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TABlE OE CO>JTEJ\TS

Pa Ve

BASIC DATA

SUMbv2,APY AND GC, CLE.-.-ITORS .. ....... . .... .... .

CURRENT ECONO'iIC POSITION AiTD PROSPECTS OF NICARAGUA

I. The Background .II. Econo-mic Grot,th of Recent Years.

III. The Role of the Government 3IV. The Development Program .... . . . . 4V. Prospects of Econom c Gro~-,th . . .. . . . . . . . 7

VI. Government Policy ............ . , 9VII. Credit;Vrorthiness .... . . . ..... . . . . . . 12

APPEiNEDCX A. STATUS O? FISCAL AN1"D Ah IjiT3TPRATIVE =F'ChS

STATIST ICAL APPENIDX

Table 1 - Sommary of E,ternal Public DebtTable 2 - Estimated Contractual Interest and Amortization

on the T'xternal Public DebtTable 3 - Gro..th of Real Output and IncomeTatlo Lt - Agricultural ProductionTale 5- Inc'ustrial ProductionTable 6 - Public Investment and its FinancingTable 7 - Ccniarison bet.een Investment Programn for 1952-1957

and Actual and Planned Investuent in 1953 and195).V/55

Table 8 - Govecrnnlent Revenue (tlhousands of- cordobas)Table 9 - Govermen-t Revenue (percentages)Table 10 - Govern-ent Expenditures (thousands of cordobas)Table 11 - Government Expencitures (percentmag,es)Table 12 - Government Surplus or DeficitTable 13 - Use of Surplus or Financing of LDeficitTable 14 - Exnorts and Inorts,, ,alue, Volurme and PricesTable 15 - Balance of Paymi.ientsTable 16 - Net Forcign ReservesTable 17 Expansion of Bankl Credits by Groups

BASIC DATA

Area 57,000 square miles

Population - 1953 1.2 million

National Income - 1-950 1,027 million cordobas

(Gross domestic product) US$ 150 million,'lO4 per capita

Balarnce of Payments - 1953(ldillions of U.S. dollars)

Exports (f.o.b.) 55Imports (c.i.f.) 3

Trade balance 12

Services -16

Total goods and services --7

Private long-ternm capital 3

Private short-ter.m capital 3Of-ficial loans and grants -

Total capital movements ___

Surplus 2

Nqet Foreign Exchange Reserves of Central Banlc As of Dec. 31-Q 53

In U.S.5 millions 16

As / of 1953 imnports 36

Principal Exports - 1953 Eillions of 0 ofUS$ m]Total

Coffee -21.3 39

Gold 8.8 16

Cotton 8.4 15Lumnber 4.0 7

Rice 3.5 6Sesame 2.5 5Cattle 1.5 3

PrincipDal DIports - 1953

Petroleum 3.2 7

Raw materials 9.0 21

Consumer goods 18.2 43

Nachinery and equipment 13.2 29

N ICARAGUAGROWTH OF OUTPUT(INDEX, 194B-100)

180- 180

160 160

140 1itt-<|40

1 0 2 -- _ _ _- - - ---- - -_ -~. ---- 4 1420

120/- TA! -- 4 120

00 ,sf -o~ -r~~ - - - _-.-- ~ ~ --- -~ 100

1948, 1953

CREDIT EXPANSION, FISCAL SURPLUSES, AND FOREIGN EXCHANGE(MILLIONS OF CORDOBAS) (MILLIONS OF U.S. DOLLARS)

END OF YEAR

80 --- - _=

EXPANSION OF BANK CREDIT(- L EFT SCALE)

50 _DEFLATIONARY IMPACT OF

IPORTERS' DEPOSITS- - I -~~~~~~~~~~~*-- ~~~~~LEFT SCALE)

20 _ ;- -------- +10j a>i>"a' l _s9 FOREIGN EXCHANGE RESERVES

>~~~x x, t (RIGHT SCALE I10---+5

C 0

1950 1951 1952 1953 19541/10/55No. 992 IBRD-Economic Staff

NICARAGUAEXPORTS OF COFFEE AND COTTON(THOUSANDS OF QUINTALS)

1,000 YEARLY 1,000YEARLY 1

900 _ __ _ - 900/'

800 _ - 800. ~~~~~~~~//

COTTO N >

600 600

500 500

400- 400

300 \ / _ , 300

200 < / -wj _____ 200

100 100

0 Jo1948 1949 1950 1951 1952 1953 1954 1955

(Prelim.) (Est.)

EXPORTS BY PRINCIPAL COMMODITIES(PERCENT OF TOTAL)

1000/ .. 1000/100% ... ~~~~~~~~~~~~~~~~~~~~. - :. .0:..:.:;. ... .... .rt

90%0/ 90%

:_________ : .:. : :ALL OTHERP. ::::: 80% 80 0/_

70%

60S ~ ~ ~~~ ~ ~~~~~~~~~~ Lt, D 60% I 60%

500/0 ~~~~~~~~~~COTTON I i ii~~50% ~~~~~~~~~~~~~~~~~~~~~~~~~500,/

40% 1~~~~~~~~~~~~~~~~~~~40%/

30%/ 30 "/

COFFEE~~~,~~

200/c~~~~~~~~~~~~~~~~~~~ /0\

20/I>F 0% 010%

0 01948 1954

1/10/55No. 993 IBRD- Economic Staff

SUI.1UARY AiTO CONC LUSIO0 S

1. Nicarag:uats economy was for many years in a state of decline. Thecoffee plantations wrere decaying! and the fertile plains of the west coast w%,erelargely used for cattle and subsistence farming. Investrents and savings w.erelov.r and public expenditures largely limited to adini stration and defense.

2. Since 1949 favorable export prices and improved economic policies havehelped Nicaragua to overcom.e starpnation and attain rapid economic growth. Richand varied land resources -.. ithin reach of existing cormmunications have made itpossible to achieve this grow.;th .with little outlay of capital. .

3. Better care of coffee plaltations has lifted coffee production by onethird, and cotton production has increased from almost zero to nearl-y 200,000bales in five years. Tlhe agricultural expansion and the income gains fromhigher export prices have been follow,%ed by a general expansion of industry andcommerce.

4. The economic grovrth of recent years w.as achieved primarily throughprivate investment in agriculture and industry. Ho-.rever, the Government playedan important role in stimulating this investment by adoption of the exchange re-form of 1950 and by the extension of ample agricultural credits through thieBanico Nacional.

5. At the same time as the expanding agricultural investment w-.as beingfinanced by- credit expansion, the Govermnent was running substantial buc.etsurpluses and private investmient outside agriculture ;as being limited by -theobligation of importers to put up advance deposits and by restrictions on comn-mercial credits. In 1951 and 1952 these factors offset the inflationary ef-fect of crecit expansion and its consequences for the balance of paySments. in1953 and 19514, ho-w;ever, credits coitinued to expand wvithout correspon-ding in-creases in GovernLment suupluses or in advance deposits; hence a balance of pay-ments strain hnas developed, causing foreign exchange reserves to decline sub-stantially in 19514.

6. For the time being NTicaraguals export boom seems to have reached aclimjax. Lack of manpower T.Il malke it eli ficult to expand cotton productionfurther, and coffee production cannot inc-ease muclh until new;ly planted treeshave gro up. Over the longer run, Nicaragua cannot expect as favorableprices for its export crons as in recent yearD, and thlis -,ill lit increasesin export production. In contrast w.,ith the recent past, future gains in pro-duction .ill also be difficult to attain i-without sub.stantial in-.estine-ts inpower, roads and ports aild greater efforts to im7prove agricultuv.ral mlethodsand to check soil erosion. This t'.ill mean additional claims on covernment fi-nances at a tim,e ;,hen increases in exports and iL.ports .,ill no longer yieldas much as in recent ,,ears.

7. In meeting this nev situat on, Nicarag7ua will be helped by t,he factthat the institutional reformis and investm.lents of recent years -w1.1 -iield their

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fruits in the next fe y-ears. The Government is, how,ever, faced Uith the needof strengthening its measures of fiscal refonn and revicn-iin- its investmiient pro--gram.

B. oMoreover, the immediate problema has to be i;iet of checking the infla-tionLary tendency of the p-aet t -o years and safervtartg the eourtrfs foreionexchange reserves. There w-,ill be less need in 1955 for an exoansion of apri -cultural credit than in the past t,w.o years, andl this wi-ll reduce the inflationarsriskr;s. On the otlher band the GovTernment budgct surplus is sharply declining-aind the new exchange syrstem cominrg into cffect at the beginling of 1955 Aillnot have the same built-in deflationary imlpact as the old. This makes it im-portant to coordinate fiscal and nonetar-y policies so that bank crecdit is notexpanded or;ore thaan can be offset by a budget surplus.

9. Nicaragua hlas on the wh-)ole good prospects for economic growth, andits ability to suoply its omn food1 strengthens itc osnition under adverse con-ditions. If, therefore, tile Govermient: is successful in checkinr the infla-tion-ary trend of recent years, and over the ]crrrer ruun directs its inveslt'-cntswv.ell and maintains sound fiscal anrd monetary policies, Ndicarag ua could in theyears to come-!x utilize consi.derable additional external credit.

10. In recent years Nicarau ua ts exte2rnal public debt has been lov and itsservice relatively i nsignicant. HowKever, IMciswL -term loans cov-.tracted fromforeign private banks an:Isupli-e_rs ir 953 and 19$1 ;.ill great-L increase em-ternal de'bt service ini 1955 to 1957, wheen they are scheduled to be paidl off. Ti-,Earaount of ne-w,f medium-termn credits obtained in thie next few years and the usesto w-;hich those cre'its are put -,-ill affect Nicaragvuals capacity to assume theservice, of lonrg-term external debt. If howeer, the amount of newr.ecliwu-termcred-its ic miioderate and they are emuo oyed for w\.ell colsidered purposes, there.ill be scoe 1'or new lon-ter credits, -.rtich could be utilizedfor esuansion of poLer, DiE2roTehDents of' ports and agricultu.ral and industrlaldevelopment.

CURRENT ECCUIOLIC PC0JTI0N hdD PRGSPCTS CI lICAR:GUA

I. The _ackground

1. Ilicaragua is the largest and the most sparsely populated of theCentral American countries. 1;Jide and fertile plains alonc the PacificCoast and around the twio big lakes grow cottcn, sugar, sesame, rice andcorn. A small upland rlateau in the southwest has long been an importantcoffee producing region. The mountains in the central part of the countryoffer large tracts for cattle, coffee and lumbering. In the isolated east-where tropical slopes and nlains stretch towards the Atlantic, foreign com--panies mline gold and cut lumber. An old railroad traverses the rain produc-tion and population area of the west and links it with the Port of Coriiito.A comprehensive highway network is emerging, comprising the Inter-.ImericanHighway from the northern to the southern frontier, roads under constructionfrom i,anagua to other rrincipal cities on the western plains and the initialstretches of a road to Rama on the east coast.

2. From the 1920's till the late 1940's, Nicaracua's economy was ina state of decline. At the end of the second world war, the value of exports

was less than one-half of what it had been twenty years earlier. The coffeeplantations, the country's rrain source of exports, were decaying. Thefertile plains of the west coast were laraely used for cattle and for sub-sistence farming, and the r,ining, lumbering and banana cultivation of for-eigna companies on the east coast were diminishing. Investments and savingswere low and public expuenditures -ere largely limited to administration anddefense. The Government was running deficits every year and the country'slow foreign reserves were being depleted.

3. in 1948-49 the situation carae to a head. Foreign reserves were.educed to zero, emergency loans had to be obtained from abroad and importrestrictions adopted. At the same time, how-eever, the improvement in coffeeprices in 1949 and in other export prices the following year, were laying afoundation for economic rehabilitation. The Government also became con-vinced that rajor improvements in economic policy were required, and morestable Political conditions after the elections of 1949 made it easier tocarry out these imrprovements.

II. Economic Growth of Recent Years

4. After this long period of stagnation, Kicaragua's economy has inrecent years groim with great rapidity. Just as unfavorable e,port pricesand unsuitable fiscal and monetary policies contributed to stagnation, sohigh export prices and improved economic policies stimulated e.-pansion.Rich and varied land resources within easy reach of existing ccrnnunications

made it possible to achieve this growth with little outlay of capital.

5. Fromi 1948 to 1953 total outDut in 'icarag,ua has probably increasedby as m.uch as F-5 every year, and per capita output by 5%0. Then accouLnt istaken of the improv(,i,ents of export prices compared witlh imp'crt prices,

total real incomne has increased by almost 10% a year. Investment has risenfrom 11 to 15, of' gross national .roduct, and- savings from 9 to 14%.Exports increased by 50O in volumie from 1948 to 1953 and doubled in velae.In the saine reriod net foreign reserves rose from zero to more than one-third. of arnnual imnorts. Government revenua increased more than three tineesin 1948-1953 and from 7 to 10°, of gross national product. At the same time,more government expenditure was used for 1-roductive -urposes than everb'fore, and substantial bu,det surrluses wrero realized aver: yerar.

6. During the almost twenty years of low coffee prices, practicallyno new trees had been planted and yields per tree were low and steadily fall-ing. The price increase in 1949 induced coffee grow.!ers to take better careof their plantations and-quick.ly lifted coffee exports from an average of260,000 ouin-tals in 1941-1949 to 400,000 quintals in 1950-1954. Replace-ment of old trees was started and has increased year by year, reaching pDer-haps as much as 5 to 10 million trees in 1954. Cultivation of cotton,sesame and rice for export expanded on the wrestern plains, where previouslylittle more than domestic food crops had been grol^rn and cattle raised.Cotton production increased from about 10,000 bales per year in 1946-49 to60,000 bales in 1°53 and lCO,000 bales in 1`54. It is likely to reach asMulch as 180,0O0 bales in 1955. Piroduction of sesame reached a peak asearly as 19,49, while rice production more than doubled from 1949 to 1953.Subsequently, planting of t';ese t-ro crops has been reduced in favor ofcotton. Agricultural expansion was, hovever, by no means limited to theexport crops. Producticn of corn, the main food crop, increased by morethan 30% from 194e to 1953 and sugar production alrnost doubled. !Uhilecattle raising declined on t1he western plains, it increased in other partsof t'he country.

7. These gains in agricultural production were made at lowr investmentcosts. Better care of the coffee rlantations demanded only small exrrendi-tures, which could readily be paid out of increased rrofits. Cultivation ofexport crops on land previoLusly use-' for cattle or food crops demanded onlyinvestments in working capital and in som.^e agricultural machinery. Construc-tion of feeder roads helped to make the production increase possible. but onthe vwhole no substantial investments in transportation faciliti-es vere re-cuired becouse a railroad served the main producing area and linX'.d it w.itha port.

The agricultural exransion Jrd tho income gains fromn higher exportprices were followed by general expansion throughlout the economy. iianufac-turing industries expanded their p-roduct io-n by 75%, fromn 1949. to 1953. Lven-taking into account that tr;e rod6uction cf small workshops and handicrafts -not included in the statistics - has probably increased much less, if at all,total industrial Froduction can hardly have increased less than 33,. A newtextile factory and a vegetable oil plant, have recently entered operations,the capacity of the cement plant and of the brewery have tecn cdoubled, andthat of several other industries exp;anded. Commerce has flouri.shed. Thevolune of irnports almost doubled from 19X48 to 1953 and it is li'hely thatover-all volune of trade in the coulntry increased by 70%, Even gold minlnThhas shown a fair increase since 1949 ,while lumbering has expan.ded substan-tially.

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III. The Role of the Governrient

9. By the adoption of the exclhange reformL of 1950 and by ample exten-

sion of agricultural credits through the Banco 'acional, the Government

stimulated private investment in agriculture and contributed much to the eco-nom,ic growth of recent years. At the same tin e the Government was increas-ing savings by raising its rcvenue and seelki'ng to restrict investment out-side agriculture. This policy succeeded in 1951 and 1952 to yive a widescope for investment in agricultural working caTital and -machinery and at

the same time create substantial balance of payments surpluses. In 1953and 1954, on the other hand, a further increase in agricultural investmentwas not met by a corresmonding reduction in other investment or an increasein savings.

10. The exchange reform raised the exchange rate for exports from 5 to

6.60 cordobas per dollar, and the general exchaange rate for imports fro.n 5 to7 cordobas per dollar. In addition it imposed import surchaarges on a numberof goods. These changes in exchange rates stimulated export production aswell as agricultural and industrial production for the domestic market.

11. h ost of the capital required to expand agricultural rroduc tion wasprovided by bakl credits. The oanco Nacional made crop loans of up to 80%S'of the cost of rroduction for nearly all the exmpanded acreage of cotton,sesame and rice. Purchases of machinery were f'acilitated by granting ofmedi-um term loans, financed tartly by the ':1.2 million loan of the I2RD art.the revolving fuLnd which this loan created, and inartly by tlhe BancoPacional's ow,n resources. In 1954 foreign mediium term credits of "l.8million were obtained for this sane nurrose.

12. The heavy investments in agricultural working ca-ital a-id maclcinery-were a prerequisite for the rise in production. On the other hand the financ-ing of these investments throu-jh bank credit expansion created inflatic;a rynressures, wahich would have urset the balance of -oaylments, if they' had nctbeen irret by corresDonidinIg in creases in savings and reductions in investnentutsoutside agriciulture. This was, in mart, achieved by Government fiscal policy,by the operations of the exchange law and by restrictions on com mercialcredits.

13. Government revenue increased greatly in the fiscal years 1949,/50to 1(P?53/54. . ost of this increase resulted from the export and importduties imposed by the exchange lar- and frz3' the rise in i4:sorts. .s the-re

wias no corresponding increase in current government exienditures, the rise

ia revenue i.mplied an li-.crease in public savings. The increase in public-

investment which w¢as taking rlace at the same tine, fell short of thnis in-

crease ii. public savings, and substantial govern.-ent surpluses .!ere crealed.

In the fi_cal years 1950/51 to 1953/54 these surplusez averagod a bout 16% of

government revenue. In tlis manner fiscal policy couiAterac.ced the infLation-

ary effects of agricultural investments financed through cred',, ex.ansio;n.

14. The Government also sougnt to give greater sce-)e for acrlccu1'tural

investments by restricting rrivate investments in other fields tlan anri-

cultuire. This wras dcne by the stipulation of the exchange law that i-,orters

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should deposit in cordobas with the Banco ['acional 100°% of the estimatedvalue of their imnorts. These advance deposits have amlwounted to between-30 and 40 million cordobas since 1951. It was also done by linmting co-m-mercial credits of the Danco "ncional, and in 1954, when private co>mmercialbanks had started onerations, to order all banks to bring their corm3ercial-loans back to their 1953 level. By these me,.ns private funlds, which other-wise might have been invested, w7ere kept sterilized in the Banco %acionaland banks hiridered in financing investments outside agri culture.

15. In 1951 and 1952 it was possible by this combination of fiscal andmonetary measures, to 'inance subst-antial agricultural investments by creditexp-ansion, and at the same time create balance of rayyments suLryluses whichbuilt up the country's depleted foreign exchange reserves. "he stane successwas not achieved in 1953 and 1954. On the one hand, investments in agricul-tura-L working capital and i_achirL-ry increased more than ever before. Aspreviously, these investments were largely financed b-r an increase in bankcredit, which rose by 80 million-cordobas annually in 1953-1954 compared -

with 30 million cordobas in 1950-53. Cn the other hand, the rise in Lovorn-ment expenditures kept up with the rise in government revenue in 1953-54,and is likely to outstrip it in 1954-55. I-oreover, the advance deposits didnot continue to increase after 1951, because they were eliminated for anumber of goods and reduced to 75p for all others not :aying the exchangesurcharges. The resultingf pressures on thie balance cf payments preventedforeign exchange reserves fromi increasing signifi6antly in l1j53 and cauzedthem tb' dcli' n-subajnatially in 1954.

IV. The DvclnooTmnt Program

16. In 1951-1052-an IBRD i-,lssion prepared a developrciont rrogram. for;,icara,ua for the five-year period 1c52-1957. Ever since this time the TRanklhas hiad special representatives stationed in the country. To finance a nartof the orogram, the Bank has, moreover, r,ade five loans to `icaragua since1951: two for road construLction (D3.5 million each) one for the rurchaseof a-ricultural m.acilinery (81.2 million) one for the building of a grainstorage plant ($0.55 mil'lion) and one for power development (50.45 mNillion).

17. At the time the development prcram was drawn up, cOt-ton priceswere falling from the extreme levels they had reached in 1950-51. it wasgenerally believed in 'icaragua that the ,rice fall would mean the end ofthe cotton boom. The pro-roni was, therefore, not formulated to help achievea suddeni increase in export production, nor did it tale into considerationthe penetrating economic effects of a great rise in exports. On the con-trary, the programa was desigjned to bring gradual increases over a long reriodof timie both in exnort Prodiuction, especially coffee, and in Froduction forthe domestic market. Deep-going institutional reforms and heavyr investmentsin transPortation and power, public health and educational fD? ciU ities iwereto provide the basis for the increase in production. By thenr very naturethese reforms and inrerstmcnts could neicther be carried oilt in a short timenor bear- fruit quic]:jy0 '

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18 As it happened, the expansion of cotton production becamre of over-'whelming importanace in 1953 and 1954., and thn development progrEm was, therc-fore, in its first years of operations confronted wlith an economic situationdifferent, from that which it had been designed to meet. Nevertheless, con-siderable progress has been mrade in carrying out, many of the institutionalreforms and investments it, proposed. Neither the reforms nor the investmentshave yet had time to influence economic develonrment significantly, but theyare likely to do so increasingly in the years to ccme.

19. The purpose of the institutional reforms proposed by the IBRDmission was, on the one hand, to create agencies capable of carrying cutthe program and to integrate it with general -overnrment policy and, on tlh.eother hand, to provide funds for its financing. About one-third of theprogram was to be carried out by the i'iinistP'y of Public 'Jorks which alreadywas working efficiently. The reiraining two-thirds were, howrever, to be -carried out by a new lNTational Development Institute and byr existing insti-tutions which were considered to require major administrative overhaulinig(the railroad company, the power comipanies, the communication services andthe municipalities). To be implemented, the program had to be worked intothe annual government budgets in the form of a proposed development budget.This again required a reform of budget preparation, organization and execu-tion, which was to be accompr!lished by the establisizment of a Bureau of theBudget. The National Economic Council was to review the program and thedevelopment budget and act as a coordinator of investment, fiscal and mone-tary policics. Also related to the implementation of the program was theproposed reorganization of the banking systen, including the establislhentof a separ. ce central bank. Finally, the financinny of the program was tocome largely from a new income tax, from-increases in the rates of theexisting coffee export tax and from over-all improvemnents of the tax systeciland of tax collections.

20. In October 1954, the Nicaramcan Government had acted urcn many ofthe most important reco-.mm-endations (cf. Appendix A). The i.ational Develop-ment Institute had recently started c-uerations, railroad acdministraticn hadbeen improved and the -nower irin!ustry was being reorganizecid a Bureau of thleBudget waJi being established; a general income tax had been introduced andthe custorms tariff revised. How+cever, in mlany of thlese cases only the firststeps in a series of measures hacl been ta'.en, and in all of themn the reasureshad been taken so recently or reo.ired so long a tirme to become effective,that they had yielded few re:s.Ilts. Oth4er recorr.T'iendations, such as the generalrevision of the tax systeM, improvement of tax collection, recrganization of

the banking system and strengtnening of runicipal administ.ration and finances,were being studied.

21. The irplermentation of the program wras hampered by the long timerequired to carry out the institutional reforms. The programn was not worlkedinto the annrual governiient budgcts in the form of development budgets or

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otherwise. Only in the case of the railrcad and the roads, where the rro-

gram was tc be carried out by fairly efficient existing institutions, have

investnents in 1953 and 1954 pretty closely followred the directions drawn

up in the program. The agricultural and industrial investir.ents entrusted

to the Development Institute .ie, as-'&t. i'i a %i'y odri sttape, and'the s m=e

is tnre of power, water supply, sewecrage and hospitals, ;whih hc.ad a rroml-nent part in the program. Only minor increases have tacen place in exten-

sion services and other activities of the I:inistry of Agriculture. Owing

to delays in technical preparations, the port improvements recommended in-

the program have not been started. On the other hand, substantial invest-

ments have been made in telecommunications, which only had second priority

in the program, and expenditures for school construction and education have

been increased somewhat more than the program proposed. Investments in

items which lwere not included in the urogram, such as public buildings other

than schools and hosritals and street paving, have also continued and prob-

ably increased significantly.

22. However, the heavy private investments required for the agricul-

tural expansion had for the time being reduced the significance of much of

the public investment included in the y-rogram. No investments during these-

years could have given higher productive yields than investments in agrical-

tural machinery and .rorking capli.al. WVith that in view, it may be consid-

ered forturnate that in 1953-1954 public investment fell short of the goal

set up by the program, as a higher public investment would either have added

to the strain on the balance of payments or required a curtailment of pri-

vate agricultural investrment. On the other hand, the increase in public

investment which took place in 1953-1954 couldi have been better geared to

the requirements created by cotton expansion. A review of public invest-

ment in the light of prevailing economic conditions would probably have led

to greater effortJs for improvemcnt of ports and railroads, for soil conser-

vation and for financing of agricultural machinery, and to less emphasis on

road construction outside the cotton areas.

23. The increase in exports also had a profound effect upon the condi-

tions for financing public investmrent. Instead of having to rely upon in-

creased revenue from news taxes and from improvements in tax collection, the

increase in public investment could not be financed from the increase in

revenue from the established export, inocrt and consumption taxes. It is

likely that. this increase in traditional revenue slowed dowm the fiscel

reformr, which was now so much less urgent. In any event it seems unlikely

that the fiscal reform could have yielded significant increases in revenue

during the first two years of the proram because of the inevitable delay

in making it effective. As it w&t , the new incomne tax - the most important

innovation of theofiscal ref'orm and the only part of it whlch so far has -

been carried out - yielded 6.5 million cordobas in its first year of orera-

tion (1953/54) or 3'0 of government revenue. Although its yields are expec-

ted to increase to perhaps as miuch as 20 million cordobas in 1P54/55, this

is not much comuared with the increase of over 100 millicn corblohas in

revenue from traditional taxes which took place from 1950/51 to 1954/55,

the period wlhen the incomre tax was being put into effect.

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24. With coffee prices falling and further increase in cotton culti-vation meeting obstacles, economic conditions in 2;icaragua may in the yearsto come approach those for which the development nrogram was originallycoesigned much more than they have done in t}e past two ycars. in this casethe rrogress n.ade in carrying out the instituti.onal reforms and investientrecommnended in th;.e program will acquire added imoortance. The NationalDevelopment Institute has been working for more than a year in the rrerara-tion of several agricultural and industrial projects and has started toimplement some of them. The l.ational Lccnomic Ccuncil has in the rastlimited its activities to the proniotion of institutional reforms. 1,Tithmany of the most urgent tasks in this field accomplishLed, it could now turnits attention to the over-all review and coordination of investment, fiscaland mionetary policies. If export and import taxes cease to yield the greatincreases they have yi6lded in recent years, it will be of great help tohave the income tax already in good working shape. At the same time theimplemlentation of ether fiscal reforns which still are under study willacqcuire greater urgency.

V. Prosrects of Econonic Gro-.!th

25. The future economic gro&th of Nicaragua will, of course, greatlydepend upon the price developmert o cf the country' s main export products,principally coffee and cotton. Wntatever happens to prices, however, it islikely that the great exoort boom of recent years has reached a climax. Thisis due partly to lack of anP£s, and partly to the timz it takexo for emwcoffee trees to come into rroduct-ion.

26. For several years t.-here have been complaints of labor shortage dur-ing the cotton picking season. In the 1953/54 season, some cotton is saidto have been left behind in the fields. V7ith an acreage in 1954/55 doublethat of a year earlier, the Government and the iTationa Dank are attemptingto solve the problem by the importation of m.echanical cotton pickers. -

According to an agreement between .the inistryr of Finance and the Interna-tional Harvester Coi-Dany, the latter is goinig to finance the imports of 50

mechanical cotton piclkers and supply mechanics for their upkeep. Othermachinery producers are also importing cotton-picking machines tlirough Pri-vate channels. On the other hand, the I.icaraguan Government has not wantedto imrport seasonal laborers from neighboring countries.

27, l.hnether mechanical cotton nici.ors can be used successfully inHicaragua can cnly be decided by cu}:crience. There are reasons to believethat lack of mechanics and repair facilities, prevailing practices in plant-ing and the types of cotton gro;m will make it difficult. In any event, thenu.mber of machines which it is nresently contemplat-ed to import will be in-sufficient to take care of all the new acreage. It is therefore likely thatcotton harvesting will encounter substantial difficulties during the seasonwhich began in December 1954, an(d it is possible that some of the crop can-not be harvested, and that some growers will suffer losses. Thi4s wou'ddampen the interest for ,l anting in 1955/56, and may bring cotton e-.ansionto a standstill for some tiaie to come. If, on the cther hand, the experi-ence with mechanictl cotton niclers is satisfactory or the initial obstaclescan canily be overco!c, a new bas-is for expanded production will be provided.

- 8 -

28. Although the lands best suited for cotton cultivation have already

been brought under production and the conversion of land from other crops

cannot go much further, there is still plenty of land available on the

western plains, especially on the east side of the big lakes. These lands

may be of somewhat lower quality than those presently cultivated and they

are more remote from main transportation lines. At present cotton prices;

this is not likely to imnose a serious obstacle to their cultivation, how-

ever, if the manpower problem is solved. Dust storms, evidence of increasing

soil erosion, are now appearing in the cotton lands. Unless the anti-erosion

measures being taken by individual growers and the government can be intensi-

fied, production may suffer seriously. For other export crops grown.,on the

western olains, such as sesame and rice, the same opportunities exist for -

increased cultivation as for cotton. It is the world price situation, how-

ever, which primarily determines which of a number of export crops are grown,

and present prices strongly favor cotton.

29. The planting of new coffee trees to replace old ones did not become

very significant until 1953 and 1954. For this reason,: no substantial

increase in coffee production can be expected to take place during the next

two years or so. After that the new trees, which will have much higher

yields than the old trees they replace, will gradually begin to show their

effects upon production. If the rep.lanting of old coffee trees continues on

a substantial scale and the use of spraying, fertilization and Pruning con-

tinues to increase, Hicaraguals present coffee exports of 400,000 quintals

might double within the next eight years or so. W14hether replanting con-

tinues and cultivation methods irnPr-cve is again highly dependent upon coffee

prices.

30. Present cotton prices of 34 cents per pound and coffee prices of

between 60 and 70 cents per pound are highly profitable, and offer a strong

inducement for expansion of production. Production cost estimates indicate

that cotton rroduction would still be profitable at a price of 24 cents per

pound. Owing to the considerable risk involved, however, cotton prices

belowir 30 cents might not offer much inducement to production increases. The

replacement of old coffee trees is likely to continue as long as growrers

expect coffee rrices to remain above 50 cents per pound. A price fall

towards the 40 cents level would, on the other hand, most probably stop the

replanting and might even, over a longer period of time, bring the coffee

plantations into the sarne state of decay as they were in until recently.

Such sharp falls in the prices of the ccuntry's two main export crops would

theref'ore bring their expansion to an end and have the most serious conse-

quences for the country's future economic growrth.

31. Presently, a fall in coffee p?rices to as low as 40 cents per

pound in the next two or three years is not considered an unli'ely possi-

bility, and neither is a considerable fall in cotton prices. However,

N\!icaragua's land resources are both rich and varied. There are fertile

plains suitable for cotton, sesame and a number of other crops; there are

uplands suitable for coffee; there are vast forests and almost anywhere

corn can be grown and cattle raised. It is reasonable to expect- -th1at a-t

least sorme of these lands could be used profitably f'or export Prcduction

at any one timne and they could always supply the country's owm needs.

-9

Although both coffee and cotton prices could fall to low levels, it would behard luck if both of them rein.ained at those levels for a long time. Ifcotton prices fell, a shift to sesaine and rice might also be possible.Finally, new export cross mray be developed. it is furthermore encouragingthat hicaraguan businessmen in recent years -nyve sho.rn a great ability toadjust production to changing markets and that a large g-oup of youngbusinessmen has been reared in the cotton boon. The banks have also showngreat readiness to sunnort new business ventures.

32. The conclusion is, therefore, that alth1cugh unfavorable pricesare lilkely to impede the develorment of one or mnore of Nicaragua's exportcrops, prospective exchange earnings are, nevertheless, likely to be highenough to help the country obtain a satisfactory rate of economic grovth.In addition to developing exnorts, t'Ticaragua will be able to increase agri-cultural production to meet its onm consumption, and in spite of the small-ness of the market, there are substantial possibilities for furtshr expan-sion of industrial production.

33. However, in the future, Nicaragua is not. likely to be able toachieve economic growth at the same low cost as it did in 194?,8-1)54. Thepossibilities for great increases in export production will be more limitedthan before, and gains in ou-tput will not b'e p-ossible without substantial -

expansion of power and of roads, improverent of ports and increase of agri-cultural extension services. FTaintenance of roads and checkin-l of soilerosion uill also demand more attention than it has in the past. 1-"any ofthe necessary investrients, especially in roads, have already been started.Nievertheless, increased claims are likely to be put on government financesat a time w1hen further increases in exrorts and imrorts can no longer beexpected to yield as ample funds as they 'have in recent years.

VI. Governrnent Polvcy

34. Government economir cpolicy is presently faced .with two maintasks: the more i.mmediate one of checkinng the monetary expansion of recentyear8 and protecting the country's foreitn exchiange reserves, and the morelong-term task of helping the country to achieve a satisfactory econemicgroi,rth. The first task can be acccrrli-hed by a hetter coordination offiscal and monetary policies, and is not lixely to offer great di ff'iculties.The second task has been facilitated by the important institutional reformswhich have been initiated and th!.e investments which have been made inrecent years.

35. It is likely that cotton cultivation will excand muclh less in1955 tlhan in previous years, and it is even possible that it ill for sometime coenc to a standstill. In this case, one of the main sources of ihepresent imbalance will be reduced.' Incomes will be high as t:;e largecotton crop of 1954/55 is sold, but less claims than in previous years wzillbe mode on this income to finance investmonts in ar ricultural n,achinery andincre seos in agriculturM working capital. On the othler hand, -cverneentsurpluses are likely to be of less importance in offsetting e;mandinr, bankcredit than they have bcen previously. Moreover, substantial chzanges i.nthe exclhange system will affect the monetarj situation.

36. The government budget for 1954/55 shows a deficit of 27 million -

cordobas, which is to be financed from rrevious governmient surpluses. How-ever, as is traditionally the case in Nicaragua, the budget greatly under-estimates government revenue. Even allowjing for some increase in expendi-tures as well, the actual outcome of tlhe budget may be a slight surplus.In sharp contrast with the years 1950/51 - 1953/54, governmTent finances aretherefore not likely to have more than a weak deflationary impact in 1954/55.The main reason for this ch-nge is a great increase in government exoendi-tures planned for 1954/55, mostly in public works and defense, but alsc ingeneral admlinistration. This increase is likely to outstrip the rise inrevenue resulting frcm higher exports and imports and greater yields fromthe income tax.

37. .fter consultation with the International ..onetary Fund, theI.icaraguan Government is carrying cut a substantial change in its exchangesystem in the beginning cf 1955. The imrort surcharges are being abolishedbut at the saime time a new custons tariff incorporating the surcharges w,illenter into effect. This change .will therefore not greatl, affect govern.;entrevenue 7 nd is, indeod, eA.oected to increase r:;ther thnan d,iinish it. 4Xhe

spread between the buying .nd selling r tes of 0.40 cordobas rer dollar isto be retc iced iuntil new t-x re.;ources have been fclxd to replace it, .whileot the same ti t the rruferential :-overn..ent rate (,f 5 cocrLob-.s to thedollar -ili be -boli.shed. *-lso :n this rcs;,ect the eki.ange is not rrt.ukot;rev-..r, :2 ccci'g to the old system, one-half of the exchange tax wassterll.ized by adding it to the exchange stabili'zation fund, and it is nowrproposed to use this part to finance additional government e-Tenditures.This would further dimirnsh the counteracting effects which governmentfinances until now have had urpon mcnetary exijansion. The unfreezing oftm-crters' deposits would also hIave s4mUlar effects.- The goverrnment, how-ever, proposes to do this only gr-radually as the over-all economic situationnermits it to be done without undue risks.

3S. Towards the middle of the year 1955 it will be howm w:hat theu.ricult:rrl exp^nsion during the j,.ear is 1ikely to be. t about the sareti.-e the -ureptrution of the 1955/56 budget wrill reach itz final sta eso. itis v- ort.n.t tuhat the creiit rrogr-,m and the bu*-xet are rcvie-wed tcthcrso that they cen be adjusted ir. '..my ..hich will elir:te the i tac-.nceof the two last y-e-rs. :-f it i founa; that LCraclltLrti exparsion is -oinw;to continue, either the amounts cf agricultural loans per acre can bereduced and the credit expansion thus limited, or the credit expansion canbe continued and a goverrment sut-plus produced large enough to offset it.

39. Considering the great profits which have been made in cotton cul-tivation, it seems that the cotton growers should be able to carry more ofthe financing of the crop themselves than the 20% they have been carrying._t is true thet a limitation of crop credits might to so.me extert harmfullyaffect invest-.ents in land and land clearing and in agricul-o-urd machinery.HTowever, these effects could be-mitigated by giving special cred.its forthese pu.rposes, financed in non-inflationary manner frocm goverrmrtent revenueor external loans.

- 11 -

40. If a restriction of agricultural credits is decided against, means

will have to be considered to produce a sufficient government suiplus

through increases in revenue or reduction in expenditures. Although it

might be found difficult to increase taxes in the face of falling export

prices, an increase in the relatively low income tax rates might be feasible.

Besides defense, the possibilities of reducing government expenditures are

largely limited to public works. This wzould require a review of the whole

public investment program, which it is important to carry out in any event.

41. Over the long run the climax of the export boom and thc prospect

of falling prices of some of the country's important exports, signify a

change in the importance of government policy for economic development.

During the boom years the economy could make great strides without other

help from government policy than the general framework which was Frovided

by the exchange reform and the credit policy. In addition, the boom pro-

vided the Treasury with windfall revenues which could be used to lift

government expenditures to new levels. In the future, it is likely that

economic development will be more dependent upon government investment than

it has been in the recent past. The imTportance of roads will increase as

new lands, more remote from old transportation lines, have to be taken into

use. A more amnple supply cf power will be required for industrial develop-

nent. The checking of soil erosion has already become an urgent necessity.

It is also possible that in the future, government agencies and, primarily,-

the newr Development Instittute, will have to take a significant part in agri-

cultuiral and industrial investments in order to ensure satisfactory economic

growth under conditions less favorable than in the past.

42. At the same time as the Goverrment is thus lilely to have to malke

greater efforts to support ecorior-i c development, its financial situation is

likely to have become more prec^rious. In the past, most of the great in-

crease in government revenues has come from the continuous rise in exports

and imports. A stagnation of export volume and even more so a fall in export

prices would quickly shut off this source. The Government will, therefore,

be faced with the need of reviewingr its investment program, strengthlen the

measures of fiscal reform and achieving -a better coordination:of investment,

fiscal and monetary policies.

43. In 1954, the Mjinistry of Economy began to gather information on

the investments of the various government ministries and agencies. This

wori should be continued and expanded to include not only past investment,

but also future investment plans for one or more years. As the Government

already plans to-do, the Bureau of the budget should, at the same time, be

made into a full-fledged institution, separated from the Tribunal de Cuentas,

and responsible for the preparation of the goverrnent badget. On the basis

of thie information gathered by the Linistry of Economy - and in close collabo-

ration with the Bureau of the Budget - the investment programs of the various

ministries and agencies could be reviewed and integrated with the over-all

government budget. The object of this work woulc. simply be to find out

what the government ministries and agencies were doing and plarning to do,

and seek to influence the plans so that public investment as a whole was

kept within the financial capacity of the Government and followed. ai

reasonable order of priorities. To be of the practical value whichl would

be i-ts only justification, this work would have to be done quickly, repeated

- 12 -

every year in connection with the preparation of the budget, and revisedat other times whenever necessary. This will be relatively easy in;Picarallua, because the investing mi.nistries and agencies are few and theiroperations are not comulicated.

44. The Government has for some tinme becn plannir.g to take measuresto revise and simplify the fiscal structure and iL-crove tax collecticn.With the prospect that export and import taxes wrill not continue to yieldthe great increases in revenue thoy have done in the past, this wzork willacquire increased importance. It will have to be decided whether toincrease incomie tax rates, how the property tax shall be revised, what con-sumption taxes shall be abolished, unified or increased, and wrhat steps canbe taken to improve tax collection. T.he result of thnis work will againhave an important bearing upon the investment program.

45. As these advances were made in the preparation of the investmentprograms and the government budget and in reforms of the fiscal system,the National Economic Council could assumae its role of a coordinator ofinvestment, fiscal and monetary policies. The Council would review theinvestment programs and the government budget prior to their submnissionto the President. It would be resronsible for the adjustment of bank creditpolicy to the fiscal situation and for the adaptation of government policyto changing economic conditions.

46. In recent years Uicara-at s external public debt has been lowand its service relatively insignl_ficant. This still holds true of the-long-term. debt wlhich, as of June 30, 1954, amounted to $°9.5 million, in-cluding undisbursed commitments. iost of this debt (4)g8.8 mr.illion) was dueto the IBRD. In the past, external debt service han normally been belowitrl million a year. The service of the present long-term debt will reacha peak of $1.6 million in 1957-58. This is less thani 3' of prospectiveforeicn exchange earnings.

47. On the other hand, Nicaragua has in 1953 and 1954 contractedmedium-term loans from foreign private banks and suprliers. These loansare for periods of three to five years and have been obtained by publicagencies for railroad eouipment, an automatic telephone system in l§anagua,prefabricated houses and agricultural machinery. Others are to privatecompanies,-but guaranteed by gover-nrmont agencies. As of June 30, 1954,the mnedium-term debt amounted to 45.0 million and additional loans of 41.8million had been obtained before Hlovember 30, 1954. The nervice of themediLm-term debt will average $62.5 rmillion a year in 19,5-1957.

48. Because of this increase in debt and the rcid rei-'ayment of muchof the new loans, Nicaragu.a's external debt service as a whole will increasegreatly in the years 1955-1957. In 1955-1957, s6rvice of the rresent debtwill average 4m;illion a year, approximately 6 - 7' of prospective excnange-receipts. Althiough this couild not be considered an excessive leve'l of exter-nal debt scrvice, the sudden increase of this service will add f^urtherpressure on the balance of payments which, during the samne pec.riod, may beStrained by falling export prices and high investmenits within the country.

- 13 -

49. Owing primarily to the abundance and variety of unutilized. landresources, Nicaragua has good pros3-ects focr ecoromie growth. The country'sability to feed itself and prod-uce some of the essential raw materials forits industries also strengthens its position under adverse conditions, If,therefore, the Gover-nent is successful in check'ing the inflationary trendof recent years, and over the longer run directs its investments well andmaintains sound fiscal and monetary policies, Nicaragua could in the yearsto come utilize external credit to a considerable extent.

50. As in trhe recent past, Nicaragua is likely in the future to w-ishto utilize medium-term external credi-t. However, the extent to which thisis done, and the uses to-wrhich this credit is put, 'ill affect the coulntryt scapacity to service long-term external debt. The present mediui,;-termcredits are scheduled to be paid off by 1958. It is likely that during thenext few years Nicaragua will find Lo.wer opportunities to employ medium-term credit,s than in the past few years. Purchases of agriculturalmachinery are likely to decline, end many of the pablic works now plannedlend themselves better to long-term thnan to medimn-termn external financing.If Nicaragua, therefbre, in the next fewr years, contracts only a moderateamount of newi medium-term credits for well cornsidered purposes, she willhave considerable scope for absorbing neiT long-term credits, which couldbe uti,lized for expansion of power, improvements of ports and agriculturaland industrial development.

APPEI\DIX A

STATUS OF1 FISCAL Alq) ADLINISTELIATVRl RFr-FJ1S3

The IB1RD mission in its report "The Economic Developrrent of IIicara-ua,'

reco-Enended a nuwber of important cheanges in the fiscal and adininistrative

structure of 1ihicarafgua. Thlese reforms *were dcvsif-ned to provide the fundis re-

quired for the developi:m,ent programi and to create institutions capable of carry-

in- it oult. The folloianF. list gives a suivey of the most imporLant of the

recommended reforims and +their status as of December 195a.

Recommiendation Status

1. Introduce a general income tax. The tax was established by la^- of

December 1952. It provided 6.5 mil-

lion cordobas in 1953/54 (35/' of reve-nue) and may provide as mucha as 20 mil-lion cordobas in 19IV/55 (8% of revenue).

2. Revise customs tariff, increase Revision comipleted and expected to come

duties on luxury articles and into effect January 1, 1955.

reduce tlhem on mass-consump-tiongoods.

3. Increase the coffee export tax. Not acted upon.

4. Increase the rates of thae proper- )ty, property transfer, gift anc )inheritance taxes, and change as- )sessment practices. )

. Reduce or eliminate taxes on mass-) The Government is asking for technical

consumption goods. ) assistance to revise the tax system and

) improve tax collection.

6. Si-rplifyr tax system by combining )and aboliohing taxes. )

7. Improve tax collection (a nu-;bOer )of recomulendations). )

8. Establish a Bureau of the Budget A TPA expert has been in licarafzua for

and improve th-ie preparation, or- a year *tworkine on this matter, and a

ganization and execution of the nucleus of a bureau has been opera-ting

budge-t. since the beLginning of 1954. Howrever,

the Bureau did not have a permanent

head before November lc`-l, the law. es-

tablishing: it has not y;et been passedand its relations ,-ith the Tribunal de

Cuentas are only partly determined. The

Bureau was not able to contribute muchto the preparation of the budget for

195V/55, and few improvements in organi-zation and execution hlave yet been car-

ried out. However, the Governm-ent pla ns

to strengthen the Bureau and expand itsoperations.

9. lave the NTational Economic Coun- The National Economic Council hascil coordinate and review-i invest- worked exclusively on specific, limitedment and developmnent exoenditure projects (mainly preparation of la's),of the various ministries and and lhas never entered the field of plan-a7encies, and coordinate monetdry, ning and policy. NIo development budgetbanking and credit policies -with has been prepared and the annual govern-the developmnent program. A de- ment budgets have not been discussed invelopment budget wras to be prepared the Council.as part of this work.

10. Establish a National Development The Ins-titute started operations inInstitute charged with functions January l954 with initial fun(ds of 11of planning and technical advice million cordobas, to ,!hich wrill be adde.anld ith the execution of about 5 million cordobas per year. Apart fromone-third of the developyment pro- some lending for coffee plantin;s andgram. cattle raising, the Institute has mainly

been engaged in preparation of agricul-tural and industrial projects.

11. Reorganize the banking system and The E ? submitted a plan for the reor-establish a separate Central Bank. gani,;ation to the Government in lNovem-

ber 1953, :hich has since then been un-der consideration by the Goverrment.

12. Modernize railroad administrative A railroad expert (Nr. HIoskins) stayedand operating practices. in Nicaragua for 6 months in l953/54,

and another expert (Mir. Smith) comn-pleted a report on the finiancial condi-tion of the railroad in November 1954.As a result, operations of the railroadhave improved, but further action andcontinued technical assistance are re-quired.

13. Reorganize the powler industry. A law ias passed in October 19'•h settin-up the MIanagua powrer company as an au-tonomous public agency. The preparatio-of a law on a National Pow}er Conmissicnis far advanced.

l4. Reorganize commLmunication services, Not acted upon.raise rates and abolish free ser-vices.

15. Modernize municipal administration An Ofi'ice of Urban Planning hias been es-and strengtheni municipal finances tablished within the Ministry of Puolic(by allocation of property tax or t.orks. A city plan for danagua has been

otlher means). completed and a prog;ram of p?ublic v.rorksfor the National District is being pre-pared. The PAS submittecd a report onthe acmiinistration of tihe. RTational Dis-trict in MLay 1)54-, but no steps ihavebeen taken for its imiplemntalion. Aproposed real estate tax to financemunicipal corks in ManaLua -is beingprepared.

Table 1

SUIMMAJRY OF XTERNAI, PU3LIC DEBT

National and Government Guaranteed Debt(Expressed in thousands of U.S. dollar equivalents)

Item Amount

DEBT OUTSTANX,DISG JUNE 30, 1954 1hl,501 100.00

Disbursed and still outstanding 9,378 64.67Undisbursed 5,123 35.33

U.S. DOLLARS lL, 122 97.39

Privately-placed l3T7 3l3Disbursed and still outstanding -, 03 'F.-U9

Undisbursed 775 5.35Loans hleld or g.uaranteed by IBiD 8,517 58.94

Disbursed and still owAstanading 4199 28.96Undisbursed h,348 29.98

U.S. Govermient loans 597 4.12Export-Inport Bank 530 3.65Cther 67 O.47

CANADIAN DOLLARSLoans held by IBRD 261 1.80

PC'UNIDS STD1,LITHGPublicly-issued boncds 97 0.67

SV;iISS iUcA !SLoanis held b,r IBRD 21 0.l14

MAJIKE PEPORTED AD])ITIONS JULY 1 TO NOCVYiRi 3, 195li / 1,8L5 100.00

U.S. DOLlARSPrivately-placed 1 ,845 10O.CO

Source: IBRD Statistics Section on the basis of inSorriation from the BancoIMacional de Nicaragua.

Table 2.

ESTILiATED C(0lRACTUAL T77ilT AiNJD ALiO^RTIZATMT0 PAYaE1,TSOG ThE !-,ETPbRi6AL PUBLIC DEBT

N'ational and Governnient Guaranteed Debt(In thoucands of U.S. dollar cqulvalents)

Privately placed RD,iBxport- port Bank andTo'taal _ nediiim-term debt other lon-tezr debtAjiiorti- Amorti- AmI1orti-

Year zation Interest Total zation Interest Total zation Interest Total

1954 1,388 500 1, 588 895 276 1,171 493 224 7171955 2,203 701 2,004 1,380 303 1,683 823 398 1,2211956 4,1 72 591 1r,763 3,319 2 2 7 3,54L6 853 36L 1J,217195;7 3,092 38b 3,476 1,773 61 l,834 1,319 323 1,6h21958 1,31Th 266 1, 61 L - 1,3lI 266 1,6101959 1,151 212 1,363 1,151 212 1,3631960 1.2 02 158 1,360 __ _ 1,202 158 1,3601961 1,51 105 1,356 --- 1,251 105 1,3561962 701, 55 759 -- __ __ 7C1 55 7591963 633 22 655 5 633 22 65.

Scurcel IBRD Statistics Section on the basis of information from tne Banco Nacioral de Nicaragua.

Table 3

GROWTIH OF REPL OUlTPUT AKID IMOtCOME Average

Annual Rateof Increase 0,)

.12j148 194o 1952 1951 1952 1953 _____

0ut1-out 100.0 102. ll1.3 24L 1D6.6 ],47 0 8.0

Agriculture 100.0 105.1 115.7 130.1 14 3 .0 149.5 8.4

.ining 10G0 100.3 105.6 115.2 116.5 120.1 3.8

lianufacturing 100.0 104.7 106.4 119.9 126.9 132.9 5.8

T,ransportation and Communications 100.0 104.6 117.1 117.9 114.5 157.0 9.4

'ow%Ter 100.0 114.8 123-0 136.2 152.6 1°2.8 14.0

Commerce and Finance 100.0 94.8 112.8 129.4 154.7 170.8 11.3

Government 100.0 97.1 90.8 100.4 11L-7 133.7 6.o

Income 100.0 105.4 116.0 135.7 1i6.1 158.6 9.6

Po-ulatlon 100.0 102.7 105.9 109.2 112.8 116

Out-ut er ca-. ta 100.0 100.2 1SJ.1 114.0 121.1 126.2 4.8

income ner ca ita 100.0 102.6 11° _ 24.3 129c). 136.1 6.4

Sources: Output and Income: Estimated by mission on the basis of information from the Tinistry of

Economy

Population: Information from the Finistry of Economy

1/ Real o. .ut is gross domestic rroThict at constant nrices; real income is real outnut adjusted for

chancr "n the purchasing po-w^,er of exports.

Ta.ble 4

AGR!CUSTUJRA,L I'R0DUCTI0Th 1948 -

(Indices 1948 100)

19a8 q49 150 l? 51 jl_1Q2 1953 1954 1955

BxTort crons 100.0 98. 121.3 320.8 163.1 182.4 18L.5 258.2

Coffee 100.0 56-3 139.3 107.6 126.2 125.2 121.7 133.4

Cotton 100.0 120.0 2L4.4 293.3 540.0 697.8 1,122.2 2,0C0.0

Sesame 1C0.0 144.3 61.8 67.9 142.0 103.1 47.7 38.2

Rice 100.0 141.7 101.0 153.8 124.7 219.6 128.2 12S.2

Domestic food crons 100.0 107.4 113.7 4 15.8 137.7

Sugar 100.0 106.1 122.9 157.6 178.0 195.3

Corn 100.0 99.4 118.2 122.9 122.7 1?2.3

Beans 100.0 123.0 114.1 1L5.0 145-3 129.9

Wheat 100.0 101.7 104.7 116.2 111.6 118.3

Potatoes lC0.0 93.9 14.1 119.4 112.2 61.2

A11 cror0s 100.0 103.2 112.4 127.3 1L8.9 159.2

So'arces: 1948 - 1953: M,inistry of Economy, except corn production, which is based oni information

contained in a stady by Eduardo Iglesias, Instituto Nacional de Fomento,

"31 Problema de la ER.stabilizacion de los Precios del Yaiz."

1954 - 1955: Estimated by mission on the basis of information from the Coffee Growers'

Association (coffee) and from the Banco Nacional de NTicaragua (other crops).

Table 5

ITDUST'RIAL PRODUCTION, 19L8 - 1953

(Indices 1948 = 100)

194L8 1949 1950 1951 1952 1c;53___ __ ___ __ _ ___ (P1r ? .1

1. Soft drinks 100.0 92.8 97.4 120.5 157.8 n. a.2. Beer 100.0 92.6 94.2 105.4 147.6 168.13. Ice 100.0 102.1 112.6 110.1 147.6 n. a.4. Ve=etable oil 100.0 118.2 204.1 281.0 292.7 487.75. Pasteurized milk 100.0 99-3 1L4.8 180.9 223.3 375.86. hreshers 100.0 884.6 521.6 867.0 1,c1. 3 n. a.7. Tobacco 100.0 108.7 108.8 137.9 16Q.7 133.28. Eatches 100.0 121.9 91.9 114.2 111.6 140.79. Textiles 100.0 108.5 102.9 101.1 99.8 107.110. Clothing 100.0 112.7 188.2 270.3 322.4 n. a.11. Tanneries 100.0 81.8 176.8 196.5 197.0 n. a.12. Soap 100.0 100.2 108.7 9',.9 89.5 n. a.13. Cement 100.0 101.0 i02.4 119.5 138.3 155-514. Concrete bricks 10C.0 93.6 86.0 104.3 114.1 n. a.15. Saw mills 100.0 115.8 114.2 191.8 194.9 n. a.

16. General index 100.0 110.6 114.6 1i.50 160.9 7

Source: Ministry of Economy. In calculating the general index, 1948 prices were used as weia7hts.In this table and in the general index the mission excluded liquor-production becpuse it showed an extreme rise, the nature of whichcould not be e-plained by the V'inistry of E-conomy. Su:,.r was alsoexcluded, as it is included under agricultural rroduction.

S-ouces: 1953: Srecoal investig-tion of Ministry of Economyl9-,/ 55: The bfdfet for 193b/55

!/ *f-7-i-es for 1953 aPply to the calendar year and the ficares for 1954/55 to the fiscal year, July 1 - June 30.

2/ -. --oee.o cf the I3D= loaro have been converted at a rate of 7 cordobas to 1 dollar, instead of 5 cor&obas to 1 dollar in the bu1dget.Th.eb29Rgeta-,epopriationfor. he local cont-termart to the _139 loans is 5.3 million cordobas. riowever, actual expenditures were ianning at an ennual rateof 6.7 -'ilion co-rdcbac3 in the first mortho of the fiscal ye.ar ind it wao expected that the approxriations would be rnased. A figurecf 7.0 -illion cordo-as has been uzsed in this table.

i crcane of material and spare Tarts of 8,397 thousand cordobas for the railroad and 2,9,8 thousend cordobas for the power companywhich t.e 1i:tstry of Economy includes with investment.

-/ As the t-udget does not give a cormp-lete breakdown of the ex"enditures of the Construccinnes nacionales, this fi.gure may include some exnendlturesfor hoeridal end school co-structio,n.

51 The f'-,_res for 195-/55 do not include the investment of the Distrito Yacional, and the fIgure for paving is therefore substantially too low.

i/ The s-ocial in-.estii;,tIon of t-e V.isitrv of Econr.y, on which this table is based shows total public inveustment in 1953 at 75,068 thousandcordobac. The difference betwern th.-t fiirue and th-e to'ei sho..n in this table is edue to thar excluding of materials and snare parts inra'iroads and electric powier (ef. footncoe 3) anl cf ex.ercitres for educotionol o.,paic. d agricultural extension services. (1,266the .C-Cd cord o e) . The er-mendituros for educatirnal cnai -ne a.nd agricultulral oxtonslon -3,rvir hove been excluded on thw vroin s6 thAtfirstly each expoenltu_re-e are cewally not included in publc ivee-taebt, annd ceco^aly. the amontr included. by the ;'iniotr. of Ecorcmy coveronry a minor, and as it a-rears. a rather arbitrarr pa-rt of erenditures for educctional and extension pumocnos.

7/ Pacific ,ailrcad, Light and Po.er Co-many, Managua 'W,.ater;works and Port of Corinto.

81 Grants from. U.S. Government for the construction cf the Interamerican HiKnhvoy and the PRama road.

| Loans from IERD for power pl)ant (1953) and 19514/55) . the conversion in 19514/55 has been made at the rate of '7 cordobas to the dollar.

Table 6

Plb1Igjnvr.es5tzentsfl-.9 its 7inrRnc&zrfS?l5.595!4552(thousannds at cordlobas)

19%i 'b< cnlqMrr( 1 ,2 a,.

iVr¢nvect:et F n -n A,c i n,,.;:~~~l ~ (B&-0t

li'_-u- Aio tent: 3 : t i S, I

-. <v::ao ~~~~28,307 3521tDSze5tie Oc6r; ,3

7- a i 1 r c A 2, 0 1 -2 1 3 4l- 9 Gover -" men".t appropriatiorns 5 , 87 $ <5,570-wt s . . . . . . ir--nin,±-s of rutclic af4e, iesf9 2 287 , 920

H L nns 1,203

~~~_ I _ _ _ _tvev ....... rb 1 1 1 5 2 Ext-r'rn) liS Qkj5

I* IP. _.1; r . . ldtrss 906S °t 1,3-1-- - C, 1,650:_._1,61. 3_1 I o a:- 12, 74 5 8, 4QO

S I _s 3,853 1, CS,Ct>" t . ., lcir., 4, 294 8 c15

_ V .ol- 1 2 i, r 0n- r _ 6. ;4 1

ele8-K>c. szystem 7, 3'44 3.13T a d radio syctem 31-2 1. 0?2

.%'ate -)Ly a- d sewerage 535 1,6LL9tru.ing 4, r.5 %

,. ,rsln zto-rst' rlant 5 49

VI erliuir .r,on.t 1 2 2

o ta1 62.b4 60 , Q 60 O Total -4 4_7Q

71I r. Gotu;_bu t io0ns tonIp ti o nal1 Gove,rnment nTmronriations to-L~_ _ _

A_ A_5. 0 0 0

7 ie r ytI ttur .87 PP Pttna DvCzr3jfiit,

_T n ,t L___ 2__ 6 LvO_ tC*~ 1fl'Thsl Icr.sn ewiomr 68--b7 6%S00O ri ut 'oc.uttDsers-rt Thc (:513tjtflt 63R. S.OO

TA LE 7

Comparison be-tween Investinent Prograi,m for 1952-1957and Actual and Planned Investe-,nts

in 1973ndl195b47

(millions of cordobas)

Annual average e.-pendi-tures according to: Actual Planned. ;ininr unq Optinum investment Invest-en

Program Pro,-ram 1953 1951 /55

IiHLS TM.LP T:

I. Agriculture and Industry 30.5 L1 3.1 11.0 8.0

1. Instituto de Fomento 26.31) 38.91) 9.,2) 5.02)2. iMinistry, of Arriculture) b.2 h.2 1.2 3.0

II. Trans-nortation and Co=moinications 30.8 31i. 6 39.5 112.9

1. Railary a57g 2 - 2.0 3.2

2. Roads 2h.5 25.9 28.8 35.3

3. Ports and airfields 3.8 3.8 0.5 --

£. Telecommunications -- 2.4 8.2 4.2

TII. Education 1 .14 5-. 6.9 7.1

1. School construction 1.1 v 3,9 1.7

2. Other ex,;.enditures3) 3.3 3.9 3.0 5.3

IV. Public Health 11.0 17.0 2.6 5.3

1. Pater su,pply and sewerage 4.2 d.4 Or 1.6

2. 'Hospitals and health clinics 4. 9 6.7 0.9 1.1

3. Other expenditures3) 1.9 1.9 1.1 2.3

V. PoTer 6.3 6.3 L.l 1.5

Total items included in prog ram 83.0 106.4 61.1 614.8

VI. PuDblic investment not included in -- 9.5 11.3

g-ram!1. Public buildings (ot.her than

schools and hospitals) 4.3 8.L

2. Paving L.2 0.7 L)3. Miiscellaneous equi-pment 1.0 2.2

Total 3~0 106.1i 73.6 76.1

- 2 -

Cop,,,Darison betv.'een Investment Program for 1952-1957 .. . -- (Continued)

Annual average expendi-tures accord -ng to: Actual Flanned

Mlinimum CODtimanum Investment InvestmenfProrxam Pro grani 1953 195LV/55

FIiPA,]CIi'NG :5)

External 28.7 33.5 .13.0 1l.0Grants6 11.2 11.2 0.3 1.7Loans 7) 17.5 22.3 12.j B.L

Domestic 8) 5!.3 72.9 60.6 66.0Government appropriation 37.61.Earnin-s of public abencies 2.3Loans 1.2 --

9),ATIOS T'I OliS T JTIU'-AL PCIODUCT(PercentaLes)

Investment 6.0 7.6 L b.6

Dom:_stic Financing 3.9 5.2 3.7 L.l

Sources: Prog,ram: The Economic Develolment of Hicaragua, Talble 1, pp. 5--10and pp. 15-20. Actual and planned investment in 1953 and 195h-55:cf. table "Public Invest-ment and Its, Financing" and -footnlote 3 tothe present table.

1) Includes thle items "1Agriculture, Instituto de Fomento" and "Industries"(cl. Table 1, pp. 8-10, The Economic DevelopTnrnt of Nlicarag;ua). It isnot explicitly statfed in t.he report that thle industrial investi-ents in-cluded in thie prog;ramn represent loans or direct i nvestmnents of tlheInstituto de Fo-7ento. However, as t;he progran eviacntly does not coverprivate investment, and no other government agency than the Institutois engag,ed in industrial act-ivities, the industria invest-ments of tlheprogram have been included under the Instituto.

2) Includes the appropriations for the Instituto in 1953 and 19514-55(Cordobas 6 million and 5 million, respectivelyr) and investr-ients in thegrain storage plant in 1953. As th;e Instituto only started operationsin the beginning of 1955, exzenditures incurred in 1953 and 1955; we6remuch belowv these f ig,-ures.

3) In the prograz: these items represent increases in certain currente,x:pencditures of Agriculture, Fducation and PuDblic Health, sucIr asextension services, vocational training, literacy campaigns, diseasecontrol and training of p-ublic health personnel. Only a cetailec studyof the expenditures of tlhese .li:istries could reveal to w%,het extentexpenditures for these specaic purp-oses have been increased. Howeer,as th.-e nature of these specific expenditures is not very different fromother current expenditures of these Mlinistries, it .as been consideredmore appropriate to take all incrcases in current expenditures of theseMfiinistries into account rather the2n to single out specific iteas. Thefigures presented under actual and, planned investm-aents in 1953 and195b-55 are tiherefore increases in the current expenditures of th;eseMiinistries above thle level of the fiscal year 1951-52 (the cyear priorto the dra.rring up of the program). As C-overrnm,ient salaries (accordin-to data of the !KinistrM\ of EconomrTy) have increased by about 25i, fro1951-52 to 1953-55, the expenditure figures have 'oeen deflated withan index of 125.

D) Does not include the Distrito iJacional and therefore substantiallyund'erstates planned expenditures for paving.

5) Trihe Economic Developjment of' icaragua. does not specifically mentionthe financing of the additional program,] (the difference between theoptimum and the minLmumn programs). In this table it has boen assumedthat the intention was to finance the add.itional program in the sanegeneral way as the mlinimln one, i.e. one half of th-e foreign exclhangecosts from external loans, ard the remaining: half of the foreign exchang:ecosts and all the local currency costs fro.m doiiestic sources.

6) 'hlhe external grants included in the progzram are >8i ll'ien for the con-struction of the Inter-liAmerican Hi-h,.-ay and the m-.ama l.oad.

-4-

7) The ex..ternal loans included in the proLra2l are 4;3.7 million of IBR)

loans approved but undisbursed at that time, and one-half of the

foreign exchange costs of the mininwiuf program not taken care of

othcru;.ise.

o) The program list.s a number of doinestic so-arces vdithout specifying ho.:r

much is expected to come from each of theA (income arid export tax

revenue, additional revenue from impr.-oved tax collection, diversion of

budget funds from non-productive to productive purposes, earnings of

Government enterprises, d6reriestic sale of bonds). Ho-uever, it is

evident from pag:e 17 of The Economic Develop.ent of `icaragua -that the

main con.ribution is e:-.pected to cone froin -increased revenue frori

direct taxes (income, property and export taxes) resultin-, from, the

fiscal reform, proDosed by th-e liission.

9) In calculating the ratios undeflated figures have been used. for "M.-.inistry

of Agriculture" and "Other Expenditures" of "Education" and "Public

Health", instead of the deflated figures used in other parts of this

table (cf. footnote 3).

UZ7 37=126 'r c- :-OsgZ t j o 9-7 i5cF -/5 c C-2 71 /nJi'L-_v .' J ' j

~WF ---

O1 79 7 77

GOQ- L dE9L F C7 6L U7 50T2 L9UU717~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ U0i C 7 i7 T, si U ' > T. L) S_9

XA? Lt Cm n i Y7'W wW'7 -9 PMl ce tmPjE 97- 7 LV zJl 9lI

_Q YiZ; / ;6OiT ~ 99I 0SOOCj tO 9 7/ t~ -S - 2 - f - ; S ~L)7')EiosC17 t vo< 'Li Ef6 =7 ' ITZVi7- E:77 7JrV9 - DI rI gz / T= _ 7--;'at 7

0r55', 6t'9 t5v ; 9 T oo'Cz, og t{ 5>.- l-^a-G ':_co9' te'S i i7 O C zS 19 'T9 ZCT, c 9 T'h 106'oC G.-S'Tl' 9('Vz 695'Sz . Ug~'i- _Z__ __,

OOD'b CO3'1£ -. £SO'5- b'99> ZZY~ p-Z'51L. - - /- -i 6r -JOGO'I COOt COD3 1 tl' £,.,D C A;v6g c55A5 C X /-t< iidC 2S 9 030 dl OSO S ISt C5 LoS9 9COv S G- -t _-/ -S % T C J

007's~ 00' IC£ c9g z'Z 9 ' I .OC vt l6T tio5Z 7 S °v I£ 5 ' I C I o," I Z..X J_St

COO O' OIT 9: ZTO'9 -7 z /T T sL9

cc~~~~~~ ~~~~~~~~~~~~~~~~~~~~ - . o_ T-' _,9 _ __

jZSS/foz 561D -S/C56i £/261 Z/1561 i9/0561 c5j6s 66i 65//6t 27dAT6t /9ti_i g:47i

a4l;7--J;s ia L 77aDiol) -pi.:*Li:Li..7

a 9 '

Sources; M'inistry of Eocnomy and mission on the basis of information from the Tribunal de Cuentas.

1/ Includes the tax on net profits from cotton and coffee cultivation in 1951/52 - 1952/53, and the general income taxfror 1953/54 onwards.

2/ Includes fees for business licenses and other business taxes.

3|/ "Impuesto Arancelario."

4/ The tax is collected in doilars and its revenue in cordobas ex-ressed at a rate of 5 cordobas to 1 dollar.

%/ -pxrort taxes on gold, bananas and lumber.

6/ According to the exchange lav; of Nov. 9, 1950, receipts of foreign exchange are distributed in the following manner:First the ex-oort tax on coffee is deducted;out of the remainder 10% is set aside for the use of the Government and l0%to ray off the exchange deficit of 1950. When the deficit had been paid off, this latter l105 went into an exchangestabilizing fund (Fondo de Nivelacion de Cambios). The remaining 80o is then used for general purroses. The purchasesof the 20% are rade at a price of 5 cordobas to the dollar, ard of the 80% at 7 cordobas to the dollar. The revenuefromi the coffee tax is included in the government accounts at 5 cordobas per dollar. The Government then uses itsdollar funds obtained from the coffee tax and from the 10;•o of the exchange income to make ravyT.ents abroad at the rateof 5 cordobas to the dollar. The l0;O for the exchange deficit and the exceange fund were originally used to sellexc:han-e to holders of 1950 exchange licenses at a raue of 5 cordobas to the dollar. Once these licenses had been madegood, this 10C has gone to the exchange stabilization f-dnd, out of w:hich excchange is again sold at a rate of 7 cordobasto the dollar. This exchange system i,--lics an exchange tax of 2 cordobas per dollar on 20/o of exchaange receipts.This same tax of 2 cordobas per dollar also a-p -lies to the revenue of the coffee tax because of the rate of conversionused. This implied exchange tax is not recorded in the government accounts. For a complete ricture of governmentfinances it should be recorded, how.ever. Therefore, an estimate of this implied tax has been included in this table.It is calculated on the basis of inforFmation contained in the reports on exchange operations prepared by the BancoNiacional de Nicaragua, It includes 2 cordobas for every dollar received diuring the fiscal year for the pay !ent of thecoffee tax, from the l10? set aside for the Government and the lO'% for the 1950 exchange deficit and the exchang:e stabi-lization fund. From this amount, however, 2 cordobas have been deducted for every dollar sold to holders of 190licenses at the rate of 5 to 1. The figures for 1953/54 are -relimina-ry estimates.

7/ Includes general import taxes (derechos arancelarios generales), consular fees, the 5, tax on sales of exchange,the 5K> tax on value of imports, gasoline taxes, the tax and additional tax on import volume (impuestos sobre bultos)and a number of other minor imoort taxes.

8./ Includes the additional charge of one and three cordobas on each dollar purchased for imports under lists II andIII, respectively (recargos cambiarios).

°/ Taxes on liquor, beer, tobacco, soft drinks and sugar. For 1950/51 - 1952/53 earmarked taxes for the construction

of a hospital in Manaaua and for the Comision Pacional de De,portes, have been included in this item.

10/ The stamp tax, "imnuesto sobre derechos reales," entertairment taxes and some other minor taxes.

11/ C-ross income of the liquor, match and medicine (up to 1951/52) monopolies. Includes also revenue from the saleand lease of national lands.

12/ C-ross income of the postal, telegraph and telephone services.

12/ Profits paid to the Government by the Banco Hacional de Nicaragua and the Port of Corinto. Does not include theficticious entry of profits from the Pacific Railroad which until recently was included in government accounts.

14/ Includes miscellaneous revenue, special funds (145/46 - 1949/50),and refunds (reintegraciones y reembolsos),except refunds from the U. S. Government for road construction, which have been excluded. For 1950/51 - 1952/53, aminor amounmt of earmarked taxes (rentas pignoradas) which could not easily be distributed among other items has alsobeen included here.

15/ Estimated by mission. The estimate of income tax revenue is based upon the opinion of the Ministry of Finance.Extort and import taxes have been estim-ted upon the basis of export and import forecasts. Alternative I assumes acoffee price of 65 cents per round, alternative II a price of 50 cents. For other items actual revenues for 1°53/54have been arplied.

Table 9

GOVRP!*'T-',UT RPBEN-EuE 1949 /50 195 4/ 5

(Percentages)

194c/50 1950/51 1951/52 l252/53 1953/54 195i4/55(Frevised. budget

_ _ _ __ _ _eotinate .Alt. I)

Direct taxes 327 2. 2.7 3.1 6

Incomie taxes - - 0-4 1.1 3-3 8.4

Property tax 2.8 2.3 2.0 1.9 2.2 2.1

COther 0.9 o.6 0.3 0.1 0.1 0.1

.77ortTtxesr 16.1 13°-9. 17.1 20.2

eG-eneral 2.5 2.7 2.2 1.8 1.1 1.6

Coffee - 4.8 4.0 3.9 2.9 5.0

C0thcr goods 0.8 0.8 0.6 0.6 0.5 0.4

Exchange tax - 7.7 12.4 13.4 12.6 13.2

Irmnort taxes 48.2 44.5 46.1 S0.0 an.1. 46 6

General taxes 48.2 42.6 31.6 36.4 ':1.6 36.4

Lxchange taxes - 1.9 6.4 13.6 8.5 10.2

Oonsiumrtion taxes 28.2 20. 6 19.6 0 15.7 14.0

Stamn taxes enna

s i..i1r tsxes 6.2 4-7 5.4 4.0 3.9 3.'

Government monopolies 2.6 2.0 22 2.2 2.0 1.7

Communication services 3.2 2.7 2.0 1.8 1.4

Profits of GovernmeTntentrnrises 0.9 1.22 1.1 0.9 07

0tL,.- revenue 2 3.2 1. 2.?. 2.0 1.5

TlTAIL 100.0 100.0 100,0 1o.o 100.0 100.0

Table 10

GOrVEmRIT'T MX'PTDITUPES3/ 19½5 J146 - 1959L/S/(tiousands of cor-cibas)

1945/46 1946/47 1947/43 1 946/49 1949/50 1950/51 1951/52 1952/53 1°53/,4 1C54/55-_ ---. ~Žudet)

1. enPeral6 Amini 6stratioi' 20 £ 6 - 20.189 I 37 7 ? '6n s9 3 6.t11

2. De.fnse end Oorzmnfit'ti.on ServicX7 79297 3 j86 12 136 j56f 2 i&40- 20 688 ,2-319 22 LL-23

Defense - - - - 11,498 11,868 14,918 17,103 15,752 28,124Comrr-,nication services - - - - 4,134 4,537 5,770 12,116 10,675 1l,,699

3. SLocialA nd md_CulturalServie Xk 8A A 12 °. L2 2T lOAl 3 S z7, 9 &O 1 3 .1 3 7 1 3. 5 8 -. 2315 13 28 L4

;'inistry of reucation 5,776 6, 893 7,153 8,051 6,597 7,969 12,3,;6 18,,091 19,965 22,003,;ir stry of Public

Health 1,254 1,229, 2,197 2,462 1,383 3,168 4,52 2 5,223 7,45!4 8,179tIinistry of Labor - - - - - 694 1,046 1,142

4. Prubllc Works and Economiceve Ilorment ;,1 02o 0 2 147• 19 212. 10366 16.644 28.1 9 31 91 %3Q80 5S.21-in. of Developt.entand Public Wo)rkrs 17,717 18,958 13,511 17,724 2,462 13,660 22,923 24,507 31,6CC 44,043

K,in. of AMriculture 1,386 1,252 1,264 1, 418 1,464 1,931 22,371 3,314 5,704 6,763r:in. of Economy - - - 70 1,L140 12,053 2,696 11,270 7,996 8,110

5. Debt Service ?, 29S9 j248 215 4 60o £612 69?7 m Z 1 12 11 720 12.126nx*ternael debt:-

Interest 496 623 445 303 425 202 248 456 1.072 1,506Amortization 1,933 2,168 1,555 1,793 2,105 2,375 3,728 5,160 5,037 3,310

Domestic debt:Interest 55 51 3L1 862 879 1,071 942 619 714 566A.mortization 475 4o6 774 1,648 1,408 3, 9 4,867 4,977 4, 947 6,z44

-2-

1945/46 1946/47 1947/48 1948/LL9 1949/50 1950/51 1951/52 1952/53 19 5 3 / 54 1954/55

6. Other Ex-renditure/ -_ 502 _2 384 .85 4.63? 4.342 3 675 LL3R

7. .Adiustment for Governmentrnurchses 'at thie rate of

1_ _ 3 352 8.582 7 i! 13 258 11.620

Total 57,684 66,236 64,627 76,658 66,199 P4,762 120,616 153,238 177,5L3 223,643

Sources: M4inistry of Economy and. mission on the basis of information from the Tribunal de Cuentas.

1/ For the years 1945/46 - 1952/53 this table includes estimated pay,mlents to the Pacific Pailro2d for transportr-tion.These exrenditures a-re fictitious insofar as no r-ayments were ever made. Because these e--enditires are snread overa n-umber of items, they cannot easil-. be ded-lucted. As, however, dividends from th'e Railroad ha.ve not been includedwith revenue in the table "Governm,ent Reverue, cL945j46 - 1954/55 (thousands of cordobas)," a cornarison cannot bemade between revenue and expenditures in the two tables without adjustment (cf. table "Government Surplus or Deficit'under "'Sourcest).

2/ Includes the Presidency, the Legislature, the Judicial Power, and the Yinistries of ForeigTn Relations, Interior andFinance.

3/ For the years 1945/46 - 1948/49 expenditures of the communication services are included in defense exnerditures.The expenditures of the communication services are gross.

4./ For the years 1945/46 - 1951/52 the service on the Ethelburga loan was expressed in dollars and added to other itemsexpressed in cordobas. At the same time the Government received som:e income in dollars (e.g. consular fees) 'whichalso 1.as addce to othler revenue without bein2 converted into cordobas. No information is availabls on the am.ount cfdollar income received and, therefore, the error cannot be corrected. Yo breakdown is available between paymnents ofinterest and amortization on the Ethelburga loan, and the total of these haymnts has, therefore, been included. und.eaTlortization.

S/ From 1950/51 nmainly paymen ts out of ear.-mearked tax funds (rentas pignoradas).

-3-

6/ According to the exchange law of N\Tov. 9, 1950, the Government can buy foreign exchange at a rate of 5 cordob½s tothe dollar, instead of 7. This adjustment item represents an estirmpte of the expenditures the Government would

heve incurred if it had paid the full rate. The estimate has b.^.en mode on the besis of the sale of exchpr7e to the

Government in 1951 - 1953 according to the Fevista Trimestral of the Banco ITacional de iTicaragua. For 1.5 4 and the

first half of 1955 the estimate has been made on the besis of ismort forecests, assuming that Government importswiill remain the same in relation to total im^crts as in recent years. The adjustmrent rade hes be'n 2 cordobas for

ever.- dollar purcha.sed, irrespective of trhether the goods purchased belonged to lists I, II or III. Account could

also be taken of the additional charges on lists II and III ("recargos cembiarios"), but in that case an equal

amount would have to be included under revenue as a.ddition to "recargos cambiarios. f

Table 11

GO,TMhTI;TT aEX? -DITUR2ES, °4j5O -1°i5 5-L5(Percentages)

1oL4950 1950/51 1951/52 1952/53 1953/54 1f514/55

1. General Administration 40.8 32.4 28.6 25-3 29.6 28.4

2. L'efense 17.4 14.6 13.3 11.7 9.6 13.4

3. Ccmmurnication Services 6.2 5.6 5.1 8.3 6.5 7.0

4. Social and Cualtural Services 12.1 13.7 14.9 17.0 17.3 15.0

5. F-ublic W.;orks and Economic Development 15.6 20.4 25.2 27.0 27.6 28.2

6. Debt Service 7.3 8.6 8.7 7.7 7.2 5-8

7. Other Ezoe.nditurcs o.6 4.7 4.2 3.0 2.2 2.2

Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: Table on "Government Expenditures, 1945/46 - 1954/55 (Thousands of Cordobas)." The adjustment itemincluded in that table (number 7) ha.s been excluded in this table.

- -

og 9I S5 £1t 1t7r5 ^, -ZD 8 ZS - - - _ rnc: 4*;f,,'D;,< -

U77T . P L-_ __ _ Lv_: .c

.: i 4 . _

nZ9 Zj: z ti Zc5 t, 6 -q £ re0 -1 et g9 1AA sr5 E < v ; ,u: ,_C

Cfl, ZZ = /6'7 £Or T9 91 -

zO 7

on'££ - _ - t aSsipt,4 gS! ,St, UT sr: ................ a$,a .~~~~~~~~~~~~G~;V'q - -C, 7 T O, 7-.3 ']~

o~ t * - T2 t u3 D --'

- -. 3~~~~~~r Z.

coS' 8£5'C9Z £ 80' rX - -. - __- v.v

coo o~t'T I 069'9 901 - - -_ _ c-.-Ta ;3 3

£ OZoZ' 5 - -_.t ;o66 9 ,_'_;U..~ 1 °'

-_ - tzg- - - _ _ /-;/Q4 o.l

-U T 1aU .v-O 1vx _!

C3T; 5Z~T 49 9 4 b * t- 5 D t d C 8 - - _ _ - -- Z F .+ L ' t z L . ,. J _ t : .v .7

T. I O) -1 5£9 9C '6 1 05t 1 :5 -A 9

_-_ - - I S 0 £ S Z O L 1 9 -5 S L 9 C . . S TW 1 : s0 T S .% 5 S 3 -eT I -ar ;2 -X -3 -

COO 9 17 17 '9T1? 5 5_ - OS' EUWOI 1 1 ^

7Th T7 -9-i o qo u G ______

C?YLZ- £1;5 9t69 997- -____ 5 _' ;;'. Izo (4)

cL.2 o;^V 58 L N 5 oci. (yVZ5 W l 0 9 (V.'99 boWl zg,P9_j9 -. 2; . -

o;6 LS C6 Zl5 Z51 01> 41I Z1LE 06 651l69 9;' ' 3- ZV

55/t75OL BT- US/CSDI VS7T~TISGL IS/ V76T J;/5177T. GJ C:7/Z7T, G-/91731

Table 13

US': OF SU17.'JS oF OIFD'7CI 71 O O 2?rCIT(thioA.-.r.0 of coo-½,ea)

19l4 5 /46 19L'6/!-7 1?47/43 1948/L9 1c09/50 l9q0/51 1951/52 1952/53 1953/54 1954/55

r r c r. _ e_ fin-in.e of e. ,r f i_7 & 5 6 -. 17 721 - _1 4 22 3 6 ; .71 -

- c-:^- obtaired 1. 25Q- - - 5, 5,676 4,.4'30 6, o00

- ^ e ~-~n fr?~ts obtoined 2,824' 4,393 1,350 1,576 - 635 150 5'00 1,650

lc - ob tained 353 15 ,61 - 1 ,225 3,751 _- -_-:I Of D LCO tic de. bt (-) _075 -7?6 -77r -1, 6 8 -1,O8 -3,3L? 30,8r 7 0.77 -4, 947 -6 , 24

r.----- 3 C-ea'-o rcsition

( r ^- < ^ e -- cc r n -'-e ph ) _ 04,775 -10Q,c18:4 5, 5L5 -1,703 -2. 60 -15,007 -12, 62 . -22, 042 -,5 8 3,257

-^__ -*f--: I :_f . i ..Z.. .i3 L V2i L 771 *L qO ,' _6-7 _Q2 6\, 3. 5 -9 . -P12

~r'f n t 7 ' iorZXJ n r f-5 <1 vt ,y(,)

______ 11.0 8.0 _.4 1o.6 -0-j _ ._ _A_0

So:rces: Of. table "Gove5rnaer.t Sulus or Deficit."

1 / fC'n-'! as a residual. No infor.-ation is available on actual chan&es in Covernment cash position.

2/ r-3estlc loIpns obtained - Amort_'oation of donestic debt I e.ecrease (or - incree.se) in cesh position. As domestic loan operntions have bcen carried

out alr^st eclusivcly with the Central TarInk. (The Banco ',.acionz?l) their io.zct is consideree. purely deflationary or in.flPtIonary, as the casc mny 'be.

19)55/L6 19 L6/h 7 19 L7/A8 1 9./L9 1910/50 1950/51 1951/52 1952/53 i953. 195at/5

;-eve.l e h7,932 57,173 $7,732 66,165 f5.Lo8 99,134 127,613 170-56L1 199,L67 239,250E: er.6 t_es 57,2c9 65.879 63,8 755.oio c;6L791 lJ ,13 1157719 ]i.&261 172.596 237,399

'. _,/

cf-c (-) _ 9,227 - F,706 - 6,121 - &,B*'5 617 i7,721 11,8A! 22,303 26,371 1,651

.;cte: T'he vractice in Nicaragua has been not to distinrTish in Coverncnt receipts betwveen revenue from taxes and other services and proceedcs frem'-an.s .- _n yr2nt In vex enditue ;, bJo =ncrtization cf dcme3tic debt has been inc2u.led with other exper.iturec. Consequently it is neccsrary t4

a-i_-t to official ft to arrive at the cash uaes-p7lu c.r deficit. .'oreover, oince the exclrzn, 1w,la: want into effect in 1950, the Govera-cnt has

tr' n receivi-n subs_-"n t_al u.rec,,rded exchanfe taxes. which in part have been wsod to finance Goverrirent purchases ef foreign exchar.ge and _- part have beem

func'2J. Aio for t' -, act:;'.r'nts h.!e to be made. Finally, both rer.wu and' eryYnrdit.urcs are traditicnally undderestr.atedd in the bud.cts, 'ad this

-.a: to be >en toacco.ntit -r, -he outleok for 93-/55

' -r't fi-ures: '.nis try of Eccnony cn t-e basis of information frc. the Tribunsal de Cuantas and the Frojecto do Resupueste for 195V/55.Lv;rn-ds f t.e racif`c hti road (wY:hich never were actrailyt rcce-ved) are included fr r the years 1945/L6-1952/53, and Gor-r:r-ent paynents for

tra nso-rtat'icn v ait the railrcad (never actually paid) arc included w:ith expenditures for th.e same ,ears.

.-' ustncnts ZCalculated by mission on t', basis cf official figure3 and information of the Banco Nacional on the cperations of the foreign exchange law.

1/ This fi-are has been left cut in the statecm.nt prepared by the jinistry of Eccnosmy. It is included in the Projecto de PresuDuesto for 1954/55,however.-

2/ Cf. footnotc 6 to the table "-overnimcnt Revenue, 19M5/b6-195V/55 (thousands of cardobas)"

3/ 2ased en A,lternative I fcr 1954/55 of the table "Covernment Revenue, 3945/L6-1958/55 (thousands of cordobas)."

o/ Cf. S;ctrote 6 to the table ">3'venr.ent Expenditures,198L5/'46-195-/5$ (th)ucan:fs cf cordobas)."

5/ It is custc-ary in Nicarag-ua rrcatly to underestimate both revenue and expenditureo in the budget. Ridn'ay through the fiscal vear a suprlement-r

budget is then voted. In 1953/54 this supplementary budget w.as 16 millien ccrdcbas, and it has been assumed that it -kM be 20 million in 1954/5.

Table 14

EXPORTS A3TD IIPORTS: Value. Volumne auid Prices, 19438-19,53

19i8/8 199 150 1951 1952 292

Exports (millions of dollars) 26.7 23.7 34.6 46.2 51.3 54.5

3xport prices (Index: 1948=3.00) 100.0 101.9 111.1 154.6 137.6 135.9

Export vollme (Index: 1948=100) 100.0 87.0 116.3 112.0 139.8 150.3

Imports (millions of dollars) 24.1 21.3 24.7 30.0 39.7 43.6

Inport pricos (Index: 1948=100) 100.0 86.8 83.4 88.8 89.2 34.3

Import volu,ime (Index: 1928'410O) 100.0 91.3 109.9 132.9 167.9 191.3

Terms of trade (Index: 19483100) 100.0 117e4 133.2 174.1 154.3 161.2

Sources: Export and Imnort Valua: Banco Nacional de NicaraguaRevista Trinestral, January 1954

Export Volume: Calcuilated by mission by deflating goldexports with an index of the unit exportprice of gold (cf. nevista Trimestral,January 1954, Table 26) anid agriculturalexports with a price index for agriculturalexports calculated by the 3anco 7iacional delNicaragua (cf. r.evista Trimestral, January1954, Table 30)

Exoort Prices: Calculated on t'he basis of export valueand volu-e

Imnport Prices: Calculated by the iMinistry of Economy.1

Imoort Volume: Calculated by the 14inistry of Economy

Ter-ms of Trade: Calculated on t'e basis of the ex-oort andimport price indices.

Table 15

BA.LPTCE OF Af _S.1 91 T(milliors of U. S. $)

1947 19L6 1,49 1950 1951 __c? 19

A. G-oods end Services

Ex-orts f.o.b. 13.5 18.7 15.8 26.5 36.7 42.0 45A4'

Yon-r.onetsr-v -old movements (net) 8.8 9.6 9.8 8.9 10.0 9.6 9-3

Irnorts, c-.f. _ -?l.3 -24.6 I _- _

Trade Balance 1.3 4.2 4-3 10.8 16.8 12.1 11.4

Trans' ortation and insurance -2.9 -3.6 -3.1 -3.6 -4.1 -6.5 -7.6

Direct investment income -4.3 -4,5 -4.5 -5.9 -6.3 -5-L -7.4

Off^icial interest -0.1 -0.2 -0.2 -0.2 -0.2 - 0.1

Other s^rvices 0.7 -0.1 -0.1 -o.6 0.1 C.1 Q-.6

Total -5.3 -4.2 -3.6 0.5 6.3 0.3 -4.1

B. Friv,)te Donations Cnd. Cpital MovementsFri)vate do.n&tions 0.2 0.1 0.1 0.2 0.1 0.4 0.4

Iong-term carital 0.9 0.9 1.1 2.0 1.0 2.2 2.4

S:-ort-term cspital 0.7 -1,0 0.4 -i.1 1.9 _L-4 2.9

Motal 1.8 -0.5 1.6 1.1 3.0 -1.8 5.7

C. Snecinl Offioial Finpncin__C-r nts 0.4 1.0 0.1 - 0.3 o.6 0.5

A=ortization -0.3 -0.5 -0.3 -1.3 -0.5 -0.5 -1,0

Lon--term official loans received . - - - 0.1 ___

Total 0.1 0.5 -0.2 -1.3 -0.1 3.2 0.3

D. 1'et Errors c .d Omissions -1.2 2.4 3.8 -1.2 -0.8 5.4 -0.1

E. ('2irnlUs o ficit 2 -4.6 -1.8 1.6 -C.9 8,4 7.1 1.8

tharou4e

2 -

I__2_ 1148 7949 19_0 _q_l _152 19C3

F. Comnensatory Official Financig

Government yrade creclits -0.2 -

bank loan _ 2.7 -0Q1 -0.3 - -2.0 -0.8 _

Use of IFiA resources 0.5 -0.5 -- - - _

Short-term assets of ilational Bank

and commercial banks (Increase -) 0.9 0.9 -1.0 0.9 -6.4 -6.1 -1.8

ionetary gold (Increase-) 1.0 Q. 0.2 -,

Total 4.6 1.8 -1.6 0,9 -8.4 -7.1 -1.8

Source: IjiF Bal?nce of Payments Yearbook

I/ These loans were obtained from the Federal FPeserve Bank of New York ($0.5 million in 1946), the Bank of America

(5>4.5 million in 1947-48) and the Grace ?ational Bank of New York ($0.3 million in 19L8 and ,.L r.illion in 1950).

All of them were repaid the subsenuent year, except the Bank of America loan, which was repaid over the period

l 8 1952. Be_ause these loans wnere obt.s.ined primarily to cover a balarce of payments deficit, they have in

thris table been included with compensatory official financing.

Table 16

TET FOREIGNI 'RBI;RVES, 1941 - 195L.

Net foreign reservesi/ ImnOorts Ratio of

(thousands of U. . $) (th-ousands of foreigrn reservesu. S. i) to_ tqnort, t

End of Year

1'41 1,928 10,438 19

1942 4,844 6,772 72

1943 7,469 13,530 55

1944 6,857 10,151 68

1945 6;4a9 11,961 54

1946 6,155 14,989 41

1947 2,269 21,086 11

1948 -262 24,134 -1

1949 1,263 21, 330 6

1950 544 24,702 2

1951 8,90 4 29,968 30

1952 13,914 39,710 35

1953 15,695 43,551 36

1954 (E3st.) 12,500 59,500 21

Source: 1941 - 1953 Banco flacional de 'Ticaragua, Revista Trimestral,January 1954, Tables 19 and 21

1954 Estimjated byr rmission on the basis of exchange incom eand expenditures during the first nine wontlts of they-ear

1/ Calculated by taking the net international assets of Table 19 (ievista

Trimestral, January 1954), deducting the asset itens "d'iferoncias caM-

barias;" "c,entas de com,pensacion" and llcontribucion a insL.ituciones

internacionales" and addin, thXe liability items "depositas institucionesinternacionales" .rd "capital y reservas dcl Barzco do Londre's.t In 1]943the debt to the Interna-tional Mionetary Pund of QO.5 million has breendeducted from the reserves.

TABLE 17

EXPANSION OF B.ANK CREDIT BY GROUPS(THOUS.aIMS OF CORDOBAS)

1950. 1951, 1952 1953 195h

(Rstimated)

I. C-overnment and -762 - 45 -674 2,559 _

Government a7enciess- -- _

2. Cominerce(Excl. exports) 2,h94 25,539 -

10839 7,553

3. Exports ) 13,675 1,02S 9,200

Cia Miercantil de Ultramar ) 10,150 - 900

Others ) 3.52s 1,926

4. Agriculture and Livestock 15,511 30,358 13,151 4h,345 62,100

Cotton ) 731 185124 51,500

Coffee ) 10,102 22,98-0 1,105 10,875 -,O

Other crops ) 6,475 5,317 -5,10D

Livestock 2,58-1 592 3,891 6,147 4,000

"Refacc.i1iobilariGs"l 2,395 5,531 60S 3,037 11,100

I"Refacc. inmobilarios" 425 667 64 495 1,300

Other 1 528 276 350 700

5. Industry ard Mining 2,510 3,h95 2,326 7,400 7,700

6. Others 762 - 5,259 - 41 1,435 1,000

Total 28,860 362102 30_934h 2_306 80 000

S-urce: 1950 - 1953: Revista Trimestral del Banco Nacional de Nicaragua, JanuGry, 1954. Table 7,

Estimated by tissicn cn the fc1 ing assumptions for individual items!

19L55/L6 19l6/LA7 19L7/h8 19,!F'/L'9 19h9/50 1950/51 1951/52 1952/53 1953/5!1 195L/55C23h Ei,- rcs (:-rel.) r.'Jgret)

:7,93q2 57,173 57,732 66,165 65,L08 99,13a l27,c.3 170,554 199,567 239,253-- O5 $eS 57,205 65.279 61. 375 -0 6L.791 81.-13 115,7li9 3)t8. 261 172,5' 237,399

oric_ t-) -9,227 - 8,7o6 - 6,121 - 8 ,8L5 61, 17,721 1 1, 8y 22,303 26,871 1, 83 1

Tore =.acticc in Nicaragua has bee-n not to distina-uish in Governmrnt reccipts betWeen re.-enue from taxes and other services and proceeds fr*mlr~nrtcs. In a3ezdita ts, al_c amortJiation of dc:sos;:tic debt has '.cen inclu-!ed with ohLer e.;pernitures. Cons-equently it is neceSsary t4

a,_st t-c cfficial f',ures to arrive at the cash ziu-pie-1 02 Heficit. ?,:orenvor, .ince the cxclhan>.c l&o -w;cnt into effect in 1950, the Covern.ent hasteen receiving substantial u-nre,ca.r-ed exchange taxes. rh-ch in part havae -dcr. lsed to fin-ce n purchaie3 cf foe^r exch-e and part have beenf-u- --c . ,A so for this, a,,iju: 't nts have to be radc. Finally, bath revnue and ey-onditres are traditicnaclly undercsth,ated in the budSgets nd thish.ts to be ta:e-n into account in acscsadng the outlook: fcr 195)-/55.

_ ce-: auJet fig,ures: Yinistry of EcenTmy on the basis cf inforncicn frcn the Trib'u^nl de Cuontas and the Projecto de Presupuesto for 175L/55.-:;_d.-ds f;,am the Pacific .ai-lroad (v:hich ne,er were actuall'r received) are included f. r the years I9L5/46-1952/53, and GCvernr-nt payments for

trainsartaticn with the railroad (never actually paid) are incIuded with expendiatures for t'e sa-e :,ears.

.d jas- cr,ts: Ca1culated by mission on t,e basis cf official figures and infuracation of the Banco Naconal on the cecrations of the foreign exchange law.

_/ Ihis fir-ae has been left cut in the statement prepared by the ,;inistrze of Eccnomy. It is included in tie Frojecto de PresuUC3sto for 195L/55,hoviever.-

j Cf. foot-otne 6 to the table "Zovernment Revenue, 195A/16-195l/55 (thous.nds of c_rdobas)"

3/ Fesed on Alternative I for 195L/55 of the table "Governcnt Revenue, 3,045/L6-1951/55 (thousands of cordobas)."

L/ Cf. f_ tnote 6 to t-he table t:3cver.-ent ENpenditures,194/516-l95./55 (th->-,ua.-ns of cordobas)."

5/ It is custoa.-..ry in Nicaragrua Creatly to underestimate both revenue and exoenditures in the budget. Midway through the fiscal year a supplemnentar-udoet is then voted. In 1293/54 this supplenentary budget .e;as 16 million cordobas, and it has been assumed that it d-11 be 20 million in 1954I/55.

- 2

Expansion of' Barn Credit by Groups (Table)( Ccnttd):

Comnerce (excl exports) That in accordance vrith the estaUblished credit rest9rictionsthere will be no increase over the 5-ear.

Cr 'p credits fcr cott.n.,coffee and other crops That the changes in thEese credits ever the year -ill Ye

the same as the changes in the cr^p credit pr3gram cf the

Bancs Nacional as of August 31, 195I4, compared -<ith August

31, 1953.

Other items That the changes over the year viil be the sare as the

changes from July 31, 1953, to July 31, 1954l