Keywords : Accountancy
More Risks Than Opportunities While inflationary pressures appear not have had the destabilising impact on Central America that we had initially expected, broadly speaking the political risks that we highlighted in our last Central America Business Projection Report remain in play. As always, those economies most at risk are the ones with the fewest means to tackle the most pressing issues, while Panama and Costa Rica remain best placed to we...
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More Risks Than Opportunities
While inflationary pressures appear not have had the destabilising impact on Central America that we had initially expected, broadly speaking the political risks that we highlighted in our last Central America Business Projection Report remain in play. As always, those economies most at risk are the ones with the fewest means to tackle the most pressing issues, while Panama and Costa Rica remain best placed to weather threats on both the domestic and external fronts. That said, with Costa Rica’s economic outlook not as bright as it was a few years earlier, we still believe the region is moving from a two-speed to a three/four-speed economic development path.
Yet despite the challenges posed from rising levels of insecurity and subdued economic activity in the US and other developed states, one bright spot on the near-term horizon comes from the increased role of China in Central America. We believe recently-initiated political and economic ties with China will continue to deepen in the coming years. Since the capital that injected via both foreign direct investment (FDI ) and portfolio investment will be invaluable to regional economies, which are suffering from a chronic lack of investment as investors are deterred by political instability and rising violent crime levels, we view China’s involvement as a strong positive for the region’s future growth prospects.
As outlined above, there are some economies where the outlook continues to be positive, with Panama being the main one. While the country’s non-financial public segment nominal budget balance came in below expectations in 2010, we still believe the medium-term fiscal outlook remains solid, as the government’s prudent policy mix drives steady consolidation over the coming years. Accordingly, we project the nominal budget deficit at 1.5% in 2011 and 1.0% in 2012, from 1.9% in 2010. Alongside this gradual improvement in fiscal dynamics, we have pencilled in a decline in total external debt from 57.1% of Gross Domestic Product at end-2010 to 50.7% by end-2012. In our view this positive fiscal picture adds support to Panama’s already solid investment credentials.
Yet on balance we see more negatives than positives, with upcoming elections in both Guatemala and Nicaragua presenting the most significant threat to stability. We have highlighted Guatemala as the Central American country most at risk from rising electoral violence in 2011, but from the perspective of democratic legitimacy the Nicaraguan elections are causing us more concern. The threat to democracy comes from President Daniel Ortega’s attempts to unfairly influence the outcome of the November general election, while there is also potential for anti-Ortega sentiment to turn increasingly violent in the run up to the ballot.
Accounting And Corporate Finance Industry in Costa Rica
BMI Risk Ratings
BMI Risk Ratings – Costa Rica.....6
BMI Risk Ratings – El Salvador....7
BMI Risk Ratings – Guatemala.....8
BMI Risk Ratings – Honduras.......9
BMI Risk Ratings – Nicaragua....10
BMI Risk Ratings – Panama........11
BMI Risk Ratings – Latin America Data s.. 12
Latin America – Ratings League Data s.... 13
Executive Summary. 15
More Risks Than Opportunities ........ 15
Regional Outlook...... 17
Regional: Sovereign Risk Rating...... 17
Election Fever Hurts Ratings
Elevated political uncertainty has prompted a downward revision to our aggregate regional sovereign risk
ratings for Latin America this quarter.
TABLE: LATIN AMERICA SOVEREIGN RATINGS – EVOLUTION OF ABILIT Y TO PAY.. 17
TABLE: LATIN AMERICA SOVEREIGN RATINGS – EVOLUTION OF WILLIN GNESS TO PAY 18
Regional Economics ....... 20
TABLE: Latin America Closed Views 21
Regional Politics .... 22
Central America-China Ties To Deepen
China is ramping up its presence in Central America, despite many regional economies maintaining ties with Taiwan.
Chapter 1.1: Political Outlook - Costa Rica ........ 27
Politics.... 27
Security Issues Highlight Congressional Weakness
Costa Rica’s political stability is coming increasingly under threat from an uptick in violent crime associated with the
illicit drugs trade and a worsening of congressional deadlock.
Chapter 1.2: Economic Outlook - Costa Rica ..... 29
Economic Outlook... 29
Still No Hikes Until 2012
We expect the Costa Rican central bank to hold the benchmark interest rate at 6.5% for the remainder of 2011.
TABLE: Costa Rica – Economic Activity... 29
Chapter 2.1: Political Outlook - El Salvador ....... 31
Politics.... 31
Lagging Investment To Continue
Due to a tarnished image in terms of security and macroeconomic policy trajectory, El Salvador will continue to lag the rest of Central America in attracting foreign investment.
Chapter 2.2: Economic Outlook - El Salvador .... 31
Economic Activity... 33
Slow But Steady Growth Ahead
We expect El Salvador’s economic recovery to continue steadily over the coming years, although growth will
be unimpressive at 2.3% in 2011 and 2.5% in 2012, from 1.4% in 2010.
TABLE: El Salvador – Economic Activity........ 33
Chapter 3.1: Political Outlook - Guatemala 35
Politics ... 35
Political Uncertainty To Persist
Guatemala’s political landscape will remain characterised by uncertainty, as September’s general election continues
to be too close to call, and the risk of pre-election violence builds.
Chapter 3.2: Economic Outlook - Guatemala ..... 37
Economic Activity... 37
Current Account Shortfall To Widen
While Guatemala’s external accounts are looking much more stable than a few years ago, we expect the current
account deficit to increase over the medium term.
TABLE: Guatemala–Economic Activity.... 37
Chapter 4.1: Political Outlook - Honduras . 39
Politics.... 39
Zelaya’s Return Boost To Economic Outlook
The imminent return of ousted former president Manuel Zelaya to Honduras could provide an important boost to
the country’s economic outlook, as aid and investment inflows are bolstered.
Chapter 4.2: Economic Outlook - Honduras ....... 41
Economic Activity... 41
Dovish Policy Stance To Persist
Despite the burgeoning threat of inflation we continue to expect the Banco Central de Honduras to maintain a
dovish monetary policy stance in 2011 due to concerns over the country’s sluggish economic recovery.
TABLE: Honduras – Economic Activity.... 41
Chapter 5.1: Political Outlook - Nicaragua . 43
Politics.... 43
FSLN Power Grab Undermining Democracy
Allegations that the Nicaraguan government is attempting to win the upcoming general election through undemocratic
means look set to persist ahead of the November ballot.
Chapter 5.2: Economic Outlook - Nicaragua ...... 45
Economic Activity... 45
Prices Increase Pressure On Ortega
Recent spikes in the price of basic foodstuffs will likely cause significant hardship among Nicaragua’s largely
impoverished population, and we are concerned that Nicaraguan President Daniel Ortega will be tempted to
increase subsidies to maintain popularity as November 2011’s general election edges closer.
TABLE: Nicaragua – Economic Activity... 45
Chapter 6.1: Political Outlook - Panama .... 47
Politics.... 47
Fiscal Outlook Stable
Given the government’s commitment to fiscal retrenchment, we expect Panama’s fiscal position to improve over
the medium term.
Chapter 6.2: Economic Outlook - Panama . 49
Economic Activity... 49
Growth To Outperform Region
We project real Gross Domestic Product growth in Panama to come in at 6.3% in 2011 and 6.8% in 2012, from 7.5% in 2010.
TABLE: Panama – Economic Activity 49
Chapter 7: BMI World Assumptions . 51
World Outlook 51
TABLE: GLOBAL ASSUMPTIONS ...... 51
TABLE: DEVELOPED STATES REAL Gross Domestic Product GROWTH FORECAST (% chg y-o-y)........ 52
TABLE: REAL Gross Domestic Product GROWTH – BLOOMBERG CONSENSUS FORECASTS . 52
TABLE: EMERGING MARKETS AGGREGATE GROWTH (% chg y-o-y)...... 53
