Following on from looking at mortgage financing recently, and noting the impact that higher lending rates have on affordability, developing capital markets is clearly essential in reducing funding rates and also to allow for effective risk management. Securitization is widely used in developed markets, however in Central America the track record of this mechanism is not as well established, despite gaining gradual traction and to date with infrastructure related projects and other receivables – to date, El Salvador has been an interesting player in the region’s securitization markets.

Several aspects of the effect of securitization are important in changing the balance on risk management, not only does this allow groups to manage receivables risk but also provides an investable asset class for insurance agencies and pension funds. Banks can effectively lower their regulatory minimum capital requirements and free up capital to expand operations, reduce dollarization and generate a multiplier effect via initially reducing the cost of and thus improving access to credit.

As the take up of insurance products and pension funds grow – deepening the investment universe and capital markets play an important role in providing liquidity and suitable investment products. Securitization can also play an important role within the banking system by issuing local currency debt, allowing for the dilution of dollar denominated liabilities on an issuer’s balance sheet and inherently reducing currency risk.

A quick recap on how securitization works, courtesy of the IMF – this however assumes that all SPV legal framework exists and that issuers are able to transfer assets, the framework for this often does not exist in emerging markets:


An interesting characteristic of Latin American securistation is the focus on diversified payment rights (DPRs) and remittances. During the mid 2000s, DPRs such as MT-100s and MT-200s, which are SWIFT-based wire payments of hard currency to banks in emerging markets, surpassed export-based securitizations to become the dominant asset class being securitized in Latin America. In Central America specifically, there is also the high level of remittances and specific securitization framework focused on this sector, which offers a unique opportunity for banks in the region to reduce funding costs and ideally free up balance sheets for further lending. The fairly recent introduction of covered bonds also offers another angle for banks to securitize mortgages, although to date issuance has been limited since the region’s first in 2012.

Northern Triangle framework

In 2010, the US government signed MOUs with presidents of Honduras and El Salvador to facilitate securitization of remittance flows under the Building Remittance Investment for Development Growth and Entrepreneurship (BRIDGE) Initiative. The goal of this was to allow banks to use securitised remittance flows to reduce funding costs and create funding for more productive purposes such as infrastructure investment – in El Salvador there have also been moves to encourage private investment similar to those in Chile and Colombia regarding investor security and rights, as well as incentives.

El Salvador has been one of the more active players in securitizing remittances, raising USD650m between 1998 and 2004 from future remittance flows as well as other DPR such as export revenue and FDI. Typically remittance issuances are rated higher than the issuing bank and potentially higher than the sovereign credit, given the dollarized nature of the cash flows which mitigate currency risk. There is ample scope for growth of securitization, especially given that the two main Salvadoran pension funds have USD6 billion in assets under management, which can potentially also allocate to fund the nation’s securitised issuances.

Following the country’s Securitization Act 2008 – several innovative securitizations were launched, including:

El Salvador has also featured in cross border transactions, with financial structuring proven most innovative for the region in Panama – as an alternative to securitization, Panama’s Global Bank issued Latin America’s first cross border covered bond in 2012, using the same contractual law used in typical securitizations. The five year USD300m issuance was upsized from the initial USD200m, and was backed by US dollar mortgages originated in Panama. Global Bank’s issuance obtained cheaper funding than it would otherwise have achieved through a vanilla unsecured issue, and it also obtained a higher credit rating than the issuer (BBB- vs issuer BB+). Panama’s fairly inactive, yet sophisticated RMBS market witnessed some activity in 2013 after 2 years of no placements, with a RMBS transaction for USD45m, with the underlying collateral comprising residential mortgage loans in El Salvador. Most securitizations have been locally placed, with just a few cross-border transactions.

Guatemalan and Costa Rican securitizations continue to mainly be DPR and merchant voucher future flow securitizations as local banks leverage USD flows to access favourable funding from international markets, although transactions are limited in Guatemala owing to inadequate legal framework.

And so…

Whilst capital markets in the region remain underdeveloped and less able to appropriately manage risk, funding costs continue to be elevated, undermining investment capacity on behalf of public and private institutions. El Salvador has demonstrated interesting securitized transactions in recent years, and as these gain momentum, the ability of banks and other groups to free up capital and obtain better funding rates should have a multiplicative effect on consumption and infrastructure investment. Going back to the original theme of housing finance, the ability of banks to securitize mortgages will undoubtedly reduce funding costs which can eventually be passed on to borrowers, assisting in the affordability equation. That said, regulatory change rarely happens with any haste, let alone effective change…



Following extensive reading of research on the affordable housing sector in emerging markets and the availability of mortgage financing in the region – despite the chronic need for quality affordable housing in the region, the research to date is scarce… let alone a scalable, suitable and effective initiative. This is a complex area for research in bringing together policy, private sector funding, real estate market dynamics, town planning and suitable financing, and as a backdrop, developing the suitable legal framework from a capital markets, property rights and infrastructure perspective to facilitate the necessary investment.

Acknowledging the depth and multidisciplinary nature of addressing the affordable housing sector in Central America – a basic analysis on the feasibility of commercial mortgage financing is undertaken with reference to commercially available financing and income distribution.

“Cities are built the way they are financed” — B. Renaud

Access to credit and issues around the notion of financial inclusion in emerging markets are often cited as impediments to development among bottom of the pyramid populations. Despite the sheer number of this population, the formal financial sector has been unable to adequately make an impact in addressing this customer segment through suitable product design and associated education.

As discussed in an earlier post, bankarisation rates in Central America are low – 36.7% in Guatemala, 45.2% in Honduras and 40.4% in El Salvador (Financial Access Survey, IMF – 2013). In this post – the relationship between bankarisation and insurance was analysed, and per the findings of Badev, Beck, Vado and Walley (2014) there is a strong correlation between the development of insurance and equities markets and mortgage market development, as opposed to a strong relationship with government subsidies.

Looking at the feasibility of existing mortgage funding on a purely statistical basis given the income distribution by quintile also reveals some interesting affordability (rather, lack thereof) analysis. Data has been sourced from the World Bank World Development Indicators database on income distribution and population metrics, with monetary amounts denominated in USD across all countries. In deriving the per capita monetary amounts, an adjustment on the denominator (population) has been made to only include the population aged between 15-64 years, assuming 100% of the population in this age bracket rather than adjusting again for employment and participation rates. To get a sense of a per day income, the data is then provided on a ‘per day’ basis.



The disparity between first and fifth quintiles is huge – the top 20% earns a whopping 23.5x more than the bottom 20% in Honduras, 14.8x in Guatemala and 8.8x in El Salvador.

However, income inequality is not the focus of this post albeit worthy of future analysis. It does, however, dictate affordability of many things including mortgage financing (and access thereto).

In determining the ability of each quintile to fund a mortgage, data on lending rates has been collected from the IMF database in the case of Honduras and Guatemala, and the Central Bank of El Salvador in the case of El Salvador. Note that El Salvador is a dollarized monetary system and accordingly imputes USD monetary policy – Honduran and Guatemalan lending rates reflect local currency denominated lending. In the region, mortgages are typically granted for a period of 15 years. Whilst these data points were fairly straightforward to collect – data on average house prices was difficult, particularly sourcing specific affordable housing prices; furthermore regional pricing would further undermine relevance of any ‘average pricing’ used in the analysis. Noting that whilst construction and labour costs in the region are relatively low, land prices vary significantly between regions and the added cost of servicing land (water, utilities) is elevated in remote areas, which is typically imputed into housing prices. With this in mind, a ‘guesstimate’ figure of USD10,000 for an ‘affordable house’ has been used in the analysis on mortgage affordability across the income quintiles.

Across all three countries, the average house price of USD10,000 has been used, with an LTV of 80% and therefore a mortgage amount of USD8,000; typically, ‘safe lending’ policies focus on mortgage repayments not exceeding 40% of gross income. Based on a 15 year mortgage with monthly payments, the analysis is as follows – with red indicating that mortgage funding costs exceed this 40% ‘safe lending’ range:


Accordingly – without regard to regional differences, subsidies, household formation, bankarization and other distortions in the funding and residential real estate markets, on a purely mathematical basis, a large proportion of the population in the region is not positioned to access mortgage funding to acquire their own residence, and are therefore subject to fluctuations in the rental market and potentially substandard accommodation given landlord reluctance to invest in upgrades. Whilst these conditions persist mortgage penetration will remain low as only the top percentage of the population will be able to access financing – current mortgage penetration in Guatemala and El Salvador is estimated at only 1.3% and 2.4% respectively.

In developed mortgage markets, typically longer duration mortgages improve affordability. However as noted in of Badev, Beck, Vado and Walley (2014), in emerging markets, given elevated funding costs, longer duration does not have a meaningful impact on reducing repayments and thus improving affordability.

And so…

The more pronounced the income inequality, the more pronounced the inequality of opportunity – this is particularly pronounced in access to financial services and even more so in housing which is targeted towards lower income populations, yet still out of reach. With the development of capital markets comes an improved access to financial services to support consumption, albeit in the region this is of course yet to be initiated in a meaningful way on a meaningful scale…

Postscript – this research has been inspired by the paper : Housing Finance Across Countries: New data and analysis, January 2014, World Bank Policy Research Working Paper 6756 


Two key concerns dominate Central America’s banking sector this year – dollarization and consumer lending. The two themes are interlinked – given any significant erosion in capital base, the banking sector’s ability to support the demand for consumer loans may be compromised.

Across the region, the stronger US dollar has also spawned some concerns and widely varied trends within financial products. However, given the generally conservative nature of banks in the region, combined with relatively healthy capitalisation levels, this anticipated USD strength will be unlikely to result in any acute shocks to the overall financial system. An additional consideration is that higher levels of dollarization undermine local central bankers’ ability to implement effective monetary policy, given this is imputed via higher levels of USD within a country’s banking system.

Against the backdrop of lower near-term expected inflation following reduced fuel costs, there is support for further growth in consumption in Central America. Increased use of consumer loans has underpinned this trend, with credit card usage continuing to post solid growth, albeit the market offers consumers few options given the few dominant players.


The strengthening momentum surrounding the US economic recovery has fuelled further concerns over the level of dollarization in the region’s banking system. Some of this risk is mitigated via self-correction in lower levels of USD denominated loans being issued, with support from regulatory bodies, such as initiatives undertaken in Costa Rica.

In Costa Rica, regulatory bodies have gone one step further, introducing a managed floating rate to replace the currency exchange band. However, regulators are also reviewing policy to impose a higher interest rate to USD-denominated loans to ensure CRC-denominated lending remains competitive, avoiding redenomination issues undermining capitalisation should the dollar continue its upward trajectory. The central bank’s measures also include a possible 15% mandatory cash reserve requirement on medium- and long-term foreign currency funding. In 2014, the SUGEF implemented additional liquidity and capital requirements for foreign-currency assets and more conservative origination standards for loans to non-foreign currency generators. These moves by local regulatory bodies are driven by the fact that Costa Rica is at a particularly high risk of the rising USD given it is one of the most highly dollarized in Latin America, with 47.6% of assets and 50.5% of liabilities dollar denominated as of year-end 2014.

Although dollarization does pose a risk in Honduras, to some degree the risk of rising USD-denominated obligations in the system has self corrected. Given the ongoing devaluation of the Lempira since 2011, the level of USD denominated loans has declined markedly, whilst dollarized deposits in the Honduran banking system have posted significant increases. According to data from the Central Bank of Honduras, the dollarization index for deposits posted an increase of 14.2% over the past two years to January 2015, whilst USD denominated lending plunged -28.8% over the same period. The trend in dollarization has been more pronounced over the past two years in line with the US economic recovery – based on indexed data based at December 2012, as the HNL has devalued against the USD, growth in USD-denominated deposits demonstrate a 0.8 correlation coefficient, with USD-denominated loans demonstrating a -0.8 correlation coefficient. These trends are demonstrated graphically below.


Figure 1. USD-denominated loans and deposits, indexed USDHNL exchange rate (data source: Banco Central de Honduras)


Figure 2. Indexed USD-denominated loans and deposits, indexed USDHNL exchange rate: base December 2012 (data source: Banco Central de Honduras)

The level of USD-denominated liabilities in the Guatemalan banking system is fairly low at 8.1% as at January 2015, with USD denominated assets representing 67.5% of all banking system assets. According to statistics from the Central Bank of Guatemala, the percentage of dollarized deposits has remained fairly stable since December 2009 (high 60s), although USD denominated loans have ranged from 8-12% of total outstanding loans. Legislation recognising the USD as legal tender was only introduced in 2001 in an attempt to attract foreign capital to mitigate risks relating to local currency fluctuations. Given that the GTQ has not experienced periods of hyperinflation or other devaluation, the penetration of USD in the economy remains relatively low in comparison to neighbouring countries.

El Salvador moved towards establishing the USD as the official currency from 2001, replacing the currency peg used previously. Whilst this alleviates issues associated with having multiple currencies within the country’s banking system, there is no scope for establishing monetary policy suitable for the local economy. From a banking sector perspective in El Salvador, the key risk is the acceleration of the US economy versus the local economy, and a lack of fiscal stimulus or other regulatory credit loosening mechanisms to stimulate growth in line with the USD imputed monetary policy.


Across the region, there has been a solid increase in consumer credit over a very short timeframe, underpinning the growth in consumer spending in the absence of real wage growth. Key takeaways from central bank data and news sources indicate the following findings:

Given access to credit issues in the region, combined with the percentage share of consumption dominated by the wealthiest 10% of each country, the increased level of credit card spending suggests a higher level of consumption inequality. Furthermore, increasing household debt in the absence of commensurate growth in household income could bode poorly for longer term consumer lending, particularly should any severe economic shocks occur in Central America. The rampant increased use in credit cards needs to be accompanied by regulation and education to avoid incurring unsustainable levels of household debt.

[1] “Hemos nacido sólo para consumir y consumir y cuando no podemos, cargamos con la frustración, la pobreza y hasta la automarginación y autoexclusión.” (“We are born only to consume and to consume when we cannot, we are burdened with frustration and poverty to the point of self-marginalisation and self-exclusion”), Jose Mujica, ex-President of Uruguay


Emerging markets offer huge growth potential for insurers given underserved populations, combined with the desire to improve financial security and mitigate financial risk – which is crucial in the development of businesses and entrepreneurship. The insurance sector in Central America posted significant growth between June 2013 and June 2014, reporting 10.3% growth, with full year 2014 growth expected to be 5%. According to the Daily Latin American Insurance Bulletin (Boletín Diario de Seguros América Latina ‘BDSAL’), income from insurance premiums for the 140 insurers in Central America and the Dominican Republic total USD2.6bn, an increase of USD104m on the prior year. In the region, growth has been managed prudently, and ongoing strengthening in underwriting conditions, ample reinsurance protection and liquidity ensures the sector remains resilient and able to access funding to underwrite future growth.

According to Fitch, Central America will remain as the seventh largest insurance market in Latin America. Its credit profile remains solid compared to other insurance markets in the region, and nominal growth in premiums is an estimated 10.2% in 2014 and 9.5% in 2015, lower than 11% in 2013. On a regional level, Panama is the largest aggregate insurance market, underpinned by trade – excluding Panama, Costa Rica will remain as the largest market of the region (40% of total premiums written and 2% of the country’s GDP), while Nicaragua will remain as the fastest growing market in the region.

Growth in the insurance industry is typically associated with wider economic growth and increased bankarization –  even though Guatemala has one of the lower levels of bankarization in the region, 10% growth for the sector is expected in 2015.


A high level overview of regional insurance shows some key numbers and rankings by premium income. Whilst medical, life and car insurance account for the bulk of insurance products, given increased investment in the region and its susceptibility to natural disasters, there has also been increased uptake in related products.  Increased take up of life insurance products also represents a trend towards improved household savings.

150225.Insurance_premiums_figure1 Figure 1. Overview of regional insurers (source: Prensa Libre, 9 December 2015

Insurers attempting to expand into the region, combined with an improving economic outlook and a well capitalised sector, helped fuel modest M&A activity in 2014. By virtue of its size, Panama was the focus of M&A – Optima Compania de Seguros was purchased by Capital One in September 2014 for USD20 million, Marsh acquired a majority interest in SEMUSA and Panamanian based Venezuelan Seguros BBA expanded further into Panama following the acquisition of several subsidiaries in the region.

Growing investment in Panama has stimulated demand for insurance products, and similarly, El Salvador is expected to witness increased demand for insurance products on the back of improved offshore investment, particularly driven by investment in roads (+29.6% YoY to 3Q2014 per Reserve Bank of El Salvador).  Costa Rica ranks as the second biggest insurance market, and was deregulated in 2008, albeit the government affiliated insurer still ranks as the largest insurer with a market share of 84%. This market is expected to expand 135% over the next six years and post the highest premium growth in Central America, reaching USD2.77bn in premiums by 2020 according to local daily El Financiero, citing a study by analyst Enrique López Peña. Due to a lower dependency on the reinsurance sector than other markets, Costa Rica’s insurance industry is better positioned to retain more risk and generate greater reserves, investment and profits.


There is a plethora of financial access statistics available – and as much debate over which are the best proxies for bankarization. This is a complex issue and in the interests of simplicity, the proxy for bankarization is the aggregate outstanding deposits with commercial banks as percent of GDP (i.e. retail and business deposits), sourced from IMF statistics. The IMF statistics for the region are shown as follows:


Figure 2. Bankarization indicator – Outstanding deposits with commercial banks as percent of GDP (source: Financial Access Survey, IMF)

Interestingly – all economies except for Panama and El Salvador show an increasing level of bankarization as a percentage of GDP. Arguably, Panama’s strong economic turnaround during the decade has meant that the level of deposits has declined on a relative basis, with funds being deployed into investment activities and the wider economy. On average, El Salvador’s potential economic growth is estimated at 2% for the period 1999–2015, compared with an average of about 4% in the region, excluding Panama – combined with a high level of employment in the informal economy (estimated at 66.7%) and comparatively low investment rates, the level of deposits as a percentage of GDP has declined over time.

Gross premiums data have been sourced where available from individual country banking and insurance supervisory bodies, all expressed in base currency – to alleviate distortions from assumptions on currency conversion into a common base currency, growth in premiums has been indexed. Data for Honduras has not been included due to sourcing difficulties.


Figure 3. Growth in insurance premiums, indexed (source: Supervisory bodies, respective countries)

Growth for all markets from 1998-2013 (except for El Salvador), indexed – showing Nicaragua as the fastest growing market, albeit small and off a low base.


Figure 4. Growth in insurance premiums, indexed (source: Supervisory bodies, respective countries)

Based on all available data for each country, growth in premiums is correlated to the level of bankarization as shown:


Figure 5. Correlation matrix – premiums and bankarization (source: Supervisory bodies, respective countries and IMF)


The above matrix indicates a high correlation between countries with increasing bankarization levels and growth in insurance premiums – this implies that with a growing formal economy, and with improved access to financial services there is also significant organic growth in the insurance industry.


 The outlook for Central American insurance is fairly positive albeit each market is growing at very different rates, reflecting wider economic growth and the gradual integration of populations into the formal economy and banking systems.

With innovation around product offerings to attract lower income communities into the wider financial system, micro insurance in particular is expected to be a growth avenue – and improved investment and trade activity will only provide more solid foundations for these trends…


The fall in the  global oil price in recent months has had a dramatic impact on energy pricing. Whilst the near term cost benefits are being felt globally by consumers, energy efficiency from both a demand and supply side is of pivotal importance in ensuring long term energy security and access, and also in mitigating climate change. The need to address energy efficiency is highlighted by the fact that approximately 34 million people in Latin America and the Caribbean (LAC) still lack access to electricity. In order to meet rapidly growing electricity demand, LAC will need to double its installed power capacity by 2030. According to a recent Inter American Development Bank (IDB) report, the region had a population of 590 million, with an electrification rate of 88% – overall, Central America has the highest number of countries at or below this rate, with a combined 8 million people in Honduras, Nicaragua, Guatemala, El Salvador, and Panama lacking access to electricity.

The importance of becoming self sufficient is exacerbated by the level of energy imports that currently support the (albeit inadequate) energy supply in Central America. This burden on national budgets due to expensive fuel imports will continue, causing a vicious cycle in further restricting public funding available to invest in modernising and expanding outdated grid infrastructure. According to the Climatescope 2014 report, Nicaragua has the second lowest percentage of the population in LAC with access to grid generated power at 76%, followed by Guatemala at 82%. Until this much-needed infrastructure upgrade is effectively implemented, the region remains constrained in its ability to effectively optimise and benefit from its diverse mix of renewable power generation with biomass, geothermal, wind and hydro resources.

So, how influential are fossil fuels as a component of energy consumption?

World Bank statistics show that the percentage of net energy imports in Central America has been increasing with the exception of Guatemala, which has fluctuated over the period due to a higher concentration of locally produced hydroelectricity and biomass energy within the country’s overall energy mix. This sector has been stimulated by tax incentives for renewable energy including exemptions on imported equipment and machinery during the construction phase, as well as a 10 year tax exemption on profits.[4] Guatemala also aims to establish an additional 1,770 MW of new electricity generation from renewable energy sources between 2014-2028. Arguably, the failure of Honduras’ publicly owned Empresa Nacional de Energia Electrica (‘ENEE’) has resulted in a higher reliance on imported electricity in an attempt to meet ever increasing demand. The influence of Nicaragua being positioned to access lower petroleum prices via the Bolivarian Alliance for the Peoples of Our America (‘ALBA’) block also explains the elevated level of fuel imports, primarily coming from Venezuela.


Figure 1: Net energy imports (% of energy use) source: World Bank database

A higher reliance on energy imports equates to a higher risk to energy security due to price fluctuations of underlying commodities as well as currency movements, and results in public funds being diverted from other areas. Furthermore, given the high incidence of poverty in Central America, the capacity of these groups to withstand higher prices (where there is energy access) is limited.

An additional consideration is the pressure volatile energy prices place on already negative balance of trade accounts in the region. Data has been difficult to obtain for Honduras and El Salvador, and so trends for Nicaragua and Guatemala have been detailed below in Figure 2. Interestingly, in the case of Guatemala, there is a fairly strong negative correlation coefficient of -0.6 from 1994 to 2011 between net energy imports as a percentage of energy use and petroleum net imports as a percentage of the country’s trade deficit (for Nicaragua the same correlation coefficient is a mild positive 0.4). This suggests as fossil fuels as a percentage of energy use decreases, the trade deficit in Guatemala increases – partially linked to a lower level of exports on a relative basis, which could suggest lower levels of production or lower value of exports. A similar coefficient of -0.7 for Guatemala is found between increased petroleum prices and fossil fuels as a percentage of energy consumption, which indicates a lower level of consumption of petroleum and related products as petroleum prices increase between 1998 and 2011 (data source: World Bank statistics).


Figure 2: Petroleum net imports as a percentage of aggregate trade deficits (sources: Banguat, Banco Central de Nicaragua)


And so – where to from here?

Policy driven initiatives including auctions and feed in tariffs have increased clean energy capacity in the region. In 2013, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama attracted a total of USD673m for new projects. Relative to the region’s installed capacity if 12.5GW, this represents a significant sum. Individual country policy initiatives are supported at a regional level via the regional power market (Mercado Electrico Regional – MER) which allows clean energy in one country to benefit another.

Meeting current energy demands is already challenging in the region, although against the backdrop of growing demand, ageing infrastructure and volatile petroleum pricing, the ability to address these through investment into renewable energy is of crucial importance. Given already stretched national budgets, this responsibility falls outside of public funding and effective policy initiatives are essential in ensuring the required infrastructure is established to underpin energy security. Assuming these initiatives gain traction and incentivise developers to establish this infrastructure, renewable energy has significant potential to enhance access to energy, improve economic production and reduce the reliance of the region on imported fossil fuel sources.


In light of the recent Plan of the Alliance for Prosperity in the Northern Triangle, there is a clear emphasis on improving the coverage and quality of multi-modal transport infrastructure (roads, ports, airports and railways), focusing on projects that strengthen regional integration. The policy also indicates that ‘Infrastructure upgrades will be complemented with improvements in the institutional framework, including an updating of the regulatory frameworks… the development of national transport and logistics policies…’.

While the status of Central America’s infrastructure was comparable to, if not higher than, East Asia’s in the 1970s, by 2010 the quality and quantity of East Asia’s infrastructure had surpassed Central America’s. Developments in infrastructure have contributed to East Asian’s growth in the last three decades – from 1970 to 2010, East Asian output grew 250% more than that of the Central America region.

An earlier post looked at government institutions that fund road infrastructure – given administrative complications and funding shortfalls, these institutions have had their effectiveness compromised. This post will look at infrastructure allocation of funds under government budgets, and external funding models. Ultimately, establishing effective framework for external investment is pivotal in underwriting a successful land transport plan, which has a multiplier effect for productivity and reduced input costs of goods and services.

Public monies for public roads…

Transparency of government budgets has resulted in significant research in itself to derive base data – whilst Guatemalan and El Salvadoran figures have been fairly transparent since 2010, Honduran data has proven to be more challenging. The Center for Global Development calls for infrastructure spending to increase to 4% of GDP, secured by both public and private investment – historically the Northern Triangle has fallen short of this target. Budgets remain under pressure due to numerous factors, including the significant proportion of budget funding directed towards debt servicing.

Up-to-date statistics on the percentage of paved roads in the region have also been difficult to locate with the last available World Bank data from 2011 – undermining initial ideas of reviewing correlations in government spending to gauge effectiveness of public funding. Nonetheless, sifting through ministry of finance sites for respective governments indicates a declining trend in infrastructure spending, both as a percentage of GDP and percentage of total budget – and well below the 4% as indicated by the Center for Global Development. The bulk of Guatemalan spending allocated to ‘transport’ relates to highway expenditure; El Salvadoran transparency in recent years provides for more detailed commentary of specific allocations within sector budgets.


Figure 1: El Salvadoran and Guatemalan public funding of road and Public Works initiatives (NB: Guatemalan budget awaiting approval for 2015)

Whilst transparent data for Honduras has proven difficult to locate, the regional trend in deteriorating allocations to infrastructure persists, with government funding for roads cut by 60% in recent years. Additionally, the bulk of funds allocated to roads are raised under fuel taxes which are among the highest in the region and are the third biggest source of tax revenues for the government (19.9-26.1%), which adds volatility to government revenue forecasts. Some 63% of the 2015 budget is forecast to be covered by tax collection from Hondurans, with the balance being sourced from debt and aid (thereby restricting future spending).

Partnering with the private sector

Laws facilitating public-private partnership (PPP) structures for infrastructure projects were passed in Honduras in 2010, and several smaller scale projects initiated under this structure to date. This has included road projects totalling USD95.6 million, and an additional USD500m dedicated to development of the sea port container terminal at Puerto Cortes. Of the USD95.6 million PPP road projects, the bulk of this (USD90.6 million) relates to the 392km long Goascoran Logistics Corridor, which runs from Villa San Antonio to Puerto Cortes. Concession for this project has been granted for 20 years from 2013, to a partnership formed by Ecuadorian Hidalgo e Hidalgo and Peruvian Construccion y Administracion. According to The Helios Corporation, the project is expected to add 1.1-1.2% to the Honduran GDP in 2015-16.

In Guatemala the National Agency for Infrastructure Development Partnerships (Agencia Nacional de Alianzas para el Desarrollo de Infraestructura Económica ‘ANADIE’) was formed in April 2010, although the Agency only officially launched tenders for PPPs in September 2014. ANADIE currently has a pipeline of USD1.46 billion in projects for PPP tenders (including ~USD440 million road related projects) – the first project under the PPP framework, being the construction of a highway between Tecún Umán (Mexico) and Escuintla valued at USD 40 million, has generated interest from 8 companies in Mexico, Spain, China and the USA. Other pipeline projects include the construction of six buildings housing government offices (USD150 million), a train line from Guatemala City to the Atlantic and a motorway connecting the Atlantic highway to the El Salvador highway.

A more recent implementation of the PPP legal framework, El Salvador approved the PPP structure in May 2013 (excluding social infrastructure areas such as sanitation, education, health, prisons, public safety). A key criticism of the initial framework is the red tape in the approval process – the requirement for projects to be passed by the Legislative Assembly at least three times, with the first hurdle for any contract valued over USD10 million needing approval by Congress (and any below this threshold governed under other public administration regulations). The key project under this structure is the USD150 million expansion of the airport – although given legal uncertainty to date, the effectiveness of the framework has been compromised with no works commenced at this point.

All roads lead to… prosperity?


Despite the well-intended goals of the Plan of the Alliance for Prosperity in the Northern Triangle – the practicalities of improving several target areas with already stretched public funds and inadequate framework for participation of the private sector in infrastructure projects has resulted in a standstill in improvements to infrastructure. Whilst safeguards to ensure transparency and fairness in the tendering process are essential, there is a fine balance in ensuring fairness whilst pursuing development goals in an efficient way that minimises bureaucratic delays.

Roads play a particularly important role in regional trade and prosperity and have a clear multiplier effect through productivity gains and lowering input costs. Ensuring this sector gains the much needed investment to underwrite future growth is of key importance in contributing to the region’s overall development…


In mid-November, presidents of Guatemala, El Salvador and Honduras presented the ‘Plan of the Alliance for Prosperity in the Northern Triangle’ in Washington DC. The plan consists of medium-term working guidelines and commitments by regional leaders to promote human well-being in the region, improve the work and business climate, ensure more effective government, create jobs, reduce poverty, improve the quality of services and expand economic opportunities for all of those in search of a better life. The plan identifies, among other issues, the hindrance in attracting regional investment due to high energy costs and limited connectivity, with high energy costs due to reliance on fossil fuels (item 1.5). The plan also notes the lack of fiscal space to fund initiatives including infrastructure improvements, and despite tax reforms, fiscal revenues have remained between 10 and 14% of GDP, below the average in Latin America.

Given stretched public sector finances and increasing deficits, combined with competing priorities and relatively short governmental terms (as well as an upcoming election in 2015 in Guatemala), strategic planning surrounding improving infrastructure forms an essential base for sustained development. Whilst public sector institutions have been established, these remain constrained by propensity to issue debt (placing further pressure on public sector budgets) and a lack of transparency.

So, why do roads matter in Central America?

According to 2012 World Bank studies, highway transportation costs in Central America represent 30% to 35% of total logistics costs. A model for Central America developed by the World Bank in 2012 assesses the econometric relationship between volume of freight carried and the distances between production hubs and consumption centres – this model estimated that a 1% increase in highway transportation costs and times can reduce Central American exports by 1.65%.

According to Latinvex, El Salvador tops the table for Central American infrastructure, and ranks 5th out of 19 LATAM countries. El Salvador ranks fourth best in terms of roads, and importantly, the third best time for exports and fourth best import and export costs in Latin America. Interestingly, among Central American countries, El Salvador is the principal user of road transportation for foreign trade, both in volume and as a percentage of total foreign trade (52% of imports and 56% of exports in volume, and 27% and 44%, respectively, in value).

What government institutions are in the mix?

In El Salvador – the Fondo de Conservación Vial [Road Maintenance Fund] (FOVIAL) is autonomous, and was created to perform regular and routine maintenance of the national road system using revenue from a gasoline and diesel fuel charge of US$0.20/gallon, applicable to all motorized vehicles. In 2012, Legislative Assembly progressed reforms, adding ~USD26 million to the nearly US$70 million FOVIAL received annually prior to 2012, and enabled FOVIAL to leverage its investments by issuing securities.

In Honduras, the ‘Fondo de Viales’ maintains 14,648 km of roads, 77% of which is unpaved – execution of improvements as planned has been slow due to delayed deployment of funds (both domestic budget funds and external funds), strikes by workers and slow approvals required by local Congress. The 2014 ‘General Management of Public Investments’ (Direccion General de Inversiones Publicas) notes the Fondo de Viales’ inability to meet liquidity requirements per public sector requirements (Instituciones del Sector Público), and designed a credit instrument applicable to taxes and charges by contractors, with the same duration of the contract. Under this mechanism, the Fondo issued HNL21.2m (USD1m) to construction group Constructora William y Molina.

In Guatemala, the ‘Fondo Vial’, created in 1994, is funded by a surcharge of 1 quetzal per gallon of gasoline purchased by drivers, facilitating funding of private firms to be contracted for maintenance work. In 1997 the Fund was rebadged Covial (Fondo de Conservacion Vial – Road Maintenance Fund) – when initially created, it covered 706 km of paved roads and 612 km unpaved, and now covers 14,000 km paved roads, and another 9,000 km unpaved. Despite being established to fund necessary works, the Fund has run into significant issues surrounding non payment of contractors, resulting in up to 70% of works being delayed. Whilst Covial currently raises approximately GTQ755m (USD99m) from the gasoline surcharge, Edgar Deger, President of the Guatemalan Association for Construction Contractors, suggest a budget closer to GTQ1bn would be more suitable, noting that ‘within the same Government there is no precise data on what Covial collects and receives’. According to recent press articles, the Government has audited outstanding debt from prior years which totals Q3.3bn (USD435m) for emergency works – presently, Covial owes Q400m (USD52m) to some 600 firms contracted for supervision, cleaning and maintenance.

And in conclusion…

The importance of roads in the wider economy plays a pivotal role in trade and development. Given infrastructure budgets that remain poorly managed and solutions to cover spending resulting in further debt issuance (versus coming from public reserves), public budgets continue to remain stretched and will deteriorate further given the propensity of governments to resort to debt based solutions. In addition, poor tax collection and allocation of funds raised to public projects remains compromised. Furthermore, with limited transparency, surety over spending combined with suitable audits and data collection continues to undermine efforts to improve and develop roads in the region.

Whilst an inability of the public sector in the region to manage funding and execution of strategies compromises the quality of roads in the region, this also offers an opportunity for the emergence of PPPs and further development bank funding. Ensuring suitable incentives and obligations are in place are crucial in creating a holistic solution to the gap in regional infrastructure.


A quick look…

A recent entrant to the Central American telecommunications scene is Chinese player Xinwei, owned by Chinese businessman Wang Jing, which was granted 6 licences to operate in Nicaragua. It is unknown as to whether the Group paid for these, or whether this is part of the Group’s concession to build out the Nicaraguan Canal. Xinwei entered the Nicaraguan market two years ago, and to date has not delivered on any of its promised investments – mostly in rural telecommunications. Whilst Central America has undergone substantial liberalisation of its telecommunications industry, the link between state and market remains strong. Despite new entrants in the VoIP and wireless technologies subsectors, their market share remains small and incumbents tend to dominate.

The telecommunications sector is characterised regionally by severe underinvestment, with upgrades by fixed line and mobile segments largely undertaken by private sector groups. Given this chronic underinvestment, remote communities have poor or no access to services – and the profit-oriented private sector is unlikely to fill this gap. Broadband costs vary significantly between countries due to aged infrastructure. Additionally, as GDP per capita growth stagnates, affordability of telecom and ITC services is expected to remain elevated relative to average incomes. Furthermore, the outlook for public sector funding in Guatemala, Nicaragua, Honduras and El Salvador is less than positive, leaving investment in the hands of private sector players. Given the poor fixed line infrastructure, mobile phone penetration is strong across the region as users adopt mobile telephones over fixed lines.


Figure 1. Telecommunication penetration in Central America (source: BuddeComm)


Guatemala – fijate Slim…

Between 1974 and 1997, Guatel was the only telecommunications group in Guatemala – and was state owned until gradual privatisation in 1997. Guatemalan telecommunications developed in a political context determined by the internal armed conflict, and by governments led by military leaders whose ambitions looked more at the return from a political standpoint than seeking economic efficiency. In 1986, in line with the appointment of a civilian president, gradual liberalisation of Guatel started with the granting of licenses for cell phones (800 MHz UHF) to COMCEL. Economic reform and privatisation started in Guatemala in 1991, gaining momentum following the post Peace Accords period under the growth focussed SEGEPLAN (1996-2000). For the telecommunications industry, this resulted in increased government focus on internal and external efficiencies – and eventually led to the decision to privatise GUATEL given the need for the government to focus on health, security and education. Today, America Movil controls approximately 70% of fixed lines in service via its subsidiary Claro  – following intense competition between providers, services have improved and prices have decreased, resulting in mobile phone penetration being on par with the regional average. In Guatemala, mobile phones outnumber people. Tigo, which launched in 2004 and replaced 2 national brands, dominates the mobile phone market with a market share of 54%.

Tigo Guatemala has been a regional success story, raising USD800m in the international market in February 2014 with investor demand of USD2.9bn (52% of demand from North American investors, 38% European). According to the firm, 40% of funds raised were allocated to reinvestment to improve user connectivity, with the balance for refinancing debt. With improved access to capital markets and credit ratings set just a notch below investment grade at Ba1 and BB+ by Moody’s and Fitch (respectively), the Group is well positioned to transform the country’s telecommunications industry.

Nicaragua – waiting til the canals come home…

America Movil’s Claro dominates Nicaragua’s telecom services – given the poor investment in the sector, users have opted for mobile phone use – which overtook fixed lines in 2002. Movistar is the only competitor to Claro with approximately one-third of the mobile market – with the duopoly situation, competition has been dampened resulting in lower quality offerings for consumers at elevated prices.

Economic benefits including much needed upgraded infrastructure are expected as a result of the USD50bn Nicaraguan Canal project – however funding remains uncertain, and a lack of transparency around legal processes and investment terms adds further to this uncertainty. In 2013, the law providing for the 50 year concession for the Nicaraguan Canal development was granted to Chinese businessman Wang Jing – this included allowing necessary expropriation for this large scale project. Whilst there is significant government focus on the potentially transformative Canal project, other reforms have been slow to non-existent in gaining momentum, including reforms around the telecommunication market.

Expectations around telecommunications upgrades based on the auction of spectrum licences in the 1800MHz band are expected. In late October 2014, six licences were granted to Jing’s Xinwei telecommunications group, following announcing in January plans to invest USD300m to develop its Nicaraguan operations. Xinwei is targeting roll out its Nicaraguan operations in January 2015, although the scale of deployment is significantly lower than initially planned under licensing conditions and has raised scepticism – the initial roll out funded by the World Bank has decreased from USD700m to USD800,000. However, this project is expected to benefit approximately 15,000 people in more remote areas along the north Caribbean coast. Despite development-oriented benefits of both the Canal project and Xinwei’s telecommunications roll out, a lack of transparency around pricing and government involvement on both initiatives has undermined confidence in these ventures, despite the hope that both projects bring wide reaching economic benefits to the country.

El Salvador – SIGNET, FINET and don’t forget…

El Salvador’s liberalisation efforts which started in 1996 have allowed significant foreign investment and competition, however given the dearth of regulations around ADSL, the ADSL market has resulted in a virtual monopoly for Claro. Initial deregulation in 1998 brought new entrants into the industry and the regulatory body, the Superindencia General de Electricidad y Telecomunicaciones (‘SIGET’) was established – and a period of consolidation followed, resulting in the three key regional players dominating (Claro – following its acquisition of Digicell in 2012, Movistar, and Tigo). Prior to the creation of SIGET, in February 1997 the National Fund for Investment in Electricity and Telecommunications (Fondo de Inversión Nacional en Electricidad y Telecomunicaciones ‘FINET’) was created after the development of these areas was identified as pivotal for social and economic development – identifying greater coverage nationally, with particular focus on rural communities.

The gradual privatisation of the El Salvadorean telecommunications market is still underway and active – as of early November 2014, the government re-opened a postponed auction for 40 MHz mobile phone licences, targeting new competitors to the market.The original auction was suspended after the SIGNET raised concerns over the auction process in October 2013, raising concerns about the inadequate amount of spectrum available, and that auction conditions favour large companies to obtain more frequencies rather than encouraging new entrants and competition. Let’s see how the latest auction pans out…

Waiting for that call…

Severe underinvestment in telecommunications across the region has resulted in poor infrastructure and high pricing of services due to the lack of competition between offerings. Whilst this offers potential opportunities for private sector players, legal reform and transparency regarding licences and concessions is essential to facilitate an investment environment that is conducive to holistic development of the telecommunications sector. Furthermore, policy initiatives to ensure rural communities are not left behind is essential – with the privatisation of the industry, funds raised could potentially be earmarked for government initiatives to underwrite this goal. Given the glacial pace of reform, inevitably the push is driven by private sector interests. The return call on meaningful and equitable progress and development of the telecommunications sector is just a call away, albeit a long wait…


Last week Citi announced plans to withdraw from retail banking in several markets in LATAM and Asia, including Costa Rica, El Salvador, Guatemala, Nicaragua and Panamá, amongst others. The banking sector in this region has been fairly active in terms of expansion and M&A activity, particularly given the elevated liquidity levels of stronger players. In recent weeks, Costa Rican Bansol was recently sold to Panamanian regional private banking group, Grupo Prival (assets under management of over USD1.7 billion) for an undisclosed sum, and as part of its regional expansion plans, Banrural merged with the Honduran subsidiary of Procredit earlier this month (Procredit’s focus is mostly on loans to small business). Citi’s announcement followed the release of a sector report by Fitch earlier in the month, noting several trends in the regions banks – focusing on the varying growth patterns within the region. Given the ongoing growth in credit, particularly consumer credit, combined with plans for growth and a highly liquid banking system, the Central American banking sector will undoubtedly witness further M&A activity in coming months.

Helicopter view of the sector…

According to the 2013 Top 100 Central American banks data the top 100 banks in the region held USD15.4 billion Tier 1 capital. Unsurprisingly, the Panamanian banking sector is the largest at USD8.1bn of the top 100 banks in the region (52% of the market), and most diversified in terms of players in the Central American region – featuring Colombian, Israeli, Peruvian, Portuguese, Spanish and American groups, in amongst regional players.

Distribution of Tier 1 capital across the top 100 banks by country per The Banker 2013 survey as follows:

141023.Banks_Dist_by_country_Pie_chart Figure 1. Central American bank size by tier 1 capital (source:

Net interest margins (NIM) reflect the cost of financial intermediation – as banks seek improvement in NIM, consolidation is expected to continue in the sector. Recent research focused on Honduras by Nassar, Martinez and Pineda (2014), found that operating costs are the most important drivers of banks’ net interest margins, and that competition among banks has led to higher concentration and funding by parent banks that positively impacts foreign banks’ net interest margins. Combining these factors suggests that banks (especially foreign banks), are under pressure to consolidate and reduce operating costs to be more competitive and gain greater market share.


Figure 2. NIM comparisons between Central American banks (source: World Bank Database)

Foreign ownership varies between markets – although with the Colombian expansion into the region in 2012-13 as acquirers of the HSBC businesses, Colombian ownership continues to climb as international banks exit.

Growing at different paces with solid balance sheets…

Whilst the Fitch report on the region’s banking sector noted the lack of financial system depth and challenges for growth in the absence of improvements in per capita income – the overall outlook was reasonably positive due to low default rates and well capitalised institutions. Profitability in the region’s banks remains fairly solid, and well capitalised institutions and high liquidity in the banking system will undoubtedly underwrite further M&A activity.  Over the past twelve months, assets of Central American banks have grown by approximately 10%, mostly due to portfolio growth, with Fitch seeing this growth as relatively healthy given solid balance sheets and stable profitability (Fitch: Banca Centroamericana Creciendo a Ritmo Diferente con Balances Sólidos). Loan growth has dramatically outpaced deposit growth, and so in the absence of increased default rates, this represents positive organic growth. However, in the longer term this is somewhat constrained until there is a sustained growth in wages. Should consumer sentiment deteriorate, growth prospects could also be undermined. Whilst at face value bank metrics appear relatively solid in the region, the lack of depth in the financial system and high level of dollarization ensure that this is a necessity to absorb, or mitigate, macro level risks predominantly from currency related movements.

Adios, Citi, que vaya bien… Goodbye Citi, best wishes…


Whilst Citi is understandably seeking to become more focused on its core operations, the announcement comes at a time when the region is experiencing significant growth in consumer lending combined with high liquidity in the financial system. The Group sold its consumer banking and credit cards businesses in Honduras in April 2014 to local bank Banco Ficohsa for an undisclosed sum – making Ficohsa the nation’s largest lender. Interestingly, Citi was the first foreign owned bank to enter Honduras in 1965. Citi’s actions follow HSBC’s exit from the region in early 2013, with operations in Costa Rica, El Salvador and Honduras being sold to Colombia’s Banco Davivienda in 2012, and its sizeable business in Panama sold in February 2013 to Bancolombia. Whilst 2012-13 was the period of Colombian groups’ expansion into the region via acquisitions, local groups remain active, and whilst Guatemalan banks are likely to require capital injection to grow further, strong balance sheets and high liquidity will ensure Citi’s exited units are well bid upon sale.

Whilst available data showing the split between consumer vs business banking is not readily available, data for Citi’s overall businesses in the region have been sourced from the 2012 Top 100 Central American banks database ( – whilst the Nicaraguan business has been a solid performer, it is small relative to the wider regional exposure. Other regional businesses indicate relatively disappointing return metrics and elevated cost income ratios – this could prove to work in favour of an acquiring group by providing an attractively priced opportunity to expand in the region.


Figure 3. Citi by country (source:

More of same?

Perhaps. The banking sector in the region is generally well capitalised, and M&A activity remains fairly robust, spurred by the exit of the likes of Citi, growth aspirations and pressure on operating costs for regional players. Colombian banks have been active acquirers in the region in recent years, and as these constituents continue to experience growth in their home markets, there is greater motivation to seek growth opportunities further afield, and capitalise on a growing Central American platform.

Macro concerns around currency vulnerability and dollarization are a regional concern. Against the lack of depth of the financial system, balance sheet strength and solid tier 1 capital are even more essential in this region to insure against severe impacts of external shocks to the system. Whilst the outlook for growth in the region is fairly benign, high liquidity and a thirst for growth will likely continue to drive M&A activity…


During the last fortnight, IMF talking heads in Washington perceptibly declared that “it will be a complicated year for growth in Latin America”, following the revised (down) growth outlook for Latin America and the Caribbean (‘LAC’) at 2% for 2014 and 2.6% in 2015. Such comments come as no surprise within the region given the impact of drought conditions on the agricultural sector and heightened inflation as a result of higher energy and food costs. Against the backdrop of increased debt costs driven by ratings downgrades – with these underpinned by higher budget deficits and many Central American nations coming under scrutiny for tax collection –  downward revisions to growth forecasts have an even greater impact for more heavily indebted Central American countries.

However, across the region despite the laclustre outlook for growth across the region, remittance numbers have been consistently strong within Central America, in line with the gradual recovery of the US economy. According to data from the Economic Commission for Latin America and the Caribbean (Comisión Económica para América Latina y el Caribe ‘Cepal’), over 80% is spent on food and clothing, 4-8% on health and education and 5-6% on savings and investment. The impact of remittances on exchange rates is discussed for both Guatemala and Honduras – whilst both countries count human capital as one of their most significant exports, the effect of these inflows on cross currency rates differs substantially given the two different exchange rate mechanisms.

That flying quetzal…

According to Bloomberg, remittances have been the driver of the strong performance of the Guatemalan Quetzal (GTQ), +3.6% over the past 12 months – the strongest in the region.

Whilst remittance growth is solid in Guatemala on the back of the US recovery – this does not directly translate to a stronger Quetzal by virtue of the free float currency regime.

Lining up data from the Central Bank of Guatemala on both remittances and the USD/GTQ cross rate from January 2008 to August 2014, the correlation coefficient is fairly low at 0.37, and even lower at 0.25 from January 2012 to August 2014. Remittance growth has been phenomenal +9.2% year-on-year for the year-to-date to August, however this is not directly translating into a stronger quetzal. Interestingly, in the absence of a clear and reliable domestic retail sales index, VAT receipts as a proxy for consumption/ sales displays a low correlation to remittance growth – granted tax collection is a well documented weakness within the Guatemalan bureaucracy and data. Whilst human capital is Guatemala’s number one export, and remittance inflows have a profound impact on liquidity within the country, the ability to clearly link the impact of remittances on any single sector of the economy is difficult.

And that lempira – between a rock and a hard place…

Touted as ‘supporting the growth of the economy of Honduras’, remittances account for 8-9% of all household income according to the National Institute of Statistics (Instituto Nacional de Estadísticas ‘INE’), with 13.5% of all households being dependent on monthly remittance-sourced income. Over the 20 year period between 1993-2013, remittances posted an annual growth of 21.8% – with the years during the financial crisis posting declines, and growth in 2014 posting a 9% increase year-on-year.

In the January 2014 report on remittances, conducted by the Central Bank of Honduras, some 79% of remittances are sent from the US, with approximately 62% of all remittances sent monthly. As a proportion of the country’s overall GDP remittance income will likely grow, not only as a result of a sustained recovery in the US, but also given the ongoing depreciation of the lempira.

Honduras maintains a crawling peg exchange mechanism, allowing for small valuation adjustments to be made to its currency. However, these adjustments are arguably slow to take place, and given the country’s persistent and growing budget deficit, the currency is presently overvalued. According to the Central Bank of Honduras, the devaluation reached 3.1% from January to September this year, higher than the 2.9% for the same period in 2013 .  The IMF continues to pressure Honduras into liberalising its currency policy erring towards further devaluation – particularly right now as the IMF and Honduran officials have just completed a round of negotiations to provide for USD300m in funding, to be receive a final approval on 10 November.

Whilst at time of writing the IMF news is very new and greater detail has not yet been made available – possible funding sources touted include increases to public service tariffs, despite President Hernandez indicating that there are other things that can be done [to raise funds], and despite the nation’s electricity agency being the key problem (“lo último que vamos a tocar es el tema de las tarifas porque hay otras cosas que podemos hacer. La Enee es el principal problema que tenemos y debemos entrarle. Son momentos difíciles pero son los pasos que tenemos que dar para seguir con buen paso”). Interestingly, whilst the topic of the country’s electricity agency, Empresa Nacional de Energia Electrica (‘ENEE’) was reportedly excluded from direct inclusion in the IMF discussions, this is clearly the elephant in the room given that it accounts for 30% of the current budget deficit, and an area that clearly warrants a pro-active approach to reform.

Despite shortfalls in the outlook for growth in Central America for the next 12 months – provided the US continues on its sustained recovery, remittance growth is expected to strengthen further and play the dominant part in local income. How this translates into the economy through looking at data is difficult to determine, given the largely cash nature of the region’s economies combined with poor tax collection procedures. No doubt anecdotal headlines and numerous surveys will continue to portray the impact of this crucial component in the economy…