Costa Rica: Hopeful Days
Costa Rican politics have been interesting this month. On May 1st, an alliance of opposition parties retained control in Congress, after an agreement to order a fiscal discussion. New President of Congress Antonio Alvarez Desanti of the PLN (the largest party in Congress) has had a positive experience there, after serving as president of Congress in 1995-1996, when the last comprehensive fiscal reform was approved.
There were several meetings and discussions between the executive branch and Congress on the heels of the election. An agreement seems to be in the making, and a new collaborative mood seems to be spreading in Congress. But things won’t be easy. The two major labor unions -- BUSSCO, which includes the teachers’ and health workers’ unions, and “Patria Justa”, which represents workers of the state-owned electric, communications and oil distribution companies, among others -- has already threatened general strikes if Congress starts discussing proposals to reduce labor benefits.
The Central Bank has been intervening in the FX market. Between December 16th and May 20th, the bank sold $438 million, to reduce depreciation pressures on the colon, which nonetheless fell from 536 to 540 against the dollar. NIR, on the other hand, declined by just $67 million, as an increase in dollar deposits by the government and the financial intermediaries in the Central Bank helped mitigate the decline.
In Guatemala, since Jimmy Morales became president, the private sector confidence index on economic activity has remained relatively high. April´s reading was 62.5, after coming in at 61.54 in March. The Central Bank survey also showed a relatively optimistic view about the future of the economy. Almost two thirds of respondents said the economy wasn’t better than a year ago, but 82% expected it to perform better in the next six months.
Political confrontation in El Salvador continues to hamper economic policy action. Instead of concentrating on consensus on a few fronts, the government seems to have too many issues simultaneously on its plate. Last February’s pension reform effort was rejected by almost two thirds of members of Congress by the end of April. But the president doesn’t plan to withdraw it. Although the fiscal deficit has been controlled at $250 million to $300 million over the past six months (in 12-month accumulated terms), this strategy doesn’t seem sustainable. A recent IMF mission focused on these and other issues, and made several policy recommendations that the government rejected.
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