Nicaragua’s central bank (BCN) reported this week that it had cancelled a $220 million debt it had received in an emergency loan from the Central American Bank for Economic Integration (CABEI), which it had granted five years ago to address one of the worst financial outflows from the country’s financial system, affecting its total international reserves.
By keeping this $220 million of its reserves as a “cushion” to cushion the shocks, the central bank had to pay $28.7 million in interest. The last installment was paid last July.
The Bank of Nicaragua explained that it applies to “this credit line to resolve the liquidity emergency to strengthen the financial safety net, protect financial stability and contribute to the credibility of the exchange rate system, a fundamental pillar of macroeconomic stability in Nicaragua.”
He pointed out that with this cancellation, the bank reaffirms its “firm commitment to immediate compliance with its international financial obligations and ensuring the stability of the monetary and financial system.”
In 2018, the Ortega regime was forced to urgently activate the CABEI-managed emergency fund for partner countries. State repression caused a massive outflow of resources from banks, forcing the Chinese central bank to inject resources into them, causing international reserves to decline.
Read also: CABEI's resources to maintain stability Nicaragua's international reserves are about to run out
Low reserves
Total international reserves closed 2017 at $2,757.8 million, but due to the severe crisis that rocked the country in 2018, they decreased by $2,261.1 million, a loss of $497 million less.
Such was the impact of the outflow of resources on the national financial system that, 191 days after the outbreak of the political crisis, the Ortega regime had already requested from CABEI $150 million of the $200 million line announced in 2018.
The system subscribed to the CABEI emergency program and renewed the subscription every year, but did not use the emergency line until 2018.
Why was the emergency fund used with CABEI? The figures indicated that in 2018, BCN was unable to contain the “bleeding” in banking system deposits, in addition, the central government accumulated millionaire withdrawals from the vault of the largest bank issuer, and also indicated that due to the increasing uncertainty in 2018, the government was unable to make large-scale securities placements, which are essential to feed reserves.
Read also: Fewer branches, fewer jobs. This is the state of the banking sector seven years after its worst crisis
