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Costa Rica accumulated deflation of -1.70% in the first seven months of the year, the lowest figure in the last decade, the national statistics institute (Inec) reported on 8 August.

The country posted deflation of -0.19% in July, and the annualised figure was -2.29%, providing a stark contrast with much of the rest of the world which is battling high inflation. The consumer price index (IPC) contains 289 items, of which 39% saw price falls, 17% remained stable, and 44% saw price increases. Items which saw the largest falls include international package trips, petrol, and airline tickets, while those that saw the largest increases include mobile telephony, electricity, and toilet paper.

In its latest report on monetary policy, published 30 July, the central bank said that deflation was due in part to the fall in external inflationary pressures, as well as its restrictive monetary policy and the appreciation of the colón compared to last year. Economist Gerardo Corrales, a professor at Costa Rica’s INCAE Business School, said that this divide has deepened inequality in the country. Those products which have seen price decreases are largely purchased by wealthy consumers, whereas everyday items bought by everyone have increased in price. For example, the price of the basic basket of goods (canasta básica) has increased 8% year-on-year, Corrales told Costa Rican media outlet Columbia in an article published on 3 August.

In the same article, former president of the central bank Rodrigo Cubero (2018-2022) said that the conditions which have caused deflation in recent months do not look set to persist, and therefore should not be cause for concern.

Some have criticised the central bank for an overly restrictive monetary policy given that inflation is well below the target range. For example, the bank recently decreased its base rate by 50 points to 7% from 15 June, a move which was criticised by the country’s chamber of industry (CICR) and national tourism chamber (Canatur). They argued that inflation was already lower than the target range in May, and so the central bank could have cut rates to a greater extent.

Sergio Capón Brenes, president of the board of directors of the CICR, said that high interest rates and a strong colón are affecting manufacturing, as well as thousands of families that hold debt in the local currency. The policy is putting jobs at risk, as well as social stability, he added. Rubén Acón Toy, president of Canatur, said that the bank is “sacrificing production and investment when the country needs economic growth and job creation”.

For its part the bank said that although inflation had fallen faster than predicted, its board still believed that the risk of inflation is increasing in the medium term. Then, at the end of July, the bank revealed that its forecast says that inflation will return to the target range of 2%-4% by the third quarter of 2024.

While it is facing criticism at home, the bank’s strategy appears to have the backing of the International Monetary Fund (IMF). “While there is scope for further monetary easing in 2023, policies should remain attentive to risks to the inflation outlook,” said the organisation in a statement published in June. These risks include “weaker-than-expected external demand, tighter global financial conditions, and commodity price volatility,” as well as the country’s exposure to natural disasters, according to the IMF. 

PANAMA | Exports up. On 6 November Panama’s trade & industry ministry (Mici) released new figures showing that exports (excluding from duty-free zones) totalled US$754.9m in the first nine months of 2025, up 4.7% on the same period in 2024. According to a Mici report, frozen shrimp was the main export, accounting for 12.5% of the total. Bananas (which have been affected by industrial activity in the sector, as part of a nationwide strike, accounted for 8.5% of the total, while crude palm oil accounted for 6.7% of exports. As regards sectors, overall, fish and shellfish accounted for 21.4% of the total, followed by fruit (12.8%), fats and oils (9.5%), and iron and steel foundry (6.4%), among others. The US remains Panama’s main export market, accounting for 15.7% of sales, followed by Taiwan (12.3%), and the Netherlands (8.5%). According to the same Mici figures, exports from duty-free zones totalled US$233.2m in the first nine months of 2025, down 6.9% on the same period in 2024.

DOMINICAN REPUBLIC | Tourism rises. On 1 December the Dominican Republic’s tourism ministry released new figures showing that 10.28m tourists visited the country in the first 11 months of 2025, which it said guarantees that the year will close with “record” tourism figures. The figure for the first 11 months is up 3.1% on the same period in 2024, 13% on 2023, and 52% on 2019 – the year before the coronavirus (Covid-19) pandemic struck. According to the same report, 39% of tourists were from the US, 19% were from Canada, 6% were from Argentina, and 6% were from Colombia. The country received a record 11.19m tourists in 2024 – an increase of 9% on 2023.

Central America & Caribbean: inflation rate
Percentage variation (year-on-year)

Central America & Caribbean: GDP growth (%)
Quarterly figures are year-on-year growth

VENEZUELA | Nuevas intervenciones en el sector alimenticio del estado. El gobierno venezolano liderado por el Presidente Nicolás Maduro ordenó una intervención de 90 días (extensible) en la estatal Corporación Venezolana de Alimentos (CVAL), de acuerdo con la edición del 23 de septiembre de la gaceta oficial.

Un equipo de cuatro personas encabezadas por José Leonardo Patiño Umbria “revisará los procedimientos administrativos, productivos, e industriales” en las varias compañías que comprenden la Corporación, con el poder de remover funcionarios y reformular presupuestos “para garantizar el correcto desarrollo administrativo y financiero” de CVAL, dice la gaceta. CVAL fue establecida en marzo del 2010 como una ‘empresa de propiedad social’, incluyendo productores primarios y compañías agroindustriales.

También fue intervenida en días recientes la Superintendencia Nacional de Silos Almacenes, y Depósitos Agrícolas (SADA), por “irregularidades en la distribución de alimentos”.

Por separado, Gustavo José Cabello Canales fue designado presidente de la Productora y Distribuidora Venezolana de Alimentos (PDVAL), la compañía estatal de distribución de alimentos, más conocida por el ‘escándalo de alimentos putrefactos’ en los puertos venezolanos de hace algunos años. Cabello Canales es un primo de Diosdado Cabello, el presidente de la Asamblea Nacional.

VENEZUELA | La excarcelación de Simonovis deja perplejos a los observadores. La Asociación de Víctimas (Asovic) del golpe de estado del 2002 en Venezuela ha rechazado fuertemente la decisión de otorgar arresto domiciliario temporal al ex jefe de policía de Caracas, Iván Simonovis, y exigió una explicación del gobierno del Presidente Nicolás Maduro.

Simonovis, quien era jefe de policía durante el fallido golpe contra el entonces presidente Hugo Chávez (1999-2013), fue identificado por el gobierno de Chávez como uno de los líderes principales de la revuelta. El ministro del interior, Miguel Rodríguez, dijo que la decisión  de otorgar a Simonovis arresto domiciliario temporal sería “respetada” por el gobierno, pues estaba basado en consideraciones humanitarias.

La decisión del gobierno de no desafiar la resolución de la corte suprema ha provocado especulación de que podría ser parte de los esfuerzos por remover algunos de los obstáculos que mantienen congelado el diálogo político con la oposición.

It could be described as a quick turnaround. On 3 May thousands of protestors registered their opposition to the Romero gold, copper and silver mine; the next day President Luis Abinader ordered a halt to all development at the project, which is owned by GoldQuest of Canada.

The mine is in San Juan province. It has the capacity to produce round 117,000 gold ounces a year as well as significant volumes of copper and silver. Demonstrators who oppose the mine walked around 20km to the Sabaneta dam, a water source that they say will be threatened by the development. Explaining his freeze on development work at the project, President Abinader said “when citizens express worries and concerns, our duty is to act with caution and transparency.” The project has not yet received a full environmental impact approval. GoldQuest  has acknowledged public concern and says it is committed to “transparent development”.

Public opinion has begun to turn against big mining projects in the country. These are now seen as a potential threat to water and agricultural use. Mining currently represents around 2% of GDP on data from the World Bank. A water protection movement is now backed by teachers, doctors, and farmers who fear water contamination. In the light of the protests, how the Romero project will progress is not entirely clear. However, former president Hipólito Mejía (2000-2004) has called for technical reports to underpin the debate.

The quality of Latin American economic statistics has again come under the spotlight. Argentina and Chile are working to rather different standards.

Argentina's attempt to produce a new measure of inflation capable of standing up to International Monetary Fund (IMF) scrutiny is not looking good. For two years now, the IMF has been complaining that Argentina's cost of living index, along with other data series, is inaccurate. According to the official measure, 2012 inflation was 10.8%, while independent economists that have compiled their own index say in reality it was 25.6%. At the beginning of February, the IMF's Executive Board took the unprecedented step of formally censuring Argentina for the poor quality of its inflation and GDP data, starting a process that could lead to the loss of voting rights or even expulsion from the organisation. The Buenos Aires government responded saying it would launch what Economy Minister Hernán Lorenzino said would be “a new consumer price index to replace the current measure that has supposedly caused so many problems for the IMF”. The Fund was clearly unimpressed. “The question arises of whether the creation of this index can remove or neutralise the censorship, and the answer is no”, said IMF deputy director for Latin America Miguel Savastano, noting that “the creation of an index alone does not remove the problem”.

There was criticism on another data issue at home, too. An independent study by the Universidad Católica Argentina (UCA) said that 26.9% of the population (11m people) was living below the poverty line in 2012, more than three times the 6.8% (under 3m people) claimed by the INDEC for the same year. The UCA’s data showed an increase in the number of poor people of 4.5 percentage points on 2011, reflecting the sharp deterioration in economic growth last year. Poverty is defined in terms of a basic basked of goods and services: those with insufficient income to afford the basket are classified as poor. Using different methodology, the UCA’s basket was priced at roughly double the ‘official’ basket used by the INDEC.

Over in Chile, inflation data was also being questioned, but the political context was somewhat different. Following criticism of the numbers produced by the national statistics institute (INE), the organisation's head, Francisco Labbé, resigned. A number of INE employees had previously been overruled when they recommended changes in the methodology for measuring inflation. They said the existing methodology underreported inflation by as much as half. Some private sector economists have suggested that the annual rate of inflation, reported at 1.5% in the year to March, might in reality be around 3%. INE experts were particularly concerned over the treatment of clothing prices, which appear to have fallen faster than any other item. Following Labbé's resignation, Finance Minister Felipe Larraín said that the government was open to improving the methodologies for compiling statistics, but called for “responsibility” in the criticisms of INE.

Although some of the programmes in this area are among the government’s priorities, as of August 2019, they had significantly underspent the resources they had been allocated for 2019. This was the case of the ‘Farming Credit’ programme (which provides accessible loans for agriculture and transfers of livestock) and ‘Planting Life’ (a programme to plant fruit trees and trees for timber in the south-east region of the country), both of which seek to benefit small-scale farmers by providing support to boost their income. By this date they had only made progress against their targets of 29% and 39%, respectively. Nevertheless, in the 2020 budget, the ‘Planting Life’ programme received an increase of 62% relative to 2019. Resources for the ‘Farming Credit’ programme were reduced by 76%, but subsidies for basic goods increased by 61%.

López Obrador also promised to prioritise addressing the needs of the indigenous population that has the lowest access to social rights, defined as education, nutrition, social security, health, housing, and economic wellbeing. The country’s 68 ethnic groups are mostly located in six states – Oaxaca, Chiapas, Veracruz, Mexico state, Puebla, and Yucatán – which account for just under 65% of all indigenous population. In Oaxaca and Chiapas, 70.4% and 77.1% of the indigenous population, respectively, live under the poverty line (significantly above the national average of 43.6%).

Indeed, one of his government’s first actions was carried out even before he was formally inaugurated, with a bill which Morena submitted to congress in November 2018 to replace the existing National Indigenous Institute (INI) with a new National Institute for Indigenous Peoples (INPI). Passed unanimously, the INPI redefined the relationship between the state and the country’s 68 indigenous groups. The government no longer seeks to ‘rescue’ indigenous groups through the INPI, but instead acknowledged that indigenous peoples are legally capable of exercising political power and handling public resources within their territories. The new legislation also recognised the population of African descent as a specific ethnic group entitled to benefit from the INPI’s support.

The National Programme for Indigenous Peoples unveiled in December 2018 also made it clear that indigenous groups would be priority beneficiaries of all the administration’s social programmes (such as the pensions for the elderly and the schemes for young people). However, despite supposedly being a priority sector, the actual allocation of budgetary resources has been meagre. The new INPI received fewer resources in the 2019 Budget than its predecessor was allocated for 2018, and the 2020 budget provides for an even greater reduction, 40%, relative to the 2019. This casts doubt about the ability of the administration to effect tangible improvements for this sector of the population.

What also remains unclear is the position of the current government regarding the Zapatista National Liberation Army (EZLN), which has been at the centre of opposition to some of López Obrador’s flagship projects such as the Tren Maya and the ‘Planting Life’ programme. Moreover, the current government has not made clear its stance towards the 1996 San Andres Larrainzar Agreements that call for collective rights for indigenous peoples.

On 15 October President Enrique Peña Nieto presented the latest results from his government’s ‘national crusade against hunger,’ a social development programme that aims to alleviate poverty. Speaking during a public event held in the Estado de México (Edomex) to mark Global Food Day (16 October), Peña Nieto said that since its launch in 2013 the programme has helped feed 4.5m poor Mexicans.

Citing figures from the national social development policy evaluation council (Coneval) on the preliminary results of the national crusade against hunger, Peña Nieto said that the programme had helped to reduce food insecurity in Edomex, which was down by 6% (and extreme poverty by 19%) in 2014 on 2010 levels. “We are working on various fronts to tackle poverty and food insecurity in order to get the necessary results,” the president said.

Fernando Soto Barquero, Mexico’s representative at the United Nations Food and Agriculture Organization (FAO), said that while Mexico has made significant progress in reducing food insecurity in recent decades, much more remained to be done. Soto pointed out that the incidence of malnourishment in Mexico had fallen from 6.9% of the population in 1992 to less than 5% last year, putting Mexico among the seven Latin American countries that currently are below the target threshold set by the FAO.

In fact, Soto pointed out that Mexico’s ‘Prospera’ conditional cash transfer programme for the poor has been singled out for praise in the FAO’s State of Food and Agriculture (Sofa) 2015 report. Prospera currently benefits 26m people, making it the world’s third largest conditional transfer poverty alleviation programme behind India’s ‘Janani Suraksha Yojana’ (which benefits 78m people) and Brazil’s ‘Bolsa Família’ (49m people).

However, on a less positive note, the latest Organisation for Economic Cooperation and Development (OECD) report on social development indicators, released on 14 October, found that Mexico’s social development indicators are “mediocre” in areas such as education, poverty reduction, and quality of employment; and that these vary greatly across the country’s states. For example, the OECD report points out that according to its multidimensional poverty indicator (which takes into consideration 12 different factors such as income, employment quality, and access to education), 76% of the population in the state of Chiapas was classified as poor last year, compared to 20% of the population in the state of Nuevo León.

PANAMA | Panama Canal Authority projects fall in revenue. On 20 August the administrator of the Panama Canal Authority (ACP), Ricaurte Vásquez, announced that the executive has approved its budget for fiscal year (FY) 2026 (October 2025-September 2026), which envisages revenue of US$5.21bn. However, this is down from the US$5.62bn of revenue projected for FY2025. Vásquez was cited by the media as attributing the fall to a drop in the number of vessels transiting the canal while ACP’s vice president of finances, Victor Vial, was cited as saying that for 2026, authorities are forecasting a drop of between 1,100-1,200 transits due to the global economic situation. In a statement the ACP highlights “a global context characterised by climate uncertainty, technological advances and geopolitical tensions”. Nonetheless the ACP envisages that the Panama Canal’s direct contributions to state coffers will amount to US$3.19bn in FY2026, up 14.5% on the budget approved for FY2025.

DOMINICAN REPUBLIC | Rise in FDI. On 4 August, the Dominican Republic’s central bank (BCRD) released new figures showing that foreign direct investment (FDI) to the country totalled US$2.89bn in the first half of 2025, up 15.3% on the same period in 2024. According to the BCRD, this figure is in line with its forecasts that the year will close with FDI inflows worth over US$4.7bn. According to the BCRD, 25.7% of FDI in the first half of 2025 went to the energy sector, followed by tourism (22.4%), mining (14.5%), and real estate (13.8%). The BCRD highlights in particular the increased inflows to the energy sector, which previously accounted for much less FDI (7.5% in the first half of 2019). It attributed the rise to government incentives targeting the renewable energy sector.

Central America & Caribbean: inflation rate
Percentage variation (year-on-year)

Central America & Caribbean: GDP growth (%)
Quarterly figures are year-on-year growth

Inflation reached 8.6% in 2011, Uruguay’s national statistics institute, Ine, reported. This exceeded the target range of 4%-6% set by the government and was up on 6.9% in 2010. It was also the highest rate in the region after Venezuela and Argentina. On the plus side inflation has stayed below double digits for seven consecutive years, the longest stretch since records began in 1939. President Mujica, who described inflation last year as “a slippery eel”, said the figure was “not disastrous” but added that lower inflation is a government priority.

Unemployment was just 5.5% in November 2011, down from 5.7% a month earlier and close to the December 2010 mark of 5.4%, the lowest in decades. Fewer than 100,000 Uruguayans of working age, primarily women and young people, are unemployed.

Uruguay smashed its export record in 2011. Exports totalled US$8.02bn, up 18.5% on 2010, according to official figures. It is the second year in a row that Uruguay has broken its previous export record. Once again, however, exports were outstripped by imports, which increased by 23.5% on 2010 to US$8.57bn last year. Brazil is Uruguay’s main trading partner, taking 20.3%, or US$1.63bn, of total exports. China is now the second largest recipient of Uruguayan exports, accounting for US$665m, up 78.3% on 2010, leapfrogging Argentina, with 7.3%, or US$558m, as a result of Argentine protectionism.

Beef sales were down on 2010. They totalled 336,755 tonnes in 2011, compared with 366,225 tonnes in 2010. The volume of cattle going to slaughter fell by 8.7% in 2011 to 2.01m on the previous year, the lowest level since 2004. Higher prices, however, meant that the value of beef exports climbed by 18% in 2011 over the previous year to US$1.33bn. Total meat sales, including beef, lamb, pork, equine and chicken in 2011, totalled US$1.65bn.

President Michelle Bachelet has moved quickly to try and defuse a crisis in her government after the interior minister and cabinet chief, Jorge Burgos, resigned. Bachelet immediately appointed Chile’s ambassador to Uruguay, Mario Fernández Baeza, to fill the position vacated by Burgos. Both men are members of Democracia Cristiana (DC), the largest and most centrist party in the ruling left-wing Nueva Mayoría coalition. The right-wing opposition coalition Chile Vamos pounced on the departure of Burgos as evidence that the Nueva Mayoría was on the verge of collapse. While this is a major overstatement, Bachelet’s approval rating has hit a new low, heightening tension within her disparate coalition.

Burgos ostensibly left for health reasons but he had essentially been sidelined by President Bachelet since he assumed the position on 11 May 2015 during a cabinet reshuffle designed to regain the initiative in the wake of a series of damaging corruption scandals. Despite holding what ought to be the most important position in the cabinet, Burgos found himself isolated and playing a largely ceremonial role with minimal influence over decision-making. The most overt snub was Bachelet’s decision not to inform Burgos of her visit to the troubled southern region of Araucanía last December. But there were numerous episodes when Burgos was left out of the loop or Bachelet consulted more junior, politically aligned, officials instead, most recently when she chose to take legal action against the magazine Qué pasa for defamation [WR-16-22].

José Miguel Insulza, a political bigwig in the Nueva Mayoría, conceded that the ruling coalition was “shooting itself in the foot” and doing a better job of providing opposition to the government than the official opposition, “attacking ministers instead of attacking the Right”. Insulza was referring to the calls from within the Nueva Mayoría for the minister secretary general of the presidency, Nicolás Eyzaguirre, to follow Burgos out of the cabinet. It is also worth noting that Deputy Osvaldo Andrade, the president of the lower chamber of congress and until recently spokesman for Bachelet’s Partido Socialista (PS), recently challenged the anti-crime legislation driven by Burgos on constitutional grounds before the constitutional tribunal. Andrade said that empowering police to carry out preventive identity checks violated the rule of law. This exposed the tensions between the constituent parties in the Nueva Mayoría.

The appointment of the moderate Burgos had been interpreted as a sign that the government was going to water down some of its more radical and controversial reform agenda. It was consonant with Bachelet’s professed promise to embark on a new era of “realism without resignation”. But, this did not materialise. In practice Burgos was given little authority, and his appointment now looks like an attempt by Bachelet to silence critics, gaining time to advance these initiatives rather than altering course.

In spite of the infighting in the ruling coalition, the predictions of its imminent demise by senior members of Chile Vamos are exaggerated. Deputy Juan Antonio Coloma of the ultra-conservative Unión Demócrata Independiente (UDI) said it heralded the “collapse of Nueva Mayoría”; the UDI president, Hernán Larraín, that it was “terminally ill”. Larraín did make a pertinent point though: “this is one of so many critical moments for the Nueva Mayoría, of which more will probably follow; clearly the reasons for Burgos’s departure are political and behind them is a lack of coordination”. Cristián Monckeberg, the president of the UDI’s junior coalition partner Renovación Nacional (RN), said Burgos’s resignation spelt “the defeat for common sense, moderation and Democracia Cristiana”. Fernández will have his work cut out disproving this claim (see sidebar).

• Mario Fernández Baeza

Mario Fernández is a veteran politician, who served as defence minister and minister secretary general of the presidency in the government of former president Ricardo Lagos (2000-2006), and a conservative lawyer who, as a member of the constitutional tribunal, opposed the handing out of the morning after pill at doctors’ surgeries. The big question is whether Fernández will be permitted to exercise the powers that come with the post of cabinet chief. He faced a challenging start with violence breaking out during student protests in Santiago on 9 June. Hooded individuals desecrated the Iglesia de la Gratitud Nacional in the capital, making off with some of the iconography. In the ensuing days there were further protests by students over their lack of involvement in the government’s education reform.

COLOMBIA | Record inflation. The inflation rate in June reached 8.6%, the highest rate for the month over the last 16 years, according to Colombia’s statistics agency (Dane). This result brought accumulated inflation for the first six months of the year to 5.1%, significantly higher than the 3.3% registered in the first six months of 2015.

According to Dane, there was a considerable variation in the consumer price index (CPI) last month of 0.48% compared to 0.10% registered in June 2015. This as the price of food registered a sharp increase as a result of the indefinite national strike launched by local truckers last month.

Problematically, the Dane report notes that the latest results mean that Colombia’s CPI has increased by 8.6% in the last 12 months, the highest increase observed among the Pacific Alliance trade bloc countries – Chile (4.2%), Peru (3.36%) and Mexico (2.54%). This, in turn, has prompted local analysts to speculate that the central bank (Banrep) might be forced to increase interest rates once again this month as it already did in June.

ECUADOR | IMF provides post-earthquake financial support. The International Monetary Fund (IMF) announced financial support of US$364m for Ecuador on 8 July to help the country in the wake of the 16 April earthquake. The loan will be provided by way of a Rapid Financing Instrument (RFI), which provides quick and low-access financial assistance to member countries facing an urgent balance-of-payments need, without requiring a fully-fledged economic programme or reviews. The loan will be disbursed immediately, at an annual interest rate of 1.1%, with a three‑year grace period and repayment in five years.

Within Costa Rica, various problems have contributed to the unpopularity of President Laura Chinchilla. Outside the country, the lack of progress on fiscal reform is the main issue that continues to preoccupy observers like the International Monetary Fund (IMF).

As discussed in the October 2013 Latin American Caribbean & Central America report, recent surveys and polls have found widespread voter dissatisfaction with Costa Rica's political system in general and with President Laura Chinchilla in particular. A Unimer poll released in late September found that the president's disapproval rating was 67%; her approval rating, just 5%. The president's unpopularity stems in part from a scandal in May that arose from her use of a private jet linked to a businessman suspected to drug ties. It is also partly due to the administration's mishandling of major infrastructure projects. In June this year, for instance, the US$1.5bn modernisation of the country's only oil refinery at Moín, on Costa Rica's Caribbean coast, was suspended. President Chinchilla's popularity has also suffered as a result of perceived lack of progress in relation to the administration's legislative agenda.

A case in point is the proposed fiscal (tax) reform. In recent months, various external observers — including the World Trade Organisation (WTO)  in August this year) and the IMF in its Article IV consultation with the government of Costa Rica in March this year — have highlighted how the supreme court in 2012 struck down the reforms proposed by congress, because of procedural lapses.

The WTO noted that: “the measures proposed by the reform included expanding the tax base and turning the sales tax into a value added tax. In response to the overturning of the tax reform, the authorities have adopted specific measures to contain spending, boost revenue and upgrade the tax administration. These include imposing a freeze on new job creation and the filling of vacancies in the public sector; restraining wage growth; rationalising expenditure on goods and services; and postponing non-priority public investment projects, among other things”. Ministries and other public institutions subject to budgetary authority have been instructed to constrain increases in current spending, relative to the levels of 2011, to just 4%.

For its part, the Instituto Centroamericano de Estudios Fiscales (ICEFI) in its latest (June) half-yearly report on the region also flagged up Costa Rica's fiscal imbalances as the government's key challenge. This was partly because central government debt rose faster in Costa Rica, as a percentage of GDP, from 2011 to 2012 than in any other country in Central America. It was also because of a slowing in economic activity (and in the government's revenues) at a time that the electoral cycle encouraged higher spending.

The ICEFI's conclusions were broadly consistent with those of the IMF in its Article IV consultation with the government, published three months earlier. Mainly because of the fact that the government's revenues as a percentage of GDP are lower than would normally be expected for a country of Costa Rica's level of development, the fiscal deficit  (for both the central government and the public sector as a whole) is consistent with a further deterioration in the debt ratio.

This is in the context of a country where most other macroeconomic metrics are favourable. Even allowing for the latest deceleration in activity highlighted by ICEFI, real GDP growth has been running at above 4% per annum since 2010. Inflation has been sticky, at 4%-5%. Because this is higher than the rate of inflation in Costa Rica's main trading partners (and, in particular, the US), this has been consistent with a real appreciation in the currency, which has consistently remained at the 'strong' side of its managed trading band. Meanwhile, Costa Rica has been running a current account deficit of around 5.5% of GDP - but this has been funded, basically, by inward Foreign Direct Investment (FDI).

The IMF believes that tax reforms along the lines of those proposed in 2012 should boost public sector revenues by 2.5%-3.0% of GDP. Conversely, it thinks that changes in spending (e.g. through greater efficiency in health and education expenditure and public sector pension reform) could produce benefits of 0.5% of GDP. The Fund has also highlighted the desirability of greater usage of external debt, which is only about one fifth of the total outstanding (see chart).

In September 2013, the international ratings agency Moody's Investors Service changed the outlook on Costa Rica's Baa3 (investment grade) bond rating from stable to negative. Moody's indicated that it was concerned with the deterioration in the overall debt ratio (from about 27% of GDP in 2008 to 38% or so in 2012 and nearly 40% in 2013) and by the lack of progress towards fiscal reform. Moody's noted that it could change the rating upwards on “further structural fiscal progress, particularly involving tax revenues ... if the reforms successfully reverse the growth in the debt burden”. Conversely, “continued deterioration of the fiscal accounts and further increases in the main debt metrics will likely lead to a negative ratings action.  Evidence of stress in the banking system or a significant increase in the level of financial dollarisation could also place downwards pressure on the rating”.

A crisis is not imminent. The general improvement in the global economy over the last few months, the resilience of Costa Rica's economy and the (widely recognised) good governance of the country mean that the current administration, and that which follows it next year, have the luxury of time to enact a comprehensive tax reform. Given that general elections (congress and presidential) are due in February 2014, it is possible that no progress will be made with tax reform over the next six months. This will not matter. However, lack of progress by November 2014 would significantly raise risk perceptions.

• 2014 contest

The favourite for the 2 February presidential contest is the former San José mayor, Johnny Araya (1998-2001; 2003-2013), who is running for the ruling Partido Liberación Nacional (PLN). His main rival is Rodolfo Piza of the Partido Unidad Social Cristiana (PUSC). A victory for Araya would give the PLN an unprecedented third consecutive term in office.

*** BARBADOS PM LETS OBAMA KNOW OF FRUSTRATIONS. Barbados’s Prime Minister Freundel Stuart expressed a series of frustrations with the US at the recent one-day Caricom-US summit in Jamaica. He called for a more structured partnership, and he said that the Caribbean nations should not be seen as “elegant nuisances, or angry and dejected supplicants ringing the doorbell or banging on the door of the United States of America”.

He raised a number of specific gripes. The first was the constant representation of many Caribbean nations as “tax havens” and the imposition of “change after change in the rules that apply to our jurisdictions”. Secondly, he complained about the provision of “trade-distorting subsidies” to rum producers in the US territories of Puerto Rico and the US Virgin Islands.

And, thirdly, he revealed the frustrations felt by the small Caribbean nations in dealings with the US authorities whereby obligations imposed on the Caribbean are not always reciprocated by the US. His example was the Foreign Account Tax Compliance Act, which he said was justified on the grounds of revenue protection and enhancement but which, he feared, “may not be applied evenly in respect of the right of access of the US to information as against the exercise of a similar right by our jurisdictions”.

*** TRINIDAD & TOBAGO PLAYS UP PRE-ELECTION GOOD NEWS. There has been good news for Trinidad both on oil production and tourism, which is particularly welcome for the government in an election year. On the oil front, the Energy Ministry is pointing to a year-on-year increase in production of more than 4% for Q1 2015. Production is said to have reached around 83,000 barrels per day (bpd) compared with 79,466 bpd in Q1 2014.

The People’s Partnership (PP) government was quick to claim the credit for this increase and to contrast its performance with the previous People’s National Movement (PNM) government (2007-2010). Energy Minister Kevin Ramnarine said: “Oil production had been in decline since 2006 due to a lack of strategic focus by the former PNM administration. Our harshest critics would agree, and the facts would show, that under this government we have not only stabilized production but have managed to realize an increase in output.”

On tourism, the first quarter of 2015 showed a 20% increase in visitor arrivals, a significant movement given that the US is the source of 40% of all visitors to Trinidad.

*** DINO GOES DOWN. On 10 March, Dino Bouterse, the son of Suriname’s President Desi Bouterse, was sentenced by a New York court to just over 16 years in prison for attempting to provide material support to Hezbollah – the Lebanese militant group designated as a terrorist organization by the US – for arms offences, and for drug trafficking. The particular embarrassment is that Dino Bouterse was instrumental in setting up Suriname’s counter-terrorism unit. He is said to have discussed supplying Hezbollah with surface-to-air missiles for use against US targets. But he was trapped in a sting operation, and the judge accepted that his motivation was greed rather than the desire to cause great harm, so he was spared the 30-year sentence that the prosecutors were seeking.

Suriname goes to the polls on 25 May, with President Bouterse’s National Democratic Party (NDP) defending a slim one-seat majority in the 51-seat National Assembly. Bouterse, who first came to power through the barrel of a gun following a coup in February 1980, was constitutionally elected president in 2010. The president is elected by the majority in the National Assembly.

Panama’s new President José Raúl Mulino faces a complicated economic panorama after taking office on 1 July, but has promised to boost growth, access to public services and job creation.

Chief among Mulino’s initial promises is the revitalisation of infrastructure development, including improvements to the country’s highway system and the expansion of the Panama City metro, with work already underway on a new Line 3, a monorail. His flagship initiative is a train linking Panama City and David, the capital of Chiriquí province. The initiative is not new; a feasibility study drawn up by China Railway Design Corporation in 2019 foresees a 391km line costing US$4.1bn. Mulino announced the creation of a national secretariat for the railway at his first cabinet meeting, and the project has already captured the attention of investors. Raúl Martínez-Ostos Jaye, the president/CEO for Mexico and Latin America for UK-headquartered Barclays Corporate and Investment Bank, was cited by the local media as saying that the bank had expressed an interest in the project, and China, South Korea, and Spain have all reportedly said that firms from their countries would like to be involved.

This is not the first time that Panama has started to plan a railway between the two cities, and details remain vague, with many questions, such as the number of stops or where the termini will be located, still to be answered. Megaprojects such as new railway lines are also associated with environmental damage and increased corruption risks, which could spark demonstrations as protesters have cited both issues during recent periods of unrest.

Mulino has also pledged to improve access to drinking water throughout the country, a key social issue, and outlined plans to build a new water purification plant at Lake Bayano, a reservoir in Panama province, which would boost supplies in the east of Panama City. On 28 July, the president also said he would prioritise infrastructure projects such as the North Water Ring, a system of storage tanks and pumping stations that will provide water to an estimated 200,000 people that live in areas to the north of Panama City.

The president has also said that he will work with the Panama Canal Authority to secure water supplies for the Canal, a key economic driver which has been badly affected by drought that has limited the number of ships that can pass through it. One mooted solution is a new dam and reservoir on the Rio Indio, which moved a step closer in July with a ruling from Panama’s supreme court (CSJ) which will allow the Canal to expand outside its traditional watershed. Some of the water stored here could potentially be used to supply households and agriculture too.

• Reservoir

In July the administrator of the Panama Canal Authority (ACP), Ricaurte Vásquez, said the initiative regarding the Indio River basin would require the acceptance of inhabitants affected. The Indio River basin spans a total of 580km² and is home to over 12,400 people living in some 231 villages. On 3 July the supreme court (CSJ) issued a ruling which struck down a 2006 regulation prohibiting the waterway from expansion outside its traditional watershed. The CSJ ruling allowed a re-interpretation of the boundaries. Vásquez was cited by Spanish newswire EFE as saying that the cost of constructing a new reservoir would be in excess of US$1.2bn while the costs related to sustainability and attention to communities amounted to some US$400m.

Another move from Mulino is the decision to start the process of joining the Southern Common Market (Mercosur) regional trade bloc, which was announced on 8 July. Mulino has said that the private sector will be consulted throughout the process, and the move has been well received by business leaders such as Juan Alberto Arias, president of the Cámara de Comercio, Industrias y Agricultura de Panamá (Cciap), a leading business lobby, who said that opening new markets to Panamanian products is a positive development. 

Although Mulino’s plans to boost growth and job creation have so far been light on detail, his government received a boost on 17 July, when the US announced that Panama would form part of an initiative to foment semiconductor production in the Western Hemisphere. Projects will be funded by the US State Department and the Inter-American Development Bank (IDB).

Mulino may also be hoping to attract more support from Washington after joining US efforts to curb illegal migration in the region. Shortly after his inauguration, the president announced the signing of a deal under which the US will fund repatriation flights from Panama for migrants apprehended crossing the Darién Gap, a roadless expanse of jungle on the border with Colombia which serves as a key migration route to the US.

However, Mulino’s plans could be affected by a number of headwinds. The shutdown of the massive Cobre Panamá mine, while popular among citizens, leaves a massive economic hole. The mine accounts for some 5% of GDP, and the closure could cost Panama billions if the country has to pay out on arbitration claims from the mine owner, Canadian firm First Quantum Minerals. Mulino has said he will hold talks with the miner, but he faces a difficult task lessening the economic hit of the decision to close the facility without causing a political headache.

Another issue is the downgrading of the country’s investment rating by international credit ratings agency Fitch Ratings from BBB- to B+ in March. In a statement published in May, Fitch lists a number of difficulties facing Mulino. This include “a weak fiscal position; a ballooning deficit in one of the pension subsystems; persisting uncertainties around the Minera Copper mine, which was forced to close last year; water-supply issues affecting the Panama Canal; a weak labour market; and simmering popular discontent after years of protests.” The agency added that a “tense social backdrop, fragmented legislature and difficult policy trade-offs may constrain his ability to deliver large and rapid improvements”.

Mulino has said that he will enact constitutional reform, which could help to strengthen institutions and address issues surrounding corruption. However, such a move has been discussed under previous governments but didn’t ultimately happen. Any reform would take a long time to pass and will not help Mulino to address the many immediate challenges that he faces.

IMF uncertainties about Panama

In a statement published on 27 June, the International Monetary Fund (IMF) said that Panama’s economy “is expected to slow and the outlook is uncertain.” In the statement, the IMF said that GDP growth will decrease to 2.5% this year, down from 7.3% in 2023, and it also highlighted the fact that Panama faces higher financing costs. “The near-term economic outlook is subject to a large degree of uncertainty and the balance of risks is tilted to the downside,” said the IMF.

The downgrading of Puerto Rico’s sovereign rating to below investment grade by the three major agencies merely confirms the perceptions of market investors. A financial crisis is not imminent, just as it wasn’t in October last year, when there was widespread comment in the mainstream media about the government’s financial problems. In essence, the government’s funding costs have risen – and it is increasingly being supported by High Yield, rather than US Municipal Bond investors. The main problem remains stagnation in an economy that has enjoyed only one year of growth since 2006.

In the first half of February 2014 the three major ratings agencies – Standard & Poor’s (S&P), Moody’s Investor Service and Fitch Ratings – all downgraded the general obligations (GOs) of the government of Puerto Rico, and related securities, to below investment grade. In some cases, securities were downgraded by two notches.

The box below summarises how the agencies explained their decisions. The financial position of the government of Puerto Rico has been deteriorating for some time, principally because of the general stagnation of the economy since 2006. The latest data in this respect is uninspiring: the Economic Activity Index (EAI) published by the Government Development Bank for Puerto Rico (GDB) fell by 1% month-on-month and 5.2% year-on year in December 2013. Further, the government has less access than previously to funding from the GDB. This is at a time that its ability to raise money by issuing bonds has been reduced – thanks in part to the assessments of the agencies themselves.

Puerto Rico is an unincorporated US territory. Accordingly, the government and its agencies could readily sell bonds into the US$3.7trn US municipal bond market, not least because their interest payments were exempt from federal, state and local taxes. In mid-October 2013, there was widespread commentary about the government’s financial problems. This was partly because the GOs had fallen in price by around a fifth since the beginning of 2013, and were trading on yields normally associated with High Yield (i.e. sub-investment grade, or junk) bonds. This meant that they had grossly underperformed other municipal bonds. It was also because of the publicity surrounding the mid-July filing for Chapter 9 bankruptcy by the City of Detroit. For its part, the government published a comprehensive ‘Update on Fiscal and Economic Progress’ on 15 October.

In the October 2013 edition of Latin American Economy & Business, we argued that a financial crisis was not, in fact, imminent. This was partly because the outstanding debt of the government and its agencies, which amounted to around US$70bn, was manageable in relation to public sector budgets of around US$29bn annually, if high relative to GDP of around US$100bn. It was partly because the government and its agencies did not have to access to capital markets for the remainder of the fiscal year to the end of June. In any event, the government could borrow from the GDB. At the time, the GDB had about US$2.8bn in liquid and high quality securities (e.g. US treasury bonds, agencies, and mortgage-backed securities). In theory, the GDB’s balance sheet could also have been boosted by the transfer of public sector deposits with private sector banks, and by other measures.

As the agencies have indicated, there have been a number of positive developments in the recent past. The administration of Governor Alejandro García Padilla has undertaken necessary reforms of the pension systems for public servants and teachers (and in face of industrial action by the latter). The administration has increased the Sales and Use Tax (SUT) from 2.75% to 3.50%. As highlighted by S&P, the “administration [has] just announced an intention … to reduce the current year deficit and to introduce a balanced budget in April for fiscal 2015, which would be the first balanced budget in many years”. Crucially, the US economy has continued to strengthen.

In the meantime, the fall in the price of the GOs (and other related bonds) through the first three quarters of 2013 indicates that investors, collectively, have made allowances for the risks and problems. On 12 February 2014, Fitch noted that, over the last seven months of 2013, single-state municipal bond mutual funds had reduced their average exposure to Puerto Rico securities from 4.7% to 1.5%. Municipal Bond funds investing across the US had cut their exposures from 2.0% to 0.8%. Fitch thinks that the municipal bond funds that had retained exposure to Puerto Rico securities had tended to reduce their exposure by selling bonds of COFINA – an agency of the GDB through which SUT revenues are channelled: this was because the COFINA bonds were more highly rated than the GOs and losses realised on sales would have been less.

Fitch suggests that the enactment of the 2013 Puerto Rico Investment Company Act (PRICA) could result in further sales of GOs and other government-related securities by Puerto Rico-based mutual funds, which had assets under management (AUM) of over US$11bn at the end of last year. “Mutual funds operating out of Puerto Rico currently invest almost exclusively in Puerto Rico municipal debt. If they adopt the new PRICA, they would be allowed to diversify their portfolios outside of the Commonwealth or into local corporate exposures. Selling municipal bonds could further stress prices of the island’s debt.”

In practice, though, the prices of GOs and other government-related bonds have not been adversely affected by the downgrades. On February 12, Fitch noted that the price of GO pension funding bonds maturing in 2016 had bounced by around 14% from lows in the first week of the month. The price of COFINA SUT bonds had recovered by about 9% from lows in December 2013.

In essence, the latest announcements from the ratings agencies confirm changes that have already taken place. The government’s funding costs have increased. Whereas previously, it was being financed by municipal bond investors, it is now reliant significantly on High Yield bond investors. Although some of the metrics are alarming (such as the US$37bn unfunded actuarial liability in the public servants’, teachers’ and judicial pension schemes identified by S&P), a financial crisis does not appear to be imminent. In the short-term, the government’s planned issue of bonds to refinance GDB borrowings will provide a useful indicator of the views of investors. Over the medium-to-long term (i.e. six to twelve months), the key factor will be the growth trajectory of the US economy. If the recovery is faster than generally expected, perceptions of the GOs of the government of Puerto Rico (and related securities) could improve significantly.

Ratings agencies’ comments

‘The downgrades follow our evaluation of liquidity for the Commonwealth, including what we believe is a reduced capacity to access liquidity from the Government Development Bank (GDB) of Puerto Rico. In a related action, we downgraded the GDB to BB, and the rating remains on CreditWatch with negative implications. We also believe that the Commonwealth’s access to liquidity either through GDB or other means will remain constrained in the medium term, even in the event of a potential issuance of debt planned next month. We believe that these liquidity constraints do not warrant an investment grade rating. … That the rating is not lower is due to the progress the current administration has made in reducing operating deficits, and what we view as recent success with reform of the public employee and teacher pension systems, which had been elusive in recent years. We view the reform as significant and could contribute to a sustainable path to fiscal stability.’ Standard & Poor’s, 4 February 2014.

‘The problems that confront the Commonwealth are many years in the making, and include years of deficit financing, pension underfunding and budgetary imbalance, along with seven years of economic recession. These factors have now put the Commonwealth in a position where its debt load and fixed costs are high, its liquidity is narrow and its market access has become constrained. In the face of these problems, the administration has taken strong and aggressive actions to control spending, reform the retirement systems, reduce debt issuance and promote economic development. Despite these accomplishments, however, in our view the Commonwealth’s credit profile is no longer consistent with investment grade characteristics. While some economic indicators point to a preliminary stabilisation, we do not see evidence of economic growth sufficient to reverse the Commonwealth’s negative financial trends.’ Moody’s Investors Service, 7 February 2014.

‘Fitch placed the general obligation (GO) and related ratings on Negative Watch in November 2013, citing the challenge facing the Commonwealth in maintaining financial flexibility in light of the deterioration in capital markets access. Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the Commonwealth’s finances or economy since November. In the context of other credit challenges related to a weak economy and elevated liability levels, Fitch believes that these additional hurdles preclude … an investment grade credit profile. … Fitch believes that the ultimate success of efforts to put the Commonwealth’s finances on a sustainable path will be dictated by the performance of the economy.’ Fitch Ratings, 11 February 2014.

• “In essence, the latest announcements from the ratings agencies confirm changes that have already taken place. The government’s funding costs have increased. Whereas previously, it was being financed by municipal bond investors, it is now reliant significantly on High Yield bond investors. Although some of the metrics are alarming (such as the US$37bn unfunded actuarial liability in the public servants’, teachers’ and judicial pension schemes identified by S&P), a financial crisis does not appear to be imminent.”

President Lenín Moreno’s new finance minister, Carlos de la Torre, has signalled that a major change in fiscal policy is on the cards, with mooted plans for the largest budget cut in a decade.

De la Torre has been using language that would have been wholly anathema to the previous government led by Rafael Correa (2007-2017). For example, the new minister says that the State’s ‘protagonistic’ role in the economy will be reduced, and that a line will be drawn under a decade of heavy public investment, particularly in infrastructure. Henceforth, the private sector is to be ‘the motor of growth’, the new finance minister has stated. Correa, meanwhile, has been Tweeting his not-so-tacit disapproval of all this from the sidelines.

As this was a general election year, the new government cannot bring in a new budget, but it is permitted to make revisions to the existing plan (which was effectively rolled over from last year). Full details were still pending release in early July, but in advance of that, De la Torre had suggested that this year’s budget spend should not exceed US$24.5bn. This would mean a 22% reduction over the approved US$29.8bn 2016 budget, a very dramatic adjustment, and one that may be politically difficult to sell.

However, having inherited a worse-than-expected fiscal deficit, estimated at some US$7.3bn (or roughly 7% of GDP), De la Torre apparently aims to get that down to US$4.6bn this year, or 4.6% of GDP. By any measure, that is an ambitious target. Without a doubt, squaring the budget circle will not be easy, financially or politically, for the new administration.

The newly installed finance team reportedly is working towards budget outgoings of US$24.5bn, comprising US$15.9bn in current expenditure and US$8.6bn in capital expenditure. If those figures are accurate, this would take nominal budget spending back to 2011 levels.

Of the US$17.4bn in current expenditure approved under the 2016 budget, US$8.8bn was destined for wages and salaries; by far the biggest item. In its bid to reduce current outgoings by a hefty US$1.5bn, the Moreno team is ‘evaluating’ the 480,475 existing public sector staff, among other measures. There were 800 posts alone associated with the various ‘coordinating ministries’ introduced by the Correa administration, which in recent weeks have been eliminated (albeit with some of the staff absorbed by other ministries).

The treasury puts estimated income, meanwhile, at US$19.9bn, comprising US$2.2bn in oil earnings and US$17.7bn in non-oil earnings (i.e. taxes). Tax earnings are reported to be recovering, with a 10% year on year increase in the first five months of 2017 to US$5.6bn, according to the internal revenue service (SRI), which also reported that the intake in May was the best in 46 months. Some of the increase in current tax revenue is related to a package of emergency taxes introduced after last year’s earthquake. However, these are set to expire shortly and thus will fall out of equation. Moreover, the head of the SRI, Leonardo Orlando, forecasts a total tax take of US$13.5bn overall this year, which appears some way off the finance ministry’s projected figure.

De la Torre has made no mention, as yet, of tax reform. Immediately upon taking office however, the new Moreno government issued a fresh US$2bn in sovereign bonds, the fifth placement in a year. As well as providing reassurances that dollarisation will remain in place, De la Torre has insisted that Ecuador will strictly comply with its external debt obligations. But a debt restructuring is under consideration, he acknowledges, in order to lengthen maturities and secure more favourable interest rates. Another option, of course, is a lending programme with the IMF (which would come with fiscal conditions attached). Again, this would mark a very sharp break with Ecuador’s recent policy stance.

Gisela Sánchez, the new head of the Central American development bank (BCIE), has said that she will rebalance its portfolio by ending loans to Nicaragua and El Salvador.

During her term, which will run from December 2023-2028, there will be no more money for these two nations as they have “surpassed the limit of loans that they can receive,” Sánchez told Central American media consortium Redacción Regional in an interview published in March. This marks a departure from the approach of predecessor Dante Mossi, who became known as “the banker to dictators” after making a number of large loans to El Salvador and Nicaragua, which drew criticism due to democratic backsliding in both nations.

In El Salvador, at least US$200m in BCIE funds were diverted to projects linked to the cryptocurrency bitcoin, breaking the bank’s own rules according to Redacción. And the bank has lent billions to Nicaragua in recent years even as President Daniel Ortega has engaged in worsening human rights abuses. Redacción highlights that, as of end 2023, El Salvador accounted for just over 25% of BCIE total lending, followed by Nicaragua at around 22%. Next up is Honduras (17%), Costa Rica (10%), and Guatemala (5%).

There has also been controversy around the bank’s role in funding projects aimed at reducing deforestation in Nicaragua’s Bosawás and Río San Juan biosphere reserves. The BCIE was due to finance US$44.2m of the US$116.6m “Bio-CLIMA Project: Integrated Climate Action to Reduce Deforestation and Strengthen Resilience in the Bosawás and Río San Juan Biosphere Reserves" alongside the United Nations Green Climate Fund (GCF) and the Global Environment Facility, a multilateral environmental fund. It was approved in November 2020, but an investigation by the GCF, which was meant to provide US$64.1m in funding, showed that the BCIE had omitted information on violence against indigenous communities in its report on the project, allowing the loan to proceed. As a result, in March 2024 the GCF announced the termination of the agreement, citing non-compliance with GCF policies and procedures on environmental and social safeguards (ESS).

The GCF decision causes further harm to the reputation of the BCIE, and Sánchez has work to do to repair the damage caused by her predecessor Mossi’s leadership of the organisation. The early signs are encouraging, with Sánchez, who is the first woman to head up the BCIE, promising to “correct the course” of the bank and diversify its portfolio. She has already moved to crack down on excessive salaries, removing Ana Marcela Giammattei, daughter of former Guatemalan president Alejandro Giammattei (2020-2024), from a role at the bank which reportedly paid her a salary of US$5,000 per month.

During Sánchez’s short time in charge, the bank has approved a new anti-corruption policy, and signed an agreement with the regional office for Central America and the Caribbean of the United Nations (UN) High Commissioner for Human Rights (OHCHR) to inform the bank’s operations in the future. 

Sánchez also told Redacción that the bank is working with the UN Office for Project Services (UNOPS) in Nicaragua to make sure funds are being used for the projects they are intended for and revealed that the bank shares its plans with the US Office of Foreign Assets Control (OFAC), which is responsible for administering and enforcing sanctions.

She also plans to work with an external organisation to analyse the bank’s operations over the last 10 years in order to improve its capabilities in the future. Sánchez says that her reformist agenda has the support of extra regional members of the bank such as Taiwan, South Korea, Spain, Mexico, and Colombia, which will help her achieve her goals, and she has promised that the bank will regain people’s trust. 

Managua office

Mossi also opened a new US$16.5m BCIE office in the Nicaraguan capital Managua in March 2022 and has faced criticism for an increase in administrative costs as well as excessive salaries.

Moody’s upgrades Nicaragua’s credit rating

On 15 March international credit ratings agency Moody’s upgraded Nicaragua’s long-term foreign and local currency issuer rating from B3 to B2 with a stable outlook. The agency cited structural improvements due to the accumulation of significant fiscal and external buffers which exceeded previous forecasts.

Since 2022 the country has been running a fiscal surplus as tax receipts increased due to a 2019 tax reform and a moderation in public sector wages and social spending, said Moody’s.

In 2023 the fiscal surplus widened to an estimated 1.5% of GDP, allowing 10.2% of GDP in central bank deposits to accumulate by October 2023. A small fiscal surplus of 0.1% of GDP is forecast for this year, but Moody’s believes this figure could be higher due to renewed efforts to cut public spending.

This strengthening of public finances is a result of government efforts to mitigate challenges posed by international sanctions, it added. These sanctions pose a risk in that they constrain external financing options and could disrupt investment flows, but fiscal and current account surpluses and efforts to secure financing and investment from China mean the economy is overall more resilient to potential shocks than before, said Moody’s.

“The authorities’ track record of navigating prior shocks while maintaining a prudent policy mix that safeguarded macroeconomic stability supports this view,” added the agency.

On 10 October the US embassy in San José referred to Costa Rica as a “silicon rainforest” in a Facebook post explaining the semiconductor supply chain, as the two nations step up nearshoring efforts in the industry.

The post explains that the US is working to make the semiconductor “more resilient by bringing it to the Western Hemisphere,” referring to a drive to reduce reliance on Asian producers of microchips that are vital to the functioning of many technological devices. Building out a regional supply chain is one aim of the 2022 US Chips and Science Act, which provides US$500m for an international technology security and innovation (ITSI) fund. In July 2023, Costa Rica was announced as the first beneficiary of the fund, followed by Mexico and Panama. 

“The United States views Costa Rica as a partner in ensuring the semiconductor supply chain can keep pace with the digital transformation underway,” said Cynthia Telles, US ambassador to Costa Rica, in a statement published in July 2023. “Products ranging from vehicles to medical devices increasingly rely on semiconductors as the building blocks of today’s economy. Our announcement of this collaboration underscores the significant potential to expand this industry in Costa Rica to the benefit of both our countries.”

The ITSI fund focuses on developing assembly, testing, and packaging (ATP) capabilities in these countries, which is a key part of the supply chain but one that is more labour intensive and involves less-complex processes than other parts. It also tends to have lower margins. In the future, these ATP operations will support the new semiconductor fabrication plants being built in the US.

“The ITSI fund augments the Chips Act domestically and is a recognition that we need partners to be able to shift different parts of the semiconductor supply chain to the western hemisphere,” Virginia Kent, senior coordinator for the ITSI fund at the US Bureau of Economic and Business Affairs, a government agency that is part of the US State Department, told FDI Intelligence, an investment tracking service that is part of UK newspaper Financial Times, in an article published 14 August. 

Costa Rica is a logical choice given its strong record in developing high-tech industry such as the medical devices sector, which became the country’s most valuable export sector in 2017. The country is also already home to more than a dozen companies involved in the semiconductor supply chain, which have operations in the country. One long-term investor is US tech firm Intel, which opened its first facility in the country in 1996. It moved one ATP facility to Asia in 2014 but reopened it in 2020, and then announced that it would be committing a further US$1.2bn to scale up operations in August 2023.

“Costa Rica has a proven track record as a nation able to develop a highly skilled talent pool that constantly takes on more and more sophisticated processes,” Marianela Urgellés Batalla, general manager of Costa Rican private FDI consultancy Cinde and a former Intel employee, told FDI Intelligence. 

Costa Rica has also been working to position itself as an attractive destination for semiconductor investments. For example, in February 2023 the country enacted Law 10234, which offers incentives to encourage investment in ATP and other semiconductor services. And in March this year authorities declared the semiconductor industry to be of public interest and published a national semiconductor roadmap setting out plans to attract more FDI in the sector. 

The plan has four main pillars: talent development, including new education programmes, language skills, and initiatives to attract workers with specialised skills; modernising incentives, which aims to bring financial and fiscal incentives into line with new international standards; attracting investment, such as through marketing campaigns targeting industry suppliers; and regulatory framework, which seeks to streamline procedures in order to facilitate trade and investment by simplifying bureaucratic processes.

Danny Agüero Herrera, senior FDI specialist in semiconductors at Procomer, Costa Rica’s trade and investment promotion agency, told FDI Intelligence that the plan is to pitch the country as an ideal spot for research and development, distribution, ATP, and back-end processes operations. The country is already working with the US’ Arizona State University (ASU) on ATP courses as part of a partnership with local universities. Jeff Goss, director of global outreach and extended education at ASU, told FDI Intelligence that “Costa Rica has a good baseline to attract more ATP investment.”

However Asian countries have some competitive advantages, such as lower construction and staffing costs, and Costa Rica faces competition from other Western Hemisphere nations keen to capitalise on nearshoring. The country also has a growing problem with organised crime, which could affect the business environment if it continues to worsen, and there are worries that decreasing investment in the education system will affect its ability to produce skilled workers.

FDI

Costa Rica received a record US$4.69bn in FDI in 2023, a 28% increase compared to the previous year, according to a report from the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac) published in August.

With less than a month until the 6 November general elections, President Daniel Ortega and the ruling Frente Sandinista de Liberación Nacional (FSLN) are poised for another re-election. Amid continued democracy concerns such as Ortega’s refusal to invite reputable international electoral observers and various questionable rulings by the supreme justice court (CSJ) and electoral authorities (CSE) [RC-16-07], the withdrawal from the race of Pedro Reyes, the presidential candidate for the main opposition Partido Liberal Independiente (PLI), illustrates the latest sign of crisis afflicting Ortega’s competitors.

Announced on 19 September, the decision by Reyes – who in June was controversially awarded the PLI presidency by the supreme court (CSJ) from longtime Ortega opponent Eduardo Montealegre [RC-16-06] – was attributed in part to financial issues. Five days earlier, the local media had cited Luis Rivas Anduray, the general manager of a local bank, Banco de la Producción (Banpro), as saying that a PLI request for a loan had been rejected, amid doubts as to how it was to be paid back. On 20 September, José del Carmen Alvarado Ruíz, (a dentist and long-time PLI member) was then named as the party’s new presidential candidate although he similarly stands little chance against Ortega (see sidebar).

This is not the only indication of the ongoing difficulties afflicting the opposition. On 2 September, Montealegre, who was coordinator of the Coalición Nacional por la Democracia (CND) coalition of opposition parties, made headlines with the announcement that he was retiring from politics. He failed to give details for his decision but the local media suggested the move could be due to the possibility of renewed legal action relating to an alleged libel case brought by an economist, Néstor Avendaño, over the collapse in 2000 of a local bank, Banco del Café. Avendaño was one of its board members. With the CND apparently in tatters, on 5 September, Kitty Monterrey, a Montealegre ally, announced the launch of a political movement, Ciudadanos por la Libertad (CxL) comprising some but not all of the CND’s former members. CxL includes groups like Resistencia Nicaragüense, Cruzada Liberal por la Democracia, Partido Nueva Alianza Cristiana, and the Movimiento Socialcristiano, but excludes others like the dissident Sandinista Movimiento Renovador Sandinista (MRS).

US pressure

With the US government having expressed various concerns about the state of democracy ahead of the elections [RC-16-06], on 21 September, the US House of Representatives unanimously approved a bill known as the ‘Nicaraguan Investment Conditionality Act (NICA) of 2016’. The bill, which is currently being discussed by the US Senate, would prevent the Ortega administration from accessing international financing until reforms are implemented that “promote democracy, strengthen the rule of law, respect human rights, and until Nicaragua holds free, fair and transparent elections overseen by electoral observers”.

A 21 September press release by Representative Ileana Ros-Lehtinen (R-FL) who, along with Representative Albio Sires (D-NJ), tabled the bill, notes that, “this bill is aimed at holding Ortega and his regime accountable for violating human rights and manipulating the electoral process for his own political gain. In addition, the NICA Act directs the [US] Department of State to issue a report on how Nicaraguan regime officials in the Supreme Electoral Council, the National Assembly, or the judicial systems are directly involved in acts of public corruption and human rights violations”.

While Roberto Sansón Caldera, the president of the US-Nicaragua chamber of commerce, described the move as “lamentable”, the FSLN government rejected it “as a violation of international law and the United Nations Charter”.

• Latest survey

The latest (August 2016) survey by pollster M&R Consultores, released on 12 September, shows overwhelming support for the Frente Sandinista de Liberación Nacional (FSLN). The survey showed that 65.7% of the 2,000 respondents intend to vote for the FSLN on 6 November, up from 62.8% in July. In second place, as previously, was the number of respondents unwilling to disclose their voting intention (25.6%, down from 26.8% in July). Far behind with 4.4% is the Partido Liberal Constitucionalista (PLC) of disgraced former president Arnoldo Alemán (1997-2002), followed by the Partido Liberal Independiente (PLI), on 2.2%.