Central America’s Framed Youth Fears
As thousands of unaccompanied child migrants crossed the US border seeking haven from Central American crime and poverty, bond investors rethought positions as performance vacillated against the core EMBI’s 10 percent jump through mid-year. El Salvador has been shunned with the leftist FMLN keeping power on a disappointing recent fiscal and structural reform record as 2 percent GDP growth remains the sub-region laggard, according to the IMF. Public debt split almost evenly between domestic and foreign, is 60 percent of GDP and legislative elections in early 2015 will maintain borrowing and spending impetus. The trade gap is nearly in double digits on chronically soft exports in the dollarized economy, and competitive overhaul is a priority aid target in the bilateral Partnership for Growth with Washington, which has been sidetracked over governance disputes. Guatemala’s output is up at double the pace as first-half remittances rose to $2.25 billion on a 2 percent of GDP budget deficit. Official debt/national income is only 25 percent although the trade hole is close to 15 percent of GDP on commodity price swings. The Dominican Republic has been an overweight following April’s $1.25 billion global bond as the Medina government which may pursue a repeat term settled mining complaints and enacted tax changes recommended under former IMF programs. In tourism and financial services it benefited from uncertainty in Puerto Rico where utility and municipal debt will be restructured with the initial acceptance of large international fund managers. Costa Rica’s new President Solis took office after a Q1 10 percent currency depreciation and closure of the key Intel assembly plant. Inflation is 5 percent and modest tax reform aims to narrow the fiscal shortfall to 5 percent of GDP. Panama also welcomed a surprise incoming chief executive with just a dozen seats in Congress as economic growth slowed to 6 percent despite a near 10 percent climb in Canal revenue on heavy traffic, as the widening final timetable was pushed to the end of 2015 after contractor clashes. Construction and tourism were firm as President Varela pledged to shift emphasis to working-class education and social spending.
The penultimate immigrant destination is Mexico, where the central bank cut the benchmark rate 50 basis points to 3 percent after first quarter measly 1 percent growth souring business and consumer confidence. Flat stock market results have reflected the letdown after the excitement of the Pena Nieto Administration’s reform burst, where anti-monopoly powers have forced billionaire Slim to divest media and telecom assets. The final rules for Pemex private partnerships have yet to be approved under the outline of a lighter preliminary royalty regime, as states concentrate on election and fiscal decentralization revisions. In the sovereign ratings sweepstakes, a Moody’s upgrade for Peru has put it at the same A3 with an estimated $5 billion in mining projects to go ahead in 2014 with business climate improvement to allay developer anxiety.
