San José, Costa Rica, since 1956

Surveys: Economy Stable

Despite dropping business confidence and afinancial crisis that prompted thousands ofinvestors to withdraw their money from thecountry’s investment funds, experts say CostaRica’s economy remains stable and is showingstrong signs of growth and increasing consumerconfidence, according to surveysreleased during the last two weeks.“Macroeconomic conditions have improvedsince the last (…) consultation in early 2003,” reada statement issued Friday by an InternationalMonetary Fund (IMF) mission that visited thecountry earlier this month. “Growth has recovered,led by investment and exports, internationalreserves increased, and the fiscal deficit narrowedin 2003.”Between May 4-14, seven representatives of theIMF visited Costa Rica to conduct the fund’s annual review of the country. In addition to speakingwith the Central Bank and the FinanceMinistry, the mission also spoke with legislativedeputies, business and financialleaders, labor unions and independenteconomists.The IMF congratulated Costa Ricanofficials for maintaining a “prudent monetarypolicy”, which has kept underlyinginflation stable, despite an increase in consumerprices caused by high internationaloil prices (TT, March 26). At press time,the price of oil hovered above the $40-abarrelmark — a 13-year high.HOWEVER, the mission warnedabout the need for steps to reduce thecountry’s fiscal deficit and public debt.The IMF said it “strongly supports” governmentefforts to implement a tax reform,in the form of the much-delayedPermanent Fiscal Reform Package (TT,April 18).The mission also consider it a priorityfor officials to improve oversight of thefinancial sector. Improved supervision,according to the IMF, would “fortify” thecountry’s economy against downturns inthe global economy and interest-rate fluctuations.In an effort to counteract the negativeeffects rising interest rates in the UnitedStates have had on the price of Costa RicanCentral Bank and Finance Ministry debtbonds, the Central Bank on Mondaybought back ¢25 billion ($57.87 million)in previously issued bonds.Central Bank President Francisco dePaula Gutiérrez said he is optimistic thepurchase will succeed in stabilizing bondprices, which during the last month and ahalf have dropped sharply in anticipationof an increase in U.S. interest rates. Thedrop in bond prices has been responsiblefor large losses in the country’s dollar and,to a lesser extent, colón investment fundsand pension funds.ACCORDING to the Superintendenceof Securities (SUGEVAL), Costa Ricanfunds on average invest 75% of their assetsin debt bonds. The drop in bond priceslowered the value of the funds’ holdingsand led to sharp losses. These lossesprompted investors to withdraw theirmoney from the funds, which in turnresulted in greater losses and even moreinvestors leaving the funds (TT, May 14).Between March and last week, theamount of money managed by the fundsdropped by half as one-third of investorsfled the market, according to SUGEVAL.The disappointing results of investmentfunds prompted investors to turn tobank accounts and other investments perceivedas safer to store their wealth.Gutiérrez last week had expressed concernover the possibility that decreased demandfor bonds and increased demand for liquidity(cash) could increase local interestrates. To stabilize bond prices and containinterest rates, the Central Bank decided tobuy back the bonds.DESPITE the bond sale, investorsremained apprehensive about investmentfunds.On Wednesday, SUGEVAL took out afull-page ad in the daily La Nación givinginvestors a basic explanation of whatinvestment funds are, how they operateand why they have been registering losseslately. In the ad, SUGEVAL admitted ithad been receiving a large number of callsfrom worried investors.At least 11 investors who lost money inthe funds have filed complaints with theOmbudsman’s Office alleging theyweren’t properly informed or advisedabout the risks involved.Several of these investors believedtheir initial investment were insured by thegovernment in the same way the governmentinsures savings accounts at state ownedbanks, according to CapitalFinanciero (,an online news Website operated by theweekly El Financiero.THE latest quarterly business confidencesurvey released last week by theUnion of Private-Sector Chambers andAssociations (UCCAEP) painted a lessoptimistic picture of how the economyfared during the first quarter of this year.In general, the 300 business ownerssurveyed described the country’s economicconditions as positive, but less positivethan during the fourth quarter of 2003,according to the survey.For the most part, this was expected.Traditionally, fourth quarters have beenthe part of the year with the most economicactivity because of holiday spending(TT, Feb. 20).Similarly, those surveyed expressedoptimism about the second quarter, but to alesser degree than they did about the firstquarter. Job growth continued, but at aslower rate than during the previous quarter,according to the survey.ACCORDING to UCCAEP, there aresigns the economy may be slowing down.The Index of Monthly Economic Activity(IMEA) grew by only 3.4% betweenFebruary 2003 and 2004 compared to5.4% between November 2002 and 2003.Despite historically low interest rates,credit increased by only 4%. Industrialelectrical consumption and spending onadvertising – indicators that foreshadowfuture economic performance – alsodecreased, according to the survey.On a positive note, those surveyedreported a surge in exports, particularlyamong agricultural products. Costa Ricanexports increased by 4.2% during the firstquarter, compared to the same period ayear before, according to the Central Bank(TT, May 7).The tourism sector reported a particularlystrong high season, which concludedlast month. The financial sector alsoreported a strong quarter, according to thesurvey.ON Tuesday, the University of CostaRica’s Development Observatory releasedits biannual consumer confidence survey,which reported a significant increase inconsumer optimism, compared to sixmonths before.In March, pollsters called 812 homesin all parts of the country to ask resident’sopinion on the state of the economy. Theresults were tallied and averaged to producea general figure of consumer confidence,between 0 and 100.Consumer confidence totaled 43, significantlyhigher than the 39.6 reported lastSeptember. This is the highest consumerconfidence level since Sept. 2000, when itaveraged 44.5.The increase in confidence appliedacross the board, to people from allincome and education levels, accordingto the survey.According to project coordinatorJohnny Madrigal, the results are comparablewith those reported in times of economicstability in economies that conductsimilar surveys.

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