Central American capital markets -- Costa Rica : macro-financial background

Costa Rica has had an organized securities market for several years, and its growth in volume of operations and in number and types of instruments traded has been substantial. Nonetheless, short-term debt instruments, especially those issued by the Costa Rican Government and by public and private financial institutions, continue to dominate trading in the formal securities market. The following report indicates some of the reasons, especially the macro-financial reasons, why this has been the case and also suggests some macro- financial policy changes that could hasten the development of capital markets in Costa Rica. The main macro-financial topics covered are: (1) the fiscal situation, not only of the central government, but of the Central Bank and autonomous government agencies, as well as the financing of the deficit; (2) changes in the foreign exchange regime, and, briefly, the behavior of the exchange rate and the balance of payments; (3) the behavior of monetary aggregates, inflation, and interest rates, as well as changes in government monetary, credit, and interest rate policies; (4) instruments for carrying out monetary policy and for the further development of capital markets; and (5) the effects of taxation on financial markets and instruments. (Author abstract, modified)