INVESTOR CONFIDENCE IN COSTA RICA REACHES NEW LOW

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UNCLAS SAN JOSE 002731

SIPDIS

SENSITIVE

WHA/CEN
EB FOR WCRAFT, BLAMPRON
E FOR DEDWARDS
WHA/EPSC FOR KURS, LGUMBINER
STATE PASS TO USTR FOR AMALITO

E.O. 12958: N/A
TAGS: EINV KIDE PGOV CS
SUBJECT: INVESTOR CONFIDENCE IN COSTA RICA REACHES NEW LOW

REF: A) SAN JOSE 02664; B) SAN JOSE 02460

1. (U) Summary: The Central Bank of Costa Rica (BCCR)'s
most recent (Jul.-Sept. 2005) quarterly survey says investor
confidence has reached a new low. When asked "Is now a good
time to invest in Costa Rica, only 4.2 percent said "yes",
75.0 percent said "no", and 20.8 percent were "unsure". End
Summary

2. (U) All of the figures in this cable come from BCCR's
most recent quarterly "Survey of Economic Perspectives
http://www.bccr.fi.cr/ndie/Documentos/Informe %20Encuesta%20I
II-05.pdf (specifically "Grfico No. 11" entitled "The
current Investment Climate" on page 11) and reports from
earlier quarterly found at
http://www.bccr.fi.cr/ndie/encuesta_perspecti vas.htm.

3. (U) According to the third quarter 2005 report, only 4.2
percent of the Costa Rican respondents believe now is a good
time to invest in Costa Rica. More importantly, those who
believe that now is a bad time to invest reached a new high
of 75.0 percent. Opinions have solidified over the last
year with those saying they were "Unsure" reaching a new low
of 20.8 percent.

4. (U) Analyzing BCCR data on investor confidence over the
last 12 quarters shows that confidence peaked at 61.0% in
the first quarter of 2004 when Costa Rica concluded CAFTA
negotiations with the U.S. Confidence sunk to the low
double-digits for the next two quarter as negotiations to
conclude CAFTA-DR continued. Once CAFTA-DR negotiations
concluded and the agreement was signed on August 5, 2004, it
soon became clear that the Pacheco administration had no
intention of pushing CAFTA forward. Confidence dove in the
fourth quarter of 2004 into the low single digits where it
has remained ever since.

5. (U) Here is the trend over the last 12 quarters to the
questions "Is now a good time to invest in Costa Rica?":

Good time Bad time Unsure
-------------- -------------- --------------
Q4 2002 30.3% 44.7% 25.0%
Q1 2003 12.8% 53.8% 33.3%
Q2 2003 14.6% 51.2% 34.1%
Q3 2003 38.5% 10.3% 51.3%
Q4 2003 38.5% 20.5% 41.0%
Q1 2004 61.0% 15.0% 24.0%
Q2 2004 17.4% 47.8% 34.8%
Q3 2004 11.1% 62.2% 26.7%
Q4 2004 3.8% 71.2% 25.0%
Q1 2005 2.1% 61.2% 36.7%
Q2 2005 4.0% 62.0% 34.0%
Q3 2005 4.2% 75.0% 20.8%

Note: BCCR data is not available before the fourth quarter

2002.

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COMMENT
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6. (SBU) The Central Bank of Costa Rica's figures are the
clearest indication we have seen of the harm done to Costa
Rica's investment climate by the current administration's
"go slow" approach to CAFTA and languishing fiscal reform.
LANGDALE

INVESTOR CONFIDENCE IN COSTA RICA REACHES NEW LOW

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