SUNS 4350 Tuesday 22 December 1998
COSTA RICA: CREDIT UNIONS SINKING
San Jose, Dec 18 (IPS) -- The cooperative movement in Costa Rica is in mourning in the wake of the government's closure of the sector's two credit unions, due to serious problems of illiquidity that have dragged on for months.
The decision to close the Banco Cooperativo Costarricencse (Bancoop) and the Banco Federado brought the crisis sweeping the cooperative movement - which is strong among farmers and the agribusiness sector in this Central American nation of slightly over three million - to a peak.
Costa Rican President Miguel Angel Rodriguez said this week that he had made the decision to close the two credit unions after discussions with representatives of the sector and financial auditors.
The Banco Federado, which belongs to 40 cooperatives, was taken over by the General Superintendency of Financial Entities (Sugef) in early September due to serious problems of liquidity.
Experts on cooperatives say the credit union's problems arose in the wake of the uncertainty caused by the announcement, a few weeks ago, of the liquidation of Coovivienda, an institution that specialises in long-term financing of low-cost housing projects.
Last week, the crisis plaguing the cooperative movement heightened when Sugef announced the takeover of Bancoop - the cooperative movement's strongest financial arm, belonging to 140 cooperatives.
Financial analysts say the credit unions' main problem has been (as in other regions) the "term gap" - a situation that arises when an institution takes in short-term money from the public and extends
long-term loans, which sooner or later leads to problems of liquidity.
Added to that were problems in managing credit portfolios, which are under investigation by Sugef.
Rodolfo Navas, a member of the administrative council of Bancoop, said the credit union had been taken over due to problems of illiquidity caused by a run on the bank triggered by the Banco Federado's September crisis.
The decision to close the doors of the institutions "is good and correct because it generates confidence and liquidity," said Navas, who added that he would however have preferred a less drastic solution. "There were viable options for the bank," he maintained.
The assets, liabilities and net worth of both Bancoop and Banco Federado are to be absorbed by the state Banco Nacional de Costa Rica (BNCR) - the country's largest bank - in an attempt by the government to prevent the financial problems from wreaking further havoc among cooperatives.
The government said it would provide an advance of nearly 100 million dollars to strengthen grassroots cooperatives and help them weather the storm. That sum represents the equivalent of hat the BNCR must transfer from its annual returns to the Instituto de Fomento
Cooperativo (INFOCOOP) over the next four years.
According to Costa Rican law, the BNCR must transfer 10 percent of its annual profits to cooperatives.
"From the cooperative point of view, we are aware that we must move toward a process of reordering and restructuring," said Victor Hugo Morales, a representative of INFOCOOP. "We are pleased with the liquidity solutions presented by the plan, but we are going to analyse how to defend our net worth."
With the closure of the two institutions and the transfer of their accounts to the BNCR, the members of the credit unions will lose their capital. As compensation, the government has offered them long-term credits for amounts equivalent to the losses.
The cooperative sector has more than 800,000 associates, including some 250,000 members of credit unions.
All of the cooperatives which own the Banco Federado are credit unions, while those of the Bancoop have a more diverse origin, which means the takeover of that institution could have an impact on various productive sectors.