A mixed growth outlook – and an upstart presidential challenger

CENTRAL AMERICA - Report 30 May 2023 by Fernando Naranjo and Felix Delgado

El Salvador’s economic activity continues under the adverse influence of external conditions, as well as a lack of domestic drivers to stoke growth, including restricted fiscal room due to severe financing restrictions. The monthly index of economic activity, with figures to February 2023, has slowed rapidly since the very high readings of mid-2021. In this small and very open economy, growth outlooks are closely associated with the evolution of merchandise exports and foreign remittances. So analyzing their trajectory should shed some light on perspectives, at least this year. External trade has slowed, as have remittances. Fiscal results continue to progress, although more slowly, since expenditures remain low, but the dynamism of revenues has moderated. April results are not yet available, but they’ll surely show an out-of-trend improvement, because revenues are much higher than the year’s average, due to the collection of income taxes. The government is receiving the advisory services of Alejandro Werner, a former chief of the IMF Western Hemisphere Department, which sends a positive signal about El Salvador’s willingness to advance toward an agreement. Inflation continues to slow, as external price pressures recede.

Costa Rica President Rodrigo Chaves’s first year in office has been characterized by lots of promises, but few deliveries. During the campaign, he promised to solve complex problems, such as improving the cost living, boosting economic growth and reducing unemployment. So far, results have been limited. Government has found itself in constant confrontation with various sectors. Chaves has launched public attacks on judges, the General Comptroller, legislators, the news media, public universities and even farmers. Though his popularity is nonetheless very high, it is decreasing, according to University of Costa Rica surveys. His strong popularity will be put on trial during this second year of this term. Most likely his popularity will keep decreasing, due to the lack of results in several fields, such as education, culture, prices of some products and his administration’s confrontational style. The economy performed well last year, and in the first months of 2023, but some indicators are showing signs of stagnation. On May 9th General Comptroller Martha Acosta stated that the fiscal deficit could be higher, after a 2022 audit of fiscal accounts. This could mean that the fiscal deficit in 2022 could be closer to 3.5% of GDP, not 2.5% of GDP as reported by the Ministry of Finance.

Guatemala’s presidential election will be held on June 25th and, as we have pointed out in previous reports, voting will likely progress to a second round, as no candidate is expected to obtain the 50% of the vote needed to win. An unexpected event emerged in a recent poll by the newspaper La Prensa Libre: Carlos Pineda, a businessman from the Izabal region, received 23.1% of voter intentions, outperforming the until-then leading candidates Sandra Torres (19.5%) and Zury Ríos (9.2%). But on May 19th a Guatemalan court temporarily suspended Pineda’s candidacy after a complaint made by another political party arguing irregularities in the process that appointed him as candidate. The Constitutional Court has just affirmed his disqualification and Pineda will be out of the presidential race. The race to secure a slot for the second round will intensify in coming weeks, before the ruling of Constitutional Court. Zury Rios, Sandra Torres and Carlos Pineda still look like the candidates with the highest possibilities to make it to the second round. Nevertheless, in countries where undecided votes are high (as in Guatemala currently), a surprise candidate could be elected. This has happened in both Costa Rica and El Salvador past.

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