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Ratings downgrade no threat, says Costa Rica’s Solís

Jun 11, 2014

New president of Central American sovereign says growth and FDI will help ease fiscal pressures as threat of junk-rating looms

     
  Costa Rican President Luis
Guillermo Solís
 
Costa Rica's new president, Luis Guillermo Solís, has mounted a vigorous defense of his administration's plans to reduce the country's mounting fiscal deficit, telling LatinFinance  in an interview that he is confident that his country can avoid a ratings downgrade.

Solís, who took office last month, defended his government's plans to overhaul the country's tax system, in the wake of growing concern among analysts over the country's fiscal gap. Ratings agency Moody's in September placed the sovereign on negative watch, warning that it's rising debt burden could cost the country its investment grade (Baa3) rating.

Solís' administration last week presented a tax evasion bill to parliament in a bid to boost revenues. The president said he is working with other parties to draw up a fiscal reform bill - although that could take two years to take effect.

Solís told LatinFinance he was confident that the country would avoid losing its investment grade status with Moody's. He said an announcement Tuesday by computer chip maker Intel that it will consolidate its presence in the country was evidence that Costa Rica's economic prospects remained strong.

"It shows that above and beyond the immediate context - which has not been easy over the past few months - the country remains stable and remains good partner," he said. "And I hope that this will be looked upon with interest by the companies that grade the economy."

But he nevertheless acknowledged the scale of the challenges facing the economy, which this year has seen violent swings in its currency.

"The international impact of global trends may be detrimental to the country, but this is true of all countries. We have to keep that in mind and ensure that we're stable and the macroeconomics of the country are fine. Which so far I think we've been able to manage."

Costa Rica last tapped bond markets in April, selling a $1bn 30-year bond. The 7% coupon that the sovereign pays on the note is higher than the  5.625% it recorded on a similar-tenor bond a year earlier.

Solís, in New York on Wednesday on an investment marketing trip, said that a long-term strategy of dealing with the financial system, the currency and economic growth would help address the rising borrowing costs.

"I think it's a matter of concern - just as it is having a 6% deficit. It's not catastrophic either. We're not at brink of going into a situation similar to the one some European countries just faced, but we have to take care of that….

"The international impact of global trends may be detrimental to the country, but this is true of all countries. We have to keep that in mind and ensure that we're stable and the macroeconomics of the country are fine. Which so far I think we've been able to manage." LF

 

See also:

Costa Rica president-elect names economicteam

LatAm sovereigns hit the "show-me" phase

Costa Rica: Work in progress



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