El Salvador elected a new president on March 15. Mauricio Funes of theFMLN party will take the presidency in what appears to be a difficult adjustment period for the global economy and particularly for El Salvador because it will have to face a disproportionate impact from the US recession and narrow external liquidity conditions.
According to Casey Reckman, Associate Director of Fitch's Latin American Sovereigns Group. "El Salvador's economy is being impacted by lower external demand and declining levels of remittances. However, response options through public policies by the new government are limited in a "dollarized" economy and in light of fiscal stringency. "
Reckman also said that "political cooperation, as seen in the recent commitments between the two major parties for approving the use of multilateral loans, could be crucial for the country's fiscal financing in the long term and to restore investor confidence."
Mr Funes reiterated his commitment to macroeconomic stability, dollarization of the economy and a prudent fiscal policy in the context El Salvador's Precautionary Stand-By Agreement with the IMF. Reckman also said that "the fulfillment of this promise and the continuation of reforms started by previous ARENA (Nationalist Republican Alliance) governments will also be important to ease the fiscal constraints of the country and strengthen the economy in the current climate of domestic and external economic challenge."
Fitch qualifies El Salvador as 'BB +' with negative outlook.
Fitch affirmed Costa Rica’s long term risk ratings for foreign and domestic currency: ‘BB’ and ‘BB+’, respectively.
The Outlook on both ratings is Stable. Fitch has also affirmed Costa Rica's short-term foreign currency IDR at 'B' and the Country Ceiling at 'BB+'.
Costa Rica's ratings are supported by its high per capita income; a relatively diverse economy, which traditionally attracts sizeable foreign direct investment (FDI); and its net external creditor position. The ratings are constrained by a narrow fiscal revenue base, a comparatively weak monetary and exchange rate policy framework, and relatively low international liquidity indicators.
This special report by Fitch examines the credit risk dynamics of El Salvador as it coincides with the end of a political cycle in the country.
Financial pressures and external liquidity, exacerbated by political uncertainty during a pre-electoral period, led Fitch to modify the Prespectives of the IDRs of sovereign risk in the long-term regarding foreign and local currency in October 2008.
This special report examines the channels through which Fitch-rated sovereigns in this sub-region could be impacted by external shocks, the robustness of their
various policy frameworks and the implications for creditworthiness of
increasingly challenging international conditions.
The US financial crisis has spread across the international financial system.
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