taken by the government, particularly the package of reforms announced on March 3, 1991, to combat the urgent issue of hyperinflation and to set the stage for a market based, outward looking economy. The delegation stressed that this was a heavily "front loaded" program designed to attack the root causes of · instability and distortion, and included a 400% devaluation of the cordoba oro, the cessation of Central Bank credit to finance the government deficit, a reduction in government expenditures, greater fiscal control over state owned enterprises, tax reforms, and negotiations towards free trade agreements with countries such as Mexico, Venezuela and the United States. On the legislative front the delegation noted that a financial sector law, including both a regulatory framework and the authorization of privately owned banks, had recently been approved unanimously by the National Assembly. The government  2 expected legislation dealing with direct foreign investment, free trade zones and privatization of the huge state owned apparatus would be approved within the next couple of months. The delegation added that these were only possible as a result of the concerted efforts of the government to achieve peace and national consensus in 1990 in what had been a bitterly divided society. The program has received widespread support from Nicaraguan people, the opposition, the labor unions and private sector groups throughout the country. In his remarks the representative of the opposition party expressed hope that a dramatic and far reaching program such as this, with wide domestic and international support could have a stabilizing effect on the Central America region. The donor community responded positively to this far reaching reform program . The representative of the International Monetary Fund (IMF) indicated that the government's stabilization plans was technically consistent and that together with domestic support appears to have generated a positive climate for achieving its objectives. The IMF expressed support and indicated that it would continue to work with the government to monitor closely the implementation of the program, leading to a stand-by agreement once arrears to international financial institutions had been cleared. The IDB also announced that, subject to arrears clearance, an ambitious lending program in Nicaragua would be implemented, comprised of about $200 million in concessionary funds over the next three years. The lending program would begin with a quick disbursing operation cofinanced with the World Bank. The IDB also has begun implementing a program of technical assistance to the government, focussing on emergency social programs, privatization and Central Bank operations. The World Bank indicated that, subject to arrears clearance, a lending program of similar magnitude would begin with the preparation of quick disbursing Economic Recovery Credit, in support of a sound adjustment program. T~is -~6uld b~ followed initially by sector based lending, most likely in agriculture, education and health and nutrition, and then with project lending in infrastructure and the environment. As part of this overall strategy the World Bank expects to provide concessionary funds through the International Development Association (IDA),to which Nicaragua has not had access since 1980. It also indicated that the appraisal of the Economic Recovery Credit would begin in mid-April. And finally the World Bank is considering the establishment of a Resident Representative office in Nicaragua. The donors welcomed this response by the international financial institutions and indicated that it would give an important impetus to reforn:i in Nicaragua and confidence in the ability of the economy to embark on a path of recovery and improve well-being of its people. The World Bank in close cooperation with the IMF, the IDB and interested donors, will make special efforts to put in place a. firm plan for arrears clearance in the near future and to help mobilize more resources in support of sound economic and social development in Nicaragua. - 0 -