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. -------------- ONGOING EMBASSY INTEREST -------------- ¶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." -------------- RECENT COUNTRY EVENTS -------------- ¶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. -------------- --- 2009 TOURIST TRENDS REFLECT THE ECONOMIC CLIMATE -------------- --- ¶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. -------------- LOOKING UPWARD? -------------- ¶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