June 10 will be watershed day for Nicaragua when The Millennium Challenge Corporation (MCC) makes a final decision as it has announced it will. More at stake here than 61 million USD grant for the new Leon-Managua road among the many projects planned. The relationship was strained between current Nicaraguan government and the fund representatives long before the election fraud allegations suspended future disbursements. The decision to renew the fund could influence the EU, WB, and IMF to approve loans hereto have been rejected. A decision by the fund to cancel future disbursements could affect Nicaragua negatively for the next 2 years or more.
Few are lending money to Nicaragua at this time and the government is keeping afloat with IOU’s and belt tightening. The Nicaraguan government is filled with red ink and if can’t get loans to cover its expenses it will have to resort to monetary policy as fiscal policy is almost nonexistent in Nicaland. Printing money or monetizing the debt is US government policy at this time so if the US Government can do it why can’t Nicaragua?
Between 1893 and 1907 in Nicaragua there were two central banks competing for primacy to issue paper money. Every 18 months or they would hammer an agreement and money would be issued only to be recalled and exchanged for new money with different design. There are records well documented of this process even if the bills do not exist anymore. So the wealthy Nicaraguan holding a 100 Peso note would have to exchange the old bill for the new one by a certain date. If not turned in the bill would be worthless. One peso then was probably worth 10 to 15 USD today and not too many currency ‘collectors’. Point is that the decision to recall these bills had similar reasons with the legitimacy of the new currency just released. So and so didn’t approve it and this person didn’t sign off, or the signature on the bill should be someone else etc.
The US government owes 11.3 trillion dollars and has a GDP of 14 Trillion which gives a Debt to GDP ratio of approx .80. The Obama administration had said the over the next 2 years they will add 3 trillion more to the debt-They are assuming we will grow GDP which is compete fantasy and another story. So the numerator goes higher and the ratio larger for the US going forward. In Nicaragua the debt is approx .56 to .82 depending on what is included so pretty much like US or a bit lower. So 3 trillion USD will be “printed” or borrowed of whatever term you use over the next 2 years.
So 3 trillion more debt in the next 2 years would raise up GDP 21.5% (assuming all money borrowed is spent) in the USA. All things being equal Nicaragua could ‘Print’ 500 million to 1.5 billion dollars over the next 2 years and still keep purchase parity with the recently declining US dollar. This I believe is what they intend to do. The current government has little choice. The current government has gone ahead and without all the appropriate steps or approvals has issued new money with plans to print themselves into another presidential term for Ortega. Some monetizing of the Cordoba is warranted as it is linked to the US dollar-only question is how much? Could be anywhere from 500 million to 1.5 billion in new found money for Nicaragua!
More good news for Nicaragua the current oil prices are soaring again but this time in a world economy which is supposed to be in a recession. This is scary for users of oil. Nicaragua sells oil from Venezuela to others at world prices and this is and has been the X factor keeping this government on life support.