Central America

CENTRAL AMERICAN ROUNDUP

Guatemala peace deal imminent

Guatemala's civil war, the region's longest-running, is set to end in October. According to officials, the government will sign a final, permanent cease-fire agreement with the rebel URNG movement this October in Oslo, Norway. A temporary cease-fire has been in force since 20 March.

The key remaining issue is whether amnesty will be granted for crimes and human-rights violations committed during the war, in which thousands of civilians disappeared.

Last week an outcry accompanied a congressional proposal to pass an amnesty for political crimes committed during 35 years of civil war. Passage of the bill is uncertain. Up to 140,000 people are thought to have died during the 35-year conflict.

Salvador outlook positive, according to S&P

U.S. ratings agency Standard & Poor's has assigned a BB long-term and B short-term foreign currency rating to El Salvador. S&P has also assigned BBB+ long-term and

A-2 short-term local currency ratings.

Positive aspects cited by S&P include "broad-based popular support" for the on-going economic reform program, prudent fiscal policies which have contained public sector deficits to an average 3% of GDP since 1992 and will ensure a deficit of just 1.5% for 1996, extensive economic liberalization and a modest net public external debt burden, estimated at 36% of exports, which is well below the average for BB rated sovereigns and a correspondingly low debt service ratio of 17% of exports.

Set against all this, however, are the "still precarious social conditions," a vulnerable balance of payments position -- the trade deficit last year hit 18% of GDP -- and low savings and investment rates of 17% and 20% of GDP, respectively.

Costa Rican economy heading into recession

Costa Rica's Central Bank has revised its 1996 real economic growth estimate down to 1-1.5% from 3%, amid growing signs that the economy is moving into recession. The country's Minister of Finance Francisco de Paula Gutierrez, meanwhile, has upped the government's fiscal deficit forecast to 3% of GDP. In 1995, the economy's real growth was 2.5% despite stiff cutbacks in public

spending and an increase in taxes. The delayed impact of last year's adjustment measures, together with the $177 million-worth of destruction wrought by Hurricane Cesar, are being blamed by the government for the economy's current woes.

Costa Rica considers privatization of ports, airports

Draft legislation to allow private firms to build and operate new ports, airports and railroads has been presented to Costa Rica's Legislative Assembly. The bill is backed by the ruling National Liberation Party and the opposition Social Christian Unity Party. Plans are also under way to open the country's power and telecoms sectors to private competition, though privatization of the Costa Rican Electricity Institute (ICE) has been ruled out.

The above articles appeared in Latin.Net, a weekly newsletter published by Dr. Chris Brogan that provides an analysis of key event's in Latin America.

More information about the newsletter can be obtained at http://ourworld.compuserve.com/homepages/LatinNet/

CENTRAL AMERICAN ROUNDUP

Costa Rican inflation 8%

July inflation in Costa Rica came in at 8.06%. The official inflation target for the year has recently been revised upwards to 12%. According to the Central Bank, the economy contracted by 0.2% in February, 0.6% in March, 1% in April and 1.5% in May.

Panama's INTEL Sale paralyzed

Panama may consider allowing state-run foreign companies to bid for state-owned telephone utility National Telecommunications Institute (INTEL). Earlier this year, a law was passed prohibiting state-run foreign corporations from participating in the privatization process. The government had planned to sell 49% of Panama's later this year, but the process was postponed when key bidder SBC International surprisingly pulled out last week. The withdrawal leaves GTE as the only other company qualified to participate.

CAM Infrastructure report: Poor infrastructure hinders development in CA

According to a report by the Harvard University Business School, sponsored by Central American governments, concluded that poor infrastructure development represents a major impediment in the region's ability to compete in the global economy. In particular, the report cited lack of adequate financing for infrastructure, poor planning and organization, lack of regional co-ordination, and inefficiency in customs administration in all the countries as the principal factors that discourage greater private-sector investment in the region.

The report includes a number of recommendations, notably: that the private sector is allowed to take over the design, construction, operation, and maintenance of highways; the creation of a regional investment fund for infrastructure projects; an administrative overhaul of customs procedures; the creation by each government of new conflict-resolution mechanisms to handle problems with investors; and an easing of restrictions on profits and capital repatriation.

In a separate report, presented by the Federacion de Entidades Privadas de Centroamerica y Panama (FEDEPRICAP) to the IDB, a minimum of $3bn per year must be channelled into infrastructure during the next 10 years if the region is to become competitive in the global economy. In recent years, an average of only $250m per year has been invested, according to FEDEPRICAP.

Tax on foreign sales abolished in Panama

Following mounting protests from merchants, Panama's Congress has voted to abolish a 15% tax on foreign sales in the free-trade zone.

El Salvador's power plans moving ahead

Plans by the government of El Salvador to privatize its state electricity company Comision Ejecutiva Hidroelectrica del Rio Lempa (CEL) are moving ahead. Four distribution companies, covering four separate geographic regions, are being formed which are scheduled to be sold to private investors towards the end

of the year. The government estimates the value of the distribution companies at around $125m. The remainder of CEL, comprising thermal and hydroelectric plants, will be sold in 1997.

The government has not yet submitted a detailed privatization plan to the legislature. What is known, however, is that competition and minimal regulation form a central part of government thinking.

CEL currently has an installed capacity of 909 mw - 43 per cent hydro, 46 per cent thermal, 11 per cent geo-thermal - with 90MW owned by Coastal Corporation which constructed the Nejapa power plant under a long term purchase contract with CEL which is deemed sufficient to meet domestic demand over the next few years. CEL, whose investments over the last three years have been in the region of $150m, does not rule out the possibility that the company could export surplus power to neighboring countries. Last year, CEL's operating income came to $216m, and is expected to grow to $234m this year. El Salvador's power privatization program is provoking interest, not only among investors but, given the likely surge in investment under new private owners, also among foreign companies supplying generating equipment, transformers, wire, related computer hardware/services, financial services and consulting services.

Perez' popularity slumping in Panama

A recent poll indicates a slump in popularity ratings for the Panamanian President Ernesto Perez Balladares to 53%, from 73% a year ago. Nearly three-quarters oppose the governments liberal economic policies, while some 40% fear the economic situation will worsen when Panama takes over the operations of the Panama Canal from the United States.

Costa Rica on Japanese leader's agenda

Japanese Prime Minister Ryutaro Hashimoto is scheduled to begin an 11-day Latin American trip Tuesday which will take him to Mexico, Chile, Brazil, Peru and Costa Rica.

The above articles appeared in Latin.Net, a weekly newsletter published by Dr. Chris Brogan that provides an analysis of key event's in Latin America.

More information about the newsletter can be obtained at http://ourworld.compuserve.com/homepages/LatinNet/

CENTRAL AMERICAN ROUNDUP

Panama Banking Concern

Planned changes to Panamanian banking laws are prompting concern among local bankers and economists who believe they threaten the competitive edge enjoyed by Panama's financial sector. The list of proposals, presented to the government by the Panamanian Banking Association (ABP), calls for an end to banking secrecy, the creation of an independent regulatory body and adhesion to the Basil Agreement, obliging banks to publish details of their finances each year. The initiative is designed to clamp down on money laundering and fraud. According to the U.S. Drug Enforcement Agency (DEA), several billion dollars of drug money passes through Panamanian banks each year, a claim that many local bankers hotly dispute. According to one news agency report, the president of the Association of Company Executives, Ricardo Ortega, went so far as to suggest that the U.S. claims are "part of a plan masterminded by the United States to do away with the local banking center" and thereby encourage the transfer of the $34 billion currently deposited in Panamanian banks to banks in Miami.

Nicaragua-Colombia Talks Reach Impasse

Nicaragua and Colombia look set to take their sovereignty dispute over the Caribbean islands of San Andres and Providencia to the International Court of Justice in The Hague as bilateral talks grind to an unsuccessful conclusion.

Colombian ownership of the islands dates back to the 1928 Barcenas-Meneses-Esguerra treaty, which Managua views as invalid because Nicaragua was then under U.S. military occupation.

Salvadoran economy slowing

The economic slowdown in El Salvador that began in the second half of 1995 is continuing, according to a Central Bank report which notes that the economy grew 3.7 percent in April, down from 4.5 percent in March. An annual inflation rate of 11.1 percent in June, more than two percentage points higher than government forecasts, was further constraining economic activity. High interest rates and a hike in VAT to 30 percent in May 1995 lay behind the initial slowdown in the economy.

Software Piracy Rife in Mexico

According to Mexican officials, software piracy caused a loss of $250 million to Mexico's computer industry in 1995. The National Association of the Computer Programs Industry estimates that there are now 2.3 million personal computers in the country, with an average of three programs installed in each. Eighty percent of the programs were pirated ones, which affected 80 percent of legally installed enterprises in Mexico. A string of measures to combat piracy are currently under consideration.

The above articles appeared in Latin.Net, a weekly newsletter published by Dr. Chris Brogan that provides an analysis of key event's in Latin America.

More information about the newsletter can be obtained at http://ourworld.compuserve.com/homepages/LatinNet/