Legislature votes to float $4 billion in new bonds

Lawmakers Tuesday approved on first reading a measure that will allow the executive branch to float $1 billion a year in bonds on the international market. The total amount was set at $4 billion.

The measure gives wide discretion to the executive branch on how to spend the money. The cash may be used to reduce the internal debt.

According to the measure that needs one more approval, the interest rate would be keyed to U.S. Treasury bonds for the same period of time but could be higher.

The loan period could be from five to 30 years.

The national budget is about 50 percent borrowed money now, and the debt service on the bonds are likely to increase debt costs in future budgets.

The vote Tuesday came as a result of an agreement among members of the political parties represented in the legislature. Casa Presidencial praised the
vote, saying that the bonds would improve the financial situation of the country.

Right now, the central government lacks funds to accomplish projects.

However, there is a downside. Some observers fear that the influx of dollars into the country will affect negatively the value of the U.S. dollar against the colon. However, the impact would be so complex that the results are hard to determine. The first influx of money probably will be at the end of the year if the bonds are sold successfully on the international market.

Brokers typically take a percentage of the proceeds for their services, so the first major expenditure will be for this purpose. The bill does not cap the brokerage fees and gives the Ministerio wide discretion to float the bonds.

The current U.S. Treasury interest rate on 30-year bonds is 2.5 percent. So the government’s idea is to pay off higher interest rate instruments with the lower yielding new bond issues.

This entry was posted in Costa Rica News. Bookmark the permalink.