The International Monetary Fund (IMF)and the World Bank introduced the Poverty Reduction StrategyPaper (PRSP) process in 1999 to strengthen the povertyalleviation focus of their assistance to low-incomecountries. This report reviews Nicaragua s experience withthe PRSP process, focusing on the effectiveness of IMF andWorld Bank support to the process and the extent to whichthe two institutionslending and non-lending activities inthe country are aligned to the objectives of the PRSPapproach. The report is structured as follows: section Bprovides background on poverty, the political and economiccontext, and history of national strategies in Nicaragua.Section C analyzes the PRSP process focusing on applicationof underlying principles, including through formulation andimplementation processes. Section D evaluates the support ofthe IMF through the PRGF. Section E assesses the support ofthe World Bank to the PRSP process. Section V summarizes themain findings and attempts to draw lessons for the PRSPprocess and for Bank and Fund operations.