Noting the political system's inability to agree on fiscal issues, Standard & Poor's has downgraded, from BB to BB-, the rating for the country's long-term debt, giving it a negative outlook.
Costa Rica Long-Term Ratings Lowered To 'BB-' On Continued Fiscal Deterioration; Outlook Is Negative
25 Feb 2016
Source: Standardandpoors.com
OVERVIEW
The combination of growing spending pressures and lack of tax reform has weakened Costa Rica's public finances and raised its vulnerability to
The interest rate rise in the US and the perceived risk of the Salvadoran economy have taken their toll on foreign debt bonds, whose yields have risen by about 2% in recent weeks.
This increase in yield of debt securities traded on the international market will be reflected in the forthcoming issues made by the government, which, according to economic analyst Mauricio Choussy, "...
The rise of interest rates in US is one of the reasons behind the lower demand for Costa Rican debt bonds, which are perceived as riskier because they are not investment grade.
When US interest rates began to fall, international investors sought riskier options and performances, such as external debt bonds rated below investment grade in countries such as Costa Rica.
It has been noted that the Costa Rican Colon could depreciate 20% more against the dollar in the U.S. and with that correction the exchange rate will reach 650 colones per dollar during 2014.
The accelerated depreciation of the colon against the dollar in the first months of this year could continue throughout 2014. The Costa Rican Colon has room to continue to depreciate by a further 20% against the dollar, according to analysis of the real exchange rate of the Central Bank of Costa Rica.
In light of the alarm generated by the proposal for the de-dollarization of the economy, the President of the Central Bank announced that there will be no change in the system of free convertibility of currencies.
An article in Elnuevodiario.com.ni reports that Ovidio Reyes, president of the Central Bank of Nicaragua, said that "... many people are concerned because they believe the government will start to add controls to the buying and selling of dollars. 'That will not happen, a key attraction of foreign investment has been the system of free convertibility of our currency and the dollar that exists in the country'. "
While governments spend fortunes on consultants to promote SMEs, the imbalance between their expenses and their income is the main threat to employers.
An article in Elfinancierocr.com reports that Danilo Montero, executive director of the Costa Rican Association for Development Organizations (Acorde) noted that "... The main risk to the national economy in 2014 threatening micro, small and medium enterprises is the fiscal deficit. "
The Ministry of Finance has announced that this year they plan to increase their borrowing in the domestic market by 46%.
The Ministry of Finance announced that for the first six months of this year, they plan to increase their borrowing in the domestic market by 46% compared to the same period in 2013 . "... The Central Government is considering issuing a total of $1.8 billion in the first six months of this year."
Warnings are being issued of a possible rise in the cost of credit if the government finances its spending with bonds issued in the local market.
Elperiodico.com.gt reports: "If Congress authorizes for the next fiscal period the issuance of $1.282 billion in bonds to finance public spending, as the executive branch plans, credit to the private sector could be affected ... ".
The Board of the Central Bank says that any attempts to control prices and restrict competition will drive the informal economy.
Nacion.com reports that "The Government submitted, in late August, to the Legislative Assembly a Bill on Consumer Rights in relation to Usury in Credit Cards."
"... The initiative defines as usury loans rates which exceed twice the average of the last three months of the average lending rate of National Financial System, calculated by the Central Bank. Currently, the rate in colons is 15.88%, therefore that the cap would be of 31.76%. Anything over this would result in intervention by the Ministry of Economy, Industry and Commerce (MEIC) to regulate the market. "
New loans issued from January to May 2013 by Panamanian banks totaled $8.85 billion.
Capital.com.pa reports that the amount, "compared to the same period last year represents an increase of 25.9%," according to the latest report from the Superintendent of Banks in Panama (SBP).
"... The rate of increase in the granting of new loans achieved by the end of May 2013 is 22% more than the growth registered in 2012 compared to 2011, when this segment increased from $7.2509 billion to $8.8489 billion. "
The Central Bank of Costa Rica has reported that as of May 30, the base rate will drop 0.5% after remaining for three consecutive weeks at 6.70%.
This is the lowest percentage achieved in the last four and a half years, in which the lowest rate was 6.75%.
"The reduction was due in part to a decrease in average deposit rates at public commercial banks, which went from 6.11% to 6.08% and these entities have the most weight in this calculation", reported Elfinancierocr.com.
The business sector is calling on Congress to pass the bill which charges a 30% tax on interest gained by speculative capital.
From a press release issued by the Costa Rican Union of Chambers and Associations in the Private Business Sector (UCCAEP):
The Costa Rican Union of Chambers and Associations of Private Business Sector (UCCAEP) is urging MPs to approve, as soon as possible, the bill which levies a 30% tax on interest earned on speculative capital, which was ruled on in February by the Committee on Financial Affairs.
An alliance of small territories has been proposed to encourage a discussion with the OECD over financial centers, and bring it to the attention of the United Nations.
An article in Prensa.com examines the opinions of a variety of analysts at the second Step Latam Conference held in Panama, regarding pressure from the Organization for Economic Cooperation and Development (OECD) on countries to comply with their requirements on tax information exchange.
Results of the 48th Guatemalan Business Survey done by the Association for Research and Social Studies (ASIES).
Executive Summary
The perception of businessmen shows the challenges of economic recovery. The balanced opinion in production, income and employment variables indicate greater optimism. Also, there is greater optimism over the coming months. Nevertheless, there is risk for such a trend to be unfounded, considering the complex conditions of international markets and fuel prices.
Moody's downgraded the rating to "Ba2" from "Ba1", citing a continued deterioration of the country's financial condition.
In a statement the rating agency stated, "The metrics for sustainability of government debt (including debt to income ratio) are not consistent with a grade of 'Ba1' in light of the limited prospects for growth the country has," Yahoo News published.