Costa Rica Rating Cut Prompts Government to Seek Congress Talks

Costa Rica’s government said it will hold talks with congressional parties this week after the country was cut to junk status by Moody’s Investor’s Service, citing political difficulties in narrowing the budget deficit.

The government will begin meeting different factions in Congress on Sept. 19, according to a statement sent from President Luis Guillermo Solis’s office today. Solis took office in May vowing to reduce the deficit by fighting tax evasion, freezing new hires and, beginning in 2016, raising some levies. His $14.7 billion budget for next year forecast a deficit of 6.6 percent, up from 6 percent this year.

The failure of multiple Costa Rican governments to address the widening deficit and pass new tax legislation prompted Moody’s to lower Costa Rica’s rating to Ba1 from Baa3 yesterday, putting the $50 billion economy in the same high-yield, high-risk category as Morocco and Portugal. Yields on Costa Rica’s 2023 bonds have jumped 56 basis points, or 0.56 percentage point, to 5.49 percent this month.

Opposition lawmaker Otton Solis, who chairs the finance committee, said yesterday that the downgrade may prompt Congress to speed up efforts to address the deficit.

“There are some in Congress enthusiastic about reducing the deficit,” Solis, who isn’t related to the president, said in a phone interview. “Lawmakers had accepted the plan to discuss fiscal reform through the middle of 2016 and I think this could create the climate to accelerate that.”

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