COSTA RICA: OPIC FINANCE APPLICATION FOR JUAN

UNCLAS SAN JOSE 000917

SIPDIS

DEPT FOR WHA/EPSC: AWONG; EEB/IFD/ODF; PLEASE PASS TO
TREASURY: SSENICH, DVANKOCH; PLEASE PASS TO OPIC: NRIVERA

E.O. 12958: N/A
TAGS: CS ECON EFIN PGOV PREL EINV
SUBJECT: COSTA RICA: OPIC FINANCE APPLICATION FOR JUAN
SANTAMARIA AIRPORT

REF: SECSTATE 97637


1. Embassy San Jose fully supports the Overseas Private
Investment Corporation's (OPIC) plan to provide a USD 55
million loan to Alterra Partners Costa Rica, S.A. (APCR),the
operator of San Jose's Juan Santamaria International Airport
(SJO). The loan -) in addition to a USD 45 million
Inter-American Development Bank loan -- will finance the
purchase of APCR shares by the new operators (or "sponsors,"
Brazil's Andrade Gutierrez Concessoes and ADC/HAS -) a joint
venture of Canada's Airport Development Corporation and the
U.S.'s HAS Development Corporation),construction work of USD
30 million for completing expansion phases I and II,
repayment of an International Finance Corporation (IFC) loan,
and payment of outstanding penalties due to past contract
disputes.

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ONGOING EMBASSY INTEREST
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2. We have followed the contract problems and related
construction delays associated with the expansion and
operation of SJO for over five years. As a result, we have
monitored the situation through our contacts with ADC/HAS,
the IFC, Alterra, OPIC, Costa Rica's Civil Aviation
Authority, and the Ministry of Finance. We fully endorse
OPIC's careful and cautious negotiations with the GOCR in
order to produce a "contract with clarity and predictability."

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RECENT COUNTRY EVENTS
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3. The global economic crisis impacted Costa Rica primarily
in the form of decreased economic activity and unemployment
in select sectors of the economy, notably tourism,
construction (particularly activity devoted to resort
development, both residential and hospitality),and
manufacturing. In contrast to this trend, economic activity
and employment in the areas of professional services and
medical devices (development and assembly) continues apace.
Overall, the global crisis has dragged down the Costa Rican
economy as demand in export markets contracted. Predictions
on gross domestic product growth for the year currently vary
between 0 percent and -1 percent or, at worst, -2 percent.
Forecasters estimate unemployment at less than 7 percent.
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2009 TOURIST TRENDS REFLECT THE ECONOMIC CLIMATE
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4. From 2007 to 2008, tourist arrivals in Costa Rica edged
upward from 1,979,800 to 2,089,200, an increase of 5.5
percent. This followed a robust increase of 14.8 percent
from 2006 to 2007. Most interesting, the trend of US
visitors from 2007 to 2008 -) which reached 776,600 in 2008
(47 percent of overall visits) )- increased at a higher
rate, 23.6 percent, than the overall rate of visits. For the
first six months of 2009, the impact of the economic crisis
squarely hit the overall visit figures with overall visits
dropping by 9.5 percent to 425,000 through June 2009.

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LOOKING UPWARD?
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5. Airport traffic and thus revenue correlates directly to
tourism traffic which for 2009 lags behind 2008. In July, we
met then Tourism Minister Carlos Benavides and Director
Hermes Navarro. They told us that the tourism industry
suffered a significant setback during the latter half of 2008
and the first half of 2009 (as reflected in official
figures). However, industry players indicated to our
interlocutors that the downward trend in tourism business may
have reached the inflection point, suggesting that the
business had "bottomed-out." This prediction makes for
cautious optimism and would represent the potential for
growing numbers of tourists and airline passengers arriving
at SJO in late 2009 or starting in 2010.
BRENNAN