Preventive reasons for unforeseen expenses in the context of the pandemic and low liable interest rates are some of the factors that explain the increase in the balance of short-term savings instruments in the Costa Rican market.
In the context of the spread of covid-19 and the restriction of several productive activities, the broad money supply (including cash held by the public and highly liquid financial instruments in national and foreign currency) showed a 35.7% year-on-year growth rate in June 2020, considerably higher than the 2.7% recorded in the same month in 2019, while the balance of term instruments fell, reported the Central Bank of Costa Rica (BCCR).
In the midst of the uncertainty generated by the political and economic crisis, banks in Nicaragua have opted to reserve their resources, a situation that is evident in the increase in the liquidity of the system.
According to data from the Superintendencies of Banks and Other Financial Institutions, between March and October of this year, the liquidity of banks as a function of deposits went from 32% to 45%.
According to Moody's, the plan to reduce expenses announced by President Solís will not be enough to solve the illiquidity problem being faced, nor to avoid a rise in local interest rates.
The plan to cut costs that are not mandatory in the budget, such as the suspension of public purchases that have not yet started to be implemented, will not be enough to avoid the impact of the fiscal deficit on local interest rates.This is the opinion of the rating agency Moody's, regarding the cost cutting plan announced by President Solis to address the fiscal problem that is affecting the country.
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.
Due to liquidity problems, in Costa Rica the chain store Casa Blanca has started a legal process in order to reach an agreement regarding payments to its creditors.
Increasing competition in the market of home appliances and white goods could be one of the reasons behind the difficulties facing the White House chain, and that led to its request to organize a payment agreement with its creditors.
The ratings agency has reduced the rating for long-term sovereign debt from B + to B, arguing that political capacity to resolve the fiscal problem is shrinking.
From a press release by Standard & Poor´s:
Continued political stalemate in El Salvador has led to a deterioration of institutional and governance effectiveness, which has contributed to a weaker external profile, and a further erosion of the government's liquidity.
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.
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.
In Panama investors to whom the company owes $4.8 million in debt bonds will have to wait for the bank to be sold before recouping their investment.
Balboa Bank and Balboa Securities, which are under intervention of the Superintendency of Securities Market since they were included in the Clinton list, do not have sufficient funds to honor the $4.8 million owed in respect of securities.
The agency warns of weakening of the government's ability to access new resources, and that it could be downgraded in the next three months.
From a press release by Standard & Poor´s:
OVERVIEW
In our view, El Salvador's financial management is deteriorating, as reflected in a weakening of the government's ability to gain access to liquidity, due to heightened political polarization.
Excess liquidity in the financial system, soaring loans in dollars, a rising fiscal deficit and a less favorable global environment will complicate the path in the rest of the year and in 2017.
The document"Macroeconomic Review Program 2016-2017"by the Central Bank of Costa Rica says that these four elements are the main factors that could adversely affect overall economic performance.
The delay in payments to suppliers to the state, corresponding to July, reflects the complicated situation of public finances in El Salvador.
Arguing that"... July was a very bad month fiscally," Finance Minister Carlos Caceres, justified the delay in payment to suppliers of goods and services. According to the minister, in July the government "... had to pay $260million in external debt and Treasury bills."
The $6.6 million in assets held by Seguros Constitución, which have been frozen since August 2015, are not sufficient to cover the company's liabilities, which total $26 million.
According to a report prepared by the board of liquidators on April 28, "... there are not enough liquid funds to begin the approved loan payments ", therefore they will proceed to pay according to the order of priority and resources available.
Fusades has cited serious liquidity problems in public finances and stated that "without additional money, the state has only months in which to operate normally".
From a statement issued by the Salvadoran Foundation for Economic and Social Development:
In 2015 there was a slight improvement in economic growth in El Salvador; however, job creation is insufficient and in the first quarter of 2016 a deterioration has been observed.
The risks are: uncertainty about sustainability of public finances, increasing dollarization of the loan portfolio, and inflationary pressures from excess liquidity.
In its commentary on the national economy No. 5-2016 of May 2, 2016, the Board of the Central Bank of Costa Rica said:
"... The Central Bank reiterates the existence of risks to macroeconomic stability.
The liquidity of the banking system grew by 30% in the last twelve months, helped by the growth of liquid assets of banks and the extension of terms for external loans.
The report by the Central Bank concludes in its study on financial stability that the Salvadoran banking system continues to show a position of robust solvency in terms of liquidity levels which have been expanded in recent months.
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