Costa Rica Seeks $500 Million Bond Sale in Wake of Tax Vote

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    Costa Rica will seek to sell at least $500 million in bonds abroad this year to help sustain economic growth and improve the Central American nation’s infrastructure, Finance Minister Fernando Herrero said.

    Costa Rica joined Trinidad & Tobago and Bolivia in announcing plans to sell benchmark dollar bonds amid near-record low borrowing costs in the world’s largest economies. Costa Rica’s bonds would probably be 10-year notes, Herrero said, without commenting on a target yield for the securities.

    “This will allow us to take advantage of global market conditions with very low interest rates,” Herrero, 59, said in an interview yesterday in Montevideo, Uruguay, where he is attending the annual meetings of the Inter-American Development Bank. “Costa Rica is in a very good position.”

    President Laura Chinchilla’s government is requesting congressional approval for the debt sale after winning initial support in the legislature this month for the first significant overhaul of the nation’s tax laws since 1995, Herrero said.

    The yield on Costa Rica’s dollar bonds due in 2020 rose five basis points, or 0.05 percentage point, to 4.9 percent at of 12:38 p.m. New York time, according to data compiled by Bloomberg. Costa Rica’s colon was little changed at 505.95 per dollar after rising 0.1 percent last year.

    The country has a BB+ rating from Standard & Poor’s, one level below investment grade, putting the $40 billion economy in the same category as Indonesia and Romania.

    Costa Rica’s economy will grow 4 percent to 4.5 percent this year, Herrero said. The country will release its fourth quarter 2011 report on gross domestic product on March 30.

    Tax Overhaul

    Changes to the country’s tax laws that could bring the government an additional $650 million in annual revenue passed a first-round Congressional vote and await a review by the Supreme Court before being sent back to Congress for final approval. Herrero said the overhaul could be approved within 30 days or may extend for months, depending on the high court’s decision.

    Approval would help Chinchilla’s government reduce its deficit to 3.3 percent of gross domestic product from about 5 percent, Herrero said.

    “That would be a manageable level,” said Herrero, who studied economics at the Universidad de Costa Rica and New York University.

    As an alternative to the bond sale, the government also has the option of voluntarily swapping about $500 million in global bonds due in 2013 and 2014 for longer-term securities, Herrero said.

    From Bloomberg Businessweek

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