The Credit Crunch

In his January 30, 1985 letter to the Inter-American Development Bank President, Antonio Ortiz Mena, Secretary Schultz wrote to express the United States' "strong concern" over the possibility of Executive Board consideration of a proposed $58 million agricultural credit loan for Nicaragua. Schultz requested "the documentation for the proposed loan be deferred. "

"Nicaragua is not credit worthy," he continued. "I understand that Nicaragua did bring its arrears with the IDB current in October of last year, but interpret this effort as merely a temporary expedient to allow it to become technically eligible for further Bank lending."

"The United States continues" Schultz wrote, "to be concerned over the focus and direction of Nicaragua's macroeconomic policies and questions whether that Government can generate the economic growth and foreign exchange revenues needed to repay the proposed loan."

"We are also concerned about the possible misuse by Nicaragua of the proceeds from such a loan ... the money is fungible; monies received from the Bank would relieve financial pressures on the GRN [Government of the Republic of Nicaragua] and free up other monies that could be used to help consolidate the Marxist regime and finance Nicaragua's aggression against its neighbors, who are members in good standing of the Bank."

As regards future U.S. congressional appropriations for the IDB, the letter continued, "there is little doubt that Executive Board approval of the proposed agricultural credit loan for Nicaragua would make our efforts even more difficult," in getting future U.S. congressional appropriations for "international lending institutions, such as the Inter-American Development Bank."

At a press conference in Washington DC, Joaquin Cuadra Chamorro, the Minister-President of the Central Bank of Nicaragua, condemned the U.S. for interfering in the decision-making process of the IDB, a multilateral financial institution. Excerpts from the question and answer session follow.

Q: Has Nicaragua attempted to lobby any governors of the IDB to consider your loan proposal?

A: Yes, we have had conversations with different governors at the Bank. As a result of those conversations, there has been almost a unanimous consensus in objecting to the heavy-handedness of the United States. But that has been in private.

Q: Were Nicaragua's loan application to make it to the IDB's directorate, would it be approved?

A: I'm not sure. Each governor on the Bank represents an individual government when they vote.

Q: Have you tried to get the president of the Bank to consider Nicaragua's $58 million loan request?

A: Yes, I had a meeting with him after the end of the Bank meeting in Vienna on March 25, but I prefer to keep the nature of our discussion private. What is important to us is that our loan will be reviewed on the basis of economic and technical information.

Q: Can you describe the impact on Nicaragua's economy if this loan is not considered?

A: It will only have a small effect on the economy if it is not considered and approved. But it is very important that it be considered because this loan supports a scheme of development that my government has chosen. It is known that my government has chosen a mixed economy. The loan will be used by small and medium sized farmers. That is why we consider it so important.

Q: Does that mean if this loan is rejected the government will play a bigger role in the economy?

A: No, not necessarily.

Q: What specifically would you like to see other member nations do to get Nicaragua's loan approved?

A: If it was possible to get a resolution from them endorsing Nicaragua's loan proposal to the governors of the Bank, that would be very helpful.

Member countries of the Inter-American Development Bank reacted strongly to the Schultz letter and the politicizing of the IDB, at the 26th Meeting of the Assembly of Governors, held in Vienna, Austria, (March 23-27, 1985).

The majority of these nations were highly critical of politics being used as criteria for lending. The Mexican delegation argued that projects "presented for financial development should be evaluated on objective criteria."

"Politics should not be forced upon [IDB] members," charged the Colombian representative.

France, Switzerland, Italy, Austria and Panama also called for a sanitizing of lending practices.