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Wednesday, June 19, 2024

Light at the End of the Tunnel

A recent report by the International Monetary Fund (IMF) calmed the minds of some anxious economists and government officials, saying Latin American economies are prepared to exit the recession earlier than most.

The economic drop won’t be as deep or last as long as in many areas of the world, the IMF report said.

The document suggests Costa Rica could still grow half a percent in 2009, while the recovery would really take hold the following year, with 1.5 percent growth predicted.

To reiterate the positive message, Deputy Director Miguel Savastano of the IMF’s Department of the Western Hemisphere met with reporters Monday at the National Bank. of Costa Rica. The news provided positive juxtaposition after the fright induced last week by official recognition of Costa Rica’s recession.

Still, this doesn’t mean that Costa Rica is already out of the recession, or even has seen the worst of it, said Carlos Arguedas, a professor of economics at the NationalUniversity.

“Really, what we’re seeing is that the Costa Rican economy is more prepared to confront the recession, but we’re still going to contract this year,” Arguedas said. “Costa Rica really has not seen the worst of the recession yet. It’s going to be from June through December.”

The report speaks to the security of the financial systems and the quick action taken by governments to ward off the affects of a recession. While the financial sector was at the root of the recessions in the United States and Europe, Latin American countries are finding their banking sector to be a source of stability.

In Costa Rica, the colón has been stabilized by liquidity support for financial markets, the IMF said. In addition, many banks are still solvent and profitable and, since loans from foreign banks are near impossible to obtain, local companies are starting to turn to domestic banks, Arguedas said.

During the earliest stages of the recession, the government took steps to curb the damages. President Oscar Arias’ Plan Escudo, or Shield Plan, passed Jan. 29, just as the market was showing signs of a prolonged contraction. The plan opened the door to expand cash transfer programs, ease labor laws to avoid layoffs, and take out a $2.5 billion loan from international banks such as the World Bank and the Inter-American Development Bank (an option he has not yet decided to act upon, although one which would likely please the IMF).

The government has invested in public infrastructure projects – building highways, hospitals and schools – which are intended to contract more workers and keep money running through the economy, said Arguedas.

It is unclear whether the plan is having the desired effect on the economy to date, but the government has held up the reduced interest rates offered by the three major banks for housing and personal loans as a major stepping-stone.

But what is most important about the announcement is its positive message, said Arguedas.

“When you study economics, they teach you everywhere that the state of the economy is whatever the people think it is,” he said. “Here, the point of view is very bad…You want for people to always have confidence.”



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