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Costa Rica government wants to print ¢540 billion, sell it to China without lawmakers’ approval

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By Timothy Williams, ICR News Editor-in-Chief

November 5th, 2015 (ICR News) Costa Rican president Luis Guillermo Solis is set to welcome Sun Chunlan, a high-level representative of China’s Communist Party on Thursday, and on the agenda is the Solis administration’s Christmas wish: a US $1 billion sale of public debt to the communist country.

 

Costa Rican foreign minister, Manuel Gonzalez said it would be the highest-level meeting between Costa Rica and China since the visit of Chinese president Xi Jinping to Costa Rica in 2013.

 

Gonzalez said that there was an “extensive agenda” that would be discussed, without mentioning specifics.  “We have a real connection with this country (China),” Gonzalez said.

 

Despite Gonzalez’s vague statement, however, analysts agree that the top priority in the discussion for the Solis administration will be securing some USD $1 billion in debt financing from China to help fill a significant government shortfall in its 2016 budget.

 

The Solis administration has stated previously that it hopes to have the financing in place by the end of the year.

 

But this time things will be a bit different, according to statements by Costa Rican finance officials in recent days – this won’t be the typical financing arrangement between the Asian giant and Costa Rica that has typically been seen in the past.

 

Finance officials said late last week that if a successful deal is reached with China, that the transaction would occur in the local market, in the form of bonds denominated in Costa Rican colones (CRC) – about ¢540 billion of them, that would be sold to China.

 

By selling bonds in the local market, denominated in colones, the Solis administration would not require the approval of lawmakers in Costa Rica’s Legislative Assembly in order to issue the bonds, which is normally the case when entering into debt with a foreign country.

 

Costa Rica would – essentially – “fire up its printing presses,” printing colones out of thin air, and China would purchase the newly-minted colones – effectively buying public debt – through a local intermediary and would also hold the funds locally through some sort of fiduciary.

 

A Costa Rican finance official told CRHoy.com recently that this “mechanism” has already been used in other countries in the region such as Ecuador and Argentina.

 

The Solis administration is also seeking another US $1 billion in debt financing – half from the Inter-American Development Bank (IDB) and half from the World Bank – in order to further plug its budget shortfall for 2016.

 

Those debt issues, however would require the approval of Costa Rica’s Legislative Assembly.

 

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  • prdatki

    I do believe that Scrooie Louie is dumber and more crooked than Donna Chiwawa. Both shot be shot for corruption. Has the idiot ever considered cutting all benefits 100% and pay 50 % to all Public sector employees past and present.

  • John

    Nothing to worry about here.

  • dr meno

    WHAT CR’s version of QE. NOOOO, that is what is causing the collapse of the dollar in the USA. Oscar and Laura sold the country, NOW Luis is closing the deal. CR needs to put the central bankers in jail.

    • http://adullroar.blogspot.com/ A Dull Roar

      Collapse of the dollar? Whatcha smokin’? Can you share? http://www.macrotrends.net/1329/us-dollar-index-historical-chart

      • dr meno

        I do believe you are believing a published report from the illegal Federal Reserve. Al l they are are loan sharks. They are the authors of the financial collapse. How can that report justify the unlimited printing of the dollar?

      • Karen Mata

        Concerning the unemployment number. Over 94 million are not counted the labor force while another 7 million are counted as unemployed.
        The accounting methodology has been changed significantly over the decades.
        John Williams, Dartmouth MBA, and economist, publisher of shadow stats, which reveals a truer picture of US unemployment. His true alternate unemployment rate is north of 20%.

        Forbes seems to verify that with a 2014 story, ¨We´ve Crossed The Tipping Point. Most Americans Now Receiving Government Benefits.¨ Having over 50% of the population on government benefits with a 5% unemployment rate defies logic, no?

        Concerning the strength of the dollar, former US¨Comptroller, Dave Walker recently stated that US debt is nearly quadruple the official number of 18 trillion.

        Why do you think the US has had interest rates pegged near zero over the past seven years? (this is something historical in itself with no precedent) Could it be that the US can no longer pay the interest on bonds at higher rates?

        You might also google, wsj,”Once a big buyer China starts dumping US government debt.”

        Finally, let history be your guide as we are in uncharted waters. The past 44 years all world currencies have been fiat currencies backed by nothing but good faith. History tells us that fiat currencies have ALWAYS over time fallen to their intrinsic value, that being zero.

        For further reading, google, ¨Gold Silver and Oil, Credibility Collateral, and Confidence in a World of Fiat Currencies¨ Bill Holter

        Facts, no personal attacks.

      • Karen Mata

        To specifically address the US dollar index, yes it has spiked recently. It also spiked just prior to the 2007-08 crash which saw the demise of Lehman Bros.

        This spike up indicates a rush to purchase US dollars to settle derivative contracts, and also a flight to safety as the dollar is viewed as the best horse in the glue factory.

      • Karen Mata

        All I´m getting are chirping crickets, Mr. Dull.

        And if you man up, please nothing hackneyed again. Something original..??

  • CostaRicaChris

    Getting a soft loan from China in any way will get the government off the hook of its debt problem…for now. Till the time comes when even the Chinese want repayment. All Solis needs to do is buy more booze for the legislators and they will likely approve this anyway.

  • randy berg

    Everyone in CR is ignoring the inevitable… just like in the States OR IN GREECE. with a small country like Costa Rica it truly is inevitable. Ignore the problems and they will go away.

    • http://adullroar.blogspot.com/ A Dull Roar

      Really need to get off the Faux News channel Randy if you think the economic situations of US and Greece are somehow similar. Lucky for the U.S. they elected Obama. Did you see the jobs numbers today by any chance?

      • mhogan

        You actually believe the numbers put out by the government …. jajajajajaja

  • zzzzz

    In what denomination are they selling them for? Yuan? that would be cool.
    But whatever, they are not printing money, they are borrowing money.
    Printing money would be the government buying it’s own debt or some worthless corporate bonds or nonperforming bank loans.
    This is a straight up loan, totally different.
    I assume they will probably yield between 5-7% and in good time if the colones devalues, be a really super good deal for the country. And this in exchange for allowing China good treatment.
    As John said so eloquently, nothing to worry about.
    In fact it is stimulative and will finance public debt (that is a good thing). Lets just hope not too much crack and hookers

    • http://insidecostarica.com/ Timothy Williams

      I am quite certain that those CRC bonds are intended to be purchased in US dollars (though Chinese-owned US dollars of course).

      I don’t mean to put words into “John’s” mouth but my initial impression would be that “John” was being sarcastic. I could be completely wrong, but… selling colones for debt to a third-party country in the currency of yet another country (the US) sounds like a bad idea. CR isn’t selling colones for Yuan, they need dollars to pay interest on their dollar denominated loans that they are only paying interest on as we speak.

      • zzzzz

        Actually Yuans wouldn’t be all that crazy. There is a lot that comes from China here.
        I don’t know about you but i could spend the whole thing on stuff from China in as little as a week.
        That money exchanged to buy those bonds actually doesn’t have to go to servicing the debt if other moneys can be funneled for that purpose. Henceforth this could even direct more commerce with China.
        I don’t know the ratios here but banks often use as little as 15% capital to lever loans and that could go to mortgages or some infrastructure.
        At this moment, China is bending over backward to get into the IMF’s SDR, that’s the IMF basket of reserve currencies.
        The government’s budget is $5B or so, and that extra $1B in their pocket in whatever form whether a basket of currencies or something creative, it will be paid back in Colones since the bonds are denominated in colones.
        ” selling colones for debt to a third-party country in the currency of yet another country (the US) sounds like a bad idea”

        If they are selling colones bonds then it is colones not a foreign currency!
        How can you see anything wrong in that?
        The Chinese will buy Colones bonds with colones not the initial currency they exchanged to buy those bonds. Not a problem unless they are convertible when ever they want.
        I would doubt that.
        China might also invest some of the returns from those bonds in this country, no?

  • Ken Morris

    An interesting instance in which the president seems to have a lot of power. The power to put the country into (more) debt is a pretty big “power of the purse.”

    My strong leaning is against the deal–and not necessarily because it puts the country deeper into debt or makes it more beholden to China.

    My opposition is rather based upon the apparent fact that Solís is covering for a “do nothing” legislature. He knows–and we know–that the legislature should pass a comprehensive fiscal reform bill. It doesn’t matter whether it is the one Solís proposed, a modification of it, or another plan altogether. It must pass something. However, Solís knows that the legislature doesn’t have the guts to pass a comprehensive fiscal reform bill, but instead of holding its feet to the fire with the threat of immediate fiscal collapse if it doesn’t act, Solís is bailing out the spineless legislature with another loan.

    It’s all a bit like a father who scolds a child for a poor report card, and then after kid cries, takes him out for pizza and buys him a new video game on a credit card anyway. The father becomes an enabler of failure, which is what Solís is becoming with this loan deal.

    Again, the deal itself may or may not be bad, but it’s only not bad if it’s a piece of a comprehensive fiscal reform package. Since it isn’t, I’m afraid it’s a bad deal–and if he makes it, Solís will become an enabler of failure.

    • gc

      yeah, because increasing taxes always works …fiscal reform….. snort. what a hoot,.

    • zzzzz

      credit is a good thing. period. without it, people would still be plowing their fields with a spoon
      how we use it and government waste is the question

  • mhogan

    I say: let China own Costa Rica. Don’t think they can do any worse running the Country and I think they’ll do a whole lot better. Ticos might object, however, to being productive and following “rules”.

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