U.S. debt crisis threatens Costa Rica, Latin America

August 7, 2011

The Economic Commission for Latin America (ECLAC) issued a warning last week that the impending reduction of public debt in the U.S. could threaten international financial reserves in Latin America, including Costa Rica. Last Tuesday, the U.S. Congress voted to reduce the national deficit and spending by $2.4 trillion over the next 10 years.

In a press release, ECLAC explained that the decision could result in a potentially damaging trickle-down effect throughout Latin America.

“The United States is the region’s main economic partner, and is even more important for Mexico, Central America and the Caribbean,” the release said. “A very high percentage of investment and financial flows come from the United States. In addition, most of the remittances that alleviate the situation of many of the region’s poor households come from Latin American and Caribbean people working in the United States economy.”

According to ECLAC, Latin America and the Caribbean have more than $700 billion in international reserves and is the second largest holder of assets in dollars, behind only China. Costa Rica has $4.74 billion in reserves, the second highest amount in Central America. Guatemala, the region’s only oil producing country, has $6.38 billion in reserves.

“This could have a dramatic impact on the value of assets, exchange rates, levels of global activity and demand for goods and services produced and exported by this region,” the ECLAC release said.

On Friday, the Standard & Poor’s global credit rating service lowered the long-term rating of the U.S. from ‘AAA’ to ‘AA+’. It was the first time in U.S. history that its debt rating was lowered by the S&P.

For more on how the U.S.’s debt reduction plan will affect Costa Rica, see this Friday’s edition of The Tico Times

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