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Fitch Ratings Recommends Austerity for the Region

July 16, 2004

FISCAL austerity is critical ifCentral American countries are to avoida crisis caused by their high levels offoreign debt, warned international ratingsagency Fitch Ratings, the daily LaRepública reported.The size of the debt (as a percentage ofthe gross domestic product) is consideredhigh in every Central American countryexcept Guatemala. The amount ofPanamanian foreign debt bonds in circulationis also considered high. Costa Ricanand Salvadoran bonds are increasing.This trend can only be reducedthrough increased tax collection, accordingto Fitch. Fitch also cited the need foradditional structural reforms and investmentin infrastructure as a way toimprove the region’s competitiveness.Strengthened financial sectors were recommendedas a way to improve the efficiencyof issuing of credit.Costa Rica’s debt is expected to beequal to 22.2% of its GDP in 2004, up from19.8% in 2000. Guatemala’s debt is expectedto reach 14.5% of its GDP this year, upfrom 13.7%. Honduras and Nicaragua havethe highest debt rations, 69.8% and 84.9%of their GDPs, respectively.

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