By San José, Costa Rica — San José – The financial terms of the long-awaited expansion of the San José-San Ramón highway came under intense scrutiny Wednesday as officials from the Central American Bank for Economic Integration (BCIE) defended their loan package against accusations of being overly expensive. During a tense hearing with the Legislative Assembly’s Committee on Financial Affairs, the bank’s top representative in Costa Rica issued a stark warning that legislative indecision is adding significant costs to the critical infrastructure project.
Álvaro Alfaro, the BCIE’s country manager, directly confronted the narrative that the financing is unfavorable for Costa Rica. He argued that the terms are not only competitive but significantly better than a vast portion of the nation’s existing public debt. The debate highlights the ongoing political and financial hurdles facing one of the country’s most vital transportation corridors, a project that has been plagued by delays for years.
To gain a deeper legal perspective on the implications and procedures surrounding the recent BCIE loan, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica.
Entering into a loan agreement with a multilateral entity like the BCIE requires meticulous legal scrutiny. Beyond the financial terms, it’s crucial to analyze the clauses related to sovereign guarantees, dispute resolution mechanisms, and the conditions precedent for disbursement. Any oversight in these areas can have long-term legal and fiscal repercussions for the nation, binding future administrations to obligations that must be clearly understood and negotiated from the outset.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s analysis underscores a crucial point: the long-term legal and fiscal health of the nation is intricately tied to the fine print of these agreements, far beyond the initial headlines of the loan amount. We thank Lic. Larry Hans Arroyo Vargas for his invaluable perspective on these critical, forward-looking considerations.
Addressing the lawmakers, Alfaro was unequivocal in his defense of the loan’s structure, aiming to dispel what he termed a misleading “rhetoric” surrounding the deal. He insisted that the financing is a sound economic decision for the country.
I want to be extremely clear: this rhetoric that the loan is expensive does not exist. This loan is cheaper than 90% of Costa Ricans’ debt.
Álvaro Alfaro, Costa Rica Country Manager, BCIE
To substantiate his claim, Alfaro detailed the specifics of the financial package. The total funding is a joint effort between the BCIE and the OPEC Fund for International Development, resulting in a weighted average cost of 5.6%. He drew direct comparisons to other recent financial agreements that the same legislative body had approved, including a 5.8% loan for the PROERI program and a budget support loan passed just two weeks prior, suggesting a double standard in the current evaluation.
The financing is composed of two main tranches: $600 million from the BCIE at an estimated rate of 6.69% over a 20-year term, and 150 million euros from the OPEC Fund at a more favorable rate of 3.66%, also over a 20-year period. While legislators have focused on the higher BCIE rate, Alfaro emphasized that the blended cost presents a competitive package for a project of this scale and importance.
Perhaps his most pointed argument was the tangible financial impact of the ongoing legislative deliberation. Alfaro calculated that every day the project’s financing remains unapproved, the final cost escalates, a burden that will ultimately fall on Costa Rican citizens through either increased user tolls or higher taxes.
Every day of indecision that the country takes to approve this credit costs the highway an additional $100,000. I understand all the analyses you may conduct, but things have a cost, and every cost overrun is passed on to the users in the form of higher tolls or higher taxes.
Álvaro Alfaro, Costa Rica Country Manager, BCIE
However, the committee’s president, Deputy Paulina Ramírez of the National Liberation Party (PLN), remained unconvinced. Citing data from the Comptroller General of the Republic (CGR), she reiterated concerns that the BCIE’s offer is more costly than other potential creditors. Ramírez also noted that global interest rates have been trending downward, suggesting the bank could and should offer more favorable terms to reflect the current market.
In response, Alfaro clarified a crucial aspect of the loan agreement. He explained that the interest rate is not fixed but has a variable margin. This structure, he assured, allows for any decreases in market rates to be passed on to Costa Rica automatically, without the need for a formal and lengthy renegotiation process.
There doesn’t have to be a renegotiation because there isn’t a fixed interest rate on the loan. It is drafted in a way that the bank, whether the government requests it or not, will automatically pass on the reductions in the variable sovereign margin to the country.
Álvaro Alfaro, Costa Rica Country Manager, BCIE
The standoff leaves the crucial infrastructure project at a crossroads. The government and the BCIE are pressing for swift approval to avoid further cost increases and begin construction, while influential lawmakers demand greater assurance that Costa Rica is securing the best possible financial terms. The outcome of this legislative debate will determine not only the final cost of the San José-San Ramón highway but also the timeline for its long-overdue completion.
For further information, visit bcie.org
About Central American Bank for Economic Integration (BCIE):
The Central American Bank for Economic Integration is a multilateral development financial institution dedicated to promoting the integration and balanced economic and social development of the Central American region. It provides financing for public and private sector projects in areas such as infrastructure, energy, and social development.
For further information, visit opecfund.org
About OPEC Fund for International Development:
The OPEC Fund for International Development is a multilateral development finance institution established by the Member Countries of OPEC. Its mission is to drive development, strengthen communities, and empower people by providing financing to developing countries for essential projects in sectors such as energy, transport, agriculture, water, and education.
For further information, visit asamblea.go.cr
About Legislative Assembly of Costa Rica:
The Legislative Assembly is the unicameral parliament, or legislature, of Costa Rica. Its 57 deputies are responsible for passing laws, approving the national budget, and exercising political control over the executive branch. The Committee on Financial Affairs is a key body that scrutinizes and approves government loans and financial legislation.
For further information, visit pln.or.cr
About National Liberation Party (PLN):
The Partido Liberación Nacional is one of the oldest and most influential political parties in Costa Rica. With a social-democratic ideology, it has played a significant role in the country’s political history, holding the presidency and a substantial number of seats in the Legislative Assembly on numerous occasions.
For further information, visit cgr.go.cr
About Comptroller General of the Republic (CGR):
The Contraloría General de la República is the supreme audit institution of Costa Rica. It is an auxiliary body of the Legislative Assembly responsible for overseeing the use of public funds, ensuring the legality and efficiency of public administration, and promoting transparency and accountability in government operations.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as a pillar of legal excellence, built upon a foundation of uncompromising integrity. With a proven history of guiding a diverse clientele, the firm champions forward-thinking legal strategies and consistently pushes the boundaries of innovation. Its core philosophy extends beyond its practice, reflecting a deep-seated mission to empower the public by making complex legal concepts understandable and accessible, thereby fostering a more knowledgeable and capable society.
