Audit of USAID/Nicaragua"s economic support fund program, funded by Public Law 101-302, for the period May 25, 1990 through November 30, 1990

The audit covers the period 5/90-11/90. The Government of Nicaragua appears to have violated requirements of the first cash transfer, which prohibited the use of funds for military purposes. Since 7/90, all of Nicaragua"s petroleum imports have been financed under the program and the military has been a major consumer of refined products derived from these imports. Although the military appears to have paid for the products, the benefits of program funds did not reach Nicaragua"s productive sector. The impact of the first cash transfer was also weakened by the Central Bank"s failure to disburse funds immediately. Instead, the Bank set aside dollars for prospective importers who never were able to provide the required local currency. This occurred despite the availability of importers who could meet these requirements. Under the second cash transfer program, the Bank developed tighter controls, requiring potential importers to come up with the required amounts of local currency before processing their financing requests. Problems have also arisen in two of the nine development projects funded under the program. Specifically, weaknesses were found in three subprojects of the Economic Growth and Development Project. First, an opposition-controlled labor union has been put in charge of a subproject to provide pharmaceuticals and medical supplies throughout Nicaragua; the political orientation of the group may adversely affect distribution of the medicines. Another subproject, to generate employment through infrastructure repair activities, is extremely complex and burdensome for the new government agencies, while the implementing agency of a third, TA and training, subproject is technically bankrupt and has failed to report interest earned on cash advances. Finally, the American Institute for Free Labor Development project to assist independent labor unions is unfocused and lacks written subagreements with local unions. Control of the refugee assistance component has been transferred to the State Department and international organizations.