Capital flight in Nicaragua speeds up after cenbank move

Nicaraguan banks saw the exit of almost US$41mn in two days this week, following the central bank's removal on Monday of a 1% fixed commission on the US dollars banks buy from it. This measure effectively gives central bank president Ovidio Reyes control over commissions.

The US$41mn represents 40.7% of all capital outflows in August, with the total being US$101mn, well above the US$72.5mn that exited in July.

As local daily La Prensa reported, Nicaragua has seen a total of US$974mn in capital outflows from March to August 28, as the nation plunged into violent conflict that has left hundreds dead, with the latest move accelerating the outflow.

La Prensa reported that various economists have explained this measure induces uncertainty into the exchange rate regime that is still working with a 5% annual devaluation system.

Banks usually transfer these commissions to clients who buy dollars, hence the concern that their acquisition becomes more expensive has led to the rule change being seen as a de facto devaluation.

In an effort to calm the market, the central bank issued another statement that clarified it would leave the commission at 1% for now, denying that there had been a devaluation of the córdoba with respect to the US dollar.

It remains unclear, however, to what degree the clarification has helped to slow the outflows.