On Recovery, Bitcoin and Immigration
Costa Rica shows signs of recovery attributable to the fast pace of growth in developed economies, despite the intensification of COVID-19 mainly during April and May, and a partial reversal in June. In fact, mobility restrictions were re-introduced, and continued in June. Some acceleration of vaccination in recent weeks has led to an optimistic projection of herd immunity by October, despite lots of variability. Costa Rica became the 38th member of the OECD on May 25th, bringing hopes to better public policies and efficiency results. The slow improvement of economic activity comes from acceleration of external demand for merchandise exports, although services still lag, and await the revival of tourism. Fiscal results are better than a year ago, suggesting little doubt about compliance with the performance criteria set for July 31st, 2021. However, political conditions are not as good as necessary to approve the fiscal adjustment measures required to fulfill IMF conditionality by yearend. Electoral considerations in the runup to the presidential election of February 2022 are one disturbing element. This situation could delay access to external financing to cover government needs in H2 2021 -- monies that could hardly be raised in the domestic financial market.
El Salvador plans to move toward the use of Bitcoin as a medium of exchange. The surprising announcement was made by President Nayib Bukele at a cryptocurrency congress on June 5th in Miami. On June 8th, a draft bill was presented to Congress, and on June 9th, it was approved. The new measures will enter into effect 90 days later, when the Central Bank and the banking supervisors issue the required regulations. We argue that Bitcoin’s huge volatility means it cannot be used as means of payment. It could serve the purpose of easing transfers from Salvadorans in the United States, particularly if restrictive measures can be approved, including the transfer of remittances. A preliminary analysis shows some risks, especially the possibility of hampering national financial stability, depending upon the kind of regulation approved. Moreover, we do not discard geopolitical considerations in Bukele’s decision, which was backed by Congress without discussion.
U.S. Vice President Kamala Harris’ trip to Guatemala on June 7th signaled a new chapter for the United States and Central America. The Biden administration seeks to create hope in a poor and violent environment in Central America’s northern triangle. Harris announced efforts to create a joint task force to control smuggling and human trafficking in the coming months. The recent evolution of Guatemala’s economy as part of its IMF article IV consultation was appraised in a positive way in relation to coping with the economic impact of the COVID-19 shock. Fund directors emphasized the importance of a more inclusive and sustainable growth, and also of ensuring public debt sustainability. Daily COVID-19 cases continued rising in May and June, and pose a risk to the economic outlook for 2021 and 2022.
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