Costa Rica’s Credit Rating Improves

June 17, 2005

COSTA Rica’s economic outlook isimproving, according to internationalcredit evaluator Standard and Poor’s(S&P). The firm has increased the country’srating from negative to stable inresponse to improved fiscal management,a decrease in the government deficit since2002, and expectations that long-debatedfiscal reform legislation will be approvedthis year.The rating means Costa Rica presentsa lower risk of defaulting on its debtbecause of a more stable economy. Theimprovement is expected to translate tolower interest rates on future debt, anincrease in the value of Costa Rican debtbonds and increased willingness for long terminvestment in those bonds, accordingto the daily La Nación.Standard & Poor’s also affirmed itsBB+ grade for long-term debts in localcurrency and BB grade for long-termdebts in foreign currency.The country’s failure to pass the taxplan caused various credit-rating agenciesto push the country’s rating to negative in2003 and keep it there in subsequent evaluations(TT, Aug. 20, 2004).Costa Rica still has a number of vulnerabilities,according to the S&P report:laxly supervised offshore banks, a highdegree of dollarization and a crawling pegexchange-rate regime.

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