Costa Rica’s Risk Rating Improves

By Ralph Nicholson

Standard & Poor’s, a global leader in credit ratings and credit risk analysis, has adjusted its assessment of Costa Rica from stable to positive.

Costa Rica currently has a BB qualification for long-range debt in foreign currency, which means the country is less vulnerable in the short-term than other issue markets, the Minister of the Treasury, Guillermo Zúñiga, said of the assessment.

The Standard and Poor’s rating places Costa Rica in a situation equitable to that of Guatemala, but below El Salvador.

Countries with the best assessments in Latin America are Chile, México and Brazil, which together make up nations with “investment grade ratings”, and had the best results — as did the Caribbean nations of Aruba, Trinidad and Tobago, Barbados and the Bahamas.

The improved rating came as the Costa Rican colon took a pounding on Tuesday, losing more than two percent of its value in just a few hours.

The changing price of the dollar was the greatest single-day hike since floating rates (or bandas cambiarias) were introduced in October of 2006.

© Photo Courtesy

RISK RATING: Minister of the Treasury, Guillermo Zuniga. Costa Rica is less vulnerable in the short-term than other issue markets, he says. (Photo Courtesy of Ministerio de Hacienda)

Banks took the unusual step of raising the rate against the US dollar during the day. Usually the rate remains constant during business hours.

At 1:30pm, the average sale price among the 15 commercial banks was 551 colones — 17 colones above the average reference price at close of business on Monday.

Late in the day, the Board of Directors of Costa Rica’s Central Bank, undertook what it termed “a type of intervention”, setting an exchange rate to buy the currency of 500 colones per dollar, and another rate to sell the currency of 555.37 colones to the dollar.

While the buying rate would be maintained the Board said the exchange sale rate would increase by 0.06 colones each working day.

Economists said there was no clear explanation for the market’s reaction.

Some economists blamed supply and demand, saying the increase was due to a shortage of dollars in circulation because of price hikes in the international prices of oil and food.

Others said Tuesday morning’s reaction was due more to the fear of the intermediaries who were looking to protect themselves from the sharp jumps that the dollar has experienced between Friday and Tuesday.