Costa Rica’s Central Bank (BCCR) President, Francisco de Paula Gutiérrez spoke on Tuesday about the numerous challenges the financial sector – and the nation – is facing as a result of the current financial downturn.
“It’s impossible to isolate the country from the international financial crisis, de Paula said.
“Those who think the government should take action in order for the country not to be hit by the crisis are simply dreaming.”
In a meeting with financial industry experts and the media, the head of one of the most important financial institutions in Costa Rica said the country has to mitigate the effects of the crisis already affecting various sectors in the country, such as construction and tourism.
When inflation rates started to decrease and the local economy was static during the last trimester of last year, de Paula admitted, that was the moment when the crisis arrived at “the shores of Latin America.”
According to International Monetary Fund reports, traditionally strong economies are expected to shrink in 2009: Japan’s by 2.6 percent, Europe’s by 2 percent, and the U.S. economy by 1.6 percent.
“The situation we are going to be presented with this year is much more complicated … than we had thought it would be just two months earlier,” de Paula said.
This will force the BCCR to revise its prediction methodology, de Paula said, which has not yet been updated.
“It is very different to be in a world economy that grows at 2.2 percent … than to be in a world economy without any growth and in a world (financial system) where the economies of the developed countries are dropping by 2 percent.”
Segments within the financial sector that will be faced with limitations this year, de Paula explained, include direct foreign investment in the country, the banking system and external and internal liquidity, among other groups.
Strong points in Costa Rica’s economic outlook, de Paula said, include the strength of national bank assets and the size of the country’s foreign public debt, which is currently about $1.5 billion.
Domestic weaknesses include the high inflation rate and international economic imbalance.
De Paula spoke about the importance of protecting society’s most vulnerable groups during tough financial times.
“The consequence of not educating these groups is the outcome of having a workforce less qualified,” de Paula said.
At the same time, the BCCR head praised President Oscar Arias’ recently released economic plan which proposes assisting the training of employees whose jobs may be in danger by providing them with scholarships of up to ¢200,000 (about $365.)
De Paula said one of the goals for 2009 is to lower the inflation rate, which currently floats around 13.5 percent, to 9 percent by having BCCR participate more actively in the currency exchange market. A possible drop in international prices would facilitate the decrease in the inflation rate as well.