New $379 million-plus loan to address the pandemic

Published Thursday, May 14, 2020

New $379 million-plus loan
to address the pandemic

By the A.M. Costa Rica staff

A new loan for $379,546,970 that is in the process of analysis in Congress, could be used to address the economic crisis caused by covid-19 in the country, the government announced on Wednesday.

Deputies of the Congress can approve or reject the loans presented by the government.

According to the government announcement through the Presidential House, the loans were offered by two international banks. The Inter-American Development Bank, IDB, offered $230 million and about $149.5 million was offered by the French Development Agency, or AFD for its French initials.

The loans offered on favorable terms will be used to finance the Protect Plan, the government said. The repayment term of 20 years and a grace period of 5.5 years. The IDB interest rate is 3-month LIBOR plus 0.92%, and the AFD interest rate is 6-month Euribor plus a 1.3% margin.

As part of the Proteger Plan, it is the so-called “Bono Proteger” which is a monetary aid for people affected at their place of employment by the suspension of commercial operations imposed by the government since March, as part of the precautionary measures to contain the expansion of covid-19.

The new loans were offered because, between 2019 and the first quarter of 2020, the government executed 13 public policy reforms that are on the road to a "more efficient, clean and environment-friendly economy," the government said in its statement.

This strategy of accessing loans in exchange for improvements in public policies is known as the Policy-Based-Program. In the case of Costa Rica, banks are acknowledging progress with the implementation of the Decarbonization Plan, the government said.

If the two loans are approved in Congress, the money will be part of the budget that the government will allocate to deal with the covid-19 crisis.

"Being a budget support loan, its funds go to strengthen the government's finances with no specific use for the funds," the government said in its statement. "The ministry in charge of managing the resources will be the Ministry of Finance."

According to the government, there is also the open door to negotiate a second loan in a few years if the country continues with the Decarbonization Plan.

The advances in the Decarbonization Plan, according to the government, are:

- 13 goals of the National Electric Transportation Plan have been met.

- A rate was approved for electric vehicle charging stations.

- And the implementation of the National System of Climate Change Metrics.

"Our Decarbonization Plan and these 13 completed reforms have demonstrated to these key partners, the IDB and the AFD, that Costa Rica is on the road to a modern, low-emission and competitive economy," said President Carlos Alvarado on the announcement of loans. "That makes us attractive partners to receive money in good conditions."

According to Alvarado, banks want the same as Costa Ricans: clean cities, modern and electrified transportation, climate-smart competitive agriculture integrated into landscapes that reduce carbon emissions, and clear information on progress.

"These actions may achieve a reactivation, after the health crisis, that puts the people's well-being first and addresses the climate crisis," he added.

These resources contribute to satisfying the government's financing needs in 2020, "which ensures the possibility for the government to honor all its obligations to families, companies and institutions while paying its debts," said Rodrigo Chavez, Minister of Finance.

This is the second government loan announcement this month.

On May 4, the government presented to Congress, for its approval or rejection, a $550 million loan contract with the Central American Bank for Economic Integration, CABEI, to finance the construction of the infrastructure for the first electric train in the country.

The loan is for a 25-year term, with no commitment fee, a 5-year grace period, and a counterpart for $1 billion of foreign investment as it is a concession project.

The concession is a legal figure that allows the government to contract private companies to develop infrastructure, health, and education projects, among others.

According to President Alvarado, "this (referring to the electric train) and the other infrastructure projects will be essential and irreplaceable for the recovery and employment that our country needs."

According to the government, the train infrastructure construction and maintenance project will generate about 2,670 jobs. The train has been budgeted at more than $1.5 billion. Part of this budget is the $550 million loan that is pending approval by the deputies.

However, in a statement provided by the bank in November, "the project's investment in infrastructure and equipment represents $1.3 billion."

The loan, if approved, will be used to build the required infrastructure of the train terminal.

The loan has an indicative annual interest rate of 4.95 percent.

"Due to the positive impacts of this operation, the bank is making significant efforts with other sources of cooperation to maximize these conditions with the expectation of extending the term to up to 40 years and lowering the annual interest rate to 1.55 percent," said CABEI in its statement.

On Wednesday, Congress did not announce the decision on the electric train loan yet.

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