Central America’s Off-Center Sentiments
As the Inter-American Development Bank annual meeting convened in Panama, previous pariah Honduras joined the recent isthmus issuance parade, despite last-minute controversy over an undisclosed court case which prompted underwriter withdrawal. The yield was lifted to 7.5 percent for the $500 million sale on possible sovereign exposure from a decade-old claim against a state-run company which was omitted from the prospectus. The buyer base was split 75 percent-25 percent between the US and Europe and was unperturbed by ratings outlook downgrades to negative on poor fiscal and current account indicators and populist appeal surrounding imminent elections to find a permanent successor to the interim president after an army coup. Government debt was slashed two-thirds under the HIPC program but has since rebounded to 35 percent of GDP on heavy domestic borrowing. The murder rate leads the sub-region with drug and gang violence, and a private-sector model city scheme which garnered attention in development circles was ditched amid allegations of payoff demands. The maiden bond effort was also little disturbed by next door Belize’s second restructuring, where coupons were cut and creditors insisted on stricter procedural and substantive covenants, and another renegotiation launched at the same time by tiny Grenada as another commodity and tourism exporter. The premium pricing was at odds with Paraguay’s 4.5 percent debut, with a balance of payment surplus and small budget deficit. Double digit GDP growth should follow last year’s drought-induced recession there, as inflation fell to 4 percent under the targeting scheme of the central bank, which was recently recapitalized. The Colorado party candidate, a business executive, is ahead for April elections after former President Lugo, a practicing priest, was forced from office over personal misconduct charges. He has advocated revenue deal revisions with Brazil over the shared hydro-electric dam, and a commercial and services push alongside traditional agriculture.
IADB host Panama stands out as an investment-grade credit, as economic growth could again hit 10 percent on Canal and infrastructure activity, with overheating elements also generating 5 percent inflation. Independent monetary policy does not exist with dollar use and the fiscal stance is guided by a responsibility law. Cargo passage earnings were up 5 percent in 2012, and a 15 percent toll increase just went into effect on an improving global trade outlook. Dollarized El Salvador lost it prime rating post-crisis, and is still grappling with anemic 1 percent GDP expansion on chronic budget and trade deficits. Remittances may jump 5 percent-plus from the 2.5 million workers in the US as construction revives, but positioning has begun for polls a year away with the rightist Arena party currently favored for presidential return. With expatriate support, external bonds have outperformed the index so far as the country is also part of a select aid Partnership for Growth with Washington where government and business representatives try to establish bilateral equilibrium.
