Costa Rica: Recent Economic Developments
Author:
International Monetary Fund
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Publication Date:
04 Jun 1998
eISBN:
9781451809589
Language:
English
Keywords:
ISCR; CR; debt; state bank; government; deficit; market segmentation; rediscount facilities; state banks bank deposit; Crédito Agrícola; insurance scheme; Reserve requirements; State-owned banks; Loans; Savings associations
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This paper reviews economic developments in Costa Rica during 1995–97. Costa Rica faced a slump in economic activity in 1995–96 following a sharp deterioration in the public finances and higher inflation associated with the 1993–94 political–economic cycle. To avert a balance-of-payments crisis in early 1995, the authorities increased interest rates, imposed temporary import surcharges, and raised excise taxes, while tightening expenditure and shifting some outlays to 1996. The economy went into a recession in 1996, with private investment declining for a third consecutive year.

Abstract

This paper reviews economic developments in Costa Rica during 1995–97. Costa Rica faced a slump in economic activity in 1995–96 following a sharp deterioration in the public finances and higher inflation associated with the 1993–94 political–economic cycle. To avert a balance-of-payments crisis in early 1995, the authorities increased interest rates, imposed temporary import surcharges, and raised excise taxes, while tightening expenditure and shifting some outlays to 1996. The economy went into a recession in 1996, with private investment declining for a third consecutive year.

IV. Financial Sector Developments and Issues30

80. During recent years, the authorities have taken measures to strengthen prudential supervision, reduce discrimination against private banks, strengthen the financial situation of the state commercial banks, and improve the regulatory framework of the financial system. However, as discussed below, Costa Rica’s financial system is not well developed and retains a number of inefficiencies and distortions. The banking sector continues to be dominated by inefficient state banks protected by a number of institutional and regulatory controls, which in turn have allowed private banks to prosper shielded by these inefficiencies. The distortions in the regulatory framework have led to the development of off-balance operations and offshore or parallel operations that reduce the effectiveness of monetary policy and complicate effective banking supervision. These distortions and the lack of effective competitiveness have resulted in large interest rate spreads, which have contributed to financial disintermediation. Prompt and corrective measures are required to address the weakness in the institutional and regulatory framework.

81. This chapter describes the financial system in Costa Rica and developments regarding the regulatory and legal framework of the financial market in the context of the conduct of monetary policy. Section A describes the structure of the financial sector, while Section B reviews reforms to the regulatory and institutional framework of the financial system and recent developments. Section C analyzes the factors that affect the efficiency of the banking sector, and Section D suggests possible measures to improve the regulatory and institutional frameworks so as to increase the efficiency of the financial system.

A. Structure of the Financial Sector

82. The financial system in Costa Rica consists of two major groups: a domestic, regulated sector and an offshore sector, which is outside of the scope of the Superintendency of Financial Entities (SUGEF). The leading player in the regulated sector is the banking system, which in turn is dominated by three state-owned banks (Table 1). Legislation that discriminates against private banks, distortionary taxes, and high reserve requirements have stimulated the growth of innovative financial instruments, which constitute close substitutes for sight deposits, and of offshore transactions through affiliates of domestic banks, largely to circumvent these regulations and distortions. There is no official data on the actual size of the private offshore sector, but estimates indicate that it may be as large as the regulated one,31 which makes it difficult to get an accurate assessment of developments in the financial sector and to formulate policy recommendations on the basis of the information prepared by the central bank and SUGEF.

Table 1.

Costa Rica: Structure of the Regulated Financial System

(As of September 30, 1997)

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Source: Superintendency of Financial Entities (SUGEF), Financial Bulletin, September 1997.

Net of provisions.

Excludes net worth.

Deposits and obligations with the nonfinancial sector.

83. The financial system under the supervision of SUGEF comprises 3 state commercial banks, 25 private banks (17 of which have a subsidiary abroad that performs offshore operations), 20 nonbank financial firms, 7 savings and loan associations, 34 credit cooperatives, 3 public banks created by special laws (Banco Popular y de Desarrollo Comunal funded through a mandatory 1.5 percent annual revolving deduction from salaries, the Caja de Ahorros y Préstamos from the association of teachers, and the National Housing Bank (BANHVI)).

84. There are other important participants in the financial sector that do not fall under the purview of SUGEF, including the state insurance company (INS), the social security agency (CCSS), self-regulated complementary pension funds operating through trust accounts and investment funds, and two stock exchanges. Significant financial intermediation also takes place in the form of off-balance sheet activities offered by banks by setting up trust accounts and services as financial agents (fideicomisos and comisiones de confianza), and through money market funds offered by brokerage firms (OPABs and CAVs) and by mutual funds (investment funds).32

85. The securities market is dominated by government paper and short-term deposit facilities with the central bank, with very little activity in the form of equity transactions. The dominance of government and central bank paper results from the financing of fiscal and quasi-fiscal deficits through the issue of government and stabilization bonds in the domestic financial market (see Chapter III). As of August 1997, the stock of government bonds was the equivalent of about 75 percent of 6-month deposits in the financial system.

86. The quality of the loan portfolio of the regulated banking system has improved since 1995, when it was seriously affected by a combination of high interest rates and the slump in economic activity. Overdue loans have decreased from 28 percent of the total portfolio in June 1995 to 17 percent in August 1997. The state-owned commercial banks reduced loans in arrears from 34 percent to 21 percent, while private banks lowered their loans in arrears from 14 percent to 8 percent over this period (Table 2). Historically, the quality of the loan portfolio of the state-owned commercial banks has been lower than that of the private banks. As of August 1997, the latest month for which data are available, 83 percent of loans overdue by more than 180 days were held by the state banks. These indicators, however, may be biased in favor of private banks since they can transfer nonperforming loans to their offshore branches.

Table 2.

Costa Rica: Overdue Loan Portfolio of the Financial System

(As of August 31, 1997)

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Source: Superintendency of Financial Entities (SUGEF), Financial Bulletin, September 30, 1997.

The amount under judicial collection was included in different categories of overdue loans.

Excluding other nonbank financial institutions.

87. The overall structure of the financial system has been strengthened over the past two years through injections of capital, mergers, and acquisitions of private domestic banks by foreign banks. In addition, the elimination of the monopoly by state banks on sight deposits widened and lowered the cost of the resource base of private banks. In part reflecting these developments, the share of bank loans from the state banks has decreased from 40 percent to 36 percent over the past two years.

88. The distribution of credit by economic activity has changed in the 1990s. Despite little change in the participation of agriculture and manufacturing in GDP, their share in credit has declined steadily since 1990 (Statistical Appendix Table 25). By contrast, credit to the tourism, trade, and service sectors has expanded significantly. However, the most marked growth has taken place in credit for consumption and housing, reflecting in part the expansion in retail finance activities by the domestic banking system.

B. Reforms to the Institutional Framework in the Financial Sector

89. There have been several changes in the legislation and regulations of the financial sector in Costa Rica in recent years. Among the most important was the legislation approved in November 1995, which aimed at enhancing competition and efficiency in the financial system and strengthening prudential supervision. The new legislation:

  • Eliminated the monopoly held by the state banks on sight deposits, this by allowing private commercial banks to accept sight deposits subject to certain restrictions. These restrictions are for private banks to (a) maintain a minimum balance with state banks equivalent to 17 percent (after deduction for legal reserve requirements) of deposits with a maturity of 30 days or less, at an interest rate equivalent to 50 percent of the central bank basic deposit rate—a weighted average of interest rates in the weekly auctions and six-month bank deposits—or the one-month LIBOR rate (for dollar deposits); or, alternatively, (b) open four agencies or branches in certain regions of the country, and allocate at least 10 percent (after deduction for legal reserve requirements) of deposits with a maturity of 30 days or less for loans to activities determined by the government, at an interest rate not to exceed the basic deposit rate or the one-month LIBOR rate for loans in foreign currency.

  • Opened access to central bank rediscounts and emergency credits to all the financial institutions to be supervised by SUGEF.33 However, private intermediaries have to comply with additional conditions that are (a) meeting the same conditions established to open sight deposits as described above; or, alternatively, (b) maintaining (for three months prior to having access to the rediscount facility) a minimum balance with state banks equivalent to 12 percent (after deduction for legal reserve requirements) of deposits with a maturity of 30 days or less, at an interest rate equivalent to 50 percent of the basic deposit rate or the one-month LIBOR rate (for dollar deposits). Moreover, the central bank can extend at its discretion the amount of deposits to be maintained at the state banks.

  • Broadened the scope of supervision of SUGEF to include cooperatives, savings and loan associations, the Banco Popular and BANHVI, and entities authorized to participate in the exchange market. However, offshore subsidiaries were left outside the scope of SUGEF.

  • Increased the scope for greater autonomy of the central bank by extending the terms of five of its seven directors from four years to seven years, and rotating directors such that a new director would take office and another leave every eighteen months. The remaining two directors are the president of the central bank and the minister of finance.

  • Increased the autonomy of SUGEF by creating its own board of directors with five members: two from the central bank, two from outside the central bank (named by the board of the central bank), and the superintendent general, who chairs the sessions.

  • Established a ceiling of 15 percent for legal reserve requirements, to be applied to all deposits regardless of maturity or currency. However, in exceptional cases and if economic conditions warrant, the central bank may temporarily raise reserve requirements to 25 percent, but remunerating reserves in excess of 15 percent. In addition, the central bank was allowed to extend reserve requirements to all financial institutions supervised by SUGEF. In March 1996, the central bank initiated the process aimed at unifying, extending the coverage, and establishing a timetable to reduce reserve requirements in steps (to a uniform rate of 15 percent by March 1998) for all financial intermediaries subject to these requirements (Table 3).34 Reserve requirements for savings and loan associations, previously not subject to reserve requirements, will be increased in steps to reach 15 percent by May 1999. Also, in November 1997, the central bank extended reserve requirements to deposits in cooperatives and credit unions (with assets above C 200 millions), comisiones de confianza, fideicomisos, OPABs, and CAVs. For these financial instruments, reserve requirements will be raised in steps to 15 percent by November 1999.

Table 3.

Costa Rica: Legal Reserve Requirements

(In percent)

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Source: Central Bank of Costa Rica.

90. Other key developments affecting the financial sector have been:

  • In October 1995, the government and the central bank agreed with the three state banks on a set of guidelines and targets to improve their financial performance. To attain these targets, the state banks established action plans to be completed by June 30, 1998, with intermediary targets for every six months. SUGEF was entrusted with the responsibility of monitoring the banks’ progress under the action plans. The guidelines included targets on operating costs, intermediation spreads, and overdue loans. They also dealt with actions to reduce the red tape in the processing of loan applications. Progress under these action plans has been satisfactory to date.

  • To enhance the conduct of monetary policy, develop the market for securities, and move to market-determined interest rates, the authorities introduced in April 1996 an auction mechanism for the placement of government and stabilization bonds. However, shortcomings in the initial design of the auction resulted in limited participation by small investors and a persistent and significant under subscription, little flexibility of interest rates, further segmentation of the financial market, and widening of interest rate differentials among participants in the market. To reduce these shortcomings, the authorities strengthened the auction mechanism in March 1997, by reducing the minimum size of the bids (from C 1 million to C 250,000), allowing private investors to participate with noncompetitive bids through brokerage houses, and reducing the frequency of the auctions to once a week and the maturities to 4, 12, and 24 weeks. However, the switch to discretionary amounts and the elimination of the pre-established rule to determine outliers also adopted at this time, weakened the input of market participants in the determination of the interest rates.

  • In September 1996, the assembly approved legislation allowing private sector participation in the marketing of insurance policies. In this regard, the IDB is supporting a more comprehensive reform of the insurance sector, including the elimination of the public monopoly in the industry.

  • Modifications to the legal instrument of Administration by Judicial Intervention for borrowers in financial distress (a local version of Chapter 11 in the United States) were introduced in October 1996, including stricter eligibility requirements and the accrual of interest on outstanding obligations.35 Before the changes, the Administration by Judicial Intervention had serious repercussions on the quality of the loan portfolio of the banks because the intervention process could linger up to six years, including the period that the court would take to grant it. Following the changes, use of this legal instrument has all but stopped.

  • In November 1996, regulations were issued for the functioning of an interbank market with a view that the central bank would switch gradually to this market as the main instrument for controlling of liquidity and as a complement to the open market operations conducted through the weekly auction of stabilization bonds. The interbank market operates through the Bolsa Nacional de Valores (one of the two stock exchanges) through securities held at the central securities depository (CEVAL).

  • In April 1997, the central bank introduced regulations to improve the efficiency of the payments system and introduced an electronic check clearing system. The regulations established that daily settlements in the central bank books for net positions of the participants for large value transactions will take place at 8:30 p.m. on the same day and for small transactions at 2:30 p.m. on the following day. However, there is still a need to improve clearing procedures for checks drawn on bank offices outside the capital area.

  • In April 1997, the 27-day deposit facility at the central bank was replaced by a 7-day facility, while the 1-day facility was retained. These facilities are open to all market participants and not just to banks. The 27-day deposit rate (which competed with the 28-day government and stabilization bonds) potentially provided a conflicting signal in contrast with the amount offered in the auction.

  • To improve the management of the domestic public debt, in September 1997 the treasury started placing through monthly auctions a fully standardized one-year bond in denominations of C 1 million (US$4,000). The objectives are to create a deeper market in this bond, promote its trading in the secondary market, lengthen debt maturities (presently concentrated at below 360 days), reduce liquidity premia, and achieve more efficient pricing in the securities market, while providing the market with a reference yield curve. These bond issues will serve also as the base for repos in the interbank market.

  • To continue to improve bank supervision, the central bank issued regulations in November 1997 to cover offshore banking operations of financial conglomerates, including the provision of consolidated information about the operations and rules for transactions among members of the group (including the offshore affiliates) and with their nonrelated borrowers with a view to reduce risk. A minimum capital of US$3 million was established for offshore bank members of registered conglomerates, while that for local private banks was raised from US$1.2 million to US$4 million, to be observed within a two-year period starting by April 1998.

  • In December 1997, legislation was enacted to strengthen the national commission of securities and the superintendency of pensions with a view to providing the necessary framework for the development of the capital market.

91. Notwithstanding the marked strengthening in the structure and health of the domestic banking system since mid-1995, further improvement is required, including by reducing market segmentation. There is a need to remove distortions and further competition and efficiency in the sector. Large spreads between lending and borrowing interest rates, large differences in interest rates between public and private financial intermediaries, and the prevailing offshore banking activities are evidence of the need for advancing in regulatory reforms and redefining the role of the public financial intermediaries.

C. Efficiency of the Financial System

92. The efficiency of a financial system in mobilizing and allocating resources is inversely related to the size of the intermediation costs. Traditionally, intermediation costs have been measured by the spreads between borrowing and lending rates prevailing in the financial system. Bank spreads have been historically high in Costa Rica and the spreads of the state banks have been almost double the size of that of the private banks, which is a clear sign of market segmentation.

93. In a comprehensive study, Camacho and Mesalles estimated bank spreads in Costa Rica in the 1987-92 period and examined the main factors behind the high costs of bank intermediation.36 They analyzed the following factors that explain the size of the spreads:37 operating expenses, legal reserve requirements, explicit taxes, implicit costs of holdings low-earning assets, net revenue for other services rendered, and profits (Table 4). They found that operating costs constituted the most important factor in determining the spreads for both the state and private banks. However, the importance of this factor was more significant for the state banks, which could be explained by a higher degree of rigidity in administrative decisions and a larger network of branches. For public banks, the second most important factor in the determination of spreads (but not for private banks) was the cost of other net assets (defined as nonearning assets minus noninterest bearing liabilities and net worth), indicating that state banks were using a larger proportion of liabilities for purposes other than lending. For private banks, the second most important factor determining spreads was profit. By contrast, this factor was not significant for state banks, which would indicate that the lack of competitive pressures was not used by state banks to increase profits but to operate more inefficiently. The third most important factor determining spreads for state banks were legal reserve requirements, which is explained by the monopoly to attract deposits with shorter maturities held by these banks until November 1996, which have higher legal reserve requirements.

Table 4.

Commercial Banks Spreads 1/

(In percent)

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Source: Central Bank of Costa Rica.

Average for 1987-92 data from Camacho and Mesalles (1994). For 1993-97, the central bank staff used the same methodology developed by Camacho and Mesalles.

94. After 1992, Costa Rican commercial banks continued to show high but declining spreads,38 with spreads in state banks still double the size of the spreads in private banks. Operating costs continue to be the major factor behind the spreads for state and private banks, with its importance increasing for private banks. Costs associated with legal reserve requirements have become the second major factor explaining spreads for state banks, instead of costs associated to other net assets as previously. For private banks, the costs associated with legal reserve requirements have become a more important factor than before, but the second most important factor in explaining spreads continues to be profits.

95. These developments point to two important conclusions: (a) the reduction in the spreads in the state banks appears to have prompted a concurrent reduction in private banks’ spreads, supporting the argument that public banks’ inefficiencies have allowed higher profits for private banks than would have been the case in a more competitive market; and (b) a major factor explaining the reduction in state banks’ spread has been the large reduction in the opportunity cost of holding securities and other net assets. This factor does not reflect an increase in the state banks’ efficiency regarding their intermediation function, but a reduction in intermediation activities relative to investment in securities as a share in their portfolio (see Table 1). As of September 1997, the ratio of loans to deposits and net worth was 24 percent in the state commercial banks compared with a ratio of investment in securities to deposits and net worth of 61 percent; the same ratios for the private banks were 90 and 17 percent, respectively.

96. The marked increase in holdings of securities by the state banks was, in part, prompted by a reduction in the legal reserve requirements, which freed previously noninterest earning assets. Furthermore, the opportunity cost of investing in securities relative to extending loans has been reduced for the state banks because of the attractive interest rates offered by government bonds. State banks, in contrast to private banks, can benefit from those rates because they can attract deposits at significantly lower rates due to the explicit and implicit government guarantee on their deposits. State banks have persistently offered lower interest rates on deposits with equivalent maturities of the government bonds, with the costs to attract those deposits representing an upper limit as state banks mobilize sight deposits at even lower rates (Table 5).

Table 5.

Costa Rica: Interest Rates

(In percent, annual basis)

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Source: Central Bank of Costa Rica.

Average interest rate on six-month deposits.

Differences between interest rate on deposits and gross interest on six-month government bonds.

Minimum interest rates reported

Minimum interest rates reported.

D. Conclusions

97. Prompt and corrective measures are required to address the remaining weakness in the institutional and regulatory framework of the financial sector. Reforms should be designed with a view to level the playing field for private financial intermediaries, increase competition in the financial system, and enhance the scope of financial supervision. It would be necessary to:

  • Enforce regulations requiring the supervision by SUGEF of financial groups on a consolidated basis, including offshore activities.

  • Continue to strengthen the finances of the private banks through mergers, consolidation, and increased participation by foreign banks by, inter alia, allowing these banks to establish branches in Costa Rica.

  • Eliminate the government explicit guarantee on 100 percent of the state banks deposits as established in the constitution. Moreover, correct the distorted incentive structure derived from the perception of an implicit government guarantee on state banks’ deposits by introducing a limited, mandatory deposit insurance scheme, funded by premiums levied on all commercial banks, private and state-owned.

  • Remove the conditions imposed on private banks to attract sight deposits and for using the central bank rediscount facilities and emergency windows as they limit their capacity to compete with the state banks.

  • Design a comprehensive strategy to define the role of the state and public banks in the context of the privatization of BICSA and of the Banco de Costa Rica (one of the two major state banks). Actions to level the playing field for the private sector without serious reforms to the structure of the state-owned banking system could result in a rapid deterioration of the finances of these banks and could be a source of quasi-fiscal losses.

  • Allow market forces to play a greater role in the determination of interest rates on central bank and government paper by further improving the auction mechanism and developing the interbank market. This would permit moving faster toward financial deepening, correcting market segmentation, and eliminating unwarranted interest rate differentials.

STATISTICAL APPENDIX

Table 1.

Costa Rica: National Income Accounts

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Sources: Central Bank of Costa Rica; and Fund staff estimates.
Table 2.

Costa Rica: Gross Domestic Product by Sector

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Sources: Central Bank of Costa Rica; and Fund staff estimates.
Table 3.

Costa Rica: Volume of Agricultural Production

(In thousands of metric tons)

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Source: Central Bank of Costa Rica.
Table 4.

Costa Rica: Output and Prices of Major Agricultural Products

(Annual percentage changes)

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Changes based on export unit values converted at the average annual buying exchange rate.

The CNP ceased to support prices of basic grains in the second half of 1995.

Table 5.

Costa Rica: Average Prices of Basic Grains

(In colones per kilo)

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Sources: National Production Council (CNP); and Fund staff estimates.

The CNP ceased to support prices of basic grains in the second half of 1995.

Table 6.

Costa Rica: Industrial Production

(Index 1991=100)

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Source: Central Bank of Costa Rica.

Refers to the period January-September.

Table 7.

Costa Rica: Comparative Social Indicators

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Sources: International Economics Department, World Bank; and Central Bank of Costa Rica.

In percent of school age population.

In percent of population above 15 years of age.

Per thousand live births.

In percent of age group under five.

Table 8.

Costa Rica: Price Indicators

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Source: Central Bank of Costa Rica.

In January 1995, Costa Rica adopted a new CPI index based on a larger number of goods and on a geographically wider sampling area. For comparison purposes, the 1995 indices reported in this table have been converted into the old basis.

Table 9.

Costa Rica: Producer Price Index Components

(1991 = 100)

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Source: Central Bank of Costa Rica.
Table 10.

Costa Rica: Energy Prices

(End of period)

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Source: Central Bank of Costa Rica.
Table 11.

Costa Rica: Average Monthly Wages 1/

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Sources: Social Security Agency; and Central Bank of Costa Rica.

Data for June of each year.

Nominal wages deflated by the consumer price index.

Table 12.

Costa Rica: Minimum Wage Index

(1984=100)

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Sources: Ministry of Labor; and Central Bank of Costa Rica.

Nominal minimum wages deflated by the consumer price index. Minimum wages are increased twice a year in January and July.

Table 13.

Costa Rica: Employment 1/

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Sources: “Multiple Purpose Household Survey, Employment Module,” General Directorate of Statistics and Census; Ministry of Economy, Industry and Commerce.

Data from a survey conducted every year in July.

Basic services include water and gas.

Includes international organizations.

Table 14.

Costa Rica: Summary Public Sector Operations

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Sources: Ministry of Finance; and Fund staff estimates.

Excludes transfers to cover the losses of Banco Anglo Costarricense, a state commercial bank closed in December 1994.

Includes rescheduling.

Includes central bank losses.

Table 15.

Costa Rica: Summary Central Government Operations

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Sources: Ministry of Finance; and Fund staff estimates.

Includes capital revenue.

Table 16.

Costa Rica: Operations of the Central Government

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Sources: Ministry of Finance; and Fund staff estimates.

Pension contributions of government employees are excluded from both revenue and expenditure.

Table 17.

Costa Rica: Central Government Revenue

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Sources: Ministry of Finance; and Fund staff estimates.

Pension contributions of government employees are excluded from both revenue and expenditure.

Table 18.

Costa Rica: Central Government Expenditure

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Sources: Ministry of Finance; and Fund staff estimates.

Includes unpaid interest.

Includes transfers to nonconsolidated public sector and private sector.

Pension contributions of government employees are excluded from both revenue and expenditure.

Table 19.

Costa Rica: Summary Operations of the Social Security Agency

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Sources: Ministry of Finance; Budgetary Office; and Fund staff estimates.
Table 20.

Costa Rica: Summary Operations of Selected Nonfinancial Public Enterprises and Other Public Institutions 1/ 2/

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Sources: Ministry of Finance; Budgetary Office; and Fund staff estimates.

Includes: RECOPE, ICE, ICAA, CNP, Railway Co. (INCOFER), Public Services of Heredia (ESPH), Social Protection Council (JPSSJ), Liquor Co. (FANAL), Pacific Port Administration (INCOP), Council of Medical and Social Assistance (CTAMS), Fertilizers Co. (FERTICA), Social Fund of Family Allowances (FODESAF), Coffee Institute (ICAFE), Costa Rican Tourism Institute (ICT), National Trainning Institute (INA), Institute of Agrarian Development (IDA), and Institute of International Health Cooperation (OCIS).

From 1995 excludes FERTICA privatized in 1994, and from 1996 excludes INCOFER closed in June 1995.

Includes net lending.

Table 21.

Costa Rica: Central Bank Quasi-Fiscal Operations

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Source: Central Bank of Costa Rica.

1-day and 27-day deposit facilities at the central bank.

In 1996 includes government bonds used for sterilization purposes.

Table 22.

Costa Rica: Detailed Accounts of the Banking System 1/

(End of period stocks; in billions of colones)

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Since 1995 stocks (valued at C$207.7=US$1) include Banco Popular as part of the banking system.

Preliminary data.

Short-term deposit facilities (1-day and 27-day) at the central bank.

Table 23.

Costa Rica: Private Sector Financial Assets 1/

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

All instruments denominated in foreign currency are valued at end-of-period exchange rates.

Includes private sector holdings of bonds issued by the central government.

Table 24.

Costa Rica: Changes in Banking System Domestic Credit by Origin, Destination, and Financing

(In billions of colones; end of period)

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Source: Central Bank of Costa Rica.

After payments arrears.

Includes counterpart USAID grants and counterpart unrequited foreign exchange.

Table 25.

Costa Rica: Classification of Loans by Economic Activity

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Source: Central Bank of Costa Rica.

As of October 1997.

For 1997, annual percentage change corresponds to October 1997-December 1996.

Table 26.

Costa Rica: Legal Reserve Position of the Commercial Banks

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Source: Superintendency of Financial Entities.

As of November 1997.

Excludes remunerated reserves constituted in government and stabilization bonds in 1994 and 1995.

Table 27.

Costa Rica: Six-Month Interest Rates

(In percent, annual basis)

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Nominal interest rate at time of issue adjusted by the change in the consumer price index.

Ex-post differential rate of return on colón bonds vis-à-vis the LIBOR interest rate plus devaluation of the exchange rate.

Banco Nacional de Costa Rica (BNCR), the largest state-owned commercial bank.

From June 1996 through March 1997, interest rates correspond to government bonds.

Base lending rate minus deposit rate offered by the BNCR.

Table 28.

Costa Rica: Summary of Balance of Payments

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Imports by INTEL associated with the building and furbishing of a US$500 million plant to be completed in 1999.

Includes errors and omissions.

Excludes changes in commercial banks’ dollar deposits at the Central Bank and swaps.

Includes overdue obligations to multilateral institutions within grace period.

Considering commercial banks’ dollar deposits at the Central Bank as a reserve liability.

Table 29.

Costa Rica: Merchandise Exports

(In millions of U.S. dollars)

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Sources: Central Bank of Costa Rica; Ministry of Foreign Trade; and Fund staff estimates.

Includes leather products and shoes, excludes in-bond industries (maquila).

Included under services in the balance of payments.

Coffee, bananas, meat and sugar.

All exports other than coffee, bananas, meat and sugar.

Table 30.

Costa Rica: Merchandise Imports

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Sources: Central Bank of Costa Rica; and Fund staff estimates.
Table 31.

Costa Rica: Petroleum Imports

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Source: Central Bank of Costa Rica.
Table 32.

Costa Rica: Direction of Trade

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Sources: Central Bank of Costa Rica.

Excludes maquila exports.

Includes adjustment for consistency with balance of payments data.

Table 33.

Costa Rica: Terms of Trade Indices 1/

(1991=100)

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Paasche index.

Table 34.

Costa Rica: Tourism Indicators

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Source: Costa Rican Tourism Institute.
Table 35.

Costa Rica: External Public Debt by Creditor

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Includes principal in arrears, as well as rescheduled principal and capitalized interest; excludes interest arrears.

Includes the bonds resulting from the commercial bank debt restructuring in 1989.

Short-term liabilities of the central bank.

Table 36.

Costa Rica: External Public Debt by Debtor

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Includes principal in arrears, as well as rescheduled principal and capitalized interest; excludes interest in arrears.

Short-term liabilities of the central bank.

Table 37.

Costa Rica: External Debt Payments Arrears

(In millions of U.S. dollars)

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Sources: Central Bank of Costa Rica; and Fund staff estimates.

Arrears to multilaterals within grace period or rescheduled on regular basis.

Table 38.

Costa Rica: Effective Exchange Rates

(Indices: 1990=100)

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Source: IMF Information Notice System.

Increase denotes appreciation.
30

Prepared by Florencia Frantischek.

31

The state commercial banks own an offshore affiliate (BICSA).

32

The investor chooses the portfolio in OPABs (Operaciones de Administración Bursátil) and a share of a fixed portfolio in CAVs (Cuentas de Administración de Valores). The investment funds are similar to the CAVs but are managed by investment companies, which charge a fee for the administration of the fund.

33

Prior to this change, only state commercial banks had access to these facilities.

34

Except for time deposits above 180 days, for which the reserve requirements will be raised from 10 to 15 percent. Another exception is reserve requirements for foreign currency deposits above 30 days, which in July 1996 was reduced to 5 percent.

35

Previously, enterprises protected by this legal procedure were allowed to stop paying their debts, and creditors did not accrue interest.

36

Camacho, E. and Mesalles, L., 1994, “Margen de Intermediación y Eficiencia en la Banca,” in Regulación, Competencia y Eficiencia en la Banca Costarricense, ed. Academia Centroamericana.

37

Spreads measured as the difference between the average cost of funds relative to the average lending rates.

38

Reduction in state banks’ intermediation spreads was one of the targets to be achieved in the agreement signed between the government and the state commercial banks.

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Cover IMF Staff Country Reports
Costa Rica: Recent Economic Developments
Author:
International Monetary Fund
Volume/Issue:
Volume 1998: Issue 045
Publisher:
International Monetary Fund
ISBN:
9781451809589
ISSN:
1934-7685
Pages:
90
DOI:
https://doi.org/10.5089/9781451809589.002