JUNE 2006 • EMBASSY OF SWEDEN, NICARAGUA

Sida Country Report 2005

Nicaragua

Content

1 Summary ............................................................................................. 3

2 Political, economic and poverty development .................................. 5

2.1 Political development and good governance ............................... 52.2 Human rights and corruption....................................................... 72.3 HIV/AIDS situation ..................................................................... 72.4 Macro-economic development ..................................................... 82.5 Poverty reduction .......................................................................... 92.6 Donor coordination and harmonisation ......................................11

3. Swedish DevelopmentCo-operation – Strategic Assessment and Considerations ................................. 12

4 Specifi c Country Programme Overview .......................................... 14

4.1 General Budget Support ..............................................................144.2 Democracy and Human Rights ..................................................154.3 Social sectors ...............................................................................184.4 Infrastructure, Private Sector and Urban Development ........... 204.5 Natural Resources and Environment ........................................ 204.6 Research co-operation ................................................................214.7 International Training Programme ........................................... 224.8 Programme Development Fund ................................................. 224.9 Brief Account of Sida Support to Regional

Co-operation Programmes of Relevance for Nicaragua ............ 22

5. Offi ce and administrative issues ....................................................... 23

5.1 Work on quality assurance .......................................................... 235.2 Current resources and staffi ng .................................................... 235.3 Major events ................................................................................ 23

Annex 1 Fact Sheet ................................................................................ 24

Annex 2 Country Report – Nicaragua ................................................... 25

Annex 3 Strategic Documents Received .............................................. 27

Published by Sida 2006

Department for Latin America

Author: Embassy of Sweden, Nicaragua

Printed by Edita Communication AB, 2006

Art. no.: SIDA29113en

This publication can be downloaded/ordered from www.sida.se/publications

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1 Summary

The following report provides an overview of political, economic and social development in Nicaragua and describes the main features of Swedish development cooperation. The report is a follow-up instrument to the Swedish Regional Strategy for Development Cooperation with Central America and the Caribbean, the Country Programme and the Country Plan for Nicaragua 2005.

During 2005 political life was characterized by the pact between the two major political parties and the constitutional reform, which was designed to transfer authority from the executive to the legislative. The pact hampered Government and National Assembly actions and led to large but peaceful demonstrations all over the country. After mediation by the OEA, the constitutional reform was postponed.

2005 was also marked by the election campaign for the March 2006 regional elections in the Atlantic Coast and presidential and parliamen-tary elections in November the same year. The different political parties started to position themselves, and a number of electoral observations missions were planned.

Economically, Nicaragua remains one of the poorest countries in Latin America. According to the IMF, the macro-economic situation developed satisfactorily. The government presented its second-generation poverty reduction strategy, the National Development Plan, in Novem-ber 2005. The plan puts emphasis on broad based economic growth, employment generation, increased investment and export promotion.

The government dedicates 47 percent of its expenditure to poverty reduction. Because of the highly unequal distribution of income and the population growth, it is doubtful, however, whether poverty has been reduced. In the absence of census data, indicators related to the Millen-nium Development Goals are used. Recent assessments show that there is a low possibility of achieving most of the goals.

During 2005, Sweden disbursed 305 MSEK towards the development cooperation programme in Nicaragua, including 60 MSEK in budget support, 16 MSEK through NGOs, and 27 MSEK for research (see Annex 4). Important contributions were made to the Human Rights and Democracy sector (including regional autonomy), Health sector, Rural Production sector and the Infrastructure/Housing sector. Apart from the sector wide support to the health sector, a new sector support in the rural production sector was under preparation.

During 2005 Sweden was the chair of the donors in the coordination mechanism of Round Tables.

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2 Political, economic and poverty development

2.1 Political development and good governance The year 2005 was characterized by its crises and ups and downs. The most crucial political moment came in April with the transport strikes. Due to higher oil prices, the bus fare was supposed to increase, which would have had an important impact on poor people. Big demonstra-tions were arranged, parts of Managua were inaccessible, and security in some parts of the city was in fact at risk. The President put himself at risk by walking down to face the demonstrators, but helped considerably to solve the crisis as he was seen as a real “caudillo”, a strong political leader, who confronted the danger. A short term agreement was arranged and the calm returned, for a time.

The pact between the main political parties, the FSLN (the Sandinis-tas) and PLC (the Liberal party), was in force most of the year and has hampered both Government and Parliament actions. Its most controver-sial aspect was the constitutional reform, which was designed to transfer authority from the executive to the legislative. Nevertheless, the pact was also challenged. The “Movimiento por Nicaragua” was created to stop the constitutional reforms and the “dictatorship of the pact”, as it was called. In June an impressive and peaceful manifestation was held in Managua with an estimated 100.000 participants, in the press described as “tsu-nami against the pact”. Similar demonstrations were held in different parts of the country, which shows that political discontent is not only a Managua phenomenon.

The attempts by the government and the pact to dialogue failed, in spite of mediations from Cardinal Miguel Obando y Bravo and a visit by the newly elected OEA Secretary General Miguel Insulza. The delegate subsequently sent by Insulza, Mr. Dante Caputo, succeeded a month later in persuading the parties to accept a truce. This resulted in the October 19 passage by the Assembly of the Ley Marco (Frame Law), which stipulates that the constitutional changes will not be implemented until after the November elections, in January 2007.

The next problem to arise was the health sector strike, which began in November and is still on-going as this is written in March 2006. Health care has been at a minimum, and many of the indicators for health will be seriously affected.

The election campaign for regional elections to be held in March 2006 and for the Presidency and National Assembly in November 2006

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started during the year. The FSLN party declared at an early stage that no primary elections were to be held, and Daniel Ortega was elected presidential candidate at the party’s congress. But a substantial number of party members preferred Herty Lewites, Managua’s former mayor and a popular fi gure. He challenged Ortega, but the congress discarded his candidature on formal grounds, and in the end he was excluded from the party. However, he was seen as the most popular Nicaraguan politi-cian in all opinion polls throughout the year and subsequently formed his own political group, Alianza HL.

The PLC has not yet chosen its presidential candidate. In 2003, Arnoldo Alemán, the former president, was sentenced to 20 years’ prison (presently served at his home) on corruption charges. There have been speculations as to the possibility of his receiving amnesty, or being absolved, and coming back as a presidential candidate. What is clear, nevertheless, is that he will have a strong infl uence on the party’s selec-tion of its presidential candidate. Of the names that have been mentioned is José Rizo, former vice president, and a close friend of Alemán. There are others who seem to be happy with Alemán as a close adviser. Inter-estingly enough, there is also a PLC outsider who challenges the present PLC leadership. He is Eduardo Montealegre, a former fi nance Minister in Bolaños government and also minister during Alemán’s presidency, who belongs to one of Nicaragua’s top banking families. Among many Nicaraguan Liberals, and others who don’t want a Sandinista govern-ment, or the return of Alemán, he is seen as a positive alternative. In the opinion polls he often ranks second after Lewites. The international community has decided to dedicate resources for international election observations. The OAS, NDI, Carter Centre and several national organizations manifested their intention to be present during the region-al as well as the national elections. At an early moment the Heads of Missions from the European Union locally expressed the importance of a European election observation mission.

Nicaragua has not been spared the natural disasters that haunt the region. The rainy season was exceptionally heavy, with fl ooding in several parts in Managua and other parts of the country. Fortunately, some of the worst hurricanes just passed close by. Hurricane Beta created strong fears on the Atlantic Coast, but affected only a small part of the territory. However, this made it clear to the Nicaraguans that disaster prevention must improve. Severe problems such as famine and invasion by rats have been present in the north-eastern part of the country, along the Rio Coco border with Honduras.

In general terms, Nicaragua has a good relationship with its neigh-bours. During the second semester of 2005 Nicaragua held the presiden-cy of SICA, the regional organization for Central American integration and took various steps to improve public safety and prepare for the Customs Union in Central America. This served to pave the way for a free trade agreement between the region and the European Union. CAFTA, the free trade agreement between the U.S., the Central Ameri-can countries and theDominican Republic, was ratifi ed by the National Assembly with much less opposition than expected.

However, there are tensions, particularly with Costa Rica. The dispute between the countries regarding the prolongation and interpreta-tion of the agreement on the use by Costa Ricans of the Rio San Juan, where Nicaragua has absolute sovereignty, has been taken to the Interna-tional Court of Justice in The Hague. The tragic death of a young

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Nicaraguan, who was killed by aggressive dogs in Costa Rica, aroused a wave of nationalist feeling and serves as an example of the discrimina-tion and humiliation to which many Nicaraguan migrants feel they are exposed in Costa Rica.

2.2 Human rights and corruptionApart from the political struggle between the government and the opposition, but partly related to it, impunity and corruption affected the human rights situation in Nicaragua. The judicial and electoral systems, both created to be independent Government authorities, have been totally dominated by the two big opposition parties and are perceived as highly politicized. During the year the courts at different levels dismissed evidence and convictions against international drug traffi ckers in a number of cases. Most attention was given to USD 607 000, originally confi scated by the police and deposited in the Supreme Court of Justice. After a series of questionable manoeuvres by judges, the money disap-peared. As to the Supreme Electoral Council, doubts about its impartial-ity led to an increasing number of voters abstaining from participation in recent elections.

The fi ght against corruption has been a central theme in governance. The cases of former president Alemán and former head of the National Tax Authority Byron Jeréz are in the courts in Panama, but there has been a noticeable lack of willingness from the Nicaraguan judges and prosecutors to help provide the Panamanian courts with evidence to the processes.

However the perception of wide spread corruption also relates to other state institutions, such as the National Assembly, the Auditor General, the National Prosecutor and the Human Rights Ombudsman. As to the latter, three Special Ombudsmen – for Children’s, Women’s and Indigenous issues, resigned during the year.

Domestic and sexual violence continues to be the most frequently reported abuse against women’s rights. Violence against children is also an increasing problem. Children of 15 years and younger constitute 40% of the population. According to UNICEF, only 29% of them complete primary school. Indigenous and other ethnic groups in the Atlantic Regions not only complain of racial and religious discrimination, but also of negligence and, in rural areas, an almost total lack of infrastruc-ture and health care.

There is widespread discrimination against persons with physical and mental disabilities.

2.3 HIV/AIDS situationThe fi rst case of AIDS in Nicaragua was reported in 1987. The number of cases has accelerated, reaching an incidence rate of 8,24 per 100 000 inhabitants by September 2005. At this date 1,914 (compared to 1,607 cases by December 2004) HIV-positive persons had been reported including 235 cases of AIDS and 519 deaths from AIDS. The male: female ratio has changed from 6:1 to 3:1 in the last three years, which suggests a tendency for a faster increase among women. The National Health Plan recognises the increase in HIV/AIDS as a priority and future challenge. Its goal is to detain HIV/AIDS by 2015 and begin to reverse the trend of increased transmission. There are no estimates available on the extent to which HIV/AIDS affects the economy. A recent UNICEF study is mapping the institutions in Nicaragua working

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in the area of HIV/AIDS and shows that at least 55 NGOs, 8 interna-tional NGOs and 9 government entities are actively working with HIV/AIDS. An updated National Strategic Plan is under preparation, which will hopefully facilitate the coordination and harmonisation among donors.

2.4 Macro-economic developmentNicaragua remains one of the poorest countries in Latin America. Given the highly unequal distribution of income, it is uncertain whether pov-erty has been reduced (see below).

According to the IMF, the macro-economic situation is developing satisfactorily. Several IMF missions during the year have assessed wheth-er conditions for the PRGF programme1 were being met. Although several structural conditions were still pending, the missions found that the macro economy was characterised by stability in spite of a dramatic increase in oil prices. Tax collection had increased, and the economy was growing, although at a slower rate due to the rising energy prices2. Other agencies, e.g. the European Commission, focus on other, less favourable economic indicators.3

The economic growth for 2005 has been estimated at 4 percent, which was a decrease compared with 2004 (5,1 percent) but still satisfactory in comparison with low tide 2002 (0,8 percent). It is also better than all the other countries in Central America, possibly with the exception of Honduras. The economic activity index increased by 5,8 percent, mainly in the industrial, commercial and general government sectors4. Infl ation ended at 9,58 percent, a slight increase from 2004 (9,26 percent). With a population growth calculated at 2,6 percent this means a small real growth per capita.

One of the major economic problems facing Nicaragua during 2005 has been the rise in energy costs. Since 2002, the cost of oil and petrol has risen from 6 to 11 percent of GDP. Compared with 2004 this is an increase by 34 percent. In spite of the fact that Nicaragua has the poten-tial for an increase in renewable sources of energy – including geother-mal energy – the country heavily dependent upon imported fossil fuels. This increases the vulnerability of the economy. Since the energy and public transport companies are unable to raise regulated prices and to ef-fi ciently collect fees, subventions also have negative effects on the fi scal defi cit.

The trade defi cit increased by 21 percent from 2004 and was estimated at MUSD 1,520 by the end of 2005. World market prices increased for many of Nicaragua’s export products, such as coffee (+42 percent), but in some cases this was offset by a decrease in volume (coffee -31 percent). The trade bal-ance from the free trade zones (zonas francas), taken separately, showed a surplus of MUSD 195. Nicaragua has signed the free trade agreement between Central America, the Dominican Republic and the USA (DR-CAFTA). It remains to be seen what effects the agreement will have on various sectors of Nicaragua’s production and trade.

Two factors improve the picture: remittances from Nicaraguans working abroad increased by 16 percent to MUSD 600 (according to other sources this is underestimated), and tourism increased by 8 percent to MUSD 207.

1 PRGF, Poverty Reduction Growth Facility2 IMF Staff Assessment, December 20053 Country Strategy Paper, Nicaragua 2007–20134 Banco Nacional de Nicaragua, Indicadores económicos y financieros, febrero de 2006

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In total, international reserves reached a record level of nearly MUSD 700 (in 2004 MUSD 660). This is partly due to relief of external debt. Apart from the HIPC5 relief already accorded, another MUSD 135 was agreed during 2005, not counting the inclusion of Nicaragua in the Multilateral Debt Relief Initiative estimated at MUSD 825. A total of MUSD 7,153 (around 60 percent of Nicaragua’s external debt) has been formally relieved, of which around two-thirds is bilateral. From an external debt situation in the beginning of 2004, where around 180 percent of annual exports had to be used for debt service, Nicaragua is expected to reach a sustainable situation in 2008 (150 percent according to HIPC defi nition). This is, however, on condition that the country fulfi ls the terms of the debt relief indicatives: macro economic stability, a satisfactory implementation of the poverty reduction strategy, and public fi nancial management systems that have not deteriorated since HIPC completion point.

The internal debt makes up around MUSD 1,308 or 20 percent of total public debt (which was MUSD 6,617 or 132 percent of GDP in Decem-ber 2005). The internal debt is politically sensitive since it was largely made in order to fi nance compensation for property expropriated during and after the revolution, and for solving the crisis in the banking system which was partly due to fraud and corruption.

The outcome of the budget shows a defi cit after grants received from donors corresponding to around 2,2 percent of GDP (approximately MUSD 108). This should be compared with 2004 (2,4 percent) and with a peak of 8,9 percent in 2002. Revenue collection increased by 11 per-cent to MUSD 802 and donations increased by 18 percent to MUSD 167. Projections of increased revenue were not fully incorporated into the budget amendments during the year, which contributed to a lower defi cit – but also to criticism that more expenditure could have been afforded. However expenditure also rose to almost 23 percent of GDP. One part of expenditure that raises much concerns with the IMF is the wage bill, which amounts to 6,9 percent of GDP (no fi gures available for 2004). Therefore, the IMF set a maximum increase of public sector salaries and related costs to 9 percent during 2006 as a condition for a continuation of the PRGF programme. This IMF ceiling was a key obstacle in the negotiations between the government and health employees to solve the health sector strike, which started in November 2005, and is still ongoing when this document is written in March.

During 2005, Nicaragua was declared off-track from the PRGF programme by the IMF. The reasons were not macro-economic instabil-ity but lack of structural reforms required by the IMF. The Public Financial Administration Act was fi nally enacted in August and the Tax Code in October among other laws, e.g. bank supervision. However, by year-end certain provisions of the Tax Code had not yet been changed according to IMF recommendations, and it was not until January 2006 that the IMF decided to continue with the programme. This decision also had an impact on debt relief.

2.5 Poverty reductionA national census was carried out during 2005, but the collected data has not been analysed and published6. Therefore no update is available of the fi gures from the previous census, conducted in 2001. According to

5 HIPC, Heavily Indebted Poor Countries Initiative6 In addition to delays, part of the material was stolen in December 2005. This will marginally affect conclusions but also

cause further delays. A preliminary analysis is now due in June 2006.

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that census, 46 percent of the population lives in poverty and 15 percent in extreme poverty. These percentages refl ect the proportion of people living on less than USD 2, and less than USD 1, per day, respectively. Poverty is more widespread in rural areas, where it has been estimated at 64 percent, compared to 25 percent in the urban areas, but due to the denser population this means there still is a large number of poor people in urban areas.

In 2001 Nicaragua presented its fi rst poverty reduction strategy (PRSP)7 with an overall objective of reducing extreme poverty from 19,4 in 1993 to 9,5 percent in 2015. The focus of this plan was to improve conditions in the areas of health, education and water. In 2003, a new National Development Plan was presented with more emphasis on economic growth, and in 2004 came an “operationalised version”, PND-O.

The government was expected to present a second-generation poverty reduction strategy 2005–2009 in June 2005, but the work was delayed until November 20058. This strategy, which defi nes poverty only in economic terms, puts emphasis on broad based economic growth, employment generation, increased investment and export promotion. The poverty reduction is not very explicit in the document, but rather expected to follow automatically from enhanced growth. This national development plan should, however, be seen in a wider context of sector plans, prioritised spending etc. The consultation processes leading up the poverty reduction strategies has been varied. Especially during 2005, the political situation has prevented any dialogue between the Government and the National Assembly. During 2005 two studies were made of Nicaragua’s Poverty Reduction Strategy process. One, “La pobreza en segundo plano”, was commissioned by Sida from ISS, the Institute for Social Studies (The Netherlands) as part of a regional approach also covering Bolivia and Honduras. The study is critical of the focus shift from poverty reduction to economic growth. The other, “Politics and Poverty Reduction Strategies” was commissioned from ODI, the overseas Development Institute, and includes the same countries. One of its conclusions is that it is unrealistic to expect that poverty reduction strategies be able to fulfi l the many different expectations currently associated with these complex processes.

Every quarter, the Government reports on the development of ex-penditure to combat poverty. A new defi nition of such expenditure now includes social sectors and investment in infrastructure, but excludes central administration. According to forecasts in the latest available report9, 47 percent of government expenditure was dedicated to poverty reduction, the same as in 2004. According to the forecast, the share of domestic fi nancing of this expenditure rose from 32 to 46 percent. Poverty related expenditure rose slightly as a share of GDP, but de-creased per capita, due to the population growth.

Figures such as those shown may be an indication of the Govern-ment’s – and the National Assembly’s – commitment to fi ghting poverty, but have little to say about the quality of services delivered to the poor and nothing about efforts to improve the extreme inequity which charac-terises Latin America in general and Nicaragua in particular. A few years ago, the wealthiest 20 percent received almost 60 percent of total revenues, while the poorest 20 percent received 4 percent. One of the results of the 2005 census will be an update of this distribution.

7 Estrategia Reforzada de Crecimiento Económico y Reducción de Pobreza (ERCERP) 8 The plan was approved by IMF and the World Bank in January 20069 Informe del gasto en pobreza, enero-septiembre 2005

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More important information about poverty reduction in the absence of census data are the indicators used for the follow-up of general budget support and sector programme support. In several cases, indicators related to the Millennium Development Goals are used. It is very possi-ble to eliminate gender disparity in primary and secondary education by 2005 and in all levels of education not later than 2015. There is some possibility to halve the proportion of people whose income is less than one dollar a day, between 1990 and 2015. The possibility for all other goals ranges from low to probably low10.

The World Bank’s and the Imp’s Joint Staff Advisory Note11 of the poverty reduction strategy concluded that goals had been overachieved in certain areas of poverty reduction according to the previous strategies. These included education and water, whereas health indicators were lagging behind.

2.6 Donor coordination and harmonisationNicaragua is one of the most donor-dependent countries in the world: foreign support exceeds USD 100 per capita. The most important multilateral organisations present include the IDB, the World Bank, the UN agencies and the European Community. The bilateral donors include, in order of importance: the USA, Sweden, Denmark, Germany, Japan, The Netherlands, Switzerland, Finland and about a dozen other countries.

The Paris Declaration on Aid Effectiveness in March 2005 has had an important impact in Nicaragua. One of its key factors, country ownership, is particularly relevant due to the lead role taken by the Government in the preparations for the declaration. In November, a Cooperation Forum in Managua decided on an action plan for the implementation of the declaration’s objectives in the areas of harmonisa-tion and alignment. This action plan includes participation by civil society since much development work is done outside the scope of coop-eration between the Government and donors. Sweden takes an active part in the special working group set up to enhance and monitor the implementation of the plan. Nicaragua has been chosen as one of the pilot countries to be part of an OECD evaluation during 2006.

A structure for harmonisation, which already existed before the Paris declaration, is the system of round tables. In each sector, a sectoral table has been set up with representatives from the Government, all donors active in the sector, and civil society (in certain sector tables). The overall coordinating body is the Global Roundtable, in which Sweden is co-chair together with the vice Minister of Foreign Affairs.

10 EU Ccountry Strategy Paper Nicaragua 2007–2013, Annex 4 11 Nicaragua – PRSP – Joint Staff Advisory Note, December 30th 2005

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3. Swedish DevelopmentCo-operation –Strategic Assessment and Considerations

The development co-operation with Nicaragua is guided by the Regional Strategy for Central America and the Caribbean for the period 1 Janu-ary 2001–31 December 2005; the Agreement on Development Co-operation for the period 1 June 2003–31 December 2003; the three-year Country Programme (2003–2005); and the Annual Country Plan. The Regional Strategy and the Country Programme have been prolonged until 30 June 2007, and likewise the Agreement with the Nicaraguan Government.

In accordance with the priorities in the regional strategy, the country programme for Nicaragua consisted of a number of contributions to enhance democratic development and economic and social redistribution.

Due to both the increasing harmonisation & alignment process and the development of national and sectoral development plans, Sweden has committed itself to a MSEK 130 budget support 2005–2006 and to a MSEK 203 health sector support 2005–2009. In addition, as a fi rst sign of commitment, Sida has signed the Code of Conduct with other donors and the Ministry of Agriculture for a sector support within the rural sector, PRORURAL. The intention has been to create a balance be-tween these budget or sector supports and a limited number of larger, long-term programmes, complemented by separate support to processes of change, a few smaller strategic and pilot projects and important non-project activities. The need for such a balance was accentuated by the diffi culties to disburse the budget support (see 4.1). However, the volatile political situation and the partisan character of several government authorities also made it extremely important to remain fl exible and use great care in choosing channels and modalities for contributions in the good governance sector.

Despite the political complications, at the end of the year the pro-gramme had been executed according to plans, and MSEK 262 from the country allocation were disbursed. See Annex 4. The plans for 2006 are similar, but since the year will be characterised by elections, some restraints in the execution of the development programme are quite probable. However, with a new sector support on its way, the programme could increase to MSEK 295 by 2007, and MSEK 305 by 2008, if the political situation so permits.

Donors’ dialogue with the government continues to focus on the importance of de-politicising the judicial system and the need to formu-late policies that address inequality. The Embassy’s matrix for dialogue

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issues, which identifi es central themes for each sector has been a good basis for external communication, but will be updated to become more precise.

The mainstreaming of gender in all programmes is a priority accord-ing to the annual plan. However, the dialogue is now so complex, with many different actors, and a range of perspectives, that Swedish priori-ties cannot always be raised in a meaningful manner.

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4 Specific Country Programme Overview

4.1 General Budget SupportIn May 2005, a Joint Financial Agreement on support to Nicaragua’s General Budget (Presupuesto General de la República) was signed between the Government and nine donors12. The JFA regulates the way in which the donors and the Government will interact during the following fi ve years and contains fundamental principles for the political dialogue and a Performance Assessment Matrix for semi-annual follow-up. Sweden decided to grant a total of MSEK 130 for a two-year period (2005–06), but the disbursement of each annual tranche is decided separately by Sida Headquarters upon recommendation from the Embassy. During 2005 the political situation was extremely diffi cult, and was not resolved until October. Moreover, a mission by the IMF to assess whether Nicara-gua was still on-track with the PRGF programme was delayed until September. Although the conclusions of the IMF are not decisive for Sida’s decisions, its analysis of the macro-economic situation was used for the disbursement of the funds for 2005, as an indicator of one of the objectives in the matrix. The support (MSEK 60) was fi nally disbursed in November.

Sida’s experience of the fi rst year of budget support has been that the so-called transaction costs (resources spent for coordinating and adminis-tering the support) were much larger than had been expected, both for the donors and for the Government. However, although work is still needed to improve the assessment matrix and some of the routines, the foundation has now been laid for a more effi cient support and for a better dialogue. Although the total budget support is not as large as, for exam-ple, the US Millennium Change Account, the members of the budget support group have a very important role in the dialogue and are seen as reliable partners by the Government. Preparations have been made for a broader dialogue in election year 2006 and onwards with the National Assembly, the Auditor General’s Offi ce, civil society, political parties and other important stake holders in Nicaragua.

12 Two multilateral (the European Commission and the World Bank) and seven bilateral donors (Finland, Germany, The

Netherlands, Norway, Sweden, Switzerland and the United Kingdom). Although having participated in the negotiations,

the Inter American Development Bank did not sign.

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4.2 Democracy and Human Rights Within the democracy and human rights areas, including the judicial and transparency sectors, Sida collaborates with various public institu-tions as well as with the civil society.

a) Support for the Justice Sector and the Police A decision was taken on the main thematic areas for new cooperation with the justice sector, choosing to support a proposal from the Ministe-rio Público (Public Prosecutor’s Offi ce) directed to develop institutional capacity to deal with the rights protection of gender based crimes vic-tims, especially women and children, and to promote the application of alternative mechanisms to seek justice, avoiding lengthy trials and costly legal procedures.

During the third year of implementation the programme that facili-tates justice in rural communities was extended to the Atlantic Coast, with its diverse justice system. A closer understanding and complementary relationship between traditional and formal justice service is slowly taking place with the programme support. More that 20 percent of the facilitators are women from rural communities taking leading roles in confl ict resolution services. Alternative ways of guaranteeing sustainabil-ity of the programme in the future are being studied by local govern-ments, which have an interest in continuing activities as a way to keep peace in their communities.

The support to the national police 2002–2005 was evaluated during the year. The main conclusion of the evaluation is that the support has contributed to improving the access and quality of police services in poor rural areas and urban areas with a high index of violence. Through the special police stations for women and child victims of gender based violence have been attended by specialized investigators together with psychologists and social workers.13 At the municipal level the police has increased interaction with local actors including civil society, and efforts are made to plan police activities according to the needs identifi ed by the population. The evaluation further states that the participation of the Swedish Police has been important for the introduction of models for bringing the police closer to the community, operative planning, han-dling of resources and improved quality of the graduates from the Police Academy. During the year a strategic plan for 2005–2009 has been developed, which constitutes the basis for continued Swedish support to the police, which in turn will be determined during 2006.

b) Support for the Modernization of Public AdministrationThe implementation of the public sector reform composed of a World Bank credit (PSTAC, Public Sector Technical Assistance Credit) is slower than expected. Progress has been made at technical level regard-ing e.g. the development and implementation of the civil service accredi-tation process and the extension of the integrated fi nancial and adminis-trative management system (SIGFA). However, the institutional arrangements regarding the implementation of the programme are weak and budget constraints are signifi cantly limiting the government’s capac-ity to advance as planned in several areas such as the absorption of consultants.

13 During the latter half of the year the support to the Comisarías was assumed by Denmark.

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c) Support for Democratic Institutionalisation through Political PartiesAs part of an overall programme led by UNDP and aimed at strengthen-ing the democratic institutions of Nicaragua, an initiative called “Sup-port to the Modernisation Process of the Party Institutions in Nicaragua” was initiated in 2005. This joint initiative by Sweden, The Netherlands, DFID, Denmark and UNDP, with technical support by the Dutch Institute for Multiparty Democracy, NIMD, works for the strengthening, modernisation and democratisation of the political parties as well as the political system as a whole.

Another component of the overall institutional strengthening programme is the initiative aiming at strengthening youth leadership, particularly the young political leadership. Sweden also supports this component, which is seen as an integral part of the political party initiative.

In general the two components have been executed as planned but, due to the political sensitivity of the program, a great deal of fl exibility and alternative measures were needed and applied. Different long term activities, such as courses at INCAE Business School, were carried out, as well as one day seminars and work shops, having both a multi- and single party approach. All parties of the National Assembly participate as well as two regional parties from the Atlantic Coast.

In 2005 the fi rst phase of the regional programme, which worked with political parties in the Central American region in an effort to strengthen democratic governance as part of the struggle against poverty and inequalities, ended. Plans for a second phase, to start in 2006, were discussed.

d) Institutional Strengthening on the Atlantic CoastThe institutional strengthening programme on the Atlantic Coast, RAAN-Sida-RAAS, concluded its third phase and entered into a bridg-ing phase, which lasted until the end of 2005. During this period an external evaluation of the programme was made which will serve as an important input for the possible fourth phase, foreseen for the second half of 2006. The evaluation touched upon organisational, structural and content issues and was in general positive to the programme. Even so, a strong recommendation was made to limit the scope of the programme and concentrate the working areas. Since its start in the mid-1990’s, the programme has grown a lot and several actors at different levels are now involved. During the last months of the bridging phase, the political climate of the Atlantic Coast grew more agitated due to the regional elections in March 2006. This affected at least the component working with the regional council of the northern region, RAAN. Fewer activities were carried out and the focus turned mainly to the municipal level.

e) Support for Civil SocietySida collaborates with Swedish NGOs working in Nicaragua and with Nicaraguan civil society in projects focused on education and legal advice in the area of human rights, with particular emphasis on women and children as well as participation and local democracy.

The planned review of guidelines and priority areas for the Embassy’s direct support to Nicaraguan civil society organisations was not initiated. The Embassy made the decision not to enter into the multi-donor fund to support Nicaraguan civil society organisations in promoting democratic governance. Instead it was decided to closely follow the fi rst year of work of the fund and subsequently analyse the pros and cons of this way of working with civil society.

17

In 2005 fi ve new agreements were signed with different organisations from civil society. Support to the child rights organisation AIDEP entered into its second phase, as well as support to the broader human rights organisation CENIDH. The collaboration with CENIDH took on a more institutional perspective and was thoroughly coordinated with other international donors, mainly international NGOs. A new coopera-tion partner was CEPRESI, an organisation working for the rights of sexual minorities and sexual and reproductive rights. Together with Denmark, the Embassy also continued with its support to Foro de Mujeres, focusing on the role of women in different participatory and decision making bodies. Finally, and in close coordination with the program of Foro de Mujeres and the UNDP program, the Embassy signed an agreement with a consortium of four organisations (Fundación Violeta Barrio de Chamorro, Fundación Mejía Godoy, Centro de Dere-chos Constitucionales and Grupo Fundemos) to work on the strengthen-ing of women within the political parties and the promotion of female candidates in the national elections to be held in November 2006.

e) Support for the Office of the Ombudsman for Human RightsIn late 2004 the new Ombudsman and vice ombudsman were elected by the National Assembly. The result of the election – two candidates who represent the two major political parties, the Sandinista Party and the Liberal Party – has marked the work during 2005. The programme, aimed at institutional strengthening, human rights education and protection and which is co-fi nanced with Denmark, suffered severely from sub execution. This was due to uncertainty regarding the direction of the institution, the creation of new special Ombudsmen mandates (disabled persons, prisoners, civic participa-tion and three ombudsmen for indigenous populations and accusa-tions of bad management. During the year the two donors decided to closely monitor the work of the Human Rights Offi ce and disbursed funds for three months at a time, after having given clear indications of concrete working areas and themes. The support to this institution has been important due to its role as a public offi ce that defends human rights. At the same time, it is obvious that the institution has not been able to meet the requirements of an independent Human Rights Offi ce. Close follow-up, thorough analysis and considerations are needed in order not to lose track of the real mandate of the Offi ce.

f) Promotion for Gender EqualityThe mainstreaming of gender in all programmes is a priority according to the annual plan. However the programme offi cers feel a lack of capacity and useful instruments to promote a gender perspective in a strategic manner. It is also felt that there are many competing perspec-tives to apply in the assessment and monitoring of each contribution.

The Equity Program of Forum Syd aims at strengthening the gender perspective in public policy. The program includes support to eleven national organizations specialized on gender and three youth organiza-tions. During 2005 special efforts have been made to enhance the counterparts´ communication capacity and nine organizations have developed a plan for strategic communication. Sexual and reproductive rights are another area of priority and a number of seminars and ex-changes have been carried out.

18

As envisaged in the annual plan, Swedish support regarding gender based violence has been concentrated to investigation and prosecution through the national police and the prosecutor’s offi ce. Coordination between donors has been promoted through the gender donor network (CIG, Comisión Interagencial de Género).

Within the regional UNIFEM gender program profi les of the econo-my with a gender perspective have been elaborated and publicized for each country and for the region. A study on the fl exibility of the labour market and the implication for women’s lives has been produced. Valu-able methodological tools such as a value chain analysis from a gender perspective have been developed. An important result is the strengthen-ing of the Council of Ministers of Women’s Affairs in Central America (COMMCA). In Nicaragua a seminar and exchange of experiences on participatory budgeting with a gender focus was carried out together with INIFOM (Nicaraguan Institute for Municipal Development) and AMUNIC (Nicaraguan Association of Municipalities), More than a hundred persons from public institutions, municipalities and NGOs participated.

g) Anti-CorruptionSweden, together with seven other donors, supports the government-led Anti-corruption Fund. The project entered into its second phase, accord-ing to the agreement in April 2005, but did not start in practice until October, and then only with one component out of six (the fi nancing of the Offi ce of the Public Prosecutor). The support will continue until October 2006, and the donors will make a new decision following the general elections. The formulation of the global program document did not meet the expectations of the donors and it was decided that every component was going to be specifi ed in more detail in separate docu-ments before approving the fi nancing. In general and despite efforts, the government has not been able to face the serious problems of corruption. This is also refl ected in the relatively limited political interest in the Fund.

h) Mine ActionBy the end of 2005 almost 90 percent of the registered antipersonnel landmines in Nicaragua have been destroyed. The implementation of the programme has been delayed due to the fi nding of more than 10,000 unregistered mines and the unforeseen deep location of the mines which requires special equipment. During the fi rst six months almost 48,000 people in 186 communities received mine risk education and 36 victims of mine accidents have participated in job training and another 262 victims received physical rehabilitation assistance. Hopefully, Nicaragua will be declared a mine-free country in 2006.

4.3 Social sectors a) The Health Sector Reform and the Sector-Wide Approach, SWApDuring 2005 the support with MSEK 203 to the fi ve-year Health Plan 2005–2009 was approved. Three joint donors’ missions, led by the Ministry of Health, included the World Bank, Interamerican Develop-ment Bank (IDB), The Netherlands, Finland, Austria, and Sweden. These missions discussed the progress towards a SWAp and agreed upon a Code of Conduct (CoC). The CoC was signed in January 2005 by the

19

Government of Nicaragua (GoN), the four bilateral donors, both multi-lateral banks, and later by the UN agencies in Nicaragua. The CoC regulates issues that are important for all actors in the health sector (sector plan and budget, general follow-up of the implementation of the plan, joint dialogue fora, information sharing etc.) in order to establish simplifi ed and harmonised donor procedures and follow-up mechanisms.

The Memory of Understanding (MoU), which deals with the joint fi nancial mechanisms, joint missions and joint follow-up procedures, was signed by GoN, Sweden, Finland, The Netherlands, Austria, and the World Bank. The IDB planned to sign the MoU, but was unable in the end to get authorisation from its legal department.

The multilateral banks are still using a project modality (result-based loans) in the SWAp, with particular conditions and earmarked funds to the Five Year Health Plan. The harmonisation among donors and alignment according to the national rules and regulations is still an ongo-ing process. GoN has achieved increased ownership and has taken the leadership of the joint mission by preparing documents, agendas and minutes.

The staff in the health sector started a strike in November requesting a 140% salary increase. The strike will have a negative impact on the results and indicators for the health sector and the country’s social development goals.

The decentralized health programme PROSILAIS continued until June 2005. The PROSILAIS have successfully accomplished three stages from 1992 to 2005. During the whole process, Sweden, with the support of PAHO and UNICEF, has conducted an annual measurement of the progress of the project, providing orientations and suggestions for the improvement of the PROSILAIS. According to offi cial statistics, mater-nal mortality and infant mortality has decreased where PROSILAIS has been working, despite the fact that these are some of the poorest regions in the country. The integrated and decentralised model for maternal health care of PROSILAIS has proven successful and has served as a model for the development of the Integrated Model for Primary Health Care, in the National Health Policy and a National Health Plan for the period 2004–2015. The administrative implementation model of PROSILAIS has become a norm for all project support provided through the Ministry of Health.

The implementation of a support to strengthen the midwife function in Nicaragua started in the beginning of 2005. The Ministry of Health and POLISAL have discussed the Terms of Reference for the Karolinska Institutet support to schools of nursing. The MoH and POLISAL initi-ated the training of 30 facilitators, who will support the training of 117 (of totally 500) new obstetric nurses during 2006.

b) HIV/Aids SituationA mission from Sida’s HIV/AIDS secretariat together with an external consultant visited Guatemala, Honduras and Nicaragua in April–May 2005 to give recommendations to Sida how to “scale-up HIV/AIDS related work” according to Sida’s strategic priority for 2005–2008. They recommended supporting the development of a monitoring and evalua-tion framework to cover the updated National Strategic Plan, as part of the Five Year Health Plan, and the preparation of a comprehensive mapping of HIV/AIDS interventions in the country. This mapping would identify funding sources and “who is doing what, where and how”

20

and should precede the update of the plan. Sweden will continue to bring up HIV/AIDS in the agenda of development at all levels and conduct advocacy at high level to ensure that HIV/AIDS is brought up as a priority area in the Poverty Reduction Strategies.

c) Support for Social Sector Development through UNICEFSince April 2003, support has been provided to UNICEF’s Country Programme. A monitoring team carried out an in-depth monitoring in the beginning of 2005. Besides providing Sida with important informa-tion concerning the implementation of the contribution, the monitoring also served the purpose of giving UNICEF input to the mid-term review of the country programme in 2005. One of the main recommendations of this review was that UNICEF in Nicaragua commit themselves to signing the Code of Conduct for the Health Sector. UNICEF also reinforced the internal Result Based Monitoring system and contributed actively in the round-table mechanisms for sector and sub-sector coordi-nation.

d) Support for MECOVISweden is supporting the second phase of MECOVI, the Regional Programme for the Improvement of Living Conditions Surveys, through UNDP and in close collaboration with a number of other donors, includ-ing the World Bank. The second phase (2002–2005) has been extended until December 2006, without additional funds, due to delays in the implementation.

4.4 Infrastructure, Private Sector and Urban Development a) Fundación ProdelThe overall objective for Prodel is to improve the living conditions for poor families and to support participatory local development. Within this framework, Prodel lends funds to microfi nance institutions for further on-lending for home-improvements and small business of poor families. Moreover, Prodel cooperates with municipalities offering grants and technical assistance for improvement of the infrastructure of poor barrios. The projects (e.g. drinking water, sewage, electrifi cation or improvement of the streets) are decided, implemented and monitored by the people living in these poor areas. In 2004 Sida decided on support to the third phase of Prodel, amounting to MSEK 85, for the period 2004–08. Out of this amount, 54.5 MSEK is a conditional loan for the credit funds. It is foreseen that Prodel will be operationally and fi nancially sustainable at the end of the agreement period. According to the regular external monitoring the expected results are being fully achieved. In December a small pilot project (MSEK 1) was decided to include an element of savings and subsidy, targeting even poorer families than the rest of the programme. The experiences will be shared with housing ministers in Central America during 2006.

4.5 Natural Resources and Environment a) PRORURAL, a sector programme for productive rural development The Ministry of Agriculture, MAGFOR, is the leading institution for developing policies and strategies in the agricultural and rural produc-tive sector. MAGFOR has received support from the donor community in the process of designing a sector programme, PRORURAL. During the period the GoN formulated a sector strategy. The process of complet-ing the fi nancial soundness of the strategy with appropriate administra-

21

tive tools, such as a code of conduct, a memorandum of understanding, a multi-year budgeting (MTEF), an annual planning program and a follow-up and monitoring system presented a challenge for the different institutions involved. However, by the end of the year, nine of the twenty-two donors participating in the productive rural development sector had signed the code of conduct; an advanced memorandum of understanding was being analyzed by the donors interested in the basket fund fi nancial modality; and the MTEF, the annual planning program and the follow-up system had considerable advances in their development.

There were also advances in the GoN institutional coordination, which had been an obstacle during the fi rst part of the year.

The GoN presented its dialogue mechanisms, harmonization and alignment guidelines and a monitorable plan for achievements. This was further detailed and assumed by the actors in the sector (GoN and donors).

b) FondeagroFondeAgro is an agriculture-led rural development programme imple-mented in seven municipalities, within the agriculture-intensive and densely populated, central northern area, Matagalpa and Jinotega. The objective is to increase the income of farmers and their families by improving their productivity and the quality of their main products, coffee and dairy products.

The municipalities were selected on the basis of a number of vari-ables, including their high productive potential, previous neglect of intervention in the area and the predominance of small and medium farmers. The criteria used for this selection are in accordance with the National Development Plan (PND).

The fi rst phase of FondeAgro took place in 2001–2004. Lessons learnt from an in-depth evaluation led to changes in the second phase. The regional offi ces of MAGFOR have been authorised to supervise, rather than to perform, programme activities. This has led to a signifi cant expansion of the target group and to a successful credit program. The technical assistance component is now being complemented by local promoters in addition to the ministries’ technical personnel. In the area of marketing, Fondeagro has emphasized support to newly emerging farmers’ organizations to develop economic clusters in line with GoN policy. This includes the co-fi nancing of farmers’ investments and the strengthening of their bargaining position in the national and interna-tional market. Credit availability has benefi tted remote areas, and land titling has provided an opportunity to access funds through conventional credits. In 2006, the opportunity for a sector wide approach will be investigated through the integration of FondeAgro into the PRORU-RAL structure. This will include the replication of the FondeAgro implementation and management model on a national basis.

4.6 Research co-operation The research co-operation with Nicaragua has agreements (2004-June) with the four state universities (UNA, UNI, UNAN-León and UNAN-Managua) and the National Council of Universities (CNU). During two missions from Sida Headquarters, a follow-up was made on the previous period. A major issue is the requirement of the Public Financial Admin-istration Act that all donors, in accordance with the Paris Declaration, should channel their funds through the government budget. Because of a legal requirement that a fi xed percentage of the budget must be allocated

22

to the universities, this has implications for the support to tertiary educa-tion, and the issue has not yet been settled. A proposal from CONICYT (National Board for Science and Technology) was presented. A new regional fi eld position for SAREC was approved, to cover Honduras and Nicaragua from mid 2007.

4.7 International Training ProgrammeIn 2005 for the fi rst time some of the courses in the International Train-ing Programme were held in Spanish. As a result, the interest from Nicaraguans increased substantially. These courses are in the areas of human rights, democratic institutions, public service management and risk management in banking. In 2005 18 candidates from the public and private sectors and NGOs were selected to participate; 13 of them were women.

4.8 Programme Development FundA bilateral fund for studies and consultancies, Programme Development Fund, PDF, is used as a fl exible instrument to support initiatives in areas of interest for Swedish development cooperation. During 2005, MSEK 2 were spent for PDF activities.

23

5. Office and administrative issues

5.1 Work on quality assuranceAccording to the current Quality Assurance Plan, an operational and a fi nancial controller are charged with monitoring quality issues at the Embassy. Routines have been improved in connection with changes to the standing order. Due to staff changes, the QA plan was not revised in 2005 as planned; this will be done in 2006.

5.2 Current resources and staffingThe Embassy staff consists of 25 persons, including Ambassador, Counsellor, Economist, Head of Administration, two Swedish and two National Pro-gramme Offi cers, Regional Offi cer/Advisor, Associate Bilateral Expert (BBE), one Assistant from Swedish Ministry for Foreign Affaris and four National Programme Assistants, seven Administrative staff members, three supporting staff members and four cleaners/gardeners.

During 2005 there were fi ve newcomers in the offi ce: The Counsellor, the Economist, two Swedish Programme Offi cers, and one Administra-tive Assistant/Housing Offi cer.

5.3 Major eventsDuring the year the Embassy received a visit from inspectors of the Swedish Ministry for Foreign Affairs. They suggested some changes in routines, which have been implemented. Their suggestion that the Embassy be reconverted to a fully staffed Embassy has, however, still not been decided on.

Several activities related to the development cooperation, and organ-ized together with the Swedish Institute, took place in 2005. In septem-ber a seminar on traffi cking was arranged, with the Nicaraguan Nation-al Police as counterpart. The fi lm Lilya Forever was presented. Television interviews were made with the participating Swedish experts. Afterwards many institutions have manifested their interest to show the fi lm and arrange seminars on the topic.

An exhibition on the life and work of Dag Hammarskjöld was dis-played in September–October. Several seminars were organized in different parts of the country, with Torsten Örn, a retired Swedish diplomat, as keynote speaker. All activities were planned and carried out together with UNDP, the Ministry of Foreign Affairs and fi ve local universities. The seminars and the exhibition were well covered by media.

24

Annex 1Fact Sheet

Selected Socio-Economic Indicators(Based on the UNDP Human Deveopment Report 2005 unless other-wise indicated)

Indicator Nicaragua

Income poverty, % of population 45,8%

Extreme poverty, % of population 15,1%

GNP per capita, USD (2003) 745,00

Gini coefficient (2001) 0,431

Share of income (or consumption) by 20% poorest, (2001) 5,6%

Health expenditure, USD/capita (2005) 22,85

Education expenditure, USD/capita3 25,49

Children In primary school, % of age group 86%

Maternal mortality rate per 100 000 births 95

Infant mortality rate per 1000 born4 19

Under 5 mortality rate per 1000 born4 35

Births attended by specilised health professionals 54%

Access to clean water,% 81%

Literacy rate,% 77%

HIV/AIDS accumulated incidence per 100 000 8,2

Note: A census was carried out in 2005, but results have not yet been published.

25

Annex 2Country Report – Nicaragua

Cou

ntry

rep

ort -

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arag

ua

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elfa

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10 9

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48 0

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& De

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941

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716

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161

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162

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23 4

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1 56

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8 14

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1522

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160

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160

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1603

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326

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27

Annex 3Strategic Documents Received

– National Development Plan, NDP, November 2005– IMF Staff Assessment of Qualifi cations for the Multilateral Debt

Relief Initiative, December 2005– IMF and World Bank: Nicaragua – Poverty Reduction Strategy

paper – Joint Staff Advisory Note, December 2005– ISS: La Pobreza en Segundo Plano– ODI: Politics and Poverty Reduction Strategies– International Development Department, University of Birmingham:

Joint Evaluation of General Budget Support 1994–2004, Nicaragua Country Report, January 2006 and Synthesis Report November 2005

Halving poverty by 2015 is one of the greatest challenges of our time, requiring cooperation and sustainability. The partner countries are responsible for their own development. Sida provides resources and develops knowledge and expertise, making the world a richer place.

SWEDISH INTERNATIONAL DEVELOPMENT COOPERATION AGENCY

SE-105 25 Stockholm SwedenPhone: +46 (0)8 698 50 00Fax: +46 (0)8 20 88 64sida@sida.se, www.sida.se