Central America’s Cramped Election Campaigns

Central American components of JP Morgan’s new NEXGEM index struggled for traction amid a string of early-year elections turning on debt and economic policy fragilities. Belize has plunged the most, off 25 percent as Prime Minister Barrow injected continued servicing of the post-restructuring “superbond” into the March parliamentary poll debate. The “willingness” challenge caused S&P to downgrade the sovereign rating to CCC+ as an end-February payment was due, with GDP growth at a 2-3 percent pace. With the coupon moving to 8.5 percent on the $550 million instrument, public debt stands at 85 percent of GDP as good oil and tourism earnings eliminated the fiscal gap. The government has become increasingly chauvinistic over its tenure as low-income migrants pour in from throughout the region, and foreign direct investors in the utility sector complaining of rule changes were rebuffed by state takeover. El Salvador has elections around the same time where the opposition rightist Arena that dominated after the civil war is ahead of the ruling FMLN following a budget deficit increase to cover post-storm reconstruction. Remittances have held up with US recovery, but trade and official debt figures deteriorated last year. Tax rises on consumer staples have hurt domestic demand with anemic growth forecast this year. The Dominican Republic has performed better as the May presidential contest approaches with well-known candidates relatively even, despite derailing of the IMF standby agreement. Oil import costs swelled the current account deficit to 8 percent of GDP as visitor arrivals hit a record and free-zone manufacturing jumped double-digits. Higher energy and food prices pushed inflation to 8 percent, prompting the central bank to initiate a targeting scheme. Public sector debt remains modest at 30 percent of GDP but the burden of underwriting the failing electricity grid has combined with new calls such as housing Haitian refugees to feature as prominent political issues.

Guatemala previously shifted administrations and a business-friendly platform has been previewed on solid agricultural export results. Domestic bond issuance has bridged the 3 percent of GDP fiscal hole, while external paper yields less than 6 percent, thwarting appetite. Inflation is currently at that level, and remittances too are due to climb a similar rate to $4.5 billion. In Jamaica these inflows as a crucial balance of payments element should reach half that sum as the new National Party team tries to resurrect the lapsed IMF program. International reserves have dropped below $2 billion as another debt exchange may be proposed to stanch the worsening 135 percent/GDP debt ratio which could include foreign obligations exempted in the original maturity extension operation. Prime Minister Simpson, after a recent electoral sweep, has also vowed to lift the flat economy which beached her predecessors.