Costa Rica Economy is winning but is still struggling under weight of public debt

Costa Rica economy and GDP growth rate are seeing better management as government struggles to navigate the Global Economic Crisis.

Costa Rica’s domestic and foreign debt has been growing rapidly. To date, the debt represents 49.7% with respect to domestic industry.

According to the Comptroller General of the Republic (CGR), 2011 internal and external obligations of the public sector, including the financial sector, amounted to ¢ 10,301,396 million, reflecting a greater relative weight in relation to gross domestic product (GDP) .

Furthermore, of the 19 loans in execution, for a total of $ 1,577,999,718.84 the country has disbursed $ 654,404,825.03, with $ 923,594,893.81 in reserve.

The comptroller does see physical and financial progress, however, but some problems have come to light. There were management problems, government contracting and environmental factors that have caused problems over the past year.

Despite criticism, Treasury borrowing through loans as a mechanism argues that it is “cheaper” and notes that although the projects not running do not represent an additional expense because the country pays the interest on the debt on the amounts disbursed.

With the growth of the debt, the Treasury raised point of the effects of the economic crisis, and high growth in public spending, which have led to higher financing needs and pressures on government debt management.
Moreover, during the previous year a decrease debt product, Eurobond payment and amortization of liabilities of the Central Bank of Costa Rica, did not reverse offset actual increases that occurred in the domestic debt that finance the Government’s needs.

Such behavior prompted both government debt, plus the rest of the public sector – including the financial sector – representing ¢ 10,301,396 million reflecting a real growth of 12.1%, higher than the variation in 2009 and 2010, and 7, 9 percentage points higher than the growth shown by GDP.

To this growing debt, you must add the $ 4,000 million that will put the country at international level – can place up to $ 1,000 million per year – and the progressive of domestic borrowing during the 2012, has allowed the running costs.

However, given the non-approval of tax reform, the Ministry of Finance, took as plan “B” the placement of Eurobonds. Analysts have argued that there are structural solutions the country needs and that the only thing the government did was “buying time”.

Another reflection of growing debt is the national budget, where 43% of the 6.4 billion that the government planned for 2013 will be financed with debt.

Read the full story on The Costa Rica News (TCRN)San Jose Costa Rica

Costa Rican Economy to Grow by 5.5% in 2012

Costa Rica Central Bank

San Jose [TCRN] – Costa Rica was forecasted earlier this year to grow 4%, but Nomura Securities  International latest report shows Costa Rica’s economy is expected to grow 5.5%.

The Central Banks target of 5% inflation is on track, and consumer prices predicted to trails economic growth.

The report continues speaking very highly of Costa Rica macro-economics, and Costa Rica will see real GDP growth that exceeds inflation rate.

Nomura also stated that Costa Rica needs full fiscal reform to lower deficit, but economic growth should positive effect tax revenues.

Overall Nomura and Costa Rica Central Bank forecasts for Costa Rica economic outlook is very positive.
Central Bank of Costa Rica

International Reserves: US$ 4.763 billion (Source: IMF; Data updated: November 2011)
Gross Domestic Product – GDP: US$ 44.313 billion (2010)
GDP (Purchasing Power Parity): 57.955 billion of International dollars (2010)
Unemployment Rate: 2012 down to 7.5% from 8.3% in 2011 (estimated)
Sources: Bloomberg, Business Week, Central bank of Costa Rica
By the The Costa Rica News (TCRN), San Jose Costa Rica

Costa Rica Economy has Momentum

Posted: Friday, June 01, 2012 - By Fernando Quirós for the Tico Times

Despite low consumer confidence, the Central Bank reports this week that the country's production figures are better than expected. That's good news for the economy.

The Central Bank’s Index of Monthly Economic Activity, or IMEA, helps policymakers track up-to-date figures on the country’s growth.  The most recent index shows Costa Rica’s economy is stronger than expected. Courtesy of Central Bank

From the print edition

Laura Chinchilla’s administration of National Liberation Party leaders has thrown in the towel on a proposed tax hike and serious deficit reduction. Will Chinchilla now preside over a big decline in the Costa Rican economy? Not according to the Central Bank’s economics department. 

Growth in gross domestic product – the sum of all production by every person and company in an economy – is the standard measure of economic good times and bad times. In good times, GDP grows, while in bad times it shrinks. But there’s a problem in measuring GDP. It takes a long time to add up everybody’s economic activity. So, GDP figures are generally published three to six months after a quarterly closing. 

Costa Rica’s Central Bank has the greatest need for up-to-date information on GDP. After all, the institution is in charge of the country’s money supply, and needs to know how much money the economy needs. Since Central Bank officials can’t wait three to six months to find out how the economy is growing, they have developed a short-term predictor of GDP, which they call the Index of Monthly Economic Activity, or IMEA (see graph). 

The IMEA is a weighted average index of production for most large companies in the Costa Rican economy. The Central Bank gathers the information by calling companies for their monthly production data. IMEA results in the chart have two parts: a monthly bar graph showing growth or shrinkage from the previous month, and a solid trend-line tracking the current month’s results versus the same month in the previous year. 

It shows that 2010 was a tough year, with the monthly production-index bars consistently dropping, and the solid-line average declining steadily. But the economy recovered nicely in 2011 – not to the high-growth pace of 2009, but steadily positive for 11 out of 12 months. 

For 2012, data is available up to March. Though monthly growth flattens, the moving average remains steadily positive.

Even with production numbers dropping recently, the economy has built up good momentum, and the moving average is holding at 7 percent over decent 2011 results.

Chinchilla’s administration argues that its failed tax hike was an exercise in fiscal responsibility, an attempt to quit kicking the can down the road and face up to the problem of unsustainable 5 percent government deficits.

Opponents criticize the tax-only approach, and say more spending reduction is needed. The odds are that this argument is now academic, as any significant fiscal reform will fall to the next administration, which takes office in 2014. 

The good news from the Central Bank’s IMEA numbers is that Costa Rica’s economy is nonetheless doing well. Economist Gustavo Feoli, who works in the Central Bank’s Economic Statistics Department, where the IMEA is calculated, is cautiously optimistic as to Costa Rica’s medium-term prospects. He points out that the country’s 7 percent moving-average IMEA is the highest in Central America at the moment; the average for Costa Rica, Nicaragua, Guatemala, Salvador and Honduras is 5 percent. 

In the Central Bank’s January economic projection for 2012, the institution forecast 4 percent GDP growth this year, if the tax package was passed. Growth was projected to drop to 3.8 percent without the tax package, under the assumption that without it, the government would have to sell bonds in the local currency financial market, competing with and putting upward pressure on interest rates banks must pay to attract deposits.

With the tax package now dead, the basic colón deposit interest rate has risen 2.5 percent, from 7.25 percent a year ago to 9.75 percent. In spite of this, Costa Rica’s stronger-than-expected production momentum, as measured by IMEA, should keep 2012 economic growth more than satisfactory. 

“At the growth rate shown by the IMEA at the present time, Costa Rica’s economy will easily exceed the Central Bank’s optimistic GDP growth projection of 4 percent for 2012,” Feoli said.

The Central Bank official attributes this unanticipated economic resilience to stronger-than-expected demand for Costa Rican export products in the United States. Leading sectors of the incipient export-driven mini-boom are manufacturing and general and financial services. 

A sectoral breakdown of IMEA also shows a modest reactivation in construction as an important growth contributor. Construction, though still slow, has seen small but positive growth since August 2011, recovering from 19 months of uninterrupted shrinkage in 2010 and the first half of 2011.

Read the full story in the Tico Times

Costa Rica improves its ranking in the Index of Economic Freedom

This year, Costa Rica improved in the Index of Economic Freedom, which is published in January of each year by the Heritage Foundation and The Wall Street Journal.

According to the report, Costa Rica ranks 49th in the world among a total of 179 countries. In 2011, Costa Rica earned 67.3 points out of 100, which is 1.4% higher than the 2010 score of 65.9 points. Costa Rica also ranks 9th out of 29 countries in the South and Central America/Caribbean region, and its overall score is higher than the global and regional averages. The top three spots in 2011 go to Hong Kong, Singapore, and Australia.

The score of each country is the result of the weight of 10 categories, ranging from intellectual property to corruption.

As for the evaluation of Costa Rica, it improved in five categories: trade freedom, monetary freedom, property rights, freedom from corruption, and labor freedom. The biggest improvement was in the category of property rights in which the Heritage Foundation says: “The judicial system can be slow and complicated. Contracts are generally upheld, and investments are secure, but it takes an average of more than 1.5 years to resolve a contract-related legal complaint.”

There was no change in score for the categories of investment freedom and financial freedom while there was a small drop in the categories of business freedom, fiscal freedom, and government spending.

To read the full story on the Costa Rica News click here

Costa Rican Economy expected to grow by 4.5% in 2010, 5% in 2011

Costa Rica's economy is expected to post solid growth of 4.5 percent this year and 5 percent in 2011 as it continues to invest in infrastructure and open up the telecommunications industry, the country's president said on Tuesday.

"We are efforting this push into Asian markets to increase the rate of growth. We have a very ambitious program," said Laura Chinchilla, President of Costa Rica, on the sidelines of the United Nations General Assembly in New York.

The economy of this small Central American country, known for its eco-tourism and coffee production, will boost growth by improving infrastructure such as ports, and by opening and promoting markets such as electricity and telecommunications.

Costa Rica has trade agreements with China, Singapore and the European Union bringing the amount of free trade agreements to 42 and increasing trade to 92 percent of total exports. It is also starting negotiations with South Korea.

Chinchilla, the first woman president and just four months in government after succeeding Nobel laureate winner Oscar Arias, is set to increase competitiveness by continuing to educate and train its population of more than 4.6 million.

Costa Ricans take pride in the fact that they are the only country in the Americas without an army, and that since their independence about 50 years ago have established free education -- a competitive advantage difficult to emulate in a short period of time.

With a skilled work force, and political and social stability, Chinchilla's government hopes to capture $9 billion in foreign direct investment over the next four years.

In 2009 inflows of FDI reached $1.3 billion of which 57 percent were from the United States. Most of the inflows go to manufacturing, real estate, services, and tourism.

Economic growth has come from the services sector with 60 percent of gross domestic product, industry with 32 percent and agriculture with 8 percent.

"Today, after serious trade policies based on the promotion and diversification of exports and the attraction of foreign direct investment as key elements, Costa Rica exports more than 4,116 products to 135 countries around the world, with a net worth of $8.675 billion," Chinchilla said.

"Our total exports have increased over 60 percent in the last decade," she said. Imports however, reached $11.4 billion in 2009.

Chinchilla also stressed security and prevention of the high levels of organized crime that other neighboring countries have experienced as one of her key issues in her domestic agenda.

"We are trying to design a regional agenda in terms of security issues," Chinchilla said. "Our homicide rate is relatively low. We are just trying to prevent what has happened in other regional countries."

In terms of bond issues, the president of Costa Rica's promotion agency, Jose Rossi, said it would be favorable for the finance ministry to issue global bonds as global interest rates are low and as Costa Rica's credit rating was raised to investment grade earlier this month by Moody's.

The country has $1.25 billion in outstanding debt, divided into five different global bonds, one of them maturing next year. If and when the country issues, Rossi said part of the money will go to repay the maturity due, projects in infrastructure, education and other debt issues with multilaterals.

To read the full story in Reuters by Manuela Badawy click here

Costa Rica - No Artificial Ingredients

Costa Rica's First Female President is Sworn into Office

Costa Rica's first female president has been sworn into office in San Jose.

Laura Chinchilla, 51, took her oath of office at an open-air ceremony in front of thousands of supporters.

The former vice-president has pledged to continue the free-market economic policies of her predecessor, Nobel laureate Oscar Arias.

She becomes the third female president in Central America after a landslide victory in elections.

Leading the centre-left National Liberation Party, she won 47% of the vote and had a 22-point lead over contender Otton Solis in February's election.

"I will work for a Costa Rica able to maintain moral leadership in the world thanks to defending peace, liberty and human rights," Costa Rican paper The Tico Times reported her as saying.

A number of world leaders attended the inauguration, including the presidents of Mexico, Colombia, Ecuador and Georgia.

A graduate of the University of Georgetown, Ms Chinchilla is a social conservative, opposing abortions and gay marriage.

She has pledged to tackle violent crime and drug-trafficking, and continue the economic policies of former President Arias which have enabled a trade pact with the US and commerce with China.

Mr Arias was awarded the Nobel peace prize in 1987 and has ruled the central American nation twice, most recently from 2006.

Read more on the BBC news website here

Monthly Economic Activity for Costa Rica Improves

The Tico Times reports improvements in the Costa Rican Economic indices and further evidence that the Costa Rican Economy has begun to recover:

Over the past year the the monthly average decrease of the monthly Economic Activity Index (IMAE) was 3.6%. During the month of September this improved to a 0.1% contraction.

The Manufacturing Sector, in particular, showed improvement mainly due to to increased exports by businesses located in free-trade zones.

Other increases in economic activity during the month of September included sales of electrical energy and hotel revenues which have improved with increased tourist spending.

Read the full story in the Tico Times here