La firma calificadora de riesgo Standard & Poor’s mantuvo la calificación de riesgo de la deuda de largo plazo de Costa Rica.

1. February 13, 2012
Research Update:
Costa Rica Foreign-Currency
Ratings Affirmed; Long-Term
Local-Currency Rating Lowered Due
To Revised Methodology
Primary Credit Analyst:
Olga Kalinina, CFA, New York (1) 212-438-7350;olga_kalinina@standardandpoors.com
Secondary Contact:
Joydeep Mukherji, New York (1) 212-438-7351;joydeep_mukherji@standardandpoors.com
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Related Criteria And Research
Ratings List
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2. Research Update:
Costa Rica Foreign-Currency Ratings Affirmed;
Long-Term Local-Currency Rating Lowered
Due To Revised Methodology
Overview
• Robust economic growth and political stability continue to support the
ratings on the Republic of Costa Rica, despite high fiscal deficits,
rising (though still modest) debt burden, and a lack of consensus on
passing long-awaited fiscal reforms.
• We have affirmed the 'BB/B' foreign-currency sovereign credit ratings on
Costa Rica.
• In addition, we have lowered the local-currency sovereign credit rating
to 'BB/B' from 'BB+/B' based on our revised methodology, in which limited
monetary flexibility--reflecting Costa Rica's managed exchange rate
regime--prevents a differential between local- and foreign-currency
ratings.
• The stable outlook reflects our expectation that the government will
implement timely measures to arrest fiscal deterioration.
Rating Action
On Feb. 13, 2012, Standard & Poor's Ratings Services affirmed its 'BB'
long-term and 'B' short-term foreign-currency credit ratings on the Republic
of Costa Rica. At the same time, Standard & Poor's affirmed its 'B' short-term
local-currency rating on the sovereign and lowered the long-term
local-currency sovereign credit rating to 'BB' from 'BB+'. The outlook is
stable. The 'BBB-' transfer and convertibility assessment and '2' recovery
rating on government bonds are unchanged.
Rationale
The ratings on Costa Rica balance the country's limited monetary flexibility
as well as rising fiscal pressures with good economic prospects, stable
political system, and relatively high level of social development. Costa
Rica's monetary rigidities reflect ongoing losses at the central bank (about
0.6% of GDP in 2011) and a high (albeit declining) level of dollarization,
which we estimate at more than one-third of the financial sector's claims and
deposits. Inflation targeting is complicated because of the managed exchange
rate regime.
On the fiscal side, Costa Rica has had a hard time containing spending, which
rose substantially during the past three years. Yet, the tax reform that the
government proposed in early 2011 to stabilize the fiscal accounts and afford
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3. Research Update: Costa Rica Foreign-Currency Ratings Affirmed; Long-Term Local-Currency Rating Lowered Due
To Revised Methodology
much-needed infrastructure and security spending faces opposition and is
currently stalled. As a result, we project that Costa Rica's fiscal deficits
(including central government, central bank, and decentralized government
entities) will widen to 5.2% of GDP this year. (They were 4.7% of GDP in 2011
and 5.5% of GDP in 2010.) This is the worst reported deficit in the region.
The resulting increase in the net general government debt (to a projected 35%
of GDP in 2012) is unlikely to reverse in the next few years. Under our
baseline scenario, we expect fiscal reform, albeit a watered-down version,
before year-end 2012. Because the next presidential elections are due at the
beginning of 2014, it will be difficult to introduce tax reforms in 2013.
Supporting the ratings are Costa Rica's stable political system, strong public
institutions, rule of law, and general consensus on pro-growth market-oriented
policies. A comparatively high level of human development contributes to
social stability and supports Costa Rica's niche in skill-based export
services. This, in turn, sustains solid long-term growth prospects, with real
GDP growth per capita expected to average 2.2% between 2012-2014. Growing
international reserves, which are boosted by large ongoing and projected
foreign direct investment, support external stability.
We lowered the long-term local-currency rating to align it with the
foreign-currency rating based upon our revised sovereign rating methodology
published on June 30, 2011. Specifically, in sovereigns without a floating
exchange rate regime (Costa Rica has a de jure crawling band with an
increasing width exchange rate regime), Standard & Poor's now aligns its
local- and foreign-currency ratings.
The recovery rating of '2' indicates our expectation of substantial (70%-90%)
recovery in the event of a default. The 'BBB-' transfer and convertibility
assessment, which is two notches higher than the 'BB' long-term
foreign-currency sovereign credit rating, reflects our opinion that the
likelihood of the sovereign restricting access to foreign exchange that Costa
Rica-based nonsovereign issuers need for debt service is moderately lower than
the likelihood of the sovereign defaulting on its foreign-currency
obligations. The distinction is based on the outward orientation of the Costa
Rican economy.
Outlook
The stable outlook incorporates our expectation that the government will keep
its fiscal accounts in check, whether through the eventual passage of the
fiscal reform, better tax collection, or further spending cuts. Given
still-limited (albeit rising in the past few years) monetary flexibility, we
believe fiscal prudence is important for the sovereign to maintain its
creditworthiness. Supported by robust economic prospects, we expect Costa
Rica's debt to remain at moderate levels, though it will likely rise in the
short term.
If political disagreements mount, they would limit fiscal consolidation
options and weaken governance. This scenario would hamper economic performance
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4. Research Update: Costa Rica Foreign-Currency Ratings Affirmed; Long-Term Local-Currency Rating Lowered Due
To Revised Methodology
and external and exchange rate stability, which could eventually lead us to
lower the ratings. On the other hand, higher GDP growth and growing tax
revenues could lead to a faster stabilization of the government debt burden,
better macroeconomic equilibrium, and improved policy predictability (creating
more space for exchange-rate liberalization), all of which could contribute to
a higher credit rating.
Related Criteria And Research
• Sovereign Government Rating Methodology And Assumptions, June 30, 2011
Ratings List
Downgraded
To From
Costa Rica (Republic of)
Sovereign Credit Rating
Local Currency BB/Stable/B BB+/Stable/B
Ratings Affirmed
Costa Rica (Republic of)
Sovereign Credit Rating
Foreign Currency BB/Stable/B
Transfer & Convertibility Assessment BBB-
Senior Unsecured BB+
Recovery Rating 2
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
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