REGION: ECONOMIC OVERVIEWS
BELIZE
Dean Barrow's victory over Said Musa who has been prime minister for the past 10 years, was partly a result of the the deteriorating economy. Musa allowed the fast economic growth in his first government to curdle into sluggishness in the past couple of years, despite the start of oil production. The main reason for the slowdown was the international pressure on his government to bring the fiscal deficit down from the 9% of GDP it reached in 2003.
One of Barrow's priorities is to review, and perhaps change, what is happening in the oil industry. In the election campaign Barrow claimed that Belize Natural Energy (the small, largely Irish-backed oil company which is heading oil production in the country) had become a law unto itself and that he was not satisfied it was paying the taxes it should to the government. Currently the state awards itself a 10% stake in all oil and gas production sharing agreements (PSAs): Barrow would like to increase this to 20% and set up a state oil company to hold the government's stake in the PSAs. He would also like to issue shares in this new company to Belizean tax payers.
The country's oil production is rising sharply. In the first 11 months of 2007 output rose by a third to 962,334 barrels (28,812bpd). The overwhelming bulk of the oil is exported: the country's daily oil consumption is only a little over 5,000 barrels. In the first 11 months of 2007 oil exports came to US$113m, the biggest single item in the country's total exports of US$456m. Most of the oil lies in the north of the country, around Spanish Lookout. The oil rich areas are in territory claimed by Guatemala: Spanish Lookout is only 20 minutes by road from the border.
Oil is the only industry which expanded significantly in 2007. The next best performer was the sugar industry, where production rose by 3% to 1.05m long tons. The most import service industry in the country is tourism. The numbers of both cruise-ship tourists (up from 365,220 in the first seven months of 2006 to 385,477 in the same period of 2007) and stay-over visitors (up from 157,370 to 159,987 in the two January to July periods) are increasing. The latest official balance of payments figures are for 2005 and show tourism receipts at US$214m. In 2007 we would guess that they were at least US$250m.
COSTA RICA
The government ran a thumping fiscal deficit in January after achieving a
surplus for 2007. The deficit came in at C$13.77bn (US$27.5m). This was the
first monthly deficit after eight months of surpluses. The fiscal surplus in
2007 was the first for 50 years.
The finance ministry, however, is confident that the country will run a surplus
for the year. The finance minister, Guillermo Zúñiga, argued that the revenues
side of the equation should present no problems: he is expecting tax revenues to
rise by 20% in 2008. This will mean, he asserts, that at worst the deficit in
2008 will be less than 0.5% of GDP.
In January revenues were up by only 8% in nominal terms. This is a concern, given that inflation in the 12 months to the end of January 2008 was 10.56%. Zúñiga said that spending had not risen in real terms. The problem is that revenues were only up by 19% in the year to January 2008; in the year to January 2007 they had been up by 43%.
Inflation: The rate in January was 0.73 %, well down on December's 1.67%. The annual rate is 10.56%, pretty much in line with the 2007 rate of 10.81%. In 2006 annual inflation had been 9.8%.
DOMINICAN REPUBLIC
The IMF's representative in the country, Erik Offerdal, said that the government had provided the Fund with incomplete information. The Fund is making a major fuss about the government's loan to Sun Land. The row comes at an awkward time for the government of President Leonel Fernández, who is fighting a re-election campaign. The Fund merely noted the issue, but the opposition has blown it up into a full-scale scandal.
In the IMF board's final review of the 2005 Standby programme (launched in January 2005), the board said on 4 February that the executive board regretted the government's misreporting of data on external arrears in 2007 which led to "non-complying purchases by the Dominican Republic under the Standby arrangement". In jargon-free English this means that the government breached the IMF agreement on foreign borrowing. Despite the offence, the IMF disbursed the final bit of the 2005 loan. This was worth US$122m. Temistocles Montás, the economy minister, also added that the government had started talking to the IMF about another standby, to come into force at the end of the current agreement.
Although the IMF board's statement did not mention Sun Land by name, IMF sources confirmed that the offence concerned the company. The government lent SunLand US$130m, which the IMF considers should be included in the national debt calculations. What the government did was issue US$130m in debt to Sun Land which was then sold on to other investors. The debt was to be repaid in 19 instalments of US$6.8m each.
Inflation: In January inflation was 1.09%. This brought the 12 month rate up to 6.54%. In 2007 the rate was 6.1%.
EL SALVADOR
Pablo Rodas Martini, chief economist at the Banco Centroamericano de Integración Económica (BCIE), said that any slowdown in the US economy would affect El Salvador, though he doubted that the effect would be catastrophic.
The BCIE's base assumption is that the economy will grow by between 3% and 4% this year, a bit less than the government's assumption that growth will be between 4% and 5%. Rodas Martini argues that if the US slowdowns, Salvadorean exports to the US will wilt and remittances from Salvadoreans working in the US will also fall.
The US bought 51% of the country's exports in 2007. Total exports came to US$3.98bn. Remittances are almost as important. They represent 17% of the country's total GDP and came to US$3.69bn.
The other Salvadorean industry that would suffer from a slowdown in the US economy would be tourism. The industry markets itself heavily in the US.
The country's economy minister, Yolanda de Gavidia, argues that it is far too early to make predictions about the effect of any slowdown in the US. There is still only mixed evidence of a slowdown in the US. The most influential local economic think tank, the Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES), sides with the minister. It argued recently that the country's macro-economic position is strong and able to withstand the effect of a slowdown in the US.
Inflation: In January inflation was 1.1%, up substantially on the fall in prices of 0.4% in December. The rate for the past 12 months is 4.7%, down slightly on the 2007 rate of 4.9%.
GUATEMALA
The country's trade deficit in 2007 set a new record of US$6.65bn, according to figures from the Banco de Guatemala (Banguat).
Imports were up by 14%, year-on-year, at US$13.58bn. Exports were up by 15.2%, compared with 2006 at US$6.93bn. The country has now been running trade deficits for 21 years: the country's last trade surplus was in 1986. The deficit in 1986 was just US$84m but it has risen inexorably over the past 20 years.
The country's trade deficit is now the second biggest in the region, after Mexico's US$12.3bn. In GDP terms, however, Mexico's deficit is insignificant at about 1% of GDP. Guatemala's deficit is the equivalent of 19% of GDP.
The country can afford to run such a deficit because of the strength of remittance inflows. But even these now meet only about two thirds of the deficit. In 2007 remittances came to US$4.1bn. Local economists sniff that it is galling to note that the country's main export is labour. The danger is that the combination of the economic slowdown in the US and the increasingly harsh anti-immigrant policies of the US administration will lead, at the very least, to a reduction in the growth of remittances.
The big problem in 2007 was the surge in oil prices. The country's oil bill came to US$2.4bn.
Inflation: The rate in January was 0.99%. Educational services and food prices were the main drivers of the inflation index. Inflation in 2007 was 8.75%. The target for 2008 is for a rate of between 4% and 6%.
HONDURAS
The IMF and the government announced that they had reached an agreement on a programme to tackle "incipient macro-economic imbalances". The IMF sent its number three, Murilo Portugal, to meet President Manuel Zelaya to clinch the programme at the beginning of February. One of the main points of the agreement is a commitement by the government not to run a fiscal deficit of more than 1.5% of GDP in 2008. The IMF says that it wants the government to increase public sector investment, but it does not want this to lead to more debt.
The government said that it would meet the target by controlling spending and making state-owned companies more efficient. This is almost certainly likely to mean an increase in energy prices. The IMF wants the country's energy prices to reflect the costs of producing cooking gas; electricity and fuels. The IMF wants to ensure that subsidies go to those who are poor and therefore need them most.
The other targets are to reduce the annual inflation rate; increase reserves and keep the currency competitive. The IMF expects the agreement to go before its executive board for approval at the end of April.
Inflation: In January inflation was 0.6%, up a bit on December's rate of 0.2%. The January figure brought the 12 month rate to 8.9%. The rate for 2007 was also 8.9%. In 2006 the rate had been 5.6%.
NICARAGUA
The Asamblea Nacional de Nicaragua finally approved the budget in mid February after an alliance between the ruling Frente Sandinista de Liberación Nacional (FSLN) and the Partido Liberal Constitucionalista (PLC) held. The budget had been before congress since 15 October 2007, when President Daniel Ortega delivered it.
Congress made few changes to the budget, which was set at US$1.5bn. Francisco Aguirre Sacasa, the president of the Comisión de Producción, Economía y Presupuesto de la Asamblea Nacional, said that the budget met all the standards set by the IMF. An IMF mission was due to visit the country on 25 February to check up on the fulfilment of the current economic programme, which was introduced three years ago.
Aguirre Sacasa said that if the government had agreed to increase wages by the 12% the MRS deputies had suggested, the budget would have broken IMF guidelines. Yet on 18 February the health minister, Guillermo González, under pressure from the Federación de Trabajadores de la Salud (Fetsalud) agreed to increase healthworkers' pay by 16% from the beginning of January 2008. The backpay cheques will be issued in March. The ministry claims that it is not breaching its budget because it is juggling outgoings.
Inflation: In January the rate was 1.23%. This brought the 12 month rate to 17.29%. Rising food prices account for half of the rise in inflation in the past 12 months.
PANAMA
The economy and finance minister, Héctor Alexander, claimed that growth in 2007 was above 10% for the second consecutive year. The minister was drawing on a study by Deloitte, an accountancy firm, which found that the primary sector grew by 8%; the secondary sector by 9% and the commercial and financial sector by 11%.
The minister's claim was much better than the rate of growth the government had expected. Originally the government had been forecasting growth of between 7% and 8.5%. The government now reckons that the country's GDP is around US$20bn. Indesa, a consultancy, reckons that GDP amounted to US$19.1bn at the end of 2007 - up US$5bn on what it was at the end of 2003.
The 2007 rate of growth makes the economy the fastest growing in the region, now ahead of even Venezuela. The finance ministry claims that the government also ran a fiscal surplus for the second year running in 2007. In 2004 the deficit was running at 4.9% of GDP. In 2006 the surplus was 0.5%.
For 2008 the consensus amongst independent analysts is that growth will be between 6.5% and 9%, despite the prospect of work starting on the expansion of the Canal.
Foreign investment: In the first nine months of 2007, foreign investment topped US$1bn, the Contraloría General de la República reported. This was 22% more than for the first nine months of 2006. Banks invested US$257m, companies operating in the Colón free zone another US$318m, and foreign companies US$459m. In 2006, foreign investment came to US$962m; in the first nine months of 2006 it was US$462m.