State to Infuse Banks With $118m

November 21, 2008

To avoid a downward spiral in the productive and financial sectors, the Costa Rican government has proposed a preventive cashinfusion plan for three state banks.

“The objective of this measure is to allow banks to loan again,” said Eric Vargas, strategy director for the financial advising firm Aldesa. “Another objective is to avoid some businesses from being forced to close its operations.”

As of Thursday, the measure had not been presented at the Legislative Assembly for discussion and it was unknown whether the loans would require the banks to do anything with the money.

The government is planning to lend Banco de Costa Rica and Banco Nacional $50 million each and Bancrédito $17.5 million.

Last week, Finance Minister Guillermo Zuñiga told the daily La Nación his office is willing to take more preventive measures to avoid unemployment, if he deems necessary.

The effect of this aid to banks could take place immediately after the measure is officially approved by legislators, Vargas said. “We could see soon a re-installment of credit lines. It’s very possible that banks become more selective with whom they lend money.”

Although details on the measure have not been finalized, some economists believe the three participating banks would not have to pay the interest accrued from the bonds during the lending period.

“As of now, the government would pick up the tab on the interest accrued from these loans given to these banks,” Vargas said.

Ottón Solís, the leader of the Citizen Action Party (PAC), declared his support for the measure stating that “it is necessary to make sure our productive sectors count with financial sources” in a timely fashion.

The PAC leader said that the capitalization of the three state banks is going in the right direction.

“It is urgent to take this measure and others deemed necessary,” Solís said. “The Costa Rican economy is at a weak state during this turbulent financial time.”

PAC is also recommending the government submit a guideline so that new credit lines will benefit small and medium-size companies.

 

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