ESAF II: Launch Platform for Economic Growth
After his ascension the position of first magistrate of the nation, Dr. Arnoldo Aleman Lacayo decided to instigate measures destined to maintain macroeconomic stability and help the structural adjustment, conditions necessary for sustainable economic growth. Under these two premises, the Economic Cabinet of the government prepared a medium- term plan called "Program of Structural and Economic Reform 1997- 2000," with the principal objective of fighting poverty and reducing unemployment.
Some independent analysts believe that the achievements which the program could generate in the short term would not generate enough of required jobs nor produce enough resources to cover the priority social sectors like education and health.
Success of the Program Tied to the ESAF II
In order to guarantee the success of the program, the government sent a letter to the IMF in January of 1998 called the "Letter of Intention" and proposed the "Economic and Financial Policies Memorandum," both of which are contained in the program of Reinforced Structural Adjustment II. By subscribing to the ESAF II, Nicaragua may have the opportunity to get $400 million in loans during the next three years. Meanwhile, the satisfactory completion of the required conditions in the Memorandum by the government will guarantee Nicaragua its inclusion in the HICP (Highly Indebted Poor Countries) incentive by the end of 1999. This designation, which was accorded to Nicaragua by the Paris Club, opens the possibility to enter into a round of bilateral negotiations aimed at reducing the external debt by %80 by the end of the year 2000.
Economic authorities in the government hope that the benefits of ESAF will be observable within two years, in which time Nicaragua will be able to receive a more significant debt cancellation. The said reduction would be directly linked to the results of the Consultation Group and the Paris Club.
It is important to note that Nicaragua took a big step by restructuring a $560 million debt with the Central American Bank of Economic Integration. Another important success is that Nicaragua will receive a $25 million loan from the Inter-American Bank of Development and donations from Holland, Sweden, and Denmark in the amount of $11.1 million.
Is the Incorporation of Nicaragua in the HIPC a Possibility?
Nestor Avendano, the specialist in macroeconomic situations, will ask the Paris Club for a reduction of the annual debt service payment to $225 million annually under the terms of the Terms of Napoles, with the support of the IMF.
Dr. Noel Ramirez, president of the Central Bank, confirmed that the IMF committed to take the steps necessary to ensure that Nicaragua would be included in the IMF in a meeting held in Washington, DC in February. Dr. Ramirez stated that preliminary evaluations by the government of the medium term plan have shown excellent performance.
Economic Adjustment VS Social Cost
In general, the adjustment measures implemented by previous governments have generated anxiety due to the high social cost that must be paid and that the measures primarily affect the most vulnerable sectors.
In this context, Dr. Mario Arana considers that the social costs attributed to the new adjustment are significantly different and less drastic than those applied in recent years. However, the transformations of the productive sectors which were brought about in 1988 and in the beginning of the 90s are not being brought about now. He noted, "We are in an economy which is growing in a dynamic way. We are no longer seeing processes of transforming unproductive work sectors to profitable sectors, such as have occurred in the past."
Copyright:Business Magazine, March 1998, 7th Edition, A.M.C.H.A.M, and has been reproduced with permission.