Political and economic prospects mixed.
Costa Rica’s exchange rate in 2022 experienced one of the most volatile periods of its history. After a currency depreciation of 9% during H1, the colon appreciated 14.3% from July to the end of 2022. Daily volatility rose significantly, recording a standard deviation of ₡20 compared to ₡10 a year before. The downward trend in the value of the dollar continued in the first days of 2023. In this report we analyze the main elements behind both trends and consider the effects of this volatility on financial and private activities.
El Salvador’s political tensions in the media reduced intensity coming from diverse government controversial decisions in previous years. President Nayib Bukele’s protagonism on social networks has also decreased, appearing to be a new communication strategy in this electoral year. Congress has been very active in recent weeks, approving the national budget for 2023 on December 22nd, pension reform during the third week of December and the bill regulating the issue of digital assets on January 11th, 2023, just six weeks after it was submitted to Congress. Short-term economic indicators showed a substantial upward revision on the economic activity index in Q3 2022. Available short-term indicators, including the recent Q3 real GDP estimates, do not help to explain the drivers of the estimated upsurge, after analyzing the evolution of merchandise trade, foreign remittances and credit to the private sector. Government expenditures increased markedly in October and November, pointing toward a figure close to our forecast. Investors’ confidence reverted partially since August 2022, while acceptance of bitcoin as a medium of exchange remains very low.
Guatemala will have general elections on June 25th, 2023. The elections will be crucial for the country, especially in an environment where populism and polarization threatens Latin America. Only the presidential race will face a second round, if none of the candidates win at least 50% of the vote. According to a December CID Gallup poll, five presidential candidates have a chance of winning the election. All have been members of Congress, or have some experience in politics. We will analyze each of those five candidates in this report. Whoever wins the elections will find a stable economy with solid macroeconomic indicators, but poor microeconomic ones. Growth during past decades has not translated into closing the income gap or reducing poverty or inequality. Indigenous peoples continue to be particularly disadvantaged. The political landscape has not been easy in recent years. Corruption scandals have deteriorated the relationship with Guatemala’s main trade partner, the United States.
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