COSTA RICA: Inauguration dreams versus fiscal realities
Carlos Alvarado of the Citizens Action Party was sworn in as president of Costa Rica on May 8th, and immediately sent a clear message about the need to solve the government’s fiscal problem. The challenge is complicated, though, not only by the size of the central government’s deficit, estimated at over 7% of GDP this year, but because the heavy slate of demands by various sectors will increase pressure on government spending.
In his inauguration address, Alvarado outlined seven critical areas for his government, and the country: education, citizens’ security, health, environmental protection, public infrastructure and mobility, employment and welfare and recovery of fiscal stability. He stressed the need to act, rather than to spend time in discussions, as usually happens in Costa Rica.Time is running out for fiscal reform, he emphasized, saying it is crucial to begin a deficit-reduction plan. His goal is to have a balanced primary account by 2021, Costa Rica’s bicentennial year. But fiscal reform unfortunately won’t be easy to achieve.
In Guatemala, confidence remains low, and growth slow, while inflation is within Bank of Guatemala´s target range and the currency has depreciated slightly. In politics, the executive branch continues its struggle with the international commission against the impunity (CICIG). President Jimmy Morales has named María Consuelo Porras to replace Thelma Aldana, whose term ended. One major decision left by Aldana is an eventual process against Morales for issues related to the financing of his presidential campaign -- so Porras will face an immediate tough challenge.
El Salvador continues running on a cobblestone road in terms of economic growth. Short-term economic activity indicators point to slowdown, seen in lending to the private sector, merchandise imports and, to a lesser extent, in banking system interest rates. Foreign remittance inflows have slowed steadily since November 2017, and we believe an April rally will be temporary. Fiscal finances continue weak, despite the reduced average deficit observed during the last six to eight months. Revenues accelerated in H2 2017, but so did spending, particularly when access to debt has been available. The new finance minister announced that he would propose refinancing debt maturing between 2019 and 2024, by issuing new debt in international markets for some $2.6 billion. He expects to be ready with local authorizations by October, so the Finance Ministry could start talks with investment banks for a flexible mechanism to put new debt in line with maturities of existing obligations.
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