1. New President sworn in tomorrow... look at the list of urgent items he has to deal with. I do not disagree with any of them. Note, that the Hacienda--tax / customs / revenue / trade data bases have been hacked and CR is again flying blind.
2. Dollar / Colon devaluation: About 10% over the past year and it is continuing and perhaps accelerating.
1. President Rodrigo Chaves will not have the traditional “honeymoon” due to urgent needs of the country
Unemployment of 330,000, the reactivation of the economy, the "hacking" of the Treasury and the high cost of fuel that has the country in crisis cannot wait 100 days
QCOSTARICA – The country’s many urgent needs would cancel the traditional “honeymoon” for incoming President Rodrigo Chaves, who will be sworn in as the 49th president of Costa Rica at noon on Sunday.
The honeymoon is a period of transition and accommodation, nuanced with a certain complacency, close to 100 days in which the new president receives few criticisms and demands.
However, the truth of the matter is that when Chaves is sworn in as president this Sunday, he will have to deal with a major fire, so to speak, in addition to other emergencies.
This includes the hacking of several of the Ministerio de Hacienda (Treasury of which he was minister for a brief period in 2019) websites which threaten to paralyze trade, increase the price of goods and services and worst of all, exacerbate the unemployment problems that already affect 330,000 Costa Ricans.
The hacking has gone beyond the Treasury, a number of other government institutions have reported their systems breached by the Conti ransomware, with no clear solution in sight.
“For each extra day of storage we must pay about a thousand dollars more and the situation worries us because the ports and airports are already collapsed and in the next few days, 10 thousand more containers are expected to arrive, which will generate more problems. The declaration of an emergency in customs is urgent for multiple sectors”, said José Antonio Salas, president of Crecex.
On the other hand, businessmen complain about the prices of gasoline and electricity, which reached record figures due to the pressure that is being generated by the war between Russia and Ukraine, and the dollar exchange, while road maintenance contracts are slowed down as a result of the case of alleged corruption known as “Cochinilla” since the middle of last year.
To this, we must add that the law of digital nomads cannot be put into practice due to the lack of a simple regulation and that there is much expectation that the 5G frequencies will finally be released after two PAC governments prevented it.
To all these demands, it must also be added that Chaves would have the obligation to declare education a national emergency, since, in the last two years, the pandemic has exacerbated educational problems and drove thousands of students away from the classrooms, by not having the technological resources, nor the Internet to receive virtual classes.
“The main challenge for the next government is to generate formal and stable employment conditions, without increasing the size of the state. The healthy generation of employment is the result of economic growth, investment attraction, the birth of new companies and the facilitation of conditions so that all of the above can be carried out without excessive red tape and cumbersome bureaucracy,” said Julio Castilla, president of the Chamber trade.
After eight years of two consecutive PAC governments, the country has serious lags and for this reason, the business sector urges the government of Rodrigo Chaves to implement a series of actions in just 100 days. Among them:
- Declare a national emergency due to hacking of Treasury systems
- Intervene public education
- Lower cost of electricity
- Review fuel formula to mitigate impact of war between Russia and Ukraine
- Approve regulations for digital nomads to attract this type of tourist
- Rebalance social charges to attract more contributors and curb informality
- Generate formal and stable employment conditions
- Promote the exploration and exploitation of gas
- Do not increase the size of the civil service
- Encourage the attraction of investment
- Apply dual education law as soon as possible
- Free up 5G spectrum to improve connectivity
- Availability of water and sanitary sewage for the development of the country
- Reactivation of contracts for road maintenance
- Start road projects that have been on hold for several months and years
- Facilitate access to credit for middle-class housing
- Stop the unfair participation of ICE and UNOPS in consulting, design and construction activities of public works
- Reduce public spending
With the change of government there are many expectations, as well as urgent demands.
For Silvia Castro, Chairwoman of AmCham, the generation of conditions to facilitate the creation of new sources of employment must be addressed immediately. Costa Rica has one of the highest unemployment figures in the OECD.
In addition, initiatives related to social charges and improve the socioeconomic conditions of Costa Rican families should be carried out.
Henry Egloff, President Chamber of Industries, said the government begins with the challenge of facing the effects of the Russia – Ukraine war, which is causing increases in the prices of raw materials, oil, and which is added to the high costs of international freight and international logistics problems caused by the pandemic. , which will ultimately affect economic growth, job creation and the cost of living for Costa Ricans.
“It is important that in the first 100 days, signals are provided that generate confidence in the productive sector, which allows attracting and increasing both national and foreign investment,” said Egloff.
2. Borrowers in dollars with income in colones face greater difficulties in paying their loans
The increase in the dollar exchange and the drop in income due to the pandemic have hit the payment capacity of these borrowers
The increase in the price of the dollar affected the payment capacity of those who have debts in dollars and receive income in colones.
Paying the bills
QCOSTARICA – Borrowers in dollars who earn in colones face greater difficulties in paying their loans because they have suffered two blows: an increase in the dollar exchange and a drop in income due to the pandemic.
This was explained on Thursday by financial authorities when presenting the Semestral de Estabilidad Financiera 2022 (2022 Semiannual Financial Stability Report) at a press conference.
The increase in the dollar exchange affected the payment capacity of those who have debts in dollars and receive income in colones.
At said conference, the General Superintendent of Financial Entities, Rocío Aguilar, indicated that in the case of debtors who have loans in a currency other than the one in which they receive their income (authorities call them “non-generators”), delinquency (credits with arrears greater than 90 days or in judicial collection with respect to total loans) in March 2022 was 3.40% and in the case of generators it was 2.21%.
“Indeed, it is being felt in non-generators, who are those people who do not have their income in that currency, that higher delinquency and fundamentally here there is an element that has to do with the increase in the exchange rate,” Aguilar commented.
“That, of course, also aggravated by the pandemic, then it is a combination of loss of ability to pay in many of these households, it is above all non-generators, which in some cases lost their sources of income, partially or even completely and that is also aggravated, as Doña Rocío said, by the increase in the exchange rate has generated a lot of pressure on their ability to pay”, added the president of the Central Bank, Rodrigo Cubero.
As of March 31 of this year, for example, the dollar had risen 8.9% compared to the same day of the previous year.
Loans to non-generators are lowered
The amount of loans in dollars granted to non-generators has decreased over the years in relation to the total portfolio, from 31.6% in December 2015 to 22.3% in March 2022.
As Cubero commented at the conference, between February 2020 and February 2022, the total loan balance in dollars to non-generators was reduced by US$1 billion, from US$9.4 billion to US$8.4 billion.
However, as indicated in the semi-annual report, loans in dollars granted to non-generators still represent a significant percentage of the loan portfolio.
“Although loans in dollars to debtors who do not generate foreign exchange has shown negative growth rates in the last five years, the balance of loans to these debtors still represents a significant percentage of the total loans portfolio of regulated financial intermediaries in the country,” indicates the report.
Into the future
Prospectively, according to Juan Carlos García, an official of the Central Bank’s financial stability department, the increase in external interest rates could affect non-generating households more.
“One has to see this risk prospectively in the sense that the global economic environment also reflects that there could eventually be an increase in interest rates abroad that, if transferred to the local market, would make credit more expensive for those debtors, for example, when they have interest rates that are adjusted periodically, then it is an issue that also enters into that language that we say is increasing the risk for them and also the recent trends that have occurred in the foreign exchange market, which if they continue could aggravate the ability of payment of those debtors”, Garcia explained.
In addition, García said, as has been pointed out in previous reports, the level of indebtedness of Costa Rican debtors is relatively high and therefore that makes their margin of action, when those exchange rate and interest rate variables increase, much more reduced and this is particularly important in the case of households and individuals.
3. Costa Rica receives massive number of cyber-attacks in one 24-hour period
The number of cyber-attacks hitting Costa Rica is at an unprecedented level. According to the director of Digital Governance, Jorge Mora, the Ministry of Science, Innovation, Technology and Telecommunications (Micitt) indicated that more than 4 million attacks have been attempted on Costa Rica’s public intuitions in one recent 24 hour period.
This topic was addressed during a virtual press conference that was held to discuss the recent cyber-attack by the Conti Ransomware gang that adversely affected the Costa Rica government computer systems. Due to this attack, the group has already leaked 50% of the data it has stolen, including over 850GB from the Finance Ministry as the Costa Rican government insisted that it will not pay the demanded ransom that is reported to be 10 million dollars.
During the conference call Mora explained that the more than 4 million recent cyber-attack attempts are divided into the following categories:
- 2.7 Million of Malware
- 800,000 Phishing
- 84,000 Crypto Mining
- 1.2 million of Command and Control Activities (Conti style)
He also explained during the call that “There were attempts of communication by means of control commands. They were mitigated and blocked. This weekend the Internet has been disconnected and the revision has begun”.
He went on to explain that these attempts were detected thanks to the protection systems recently installed by the institutions.