Government of El Salvador has Run Out of Money

A state of emergency has been declared and pressure has been put on the Assembly to approve borrowing in the order of $1.2 billion to honor short-term debts.

Thursday, October 13, 2016

President Sanchez Ceren announced as a first step a declaratory emergency, so that before the close of 2016 they can 'attend to, discuss and build the best agreements that will provide the relevant results' on issues such as approval of bonds for $1.2 billion. With that amount the government hopes to deal with the illiquidity and respond to the state's short - term commitments.  

A statement by the Presidency notes that "... the government is willing to agree to approve the Fiscal Responsibility Law together with all political forces.'The tax package which we will agree, must include a vision that promotes economic growth in the medium and long term'.
He said that 'the best tax measure for the coming years is to grow the economy and productivity in order to generate more and better jobs, as well as to continue the fight against tax evasion and avoidance'.
In this regard, he announced, as part of this package, a second line of the actions which seek to stimulate economic growth, productivity and employment. 
"With urgency we will move forward in the process of simplification of procedures and promoting a better business climate in order to seize opportunities for both domestic and international investment."
'We will promote the implementation of Public - Private Partnerships, which encourage short and medium term domestic investment, employment and foreign investment'."

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Costa Rica: There is No Free Lunch

August 2017

After recognizing the serious liquidity problems faced, the government has announced it will borrow another $1 billion for a hearty lunch that others will pay for tomorrow.

The $1 billion that the Central Bank of Costa Rica (BCCR) has been negotiating since May with the Latin American Reserve Fund (FLAR) to strengthen its reserves will arrive in October of this year, according to the BCCR authorities. 

El Salvador's Debt Rating Downgraded Again

February 2017

In line with recent warnings issued by other credit rating agencies regarding the country's bleak fiscal outlook, Fitch has reduced the debt rating from B + to B, and changed the outlook to negative.

From a press release issued by Fitch Ratings:

Fitch Ratings-New York-01 February 2017: Fitch Ratings has downgraded El Salvador's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B' from 'B+'.

El Salvador to Issue $550 million

November 2016

The government and the opposition have agreed to approve in the first instance an issue of $550 million, not $1.2 billion as claimed by the administration of Sanchez Ceren.

Although the government insists that there is a need is to issue $1.2 billion to cover short - term debts and solve the liquidity problem it is facing, this first agreement to issue $550 million will serve to "... pay for the electricity subsidy for FODES and the mayoral districts."

Moody's Downgrades El Salvador

November 2016

Arguing a significant increase in liquidity risk and political divisions that are preventing approval of an issuance of long-term debt, the rating agency has downgraded the rating and changed the outlook to negative.

From a press release issued by Moody's:

New York, November 07, 2016 -- Moody's Investors Service has today downgraded El Salvador's issuer and long-term debt ratings to B3 from B1 and assigned a negative outlook to the ratings, concluding the review for possible downgrade initiated on 11 August.