Nicaragua Economy to Shrink 1% in
2009, Guevara Says
By Blake Schmidt
(Bloomberg) -- Nicaraguan Finance
Minister Alberto Guevara said the economy
will contract this year for the first time
since 1993 as the global slump cuts
remittances and demand for exports from
Latin America’s second-poorest country.
Gross domestic product will shrink 1 percent
this year, after growth of 3.2 percent in
2008, Guevara said in an interview in
Managua. The central bank last revised its
growth projection for 2009 in June, cutting
it to less than 0.5 percent.
“We’re still measuring the impact of the
economic crisis on our country,” said
Guevara, 45. “We’ll still be feeling the
effects for two, three or four years after
developed countries overcome the crisis.”
Guevara, one of the main planners of a
government proposal to raise tax revenue,
said the changes will fill a fiscal gap left
by the suspension of $120 million in aid by
some European countries, the World Bank and
the Inter-American Development Bank. They
cited transparency concerns in November 2008
mayoral elections.
The changes, which include a 10 percent tax
on capital gains, will help to raise tax
collection by 2.4 percent of GDP, he said.
The changes would also exempt the poorest
71,000 tax- paying Nicaraguan workers from
income taxes.
“This is about taxing personal income of
owners of businesses, of shareholders,”
Guevara said. “We’re not trying to reform
the capitalist system. We just want a little
bit of redistributive justice. There’s no
ideological concept here.”
Second-Poorest
Guevara said he expects to win approval for
the changes in October. Nicaragua’s per
capita GDP of $1,025 is the second- lowest
in the Americas after Haiti, according to
International Monetary Fund data.
The country’s fiscal deficit could grow to
as much as 3.5 percent of GDP in 2010 from
about 2 percent this year, he said.
Nicaraguan economist Jose Luis Medal, a
professor at Ave Maria College in San
Marcos, Nicaragua, said the government’s
fiscal reform proposal will deepen the
crisis by creating new taxes during a slump.
The government should focus instead on
convincing U.S. and European countries to
reestablish aid flows and accounting for
Venezuelan assistance, which lacks
transparency, he said.
“Before any fiscal reform, the government
should incorporate Venezuelan aid into the
budget,” Medal said at the Barcelo hotel in
Managua yesterday.
Guevara, a former central bank economist,
expects Venezuelan aid in 2009 to be
comparable to 2008, when it totaled $457
million in oil, financing and direct
transfers.
Guevara said he backs President Daniel
Ortega’s push for a referendum on
constitutional changes that would allow
Ortega to seek re-election.
“I don’t see any problem with it as long as
there’s a political agreement in which the
whole nation decides. It’s the tendency in
Latin America,” he said.
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