QCOSTARICA – The only precedent was controversial: the secret agreement for the sale of bonds to China was part of negotiations to establish bilateral diplomatic relations.
That was a credit of US$300 million with preferred conditions that has not yet been paid off, but the current government needs more money to face the fiscal crisis and is going back to the same source: the giant Asian friend.
Government officials confirm that they made the request to China this year, as published this week in the Semanario Universidad, although no response has been received by the Chinese.
This was acknowledged yesterday by the President Solis, saying: “the negotiations with the Government of China are the preliminary phase, there is nothing concrete yet. We made a very similar proposal which Costa Rica has done with respect to the sale of bonds in the market and with international organizations; It is a very transparent mechanism and that is the line that will continue, there will be no agreement other a financial one, strictly related to the issue of bonds. “
Solis said yesterday he is aware of the criticism faced by the government of Oscar Arias in 2007 for secretly negotiating conditions with China that could only be released after a ruling by the Constitutional Court in 2008. China bought 12-year Costa Rican bonds with an interest rate of 2%.
Without begging. Things have changed. In addition to the political policy which requires government transparency, our tax situation is more pressing and China is no longer that new friend willing to give great a big hand. It’s been eight years of bilateral linkage and now rather Costa Rica intends to maintain a more strategic and less paternalistic relationship, explained Foreign Minister Manuel Gonzalez.
“We have not asked for a handout. The issue (selling bonds) was touched on the trip we made to China in January, but it was not a structured offer, “Gonzalez said.
“We are looking to diversify our portfolio,” the Director of Public Credit (Crédito Público del Ministerio de Hacienda) Juan Carlos Quiros told Bloomberg.
Even as China’s economy slows, the country has continued to be seen in Latin America and the Caribbean as an alternative financing source to global bond sales and loans from international institutions.
Following a surprise trip to Beijing earlier this month, Venezuela President Nicolas Maduro said he secured a US$5 billion loan after announcing a pipeline of loans totaling US$20 billion in January. Ecuador, which like Venezuela is struggling with low oil prices, received US$900 million from China earlier this year.
Costa Rica’s move comes as a years-long effort to broaden the tax base to boost revenue remains stalled.
Quiros declined to say how much the country would like to borrow from China. Costa Rica sold US$1 billion of 30-year bonds in March to yield 7.16%.
Moody’s Investors Service cut Costa Rica’s credit rating to junk status last year, putting the US$50 billion economy in the same category as Russia and Portugal.
Sources:
- La Nacion – Ocho años después, Costa Rica vuelve sobre bonos chinos
- The Washington Post – Costa Rica Looks to China for Bond Sale as Budget Deficit Widens
