It is interesting that this report from Moodys arrives at this time.  For all that has been written about Costa Rica’s Real Estate market recently, it would seem that this information is a force for good reflecting our opinion that Costa Rica can be a very serious solution for the investors seeking solid ground  for Real Estate investment.

(Infocom) — Risk-analysis firm Moody’s Investors Servicehas revised the outlook on Costa Rica’s key ratings from stable to positive in recognition of the significant improvement in the country’s fiscal and debt positions and the likelihood of such improvement continuing in the medium term despite ongoing global turbulence.

The outlook change affects Costa Rica’s Ba1 foreign and local currency government bond ratings. The outlook on the Baa3 foreign currency country bond ceiling and on the Ba2 foreign currency bank deposit ceiling was also revised to positive from stable.

“Costa Rica’s remarkable fiscal performance over the past few years has been driven by significant expenditure restraint and an improvement in revenues, reflecting not only the business cycle but also a concerted effort to enhance collection,” said Moody’s vice president and senior analyst Alessandra Alecci. “As a result, the fiscal and debt positions have improved to such a degree that it would take a major crisis to reverse the virtuous debt dynamics seen in recent years.”

Costa Rica’s fiscal and debt indicators have begun to converge toward the investment-grade level.

Alecci said that the most surprising aspect of the government’s fiscal performance is the control of expenditures. Despite campaign promises and pent-up demand for infrastructure and social expenditures, outlays have actually contracted significantly in recent years, in part due to lower interest payments but also due to a more targeted effort to address social needs. The degree of autonomy of the Treasury Ministry from political influence has been particularly impressive, she added, which is a testimony to the maturity of Costa Rica’s institutions.

“The decision to change the outlook to positive comes at a delicate time for Costa Rica, whose key macroeconomic variables are being affected by the global slowdown and credit crunch,” Alecci said. “We focus our ratings on the fundamentals rather than the business cycle.”

She said that the strength of the fiscal anchor and the fact that the majority of Costa Rica’s public debt is in local currency and mostly held by public entities mitigates the risk associated with a potential, albeit unlikely, disorderly exit from the current exchange rate regime”.

“Notwithstanding recent strong pressures on the balance of payments and the volatility in the exchange rate market, the external position and the economy as a whole is equipped to deal with this type of shock,” the analyst pointed out. “Foreign exchange reserves remain at historical highs relative to imports and to the money base, giving the authorities ammunition to handle the current difficult transition towards a free-floating exchange rate regime as well as the widening of the current account deficit.”

Costa Rica has been the recipient of unprecedented high levels of foreign direct investment in recent years, which have more than fully financed its current account deficit, despite the delay in joining Central American Free Trade Agreement (CAFTA). Given the resilience and diversification of its economic base, there is, thus far, little evidence of a sharp drop in non-debt creating external financing that would lead to a meaningful deterioration of Costa Rica’s external debt indicators.

“We will carefully monitor how Costa Rica navigates through these challenging times,” Alecci said. “In particular, we will observe the performance of the fiscal accounts and whether financial dollarization, one of the key rating constraints, will significantly increase.” A severe problem with the exchange rate regime would have important implications for the banking system, which is close to 50 percent dollarized, she underscored.

 

Referring to this new rating, Treasury Minister Guillermo Zuñiga said he’s very pleased with the news, because it represents a recognition from a prestigious international rating firm and because it sends a signal to local and international investors that Costa Rica has an environment conducive to doing business.

 

“This rating not only supports what we are doing, but it also comes to confirm that the country is prepared to face the adverse international economic situation, reinforcing our commitment to the fiscal discipline strategy with which we have managed the public finances in the past few years,” Zuñiga indicated.

 

Just like last July 14, when Costa Rica received an improved risk rating by Standard & Poor’s, the Minister reiterated the need to remain prudent in terms of fiscal management, as he claims this is a strength for facing these turbulent times in the global economy. Zuñiga also said it’s important to move ahead with approval of the Costa Rican Central Bank Capitalization Bill, which he deems “essential to improving the country’s monetary policy and reduce inflation.”