The Government risks failing to comply with the current Stand-By Agreement with the International Monetary Fund, as its fiscal deficit would reach 3.9%.
However, Fernando Delgado, IMF representative for Guatemala, stated that “if the Government provides strong reasons for increasing the deficit, the Fund could maintain the Stand-By Agreement”.
The recent increase in the value of the Costa Rican colon versus the dollar is worrisome, not only because there are no clear reasons to explain it, but also because it would be hard to contain it without causing greater problems.
In the past weeks, and without apparent reason, the price of the U.S. dollar in Costa Rica dropped considerably.
As in Orwell’s fable, Central Banks assume the task of deciding who, among equals, “is more equal than others”.
Paul Laurent Solís analyzed the anathema that has become the label “tax haven”, and remarked the role Central Banks have assumed in Central American economies, especially when they become tools for whichever government that happens to be in power.
“When markets are moving a lot, be prudent. When they remain still, be double prudent”.
In countries with domestic currencies, changes in the exchange rate are always a reason for concern. Economic and financial agents are eager to understand why such fluctuations occur, in order to hedge and if possibly benefit, from them.
Fitch Ratings warned that although Central American sovereigns have resisted the global crisis pretty well so far, they now require fiscal consolidation in order to maintain their credit ratings.
Summary
Fitch‐rated Central American sovereigns have thus far withstood the destabilizing effects of the global economic and financial crisis, despite monetary and exchange rate policy challenges. 1 Nevertheless, weaker public finances could lead to negative rating actions if fiscal consolidation is not achieved over the medium term.
The Monetary Board decided not to modify the Leader Rate, which currently stands at 4.5%.
For this decision, the board pondered that most global growth projections point to an economic recovery.
"If this scenario comes to reality, and considering the recent behavior of commodity prices, it would be less necessary to continue with our previous monetary policy measures", stated the Board.
"Almost all independent countries choose to assert their nationality by having, to their own inconvenience and that of their neighbours, a peculiar currency of their own".
This phrase by John Stuart Mill is the header of an analysis on the subject published by the Central American Monetary Council.
In it, they attempt to answer the following questions: It there justification for Central American countries to have their own currencies? Which monetary options do these countries have? Wouldn't it be more convenient for them to use a unified currency, either a proprietary one or an existing like the U.S. dollar, Euro or Yen? What are the required steps towards a monetary union?
Banguat is now authorized to sell up to $32 million a day; previously, it could offer only 24.
The measure, approved by the Monetary Board (Junta Monetaria), intends to give Banguat, the Central Bank of Guatemala, greater flexibility to control the depreciation of the Quetzal versus the Dollar.
Although recent public opinion has focused on what went wrong with securitization, it is important to recognize the many benefits associated with sound securitization.
Global Financial Stability Report (GFSR), October 2009 - Chapter 2
Key points:
Sound securitization provides important benefits—to allocate credit more efficiently, transfer credit risk away from banking sector to more diversified investors, and more finely tailor risks and returns to potential end investors.
The Central Bank approved a reduction of 0.25 basis points in the leader rate, setting it in 4.5%.
The Private Enterprise was looking for a reduction of 0.50 basis points, arguing there is no inflationary pressures right now.
María Antonieta de Bonilla, President of the Central Bank of Guatemala (Banguat), commented that the reduction of the rate "... is in response to an observed reduction in inflation, and a decreasing trend in consumer prices projections, forecasts and expectations".
Demand for $363 million in Treasury Bonds has been such that in two sessions $243 million have been sold.
$42.5 million were issued in 3 year bonds, paying 7.2%, whereas $9.7 million were sold in 5 year bonds, paying 7.9%. The bulk was $141 million in 11 year securities, which pay 9%.
In the first day of the public offering the market demanded $220 million, with $50 million sold after analysis.
18% was bought by public entities and the remaining 82% by private investors.
"As tender offers were too high, we didn't closed deals through that channel. We closed them through bidding and the Stock Exchange", said Luis Alejandro Alejos, from the Finance Ministry.
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