Costa Rica Sees $4 Billion Bond Plan Approval Within Month
Costa Rica expects congressional approval within a month to sell as much as $4 billion in bonds abroad and plans an offering of at least $500 million by November, Vice President Luis Liberman said.
Costa Rica is counting on its first international bond sale since 2004 to help finance a deficit that will approach five percent of gross domestic product next year from 4.1 percent in 2011, Liberman said in an interview yesterday in New York. The government is seeking to tap global markets after local currency debt as a share of gross domestic product climbed above 25 percent last year from about 17 percent in 2008.
“We don’t want to continue crowding out the local private sector,” said the 65-year-old Liberman, who led Scotiabank Costa Rica until 2009 and heads President Laura Chinchilla’s economic team. “We should balance our financing.”
Chinchilla won’t resubmit plans to generate $650 million per year in revenue from new and higher taxes after the Supreme Court rejected her proposal in April, Liberman said. Yields on Costa Rica’s dollar bonds due in 2014 have climbed 69 basis points, or 0.69 percentage point, to 4.02 percent since the court’s decision.
“The most viable option would’ve been to increase revenue but since that proposal didn’t pass, they’ll need more debt” to finance the deficit, said Alejandro Arreaza, an analyst at Barclays Capital Inc. in New York.
Under the terms of the bond proposal, the government will have the authority to issue up to $4 billion in debt over the next ten years, with sales in any single year limited to $1 billion, Liberman said. The Central American nation faces $500 million in maturing debt in 2013-2014, according to data compiled by Bloomberg.
Guatemala Debt Sale
Chinchilla is also seeking approval for plans to improve tax collection and banking transparency and cap the rate of government spending to that of nominal economic growth.
The $40 billion economy is rated one level above Guatemala at BB+ by Standard & Poor’s and should expect to pay lower borrowing costs, Liberman said. Guatemala sold $700 million in 10-year bonds last month that yield 5.7 percent.
Costa Rica doesn’t face competition in luring investment from neighboring Panama, the fastest growing economy in Latin America, Liberman said. Chinchilla’s goal of bringing $9 billion in foreign direct investment to Costa Rica over four years is on track and last year surpassed the annual target “by several hundred million dollars,” Liberman said.
“No other country can compete with us in terms of the quality of human resources,” said Liberman, who received his doctorate in economics from the University of Illinois and served as head of the Costa Rican stock market.
Using tax incentives and promoting the country’s educated workforce has helped Costa Rica attract companies including Intel Corp. (INTC), which built a $2 billion micro-processing plant in 1997, to Hewlett-Packard Co. (HPQ) and Boston Scientific Corp. (BSX) as the nation diversified its export base away from agricultural commodities such as bananas and coffee.
High-tech companies brought in $9 out of every $10 in revenue from free zones during the last decade, according to Gabriela Llobet, director general of the Costa Rican Investment Board.
Costa Rica is improving its economic ties with China and is in the final stages of negotiation with the world’s biggest emerging market over the construction of a $1.4 billion oil refinery, Liberman said. Chinchilla is also meeting today with Colombian President Juan Manuel Santos in San Jose to announce plans to negotiate a free-trade agreement.
“What’s attractive about Costa Rica is the fact that our exports have access to some of the largest economies in the world,” he said, citing free trade deals with the U.S., Canada, China and the European Union.
Santos’s government is also advising Chinchilla on how to tackle a growing threat from drug trafficking, Liberman said. Record cocaine interdiction this year is a sign of better policing efforts and regional cooperation, he added.
The United Nations’ International Narcotics Control Board cited Costa Rica along with Honduras and Nicaragua in February as major transit countries for drug traffickers.
“We’re a country without an army but we’ve started beefing up,” Liberman said. “We would appreciate more help from the U.S. and Europe, but we know we have to resolve our own problems.”
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