What impact would a U.S. debt crisis have in Central America?

News from Panama / Monday, August 1st, 2011
Post Views: 75

Well folks, we can all rest easy as the debt ceiling crisis has been averted and we have crashed through!!  A discussion with several of the countries economic ministers reveals that while things will remain a mess in the US, the impact on the debts of nations here will be minimal.  Frank de Lima, Vice Minister of Economy of Panama believes that the situation will not affect his country’s foreign debt, because “foreign debt bonds that Panama has contracted already have established terms, so any situation that may arise now will not affect them”, he said.

Here is the entire article from CentralAmericaData.com

Source: CentralAmericaData.COM
Friday, July 29, 2011

The U.S. could be facing a possible reduction in their risk rating, due to levels of national debt and government deficit.
Democrats and Republicans have been debating in the United States Congress trying to reach an agreement that will raise the debt ceiling and secure public finances for the future, avoiding a potential cessation of payments or a reduction in the country’s risk rating.

Being the world’s largest economy and largest trading partner with Central America, the situation is being monitored by various policymakers in the region, whose perspectives on the situation follow.

Julio Suarez, vice president of Banco de Guatemala does not predict a “catastrophe” as he expects the Treasury Department will make certain adjustments to address the emergency, such as postponing non-essential spending until there is political agreement in the legislature.
Additionally, Suarez said it is expected that major U.S. creditors like China (which has 2 / 3 of U.S. foreign debt), will defend the dollar, being exposed to large losses if it collapses.

The official also said that Guatemalan reserves would not be affected if U.S. bond ratings are downgraded, and does not foresee any radical reaction like moving the country from AAA to less than the AA- band. Above this rating the bonds are considered good according to Banguat standards.

Frank de Lima, Vice Minister of Economy of Panama believes that the situation will not affect his country’s foreign debt, because “foreign debt bonds that Panama has contracted already have established terms, so any situation that may arise now will not affect them”, he said.

Fernando Delgado, IMF representative for Central America, Panama and the Dominican Republic, believes that “the region would be very badly affected (if the U.S.’s rating were lowered), but we think it is very unlikely to happen. But if it did happen, it would be catastrophic, it would be like a scale force 10 earthquake.”

Delgado added that El Salvador would be the hardest hit country in Central America, as it is the most dependent on U.S.’s level of international trade and has the most income from remittances.

“The IMF representative said that, not only for the region but for the global economy, a disruption in the U.S. economy would be comparable to a “scale force 10 earthquake” because the financial assets would lose their support, distrust of the dollar would cause a collapse in investment and this would lead to less employment and consumption. ”

This nformation was  compiled from various sources.