COSTA RICA: Weathering hard times

CENTRAL AMERICA - Report 26 Jun 2019 by Francisco de Paula Gutiérrez and Felix Delgado

Costa Rica faces hard times, with consequences primarily for production and employment. After the first year of the new Carlos Alvarado Quesada administration, economic activity continues to be sluggish, and therefore cannot reduce unemployment. Expectations continue to play a key role, as they seem to be in the middle of current conditions. A mix of facts could be in the background, associated with uncertainty over fiscal matters, and an absence of credible measures to stimulate economic activity. Price stability doesn’t seem to be in danger, and the currency in H2 could appreciate, rather than depreciate as forecast in our outlook. Fiscal pressures to finance public debt payments have dwindled, but the government’s financial results during the first five months of the year pose some worries.

El Salvador is experiencing a significant political transition, after President Nayib Bukele’s assumption of office June 1st. The first two weeks of the new president’s administration have been controversial, with media headlines focused not on announcements of his key plans or policies, but on his dismissals of several public servants named by the former FMLN-led administration. Hopes and doubts about Bukele mark the mood among his supporters and opponents. Fiscal conditions deteriorated in the last year of the Salvador Sánchez Cerén administration, and public debt continues to increase as a ratio of GDP. The future actions of the new administration, and their effect on spending, remain to be seen.

In Guatemala, the IMF’s recent appraisal was positive on short-term economic dynamics, but raised several questions over structural and long-term issues. The IMF’s Board of Directors on June 10th delivered an analysis of the recent evolution of the economy, as part of its Article IV consultation.For the short term, the IMF´s Board concurred with Fund staff in finding a “strong macroeconomic framework,” and said that “fundamentals remain solid,” giving Guatemala a positive outlook. Yet the Board called attention to long-term problems, which limit the capacity of the country to grow faster, so as to “improve living standards.” Among problems mentioned by the Board are relatively low tax revenues, and their trends in recent years; the spending efficiency needed to improve public services; and low private sector participation in some areas still under government control. These efforts must be undertaken in tandem with a commitment to fighting corruption, and other wrongdoing affecting the allocation of public resources.

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