Yumiko Locussol Nicaragua continues to be one of the poorest countries of the western hemisphere
as well as one of the most indebted nations in the world. As of 2001, 45.8%
of the population is reported to be living in poverty, affecting mostly
rural areas. Within these areas, 25% of the poor are living off of less
than a dollar a day. The Nicaraguan people have consistently been asking
their government to provide them with assistance and financial aid as they
are suffering from unemployment, hunger and lack of education around the
country. However, it has not been able to offer adequate funding and aid
in part because of the overwhelming weight of its debt. Nicaragua has both a very high internal and external debt. In its latest
report, CEPAD reported that the internal debt, though significantly less
than the external one, is estimated at $1.69 billion. Part of this debt
is owed to rich landowners whose land was nationalized during the Sandinista
Revolution. When the Sandinistas lost the elections in 1990, the landowners
demanded compensation for the land they lost, so the government issued ten
year bonds which are now coming due. The other important part of the debt
was incurred after a period of fraud and mismanagement which led to the
collapsed of several banks. The Central Bank now owes about $374 million
to cover for the cost of these losses. The external debt represents about $6.7 billion, an exorbitant figure considering
that the country’s GDP was $4.0 billion in 2002. The debt represents
about ten times the values of the country’s exports. As a result,
the government must use 40% of its budget to pay off the debt, funneling
much needed money to multilateral and bilateral organizations from rich
countries rather than dedicating it to education and health care. At the end of the 2002, 38.3% of the debt was owed to multilateral creditors,
47.5% to bilateral creditors and 14.3% to commercial creditors. Nicaragua’s
fate is very much in the hands of its creditors, and although they are seemingly
willing to reduce its debt, it is very important to scratch beneath the
surface when studying the debt reduction proposals that are made because
they do not automatically improve the situation. As of the beginning of 2004, Nicaragua reached its completion point under
the World Bank and IMF’s enhanced Highly Indebted Poor Countries (HIPC)
Initiative, a program meant to reduce debt to a point at which it can be
paid back to the creditors. According to the IMF’s March 2004 country
report, “at the decision point, the assistance to Nicaragua under
the enhanced HIPC initiative was calculated at US$3.3 billion in NPV terms.”
Debt relief from multilateral and bilateral creditors is promised at, respectively,
$1.1 billion and $2.1 billion. Nicaragua already received $195.5 million
in interim assistance from a couple of its multilateral creditors. However,
to qualify, Nicaragua had to abide by the World Bank and IMF’s infamous
Structural Adjustment Programs (SAPs), which have proven to do nothing but
harm to the people they are supposedly designed to help. They stress a liberalization
of the economy and public services, which means that the role and spending
of the state must be minimized. The national currencies have to be devalued,
restrictions on imports and exports lifted and interest rates raised. The
SAPs sole achievements have been to help reduce the government’s funding
for education, food subsidies, and health and social care, among other services
that the poor normally depend on the government for. Creditor countries
have proven equally sneaky as many have agreed to cancel only the interest
of the debt and not the principal. Debt in Nicaragua
Nicaragua is undeniably suffering from its unsustainable debt, and can only
recover from the burden that the debt has imposed on the country for so
long with a 100% debt cancellation. The Enhanced HIPC Initiative is not
a long term and fair solution to offer, as even the IMF admitted that the
external debt will remain large even after the completion point due to the
fact that not all of the creditors have agreed to provide relief to Nicaragua
under this program. This comes as no surprise considering that the actual
goal of the initiative is not really to free these countries from the burden
of their debt, but rather to ensure that they can reach a level of debt
at which they can pay it back.
