Central America’s Pitted Post-Election Primer

Central American and Caribbean credits, led by double-digit returns in Honduras and Jamaica, were uniformly positive in the first quarter as election and post-recession outcomes lifted the pack despite lingering skepticism during the IADB’s annual regional conclave. Costa Rican winner Solis took the second round after his main opponent withdrew, and was promptly met with thousands of layoffs in the free trade zone compromising the 4 percent GDP growth target. Central bank intervention kept the currency around 550 to the dollar during the campaign, which featured budget deficit reduction proposals foreign investors feared would translate into higher taxes but will first emphasize better collection. El Salvador’s leftist party retained the presidency in a squeaker which should compel a search for greater consensus on economic and anti-crime policies as dollar adoption remains intact. Observers noted that monetary continuity had previously prevailed in Ecuador, which prices oil exports in dollars and is preparing post-default external bond market re-entry to reduce reliance on Chinese borrowing estimated at over $10 billion to close the current account gap. The Dominican Republic also plans $1.5 billion in issuance in the second half as the Medina administration has followed through on fiscal adjustments without an IMF program and mended fences with mining groups as remittances and tourism stay healthy. In Guatemala low public debt at 25 percent of GDP obviates sovereign recourse but private firms are in line for overseas placement with manufacturing and services to combine with agriculture for both growth and inflation in the 4 percent range. US-based worker transfers rose 10 percent in Q1 as the government attempts new law and order strategies to staunch a kidnapping and murder wave. Honduran President Hernandez in office since January faces the same culture of violence, and its 2013 inaugural bond has rallied on his desire for an IMF pact that is expected to entail state enterprise reform and sale to slash the 8 percent of output budget hole and domestic debt service.

Jamaica’s Fund arrangement has stayed on track and monthly tourist arrivals are up 5 percent as net international reserves surpassed $1 billion. The economy could advance a full 1 percent after years of contraction, and authorities are working with North American counterparts to shut scamming operations preying on the elderly. Belize after its restructuring has also been a lead performer despite public debt still near 80 percent of GDP and falling oil exports. Construction and fishing have revived and infrastructure spending is designed to accommodate more visitors from Europe and other sources beyond the hemisphere.  In South America lesser-known neighbors Paraguay and Uruguay may also soon test the waters again to fund ambitious commodity-oriented investment schemes. In the former the business magnate president has launched public-private partnerships, while in the latter decriminalization of marijuana may set a new regional anti-drug course that can prove therapeutic in revenue and social terms.