Fiscal Crisis: Less Spending and More Information

Given the agreement reached by the Alvarado administration and the IMF for Costa Rica to access a $1.75 billion loan, the business sector is calling for a reduction in public spending and for detailed information on the scope of the agreement signed by both parties.

Monday, January 25, 2021

In an attempt to ease the fiscal and economic crisis the country is going through, last year the Alvarado administration began negotiations to access a loan for $1.75 billion to be requested from the International Monetary Fund (IMF).

Initially the proposal was not well accepted and in mid-November the country was at a standstill due to violent blockades by opponents of the project on different highways. At that time the authorities decided to withdraw the original plan and called for a national and multisectoral dialogue.

After the national dialogue was exhausted, the Costa Rican government sat down to negotiate with the IMF the conditions to access the multi-million-dollar loan.

According to an IMF statement dated January 22, 2021, the IMF mission and the Costa Rican government reached a staff-level agreement on a three-year program to anchor the government's policy and reform efforts to strengthen the country's response to the pandemic and lay the groundwork for a strong and lasting economic recovery.

The main policy measures under the country's IMF-supported program will focus on ensuring fiscal sustainability and promoting monetary and financial stability, while protecting the poor and most vulnerable sectors, the IMF document notes.

In this context, Fabio Masis, executive director of the Costa Rican Union of Chambers (Uccaep), told Elobservador.cr that "... From the business sector we consider, of greater urgency, to know the structural measures that the Executive has announced and that, for the sake of transparency, should be informed."

Masis explained that the "... Uccaep will be 'vigilant' of the compliance with the agreements established in the dialogue processes promoted by the Government and where different sectors participated. Measures such as reduction of public spending, adherence to the fiscal rule and reduction of transfers are commitments that are on the right track and that even from now on should be the norm and not the exception." See full article in El Observador.

Now the agreement signed between the technical staff of the Alvarado administration and the IMF must be endorsed by the board of directors of the financial organization and by the Legislative Assembly of Costa Rica.



More on this topic

Costa Rica: IMF Endorses $1.778 Billion Loan

March 2021

The financial resources that the IMF will lend to the Costa Rican government will be used to mitigate the fiscal crisis, strengthen monetary and financial stability, and boost economic recovery in the context of the pandemic crisis.

On March 1, the Executive Board of the International Monetary Fund (IMF) approved Costa Rica's request for an IMF Extended Fund Facility (EFF).

Reducing the Fiscal Deficit: A Great Challenge

December 2020

After the multi-sector dialogue in Costa Rica was concluded, the main risk qualifiers agree that because the agreements signed to reduce the deficit are not enough, the government should execute its fiscal policies in a timely manner.

Although Costa Rica's fiscal situation was already precarious before the health and economic crisis that led to the covid-19 outbreak began, the scenario started to worsen since March of this year.

Public Finances: What is Expected in 2021

October 2020

After the Alvarado administration agreed to backtrack on the proposal to negotiate a $1.75 billion loan with the IMF, it is predicted that next year the government will depend on domestic debt to finance its expenditures.

In mid-September, and in the context of a severe economic crisis that had been brewing before the pandemic, the Executive presented the plan with which it intended to mitigate the fiscal impact of the Covid-19 crisis, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a $1.75 billion loan.

Effects of the Lack of Leadership

October 2020

Although the Alvarado administration reversed the initial proposal to ask the IMF for $1.75 billion in financing and called for an inter-sectoral dialogue, Costa Rica is semi-paralyzed by the blockades that are taking place on various roads in the country.

On the afternoon of September 17, and in the context of a severe economic crisis that had already begun before the pandemic started, the Alvarado administration presented the plan with which it intends to mitigate the fiscal impact of the Covid-19 crisis, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a credit of $1.75 billion.

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