The National Assembly of Nicaragua recently passed the “Law for the Creation of Bonds for Strengthening Financial Strength and the Financial Stability Committee”. According to its text, it responds to the need to carry out a macro-prudential approach to the supervision of the financial system in order to preserve financial and macroeconomic stability, as well as to protect the public funds that might be necessary to solve the problems of financial stability.
The bonds will be issued by the Ministry of Finance and Public Credit or at the motivated request of the Central Bank and the Superintendence of Banks and Other Financial Institutions (SIBOIF, by its acronyms in Spanish). The law does not establish the requirements and procedures for issuing the bonds, nor details such as the value they may have, the interest rates and the variability of the term. The value and interest rates will be established at the time of issuance according to the market rules.
The opinion of some experts is that the approval of the law in the current context of the country responds to an attempt to recover the money withdrawn from the deposits of the Government in the Central Bank. Likewise, they criticize that the issuance of the bonds will imply a significant increase of the total public debt of the country, which could result in the allocation of less resources for social sectors in the General Budget of the Republic, because the Government will have to face the payment of these debts and other existing ones with shorter terms. Another criticism of the issue of bonds is the issue of how attractive they can be to buyers, considering aspects such as trust in the issuer of the same. In this respect, the interest rate established at the time of issue will be decisive.
The Law also creates the Financial Stability Committee with the purpose of ensuring the financial stability of the country, acting as a coordinating body in matters of financial stability. This would imply that any provision in this matter that the SIBOIF, the Central Bank or the Deposit Guarantee Fund decided to take is subject to the approval of the Committee.
In view of the brevity and generality of the drafting of the Law it is necessary to analyze the content of the regulation that the Executive must approve within a period of sixty days, once it is published to determine with more certainty in impact than the Financial Stability Committee will have in the operation of the institutions of supervision in financial matter, as well as the impact of an eventual issuance of bonds of this type.
Associate
García & Bodán
Nicaragua