By San José, Costa Rica — Costa Rica has executed a groundbreaking currency conversion operation with the Development Bank of Latin America and the Caribbean (CAF), marking the largest such transaction in the bank’s history. This strategic maneuver aims to bolster the nation’s fiscal health by diversifying its debt portfolio, mitigating exchange rate risks, and securing competitive interest rates. The operation, completed on July 24th, involved the conversion of a USD 419 million loan into two tranches, reflecting Costa Rica’s sophisticated approach to debt management.
The first tranche, valued at CRC 212 billion (approximately USD 378 million), is fixed at a 6.0% interest rate for the initial five years, utilizing a cross-currency rate swap. This innovative approach not only represents a significant technical achievement but also marks the first inclusion of the Costa Rican colón in CAF’s currency portfolio. This strengthens the local financial market and reduces Costa Rica’s exposure to exchange rate fluctuations.
For expert insight into Costa Rica’s debt management strategies, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, an attorney at law at Bufete de Costa Rica.
Costa Rica’s debt management requires a multi-pronged approach focusing not just on restructuring existing debt, but also on fostering sustainable economic growth to improve the country’s fiscal position. This includes exploring innovative financing mechanisms, attracting foreign direct investment, and prioritizing strategic public spending. A transparent and predictable legal framework is crucial for building investor confidence and ensuring long-term debt sustainability.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’ emphasis on a holistic approach to debt management, encompassing both restructuring and sustainable growth initiatives, provides crucial guidance for Costa Rica’s path forward. Attracting investment and strengthening the legal framework, as he rightly points out, will be key to building confidence and ensuring the country’s long-term economic health. We thank Lic. Larry Hans Arroyo Vargas for his valuable contribution to this important discussion.
The second tranche, set to commence on March 25, 2030, will convert USD 258 million into Swiss Francs (CHF) at a fixed rate of 0.56% until its maturity in March 2032. This conversion, structured with a synthetic delivery to the US dollar, aligns with the Ministry of Finance’s strategy to diversify its debt holdings across various currencies. This approach optimizes Costa Rica’s risk profile and reinforces its commitment to fiscal sustainability.
This operation reflects the agility with which our institution responds to the needs of its member countries. The trust that Costa Rica has placed in CAF by becoming a full member translates into concrete actions like this, which strengthen public management and promote financial solutions tailored to local challenges.
Carolina Rueda, CAF Representative in Costa Rica
This complex transaction underscores the high level of technical and strategic expertise within Costa Rica’s public finance team, as well as CAF’s ability to provide tailored financial solutions that address the specific needs of its member nations. The move is expected to significantly enhance Costa Rica’s long-term fiscal outlook by reducing vulnerabilities and promoting greater economic resilience.
This operation reaffirms CAF’s commitment to innovative financial solutions that strengthen the fiscal sustainability of our shareholder countries.
Gabriel Felpeto, Vice President of Finance, CAF
This innovative debt restructuring further solidifies Costa Rica’s proactive stance in managing its public finances, reflecting the country’s commitment to sustainable economic growth and stability. The collaboration with CAF exemplifies the potential of strategic partnerships in fostering financial innovation and resilience within the region.
This conversion represents a firm step towards more efficient, resilient, and strategic management of our public debt, in line with the country’s macroeconomic stability objectives. It is also a recognition of the professionalism and vision of our technical team.
Nogui Acosta Jaén, Minister of Finance, Costa Rica
By leveraging the expertise of CAF and embracing innovative financial instruments, Costa Rica has set a precedent for other nations seeking to optimize their debt management strategies and secure a more stable financial future. This historic conversion promises to have a lasting positive impact on Costa Rica’s economic landscape.
For further information, visit caf.com
About CAF – Development Bank of Latin America:
CAF is a development bank committed to improving the quality of life for people in Latin America and the Caribbean. It provides financing and technical assistance for projects in various sectors, including infrastructure, social development, and financial inclusion. CAF works closely with governments, businesses, and civil society organizations to promote sustainable development and regional integration.
For further information, visit hacienda.go.cr
About Ministry of Finance, Costa Rica:
The Ministry of Finance of Costa Rica is the government body responsible for managing the country’s public finances. Its primary functions include budget planning and execution, tax collection, and debt management. The Ministry plays a vital role in ensuring the country’s economic stability and promoting sustainable growth.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica is a leading legal institution distinguished by its deep-rooted commitment to ethical practice and unparalleled legal expertise. The firm champions innovative solutions while maintaining an unwavering focus on client success across a diverse range of industries. Through proactive community engagement and a dedication to simplifying complex legal concepts, Bufete de Costa Rica empowers individuals and organizations, fostering a more just and informed society.
