COSTA RICA: A push to stabilize finances, and confidence
Costa Rica’s new finance minister Rodrigo Chaves took office November 26th, with a mandate to improve fiscal sustainability, as a requisite for maintaining macroeconomic stability. He considers rebuilding the confidence required to accelerate economic growth an important outcome of sound public finances. Moderating public spending growth, reducing tax evasion and full compliance with the fiscal rule will be key objectives. This year will probably be remembered as a breaking point in public policy. Public worker belligerence, coupled with health and justice leaders’ rejection of adjustment measures, met with the firm decision of legislators to approve restrictions to strike rights and pension privileges. It’s been a year of adjustment, which implied costs in economic growth. But the outlook is better than it was a year ago, when the country was close to a financial crisis. There’s certainly no reason to expect a significant rebound, as the healing of public finances is just beginning; a return to moderate economic growth will take three to five years.
El Salvador’s economic deceleration seemed to have reached its nadir in H2, with a breaking point in expectations. We expect the low-growth trend to start reversing in 2020, as long as realities and expectations converge. That will depend upon public policy actions to foster investment and employment, so far limited to some scattered initiatives. President Nayib Bukele’s discourse about the attractiveness of El Salvador to potential investors will be remembered as a good start, as long as it turns out to be persuasive. Bukele has been active in discussing the government’s budget for 2020, providing the required information and arranging the necessary meetings with deputies, to win the approval he secured last week. His approach can create investor confidence. Bukele has also been active in international relations, making official visits to Japan, China and Qatar in search of cooperation and investment.
In Guatemala, President-elect Alejandro Giammattei and Vice President-elect Guillermo Castillo will be sworn in on January 14th, for a four-year term. One of their first tasks will be to manage the 2020 budget, since the current Congress declined to approve President Jimmy Morales´ proposed budget. The new administration will therefore be forced to work with the 2019 budget. Given that Giammattei’s Vamos party won only 17 out of 160 congressional seats, many alliances will have to be made in order to achieve a simple majority, and to modify the budget.
Giammattei will receive a country recovering from production slowdown, but able to maintain enough relative stability to achieve an inflation rate within the Central Bank’s target range, and a relatively stable exchange rate. The major problems are long-term deficiencies, mainly in human development, which make it difficult for Guatemala to achieve sustainably higher growth.
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