Central America’s Leaden Leadership Protests
Guatemala and Honduras bonds were hit by massive anti-corruption marches calling for their respective Presidents’ resignations on sweetheart government contract deals. Guatemala’s vice president directly implicated departed on her own accord amid doubts she could face criminal prosecution under previous sovereign immunity. Honduras’ wave of child emigrants fleeing poverty and violence to the US had recently ebbed as Washington increased bilateral economic assistance and the IMF inked a structural adjustment program. Both countries under new presidents had vowed business-friendly deficit-cutting policies now sidetracked by scandals, as security forces accused of their own abuses try to fight well-armed drug and kidnapping gangs. Guatemalan GDP growth could be marked down from 4 percent as the protests continue, as inflation inches up to 3 percent on higher oil and food prices. The fiscal balance went negative in Q1 and could slip to a 2 percent gap this election year, to be covered by domestic borrowing at half the 25 percent of GDP public debt, lowest in the region. The trade deficit has narrowed but will still top 10 percent of output and can be bridged by an estimated $6 billion in remittances from over 1 million nationals in the US.
In the Dominican Republic President Medina with an 80 percent approval rating must also decide about re-election next year through constitutional change, and the ruling party with a congressional majority already introduced enabling legislation. The political opposition is weak but the island is wary of long-serving leaders with its strongman history, and this year’s 6 percent growth pace, fastest in Latin America, may not last. Almost all sectors of the economy, especially tourism as arrivals rose 5 percent in Q1, have been humming after a major mining clash was handled in 2014. Inflation has barely registered with falling fuel and food costs and will end 2015 below the 4 percent target. Panama has been a flat EMBI performer after a $1.25 billion global bond in March brought public debt to 40percent of GDP, despite still vigorous 5 percent growth as the Canal expansion enters its final phase. Free zone activity has sputtered with Venezuela’s collapse and new Colombian tariffs on Chinese garment trans-shipments, but tourism earnings have compensated which account for almost one-fifth of output and employment.
In Costa Rica and El Salvador in contrast the economies are growing around 1 percent on debt/GDP at 60 percent, with fiscal correction stymied by political infighting. The former placed a Q1 external bond following the latter’s last September, and both have experienced deflation which may persist in El Salvador’s case with the strong dollar. Costa Rican officials have travelled to Washington to present modest budget reforms, while Salvadoran counterparts are under fire for private property interference that may jeopardize Millennium Challenge Account aid.
Caribbean neighbors have surprised from near defaults as Jamaica, the MSCI Frontier stock market champion with a 40 percent gain, sticks to its IMF program with strong primary budget surplus and international reserve readings. With multilateral assistance and last year’s $800 million bond reserves will reach $2 billion as the trade deficit dipped marginally. Barbados has avoided Fund resort despite its 100 percent of GDP debt as tourism jumped 10 percent on a current account surplus in Q1, although austerity has not fully established a beachhead.
