Press Release No. 09/470

Press Release: IMF Executive Board Completes Second Review Under Stand-By Arrangement with Costa Rica

December 18, 2009

The Executive Board of the International Monetary Fund (IMF) completed on December 16, 2009 the second review of Costa Rica’s economic performance under a program supported by a 15-month Stand-By Arrangement (SBA). The authorities have indicated that they will continue treating the arrangement as precautionary.

The SBA was approved on April 13, 2009 (See Press Release No. 09/124) for SDR 492.3 million (about US$783.5 million) Completion of the review makes an additional SDR 41.025 million (about US$65.3 million) available for disbursement, bringing the total resources that are currently available to Costa Rica under the arrangement to SDR410.25 million (about US$652.9 million).

Following the Executive Board’s discussion on Costa Rica, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“Costa Rica’s performance under the Stand-By arrangement with the Fund is commendable. An economic recovery is gradually taking hold, inflation has moderated to a historically low level, and the financial sector has remained sound. The authorities’ economic program has helped cushion the impact of the global downturn and is providing a solid framework to support the recovery. Economic policies will continue to strike a balance between supporting domestic demand in the near term and maintaining domestic and external stability to foster sustained growth over the medium term.

“Fiscal policy has provided timely support to domestic demand in 2009, and the fiscal program for 2010 allows room for some additional stimulus in the early part of the year. Afterwards, the authorities plan to gradually unwind the fiscal stimulus as the recovery of private demand takes hold.

“Inflation has continued to decline and the exchange rate has moved toward the middle of the currency band. These developments have increased the central bank’s room for policy maneuver, although upside risks to the inflation outlook warrant maintaining a cautious approach to monetary easing. The more benign domestic and global environment also provides an opportunity to further modernize exchange rate and monetary operations, and advance in the transition toward inflation targeting.

“The banking sector has weathered the cyclical downturn well, and liquidity and solvency indicators remain adequate. Further progress in the reform agenda remains important to strengthen the financial sector safety net, including the recapitalization of the central bank and passage of legislation to enable consolidated financial sector supervision,” Mr. Portugal said.