“Coordinadora Civil” from Nicaragua denounces serious irregularities in the national budget

“Coordinadora Civil” from Nicaragua, the national Social Watch focal point, denounces serious irregularities in the national budget before public authorities and international financial institutions.

Managua, 15 March 2004

Dear Sirs

Council of the General Controlling Agency of the Republic

Attorney General

Human Rights Procurator

Board of Directors of the General Assembly

Office of the Attorney General of the Republic

CC:/Managing Director of the IMF

President of the World Bank Group

Social Watch

Inter-Action

“Coordinadora Civil” from Nicaragua gathers over 300 organizations, social movements and individuals and our mission is to support, link and harmonize the efforts of the member organizations and individuals to enhance common efforts for the construction of a citizenship, aimed at achieving human and sustainable development for our country.

From our point of view, a consolidated democracy and a more human, equitable and sustainable development cannot be achieved without a strong and informed citizenship, with the capacity to demand accountability, to debate, propose and deliberate, and therefore, capable of actively intervening in the determination of the country’s future, which concerns us all.

The reason for this letter is to communicate our deep concern over a fact that we consider to be extremely serious. In the examination that we make every year of the Republic’s General Budget, we have found irregularities that have led us to make a deeper analysis and our findings have been even more alarming.

In the first place, we have found that the figure for tax income for the year 2004, which has been recorded in the Republic’s General Budget for the present year, is seriously incongruent. This figure, which amounts to C$ 10,196.4 million – the equivalent of 14.98% of the Gross Domestic Product (GDP) – cannot be correct, as can be demonstrated if it is compared against the previous tax income pattern itself and the tax burden, and against the recent changes in the tax system.

According to this, there should be an expansion of the tax base. The mistake is even clearer if the sharp increase in the contributory universe is taken into account, in addition to the Economic Programme’s macro-economic assumptions – basically the real and nominal rate of growth of the GDP – on which is based the formulation of the Republic’s General Budget (duly submitted to the National Assembly). Various Nicaraguan experts have shared and publicly supported the concern over this finding.

So that this figure, according to these results, does not reflect “generally accepted standards of data quality,” nor the “recent trends of income and expenditure,” nor the “basic macro-economic evolution and well-defined commitments in policy matters,” as established in the IMF’s “Revised Code of good practice in Tax Transparency” (updated on February 28, 2001), of which our country is a member, with the objective of “illustrating the public debate on the design and results of tax policy, making the governments more responsible for their actions.”

In the second place, we have found that the Nicaraguan Government authorities representing our country before the International Monetary Fund (IMF), have engaged the Nation’s credit with such an important organism, with a very different figure of tax income than the one recorded in the Budget for the same 2004 budgetary period. This figure amounts to C$ 11,350 million, equivalent to 16.7% of the GDP. This figure is the goal for tax collection to be achieved by the Government of Nicaragua for the year 2004, and is a key goal regarding the degree of fulfilment, on which in turn other goals that have been committed by the Government with this body depend.

For your information, this goal of the Central Government’s tax income for the year 2004, is clearly established in the “supplementary memorandum on economic and social policies” that the Government authorities sent to the IMF Managing Director on 22 December 2004, that is to say, 13 days after the date that the Republic’s Budgetary Bill was adopted by the General Assembly, to be submitted for the consideration of the Executive Board of this organization.

It should be noted that this “memorandum” is perhaps the most important one that any Nicaraguan Government has submitted to the IMF, as it informs the IMF Executive Board of the fulfilment of the goals and criteria for performance that had been pending to achieve the enhanced Initiative for the Heavily-Indebted Poor Countries (HIPC), requesting its adoption, while they formally commit themselves with the Executive Board to fulfil the goals and commitments taken on by the Government of Nicaragua for the year 2004.

The figure committed to as a goal for tax collection by the Central Government with the IMF for the year 2004, is set at C$ 1,153.4 million – an amount equivalent to 67% of the Budget of the Ministry of Education – above the tax income recorded in the General Budget of the Republic, making evident that the Government expects to receive much higher income than the amount budgeted and the commitment with the IMF for a much higher amount than that recorded in the Budget, has been made for the second year running.

It is also important to note that the goal for tax income committed with the IMF for 2004, is consistent both with the previous pattern of tax income and with the tax burden, and also with the recent changes in the taxation system, implying an expansion of the tax base and a strong growth of the contributory universe, as with the macro-economic assumptions of the Economic Programme – in terms of the rate of growth of the real and nominal GDP – on which the General Budget of the Republic is based.

We cannot neglect mentioning the seriousness of this fact. According to Article 112 of the Political Constitution of the Republic of Nicaragua, all sources of income and their allotment must be recorded in the Republic’s General Budget Law, with no exception, and therefore, non-budgeted governmental income and expenditure are unconstitutional.

We would like to emphasize that we are not denouncing a possible degree of inaccuracy in compliance or variation of budgeted income, which can never be completely exact (because as humans we lack the gift of perfect foresight). Neither are we objecting to the fact that projected income may be subject to revision. However, we demand, in the first place, the responsibility of governmental authorities before the nation and its citizens, in the recording in the Republic’s General Budget of the projections for income according to “generally accepted standards of data quality” and the “recent trends of income and expenditure, the basic macro-economic evolution and well-defined commitments in the matter of policies.” In the second place, that ALL the income expected should be fully recorded in the Republic’s General Budget and that no expected income should ever be concealed for any reason, nor its real amount (and much less if it is of such magnitude). Not recording expected income would be equal to deliberately violating the Constitution.

The argument for not having recorded such income because later it may not materialize, or that it could be revised, seems unacceptable to us. If the real implementation showed that later with all probability there would be a drop in income in comparison with the budget, then the Constitution contains a mechanism to revise this figure, in Article 112, when it establishes that “Any modification to the General Budget of the Republic implying an increase or a reduction of credits or a reduction of income and transfers among the various institutions, requires the approval of the National Assembly.”

Therefore, it is not exclusively with the IMF revision mission that expected income must be revised and automatically decided with this body the actions to be taken without going through the National Assembly. The new revised figures must be submitted to the National Assembly, that is to say, informing that, as shown by implementation, due to the corresponding reasons, income is lesser than the income budgeted and requesting the Assembly to approve the reduction in the income figure in the Budget (the same applies to expenditure).

Nor may the public officials allege, although in fact they have done so, that all expected income, committed with the IMF as a goal is not recorded as a way of having contingency resources in anticipation of unforeseen events. By doing so, they are violating the Constitution and are not respecting the Budgetary Regime Law which stipulates that contingency expenses should be budgeted: “Article 20 – the draft budget for expenditure shall include an item for unexpected expenses, to cover expenses that are not foreseen in the Budget.”

Nor is the argument acceptable that such discrepancy is aimed at financing the tax deficit. All the lines of expenditure that appear in the General Budget of the Republic are only recorded if they have an ensured source of income. Therefore, the deficit appearing in the budget is, by definition, fully funded. If there is any non recorded deficit, it is also outside the constitutional mandate. If this discrepancy is reserved to cover eventual delays in disbursement of loans or donations, this is no justification for not recording it.

Finally we would like to point out that this marked discrepancy between the budgeted figure and that committed to with the IMF not only occurs with tax income, but, according to all the indications we have, it also occurs with allotments. According to documents in our hands, all goes to indicate that commitments with the IMF are not only a goal of tax income higher than the tax income budgeted, but on the side of allotments, a transfer of resources to the Central Bank, higher than the figure budgeted.

In our opinion, in order to restore compliance with the constitutional and legal framework structured by our Republic, the suitable and correct solution to this situation can only be the recording of the totality of expected income in the General Budget of the Republic, together with the corresponding allotment of this income. We consider that, according to the constitutional mandate, set out in Article 150, item 2, of fulfilling the Political Constitution and Laws and ensuring that the officials under his dependency also comply with them” the President of the Republic is called upon to take the initiative in this direction.

Having shared with you this serious concern that affects us as citizens, and which we believe to be our responsibility, a concern that in the full exercise of our citizen rights we have previously expressed in public and at events to which we have invited the officials of various State powers, we reserve the right, if these events are not corrected, to make use of all the mechanisms and procedure established in the Republic’s Political Constitutions and Laws to achieve this objective.

In the meanwhile, we are at your disposal to provide you with any additional information you may deem pertinent in order to go deeper into the facts set out in this letter.

Yours sincerely,

Violeta Delgado Vidaluz Meneses

National Liaison National Liaison

Coordinadora Civil