Costa Rican business sector warns of more unemployment

October 24, 2008

The Costa Rican business sector warned this week that credit restrictions imposed by the financial system are slowing local production, causing unemployment to rise.

The Union of Private-Sector Chambers and Associations (UCCAEP), which represents 42 private business groups, affirmed today that the lack of credit has stopped – either temporarily or indefinitely – about 15 to 20 percent of construction projects throughout the country.

As a result, more than 20,000 workers have been laid off in the last six months; however, that number could go up to 40,000 in the next six months, said Costa Rican Construction Chamber spokesman, Juan José Castro.

UCCAEP President Manuel Rodríguez said this is just the beginning of a crisis that could get worse and lead to more unemployment if the government does not intervene so that the banks can adjust their criteria for credit.

According to the business groups, the credit squeeze, including rising interest rates, has cut production growth in half.

Juan María González, UCCAEP´s vice president, pointed out that in the last few months, local businesses – 98 percent of which are small- and medium-size – have run into trouble not only with credit financing but also closing of their credit lines, which are then not renewed.

The business leaders blamed the Central Bank and financial authorities for directing banks to be stricter with their portfolios in light of the international crisis, and insisted the government provide concrete solutions for what they called a “serious situation.”

Among the proposals to open up new credit lines, Rodríguez suggested that the government ask for an international line of credit to capitalize the local banking system, as well as apply a “redistribution” of those resources, giving more to productive activities and less to consumer loans.

Otherwise, they said, unemployment will continue to go up, particularly hurting women and youth, the most vulnerable groups in the country.

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