Costa Rica Anti-Gay Marriage Candidate Leads Ahead of Runoff

(Bloomberg) -- An evangelical lawmaker and a candidate from Costa Rica’s ruling party look set to face each other in a runoff vote to choose the country’s next president, following a first round in which same-sex marriage supplanted the economy as the most potent issue.

Fabricio Alvarado, who argued against any change to the marriage laws, was ahead with 24.9 percent after 93 percent of polling stations had reported, according to the electoral authority. Ruling party candidate Carlos Alvarado, who is no relation, trailed in second place with 21.7 percent of the votes. Since none of the candidates exceeded the minimum threshold of 40 percent to avoid a second round, a runoff vote will take place on April 1.

The nation’s dollar bonds due in 2045 dropped 2.2 percent, the most in more than a year, sending the yield up 20 basis points.

Support for the previously little-known lawmaker rocketed after the government said it would implement a ruling by the Inter-American Court of Human Rights in favor of gay marriage. The surge in his poll numbers triggered the biggest one-day drop in bonds for 14 months as the focus of the debate shifted away from Costa Rica’s surging budget deficit.

Seven different political parties will make up the 57-member unicameral congress with the country’s PLN party winning the largest block at 17 seats. That won’t make it easy for the next government to pass a tax reform to get the deficit back under control, according to Andrew Stanners, a London-based money manager at Aberdeen Asset Management.

"The legislature looks fractured again with this result," Stanners wrote in reply to emailed questions. "The market should treat these results with increasing caution and the optimism for an administration and legislature capable of tackling the country’s fiscal malaise should moderate.”

Investor favorite Antonio Alvarez, who campaigned on limiting fiscal borrowing, was in third place in the presidential vote, with 18.6 percent.

Investor Jitters

Investors are jittery after the fiscal deficit widened to 6.2 percent of gross domestic product last year, the highest since 1983 when the central bank began tracking it. President Luis Guillermo Solis has repeatedly failed to get new taxes through congress.

The Central American nation has suffered a total of five downgrades to its credit rating from Moody’s, Fitch and S&P Global Ratings since 2013. Moody’s had lifted the nation to investment grade, but all three agencies now rate Costa Rica’s bonds as junk.

The central bank said in a report on Thursday that the fiscal deficit will widen further to 7.1 percent of gross domestic product this year and 7.9 percent next year. Debt levels will also rise to a record 53.6 percent of GDP this year and 59 percent next, the bank said.

"The main issue to be dealt with is the fiscal deficit," said Vidal Villalobos, head of economic studies for Prival Bank S.A., speaking before the election. "Markets are very aware of Costa Rica’s fiscal problems and the country is paying for it."

To contact the reporter on this story: Michael McDonald in Guatemala City at mmcdonald87@bloomberg.net.

To contact the editor responsible for this story: Matthew Bristow at mbristow5@bloomberg.net.

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