Category: Central America

Pantaleon, a Guatemalan sugar producer and among the largest of its kind in Central America, is in the process of raising $90m in various credit facilities to finance its expansion as sugar prices climb, say executives familiar with the process. The company is heard to have clinched a $20m 2-year secured export facility directly with Deutsche Bank. The loan, which is collateralized by sugar export contracts, is heard paying north of 300bp over Libor. Another 2-part A/B facility led by the IFC is also rumored in the works. A $35m 12-year A loan is pays close to 550bp over Libor, while a $35m B loan being considered by other multilaterals is heard offering around 500bp over, notes an executive close to Pantaleon.

The IMF expects Guatemala’s current account deficit to shrink to 1.6% of GDP in 2009 from 4.8% of GDP in 2008. The fund says the reduction comes as a decrease in imports offsets the fall in exports, tourism receipts, and remittances. JPMorgan forecasts suggest remittances to Guatemala should slide to about $4.1bn in 2009 from around $4.3bn in 2008. The IMF also says that as a result of reduced tax revenue, imports and increased public capital spending, the fiscal deficit of the central government could reach 3.4% of GDP in 2009 and drop to 3.0% of GDP in 2010. Also, the deficit of the consolidated public sector will reach 3.0% of GDP in 2009, and 2.6% of GDP in 2010, says JPM. The IMF notes that the Guatemalan authorities have reiterated their intention to continue treating the $935m stand-by arrangement announced in April as precautionary.

The World Bank has approved a $350m loan to Guatemala to help the country improve its fiscal and institutional policies and mitigate the impact of global crisis. The loan has a maturity period of 26.5 years, including a grace period of 8.5 years. JPMorgan says it sees little downside risk for Guatemala in getting the loan, as the country has relatively low public debt levels, which stand at about 18.1% of 2008 GDP.

The IMF has approved a $935m stand-by agreement for Guatemala, equivalent to 300% of quota. The Guatemalan authorities intend to treat the arrangement as precautionary, meaning that they do not intend to draw on the fund’s resources unless the need arises, the fund says. “The authorities’ fiscal program aims to provide some stimulus to the economy and protect the most vulnerable segment of the population,” says IMF deputy MD Murilo Portugal. The 2009 budget envisages higher spending on labor-intensive public infrastructure projects and a strengthening of the social safety net. “This countercyclical fiscal policy is possible given the low level of public debt, resulting from prudent fiscal policies pursued in the past,” says Portugal. He adds that Guatemala’s banking system is not exposed to risky structured financial products and has consolidated in recent years. “The authorities are nonetheless taking measures to safeguard the liquidity and capital positions of banks through adequate liquidity-provision arrangements by the central bank and a gradual increase in provisioning requirements . . . the government plans to further strengthen financial sector policies by enhancing supervision and regulation and strengthening the framework for bank resolution,” says Portugal.

Nicaragua has received interest from Russian private sector companies in developing a canal, Nicaraguan finance minister Alberto Guevara tells LatinFinance. “We continue with the plan of building a canal. Russia has recently presented the possibility of getting involved strategically,” says Guevara. The minister adds that interest is from private Russian companies and that the project is estimated to cost $20bn. Nicaragua has been discussing the venture for many years. The idea is to build a canal large enough to handle post-Panamax ships of up to 250,000 tons. It was expected to take 12 years to build and use one of 6 possible routes through Lake Nicaragua, aimed at cutting transit time from New York to California. Guevara adds that timing remains unclear and declines to give a possible timeframe. Meanwhile, a $4.5bn refinery and petrochemicals project is underway with Venezuelan help and is expected to take 3-4 years to come to fruition, says Guevara. The minister also notes interest from Brazilian companies including Queiroz Galvao, in a $350m hydro project. Above all, the minister stresses the importance of attracting private foreign capital to exploiting Nicaragua’s potential in power, infrastructure and tourism. “We don’t want all of this development to come from the state, we want an integrated approach,” says Guevara. Nicaragua is looking to secure around $500m from multilaterals to help exploit natural resources in the long term. “Measures need to be taken immediately to help the most vulnerable countries, like Central America,” Guevara says. “$100m would help us survive,” the minister adds, asked what this year’s needs are. Nicaragua continues to get energy resources from Venezuela, via the Banco del ALBA, for social projects. The minister notes highly favorable terms on the aid, but also sees growing problems in Venezuela.

The IMF is extending an 18-month stand-by agreement for approximately $950m to Guatemala. The bank says that the arrangement is precautionary, as the country has no immediate balance of payments need, and that the program is part of a preventive strategy to strengthen Guatemala’s liquidity cushion in the face of an uncertain global environment. Under such stand-by agreements, the sovereign does not pay any interest until it draws on the facility. In early March, Costa Rica was also in talks with the IMF for a stand-by, but no agreement has been reached yet.

Guatemala is considering negotiating an IMF stand-by arrangement, according to JPMorgan, which cites the fund’s Central America representative Alfred Schipke. “An official IMF delegation is scheduled to travel to Guatemala City later this month to formalize the offer, which is already under consideration by the central bank,” says JPMorgan. “Given that Guatemala is facing no immediate balance of payment issues, the stand-by agreement would be treated as precautionary, part of an overall strategy to enhance market confidence in the government’s policies and to strengthen the country’s financial defenses in the midst of the global crisis,” it adds. The shop notes that while size is uncertain, Guatemala’s IMF quota stands just north of $300m and El Salvador recently inked a similar stand-by worth three times its quota. “We welcome the prospects of a precautionary stand-by for Guatemala at a time when access to international credit sources is severely constrained,” JPMorgan concludes.

Remittances to DomRep are expected to rise 5.0% in 2008 to almost $3.2bn. Remittances to Guatemala, meanwhile, are expected to increase slightly to $4.28bn in 2008 from $4.13bn in 2007, according to JPMorgan. The trend is expected to slow down in 2009, says the shop. Remittances to DomRep are expected to remain flat in 2009 and Guatemala’s should drop to $4.06bn, as the international financial crisis takes a toll on both countries.

Moody’s has cut the outlook on Guatemala’s ratings to stable from positive. The affected ratings are the Ba2 foreign currency rating, Ba1 country ceiling for foreign currency bonds and Ba3 country ceilings for foreign currency deposits. The cut reflects a relative worsening of Guatemala’s credit metrics compared to similarly rated countries, as well as the impact of the global crisis, which will make credit improvements more difficult. “Despite recent above-trend growth, Guatemala is growing slower than the median for Ba sovereigns; Guatemala is getting poorer and smaller compared to other Ba countries,” says Moody’s vice president Gabriel Torres. “Ten years ago Guatemala’s per capita GDP was 82% of Ba rated nations. Today that has dropped to 58% because of the lower relative growth,” he adds.

The Dominican Republic and Guatemala are seeing lower inflation rates, says JPMorgan. The DR’s monthly inflation dropped by 3.3% in November, taking the annual rate to 7.2%, down from 12.8% in October. “We expect positive base effects, lower commodity prices and a decline in domestic demand to ease consumer price pressures and help bring down headline inflation, which is already at its lowest point since October 2007, to around 6% by year-end and keep it between 6-7% in 2009,” the shop says. Guatemala, while not having seen inflation drop in 2008, should see it decline to 7.5% in 2009 from about 9.8% in 2008.