Costa Rica Converts $1.63 Billion in IDB Loans to Colones and Swiss Francs

• Financial solution reduces the country's public debt in dollars
• Minimizes foreign exchange risk and interest rate volatility in the long term, and diversifies the portfolio in other currencies

The Inter-American Development Bank (IDB), at the request of the Government of Costa Rica, executed several debt management operations in 2024 to mitigate risks associated with exchange and interest rate volatility. Through non-deliverable swaps payable in dollars, Costa Rica converted the outstanding balances of 11 loans totaling approximately $1.63 billion, transforming dollar-denominated liabilities into colones and Swiss francs for $830 million and $800 million, respectively.

Sovereign debt de-dollarization is an innovative solution for managing exchange rate risk, which was applied to the following IDB-financed programs: Fiscal Sustainability Support Program, $350 million; Towards a Green Economy Program: Support for Costa Rica's Decarbonization Plan, $230 million; Fiscal Sustainability Support Program II, $250 million; Innovation and Human Capital Program, $23.8 million; Transportation Infrastructure Program, $251.8 million; Border Integration Program, $81.7 million; Emergency Program in Response to Tropical Storms, $19 million; Cantonal Road Network Program, $87.4 million; Infrastructure and PPP Promotion Program, $48 million; Public Safety and Violence Prevention Program, $38 million; and Emergency Program for Fiscal Strengthening, $250 million.

These conversions were executed by the IDB in collaboration with various international financial market counterparties, obtaining the best possible benefits for the country, despite market volatility influenced by current macroeconomic and geopolitical conditions.

"These debt management operations reaffirm the IDB's commitment to Costa Rica and its needs. Innovative financial solutions such as this one make it possible to reduce public debt in dollars, with fixed and very competitive interest rates, compared to sovereign bonds in local currency with terms comparable to the duration of foreign exchange hedges," said Francisco Javier Urra, IDB representative in Costa Rica. “The IDB has made available its experience and its highest credit rating in the financial markets to achieve the best prices at the lowest cost.”

Flexible financing facility

The IDB's Flexible Financing Facility (FFF) platform offers comprehensive financial solutions to its borrowing countries for project and loan program risk management and debt management. These solutions respond to the changing needs of these countries during the life of the loans.

"The conversion of loans to colones and Swiss francs is a strategic step to reduce the country's foreign exchange exposure and achieve better debt management. Thanks to the work done with the IDB, the conversions to colones were made for a term of up to ten years,” Costa Rica's Finance Minister Nogui Acosta explained. “This encourages the growth and strengthening of the local currency swap market and will help create a more liquid market with greater participation of market counterparties. For the Swiss franc conversions, in addition to the de-dollarization of debt and minimization of exchange rate risk, another benefit was to achieve greater diversification of debt with exposure to a currency other than the dollar, in addition to the benefits of currency correlation in the debt portfolio that this implies.”

The total amount of these currency conversions was executed in record time. This represents a debt management milestone for the region, considering the limited liquidity and depth of the local currency derivatives market.