Nicaragua had fixed its exchange rate at the start of the period, in the context of some limited monetary policy. The 1980s under the Sandinista government in the 1980s was a period of unstructured discretion, with growing fiscal deficits overwhelming the exchange and other controls also operated. The following governments moved to stabilise the economy and reverted to fixing the exchange rate from 1996.
|Years||Targets and attainment||Classification|
|1974-79||exchange rate pegged to USD with narrow margins; monetary policy instruments include reserve requirements, interest rate controls, credit controls backed by rediscount facilities, and controls on banks’ foreign borrowings; monetary growth also affected by fiscal deficits; interest rate structure revised 1976; exchange controls tightened late 1978 (with rising spread on parallel market), large devaluation early 1979; worsening security situation from Sandinista guerrilla actvitiy||augmented exchange rate fix AERF|
|1980-90||new post-civil war government intensifies exchange controls with multiple rates and tries to control parallel market, introduces wider price controls and subsidies, nationalises and consolidates banks (and other companies), and shifts emphasis between monetary instruments from reserve requirements towards selective credit controls and between goals towards growth in priority sectors; high central bank financing of government and non-bank nationalised sector, high overall credit expansion, rising foreign indebtedness; external transactions shifted over time to ‘parallel’ market with more depreciated rate; 1985-86 further devaluations and additional exchange rates (which lead to rising losses of central bank but fail to halt rising real appreciation), very wide spread in parallel market; very high public sector deficits (larger rises in defence than cuts in non-defence spending) and credit expansion from mid-1980s; attempts to restrain credit growth undermined by fiscal and other policies; adjustment policies 1988 including currency reform with new córdoba pegged to USD, but almost immediate slippages, further depreciations; 1989 further stabilisation attempt more successful, multiple further depreciations; security issues from ‘contra’ guerrilla activity most of 1980s; US trade embargo 1985-90||unstructured discretion UD|
|1991-95||1990 following pre-election relaxation new government introduces second currency, córdoba oro, pegged at par to USD, and continues to adjust exchange rate of new córdoba, which is phased out 1991 with large devaluation of córdoba oro; 1993 further devaluation and crawling peg at pre-announced rate of 5% per annum, later raised to 1% per month; 1991-95 interest rate and other financial liberalisation and reform, with central bank lending to banks curtailed, credit controls eliminated, reserve requirements simplified and reduced, central bank independence increased, central bank negotiable paper (CENIs, exchange rate indexed) introduced; 1995 fresh stabilisation efforts||loosely structured discretion LSD|
|1996-2017||1996 exchange rate unification and liberalisation; some development of interbank forex market, but central bank buys/sells any amount of foreign currency at exchange rate determined by pre-announced crawl; new government 1997 reinforces stabilisation and structural reform (despite serious hurricane damage 1998), including reduction in large outstanding stock of CENIs and lengthening of their average maturity, reduction in speed of exchange rate crawl to 9% p.a. and then 6% 1999-2000, but policy slippages return; banking crisis 2000-01; dollarisation rises through 1990s to high levels in 2000s; new government 2002 more serious about stabilisation and corruption, but political tensions lead to renewed slippages; 2004 rate of exchange rate crawl cut from 6% to 5%; sharp rises in inflation 2007-8 due to commodity price shocks and natural disasters, later reversed under impact of GFC; 2008 controversy affecting central bank management board over CENIs issued in banking crisis of 2000-01, temporary halt to debt payments on them, followed by bond restructuring; new central bank papers introduced for short-term liquidity management 2014; monetary policy uses OMOs but remains focused on quantities rather than interest rates, notably reserve targets, and on exchange rate crawl, within highly dollarised economy; statistical database still weak||augmented exchange rate fix AERF|
Selected IMF references: RED 1975 pp18, 27-9; RED 1977 pp14-16; RED 1981 pp28-30, 36, 54-7; RED 1984 pp22-4, 25, 30, 33, 37-8, 53-4; SR 1984 pp11-14; RED 1985 pp26-7, 44, 60; SR 1985 pp8, 11-12; RED 1986 pp46-51; RED 1987 pp27-8, 32-3; RED 1988 pp42-4; SR 1988 pp1-11; RED 1991 pp28-30, 46-7; SR 1991 pp8-10, 24; RED 1994 pp1, 18-19, 20-1, 28-9; RED 1996 pp15-17, 45-7; SR 1996 pp8-9; SR 1998 pp42, 45; SR 1999 pp11, 12, 40-1, 54; SR 2001 pp5, 8; SR 2002 p8; Fifth and Sixth Reviews under the Three-Year Arrangement under the Poverty Reduction and Growth Facility (2004) p15; SI 2005 pp27-34; SR 2005 pp8, 28-30; First Review under the Three-Year Arrangement under the Poverty Reduction and Growth Facility (2008) pp13, 15; SRIA 2007 p3; SR 2010 pp15-16; SR 2013 pp8-9; SRIA 2013 p4; SR 2015 pp13-14; SR 2017 pp15; SRIA 2017 pp2-3.
Additional sources: Ocampo (1991).
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