According to Aldesa:
During this week the market has been permeated by an air of positivity due to expectations that European authorities will solve the problem of the debt crisis. However, if more events occur, there would still be risks for the global economy that could trigger a slowdown in the U.S. and Europe.
Costa Rica is an open economy and therefore very susceptible to international crises.
How might Costa Rica be affected?
Here are the main areas which would be affected in the event of a crisis:
The first is the real estate sector. 80% of Costa Rican exports go to the U.S., Europe and America, so a drop in demand in these economies would affect sales of our exporting companies, creating effects on local employment and investment. There could also be a decrease in foreign direct investment as international optimism reduces.
The second point is financial. Our country is financing its current deficit with foreign money, particularly foreign direct investment, so a reduction in foreign capital could affect funding and have an influence on the exchange rate. In this regard, financing of the national bank could also be affected, as lines of credit and other funding facilities reduce in times of crisis. However, this time a forthcoming crisis is not expected to be of the same magnitude as the 2008 crisis, when lack of confidence caused credit lines evaporate, according to the International Monetary Fund.
The third point has to do with the damage that could occur to financial expectations. A confidence crisis affects individuals perceptions, which makes them look for safer investments, so that could have an affect on the exchange rate and external debt bonds. An increase in uncertainty and a further deterioration of the government's fiscal accounts could generate a process of dollarization in Costa Rica, putting pressure on the exchange rate and inflation.
More on this topic
October 2010
The Government thinks of three measures to change the deviation between the equilibrium exchange rate and the currently observed rate.
The measures would be to directly intervene the currency market, taxing transactions in Dollars and / or restrict the inflow of capital, as expressed by First Vice President Luis Liberman.
March 2011
Fitch upgraded Foreign currency IDR to 'BB+' from 'BB'; Country ceiling to 'BBB-' from 'BB+'; Local currency IDR affirmed at 'BB+'; and Short-term IDR affirmed at 'B'. The Rating Outlook is Stable.
From the Fitch Report:
"The upgrade reflects Costa Rica's better than expected economic resilience during the global credit crisis, steadily improving macroeconomic stability underpinned by lower inflation and higher international liquidity as well as the country's relatively modest external indebtedness.
September 2008
"The global financial crisis has cause the main investment bank in the US to go bankrupt and will produce an strong impact on the Honduras' weak economy.
"Economic growth will stop, limiting access to credit and as a result the upward trend of interest rates will continue," the ex-president of the Central Bank of Honduras, Maria Elena Mondragon, warned.
May 2010
On March 2010, Fitch Ratings raised Panama’s long-term foreign currency and local currency Issuer Default Ratings (IDRs) to 'BBB-' from 'BB+'.
The upgrades reflect a sustained improvement in public finances, underpinned by recent tax reforms, and the economy's resilience to the global financial crisis and associated recession.
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