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Central American Bank to Limit New Loans to Ortega Regime

Gisela Sanchez, the new head of CABEI, SAID she would be putting the brakes on loans to Nicaragua and El Salvador

Gisela Sanchez, CABEI president, and Ivan Acosta, Nicaragua’s Finance Minister. Photos: Alonso Tenorio / El Financiero, and CCC

Iván Olivares

10 de marzo 2024


Ivan Acosta, Nicaragua’s Minister of Finance and Credit, sent a letter to the new head of the Central American Bank for Economic Integration (CABEI), Gisela Sanchez, rejecting her decision to limit Nicaragua’s access to new loans because the country has already received more than the reasonable amount that can be lent by the bank to a single member.

By nature, financial institutions of all types and levels carefully review the levels of risk implied in concentrating loans on one client or sector, awarding them high percentages of the credit portfolio. Such a review led the Costa Rican bank executive to declare a near-moratorium on the approval of new sums for Nicaragua and El Salvador. Together, the two nations represent nearly half of all the loans awarded by the Bank.

“It’s a fact that at this moment we have a greater level of concentration in the portfolio, with Nicaragua and El Salvador the countries receiving the most funds. My objective is for us to have a more diversified portfolio,” stated the president of the multilateral bank in an interview with Redaccion Regional, a Central American media consortium. During this same interview, she announced her commitment to “protect the exposure limits per country and diversify the portfolio.”

Letter of protest sent by Nicaraguan Finance Minister

In his protest letter, Acosta told Sanchez that her affirmation that the operations approved for Nicaragua were “’from a scheme of little balance, and without technical rigor’ (…) are refuted by the recognition received from both CABEI and other international financing organizations, evidenced in the results of portfolio evaluations that determine quality in execution, payment and duly certified accountability during these last 17 years.”

Acosta reminded the CABEI president that, as a founding partner, Nicaragua has “the right to solicit financing for its development programs, according to the established requirements and policies,” hence he considered that “her declarations don’t contribute to the management exercised by the Bank and to the spirit of Central American integration.”

The mission also hinted indirectly at an attempt to disparage the intentions of the new administration of the regional entity, by recalling that: “in the multilateral financial institutions, the policies and strategic vision are defined in the Governing Board Assemblies and respond to the Bank directive board, in their role as representatives of their governments as shareholding partners.”

Finally, Acosta recalled that Sanchez had been elected with Nicaragua’s support, noting that they appealled to “the backing of our vote on the day of your election, and I urge you respectfully not to convert the Bank into a political battlefield, which, I reiterate, doesn’t fertilize Central American development and integration.” At the same time, the letter demanded “respect when addressing our country and the government representatives of the Republic of Nicaragua.”

Two back-to-back blows to the Nicaraguan dictatorship

The decision of the UN Green Climate Fund to cancel a project of the Nicaraguan regime that had been originally approved for a US $116.6 million dollar loan came days before the CABEI president’s promise to limit Nicaragua’s access to new loans. Together, these two developments will force the regime to seek new sources of outside financing, believes economist Juan Sebastian Chamorro.

The significant reduction in outlay from the Inter-American Development Bank and the World Bank will also push the Nicaraguan dictatorship to looking at other possibilities for resources, as it has already been doing. Chamorro cited the US $400 million dollar loan from China to construct an airport at Punta Huete, and the possibility exists of their seeking resources with South Korea, India, the Saudi Development Fund or the new Development Bank started by the BRICS group.

“We should recall that the Inter-American Development Bank hasn’t had a country strategy in Nicaragua in the last three years and that’s important because the IDB was their second largest source of financing after the World Bank, but both have been reduced,” he stated. He further noted that those sources tend to be more expensive. For example, the loan for the Punta Huete airport “in addition to the fact that it comes tied to Chinese contractors comes at a rate of interest that’s well above that offered by the World Bank and the IDB.”

According to his criteria, that Chinese $400 million dollar loan ignores the Public Debt Law, that establishes the amounts of debt that the State can contract annually. That legal text was part of the debt relief the country obtained through the International Monetary Funds’ Heavily Indebted Poor Country (HIPC) Initiative and tries to avoid having the debt again undergo uncontrolled growth in the countries that received that benefit.

“I’ve noted that Ortega has had a party with the financing… and that such considerations apparently don’t matter to him, because what he wants is simply to obtain more resources,” Chamorro stated.

Another Nicaraguan economist, in exile like Chamorro, told Confidencial that while the reasons that moved CABEI president Sanchez to close off those loans, “are strictly technical and without any consideration for human rights issues,” the dictatorship received “a strong blow”, although it will always have diverse options for obtaining funding in other credit markets.

“With the endorsements they still have from the World Bank, the regime can still find some private international financers. True, at a greater cost and with more commercial limitations than the CABEI gave them, but loans that leave them free to use them for whatever they want with no strings attached,” he noted.

In terms of the rest of Central America, this economist felt that, in private, the dictatorship will begin to move their pieces to threaten, pressure, blackmail, or persuade Honduras and El Salvador especially, although they’ll also talk with Guatemala and Costa Rica to remind them that they have mechanisms to take revenge on the partners that vote against the loans that Nicaragua asks for, because those countries more frequently recur to the CABEI to obtain soft loans or loans that are very freely available.

Stopping payment to the CABEI would be suicide

Regarding the hypothesis that the regime could react to the brake on the approval of new loan funds with a policy of retaliation in which they stop making their payments to the bank in order to harm its international credit rating. However, two sources discounted that line of action, since for the dictatorship, that kind of behavior would be “like shooting yourself in the foot.”

Juan Sebastian Chamorro said that since Nicaragua is a partner in the Bank it would make no sense to operate against a business in which they participate as a co-owner, especially since the Bank is doing well, since it’s earned a lot of money in the last ten years. Applying that strategy as a form of reprisal isn’t something that would be in the best interests, even of the regime.

On the contrary, he believes that what they should do is look for ways for the Bank to borrow more money in order to make the fund bigger and have more access to resources. “Boycotting the Bank and affecting the country’s credit history doesn’t seem to me like a reasonable strategy. They’re the losers there, because they don’t obtain any more funds that way, it affects a business in which they’re co-owners and they lose as a country since a default would affect the already weakened international image of the dictatorship, he felt.

An economist who works at one of the CABEI offices told Confidencial that while technically it’s possible to assume such an intransigent position, doing so would be “like waging warfare,” but that’s never going to happen because the Bank will never cut credit to Nicaragua except for technical reasons, like for everyone when they exceed their loan limits.”

This source discounted the possibility that the sudden brake on new resources for Nicaragua from the CABEI can be explained as the application of a policy that is reacting to the violation of human rights in Nicaragua. Instead of this, it all is in simple obedience to technical criteria.

“The Bank president wouldn’t be applying that kind of policy. First, because the Bank is totally apolitical, so it can’t set any kind of political position. In second place, if there were a position of that type, it would be a topic for the Directive Board, never for the executive president, because policy is defined by the board, not the presidency,” Chamorro explained.

This article was published in Spanish in Confidencial and translated by Havana Times. To get the most relevant news from our English coverage delivered straight to your inbox, subscribe to The Dispatch.


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Iván Olivares

Iván Olivares

Periodista nicaragüense, exiliado en Costa Rica. Durante más de veinte años se ha desempeñado en CONFIDENCIAL como periodista de Economía. Antes trabajó en el semanario La Crónica, el diario La Prensa y El Nuevo Diario. Además, ha publicado en el Diario de Hoy, de El Salvador. Ha ganado en dos ocasiones el Premio a la Excelencia en Periodismo Pedro Joaquín Chamorro Cardenal, en Nicaragua.