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5. Chapter 5: Conclusions
A methodological problem was identified in the DSF, the omission of political risks product of HR violations, which were identified in the inclusive growth diagnostic as important sources of constraining Nicaragua’s economic growth (repayment capacity) and ability to obtain development aid. Additionally, the CPIA fails to consider the link between political risk emanated from HR violations as a source of lowering the quality of governance and institutions. The DSF fails to fulfill its mandate to provide guidance to lenders by the inability to guide development agencies that have incorporated HR elements in their aid interventions.
The study reveals that structural adjustments in the past made significant improvements in macroeconomic stability and not only improved civil and political rights but undermined economic, social and cultural rights. The reduction of macroeconomic instability indicators such as hyperinflation, unstable exchange rate, high public deficit and high public debt are clear signs of success. The adjustment programs can integrate HR to evolve from an exclusive macroeconomic emphasis to a more integral perspective taking into account socioeconomic indicators and governance.
Although external debt levels have fallen due to individual debt reliefs, multilateral debt relief initiates, official development aid and grants by themselves does not guarantee the maintenance of sustainable debt levels once these resources stop or diminish significantly.
Nicaragua’s history reveals that high human rights violations, specially civil and political rights, lead to political instability that undermined macroeconomic stability that disturbed macroeconomic stability that stimulated indebtedness as a response to solve the temporarily shortages of resources. Comparatively once Nicaragua reached high debt levels, the expenditure to honor its debt consumed most of its revenues and
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was unable to meet the growing needs of the population and the protection of economic, social and cultural rights. In like manner the reduction of economic, social and economic rights encouraged political instability due to protests and in some extreme cases violence during the 1990s.
The research confirmed the theoretical inconsistency keep political risk assessments independent from debt sustainability framework. The historical evidence of Nicaragua suggests political risks are important in keeping macroeconomic stability and prudent debt management. This variable portrays a pattern in the Nicaraguan history that endogenous elements of political risks led to macroeconomic instability, violence and ultimately accumulation of external debt to unsustainable levels. The qualitative results expose for Nicaragua that the repayment probability cannot be only explained by debt to economic indicators and reveals the need to incorporate political risk assessment to explain debt related risk.
The confirmation that the performance of the State is limiting Nicaragua’s economic growth reveals that there is a gap between Nicaragua’s growth potential and its actual growth. In the light of this improvements in governance and institutions indications can stimulate more efficient and effective usage of resources, improving development outcomes without the acquisition of additional funds. The qualitative study strengthens the idea of scholars that good performance in development outcomes good policy actions are required and can only be achieved through quality governance and institutions.
The study focuses on HR's role in the development of political risks that ultimately impact transfer risks and debt sustainability. NI’s history reveals that frequent HR violations led to political instability that undermined macroeconomic stability. That, in turn, stimulated indebtedness to “solve” the problem of resource
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shortages. Eventually, NI's expenditure to honor its debt consumed most of its revenues.
NI found itself unable to meet the growing needs of the population or to protect economic, social, and cultural rights. In like manner, the reduction of economic, social, and economic rights encouraged political instability through protests, and in some extreme cases, violence during the 1990s and early 2000s. This evidence seems to correlate both HR violations with political instability, and also HR with debt.
The flow of external funds also relates to HR. The HR violations committed during Somoza's dictatorship, the revolution, and NI's current regime suspended resource availability from bilateral donors. The electoral fraud of 2008 and resistance to adopt governmental and institutional changes led traditional donors to suspend or reduce funds given to NI. Also, the reduced volume of aid and donors represents a net loss of resources to NI and increases its external vulnerability.
Structural adjustments in the past significantly improved macroeconomic stability, improving civil and political rights, but undermining economic, social, and cultural rights. Reduced macroeconomic instability indicators such as hyperinflation, unstable exchange rates, high public deficits, and high public debt are clear signs of success. The adjustment programs can incorporate care for HR and integrate their macroeconomic emphasis with socioeconomic indicators and governance assessments.
Although external debt levels have fallen thanks to multilateral debt relief initiatives, official development aid and grants by themselves will not guarantee that sustainable debt levels will be maintained once they are removed or reduced.
NI’s persistent economic vulnerabilities and low-quality governance, institutions, democracy, and development all point to a relapse into a new debt trap.
Vulnerabilities of these variables impact NI's macroeconomic stability and capacity to mobilize resources to pay debt. Producing these conditions can cause fiscal imbalances,
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and for that reason, should be included in the assessment of debt-related risks.
The research shows that incorporating HR into the institutional assessment can enable us to measure frictions between the state and citizens, and measure power dynamics within the state apparatus. Such incorporation would set performance standards for which developers would be accountable, and would improve the governmental and institutional quality.
The research exposed the inconsistency in keeping political risk assessments independent of the DSF. HI's historical evidence suggests that political risks are important for macroeconomic stability and prudent debt management. The qualitative results expose for NI that repayment probability cannot be only explained by relating debt to economic indicators. It reveals the need for political risk assessment to evaluate debt-related risk.
NI's poor governmental performance has limited and is limiting NI’s economic growth, restricting NI’s growth potential. Improvements in governmental and institutional indications can stimulate more efficient uses of resources. The qualitative study strengthens the idea among scholars that good development outcomes require good policies and that they be effectuated through strong institutions and governance.
NI needs a new approach to debt sustainability, a deeper reappraisal of its governmental and institutional deficiencies. An institutional assessment must monitor issues that cause political instability, such as respect for rights, free elections, and socioeconomic progress through use of foreign funds.
Methodologically speaking, the multilateral DSF conducted to analyze the relation of risk to indebtedness in countries like NI might not be a sufficiently sound debt sustainability assessment, since these variables have been identified in the IGD as important constraints to NI’s economic growth. Additionally, the foreign resources
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needed to fund social and economic programs implies additional risks over the medium and long term, since governance and institutional strength are taken into account by the donor community and only addressed in extreme cases. International financial institutions do not provide loans to countries in violent conflicts.
From the research results, the investigation concludes for NI that HR impacts its political risk and debt repayment capacity. Mere further borrowing would be harmful for debt sustainability. The outcomes obtained from this investigation are as follows:
• NI needs to improve governmental and institutional quality to improve o Low investment returns,
o Lack of accountability, o Political instability, and o Lower influx of ODA.
• The IGD is an in-depth means of describing the limitations of a country’s capacity to generate resources to pay debt.
• NI will not be able to reduce dependence of foreign aid because political instability incentivizes limiting private-sector investment, for which politicians are not held accountable.
• Monitoring debt-related risks with the DSF, if it does not address development aid, external debt, and HR, will remain incomplete.
• Harmonizing aid effectiveness with sovereignty can be accomplished, with the following matters to consider:
o Cooperation with NI regarding aid effectiveness will be difficult in the short term due to NI's defective governmental apparatus, as the FSLN mainly focuses on control of discontent with government via coercion.
o The development of projects and monitoring of governance and institutional functionality can ease rising tensions and develop conditions that can facilitate political dialogue and can solve sensitive political issues.
o dialogue to solve political problems to sensitive issues
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