The cost of not making decisions about the serious fiscal problem affecting Costa Rica "is incommensurable and has the potential to affect not only the economic but also the social and democratic order of the country."
This is the emphatic and clear position of the Comptroller General of the Republic of Costa Rica regarding the serious and risky situation in which the public finances of the country find themselves.Furthermore, as is well mentioned in the report "Fiscal and Budgetary Evolution I semester 2018", published recently by the institution, if decisions related to solving problems of short-term liquidity and modifying the structure of public expenditure to the medium and long term continue to be delayed, the cost to the country will be much more than just economic.
According to Fitch Ratings, the fiscal outlook still faces considerable uncertainty in Costa Rica, despite the promise of President-elect Carlos Alvarado to carry out comprehensive reforms to reduce the deficit significantly.
In the view of the ratings agency, "... President-elect Carlos Alvarado's strategy for the future is not yet clear. Pressing the smaller 'fast track' bill might be politically easier, but it could reduce the urgency around additional reforms; Supporting a larger package could be more politically difficult."
Citizens are less than two months away from going to a ballotage to elect a new government without having discussed the country's priority issues, even though some of them require urgent attention and a deep national discussion in order to find a solution.
To address the fiscal disaster, the government is prioritizing current consumption by maintaining wages and inordinate current spending while cutting investments in education and infrastructure.
In the bill for the public budget for 2018, the Solis administration proposed reducing planned expenditure on infrastructure by 17%, and reduced the amount allocated to education from 7.62% of GDP to 7.4% of GDP, failing once more with the constitutional order to invest 8% of GDP in education.
After recognizing the serious liquidity problems faced, the government has announced it will borrow another $1 billion for a hearty lunch that others will pay for tomorrow.
The $1 billion that the Central Bank of Costa Rica (BCCR) has been negotiating since May with the Latin American Reserve Fund (FLAR) to strengthen its reserves will arrive in October of this year, according to the BCCR authorities.
The organization has once again supported the initiative that the Costa Rican government has control over the register of shareholders of companies classified as large taxpayers.
"The state must have in its hands information on the shareholders of companies and where dividends go to. In a democracy like this it is very difficult to understand how, who and why people can oppose the state having that information, " said the secretary general of the Organisation for Economic Co-operation and Development (OECD) Angel Gurria to Nacion.com.
The Chinese government has announced that it will not buy bonds worth $1 billion offered by Costa Rica, seriously delimiting the leeway that the Solis administration has to manage its growing fiscal deficit.
The lack of political conditions to implement greater controls on government spending and to gain approval for a fiscal package which would tidy up state finances is preventing multilateral lenders such as the World Bank or the IMF from lending money to Costa Rica, meaning that, after the elimination of the option to sell bonds to the Chinese government, Costa Rica will have to resort to the domestic market for funds, which will inevitably push up the cost of money for all sectors, including production.
Very dark is the future of a country where the rulers do not lift their gaze beyond the few years of the mandate conferred on them by citizens.
EDITORIAL
The president of Costa Rica prefers short-term actions to address the fiscal crisis, while leaving open the tap of privileged public wages by which the future of the nation drowns through.
It is clear that immediate measures need to be taken such as reducing tax evasion and smuggling, and cutting abusive pensions. And it is quite possible that in order to maintain the rule of law taxes also need to be raised. But not closing, RIGHT NOW the growing cascade of state payroll costs that is multiplying every year, means mortgaging the future of the Costa Rican economy. However, president Solis postpones dealing with the topic, because its impact would be felt "only after 15 or 18 years."
The need to borrow every month in order to pay current account expenses is the main cause of the continuing increase in the central government's debt to GDP ratio.
At the end of 2014, total public debt, which includes the Central Bank of Costa Rica and other public sector entities represented 58.6% of all production. Rodrigo Bolaños, president of the Central Bank, said that "...
An announcement has been made that the government has selected Deutsche Bank and HSBC to structure and place on the international market an issuance of debt of up to $1 billion, scheduled for February 2014.
In order to take advantage of any "window of opportunity" that may present itself in the international market in terms of rate conditions and demand for the issue, the government of Costa Rica has accelerated the process and selected Deutsche Bank and HSBC to lead the process of placement of public debt worth up to $1 billion.
Despite being reduced compared to 2013, the IMF insists that the fiscal deficit remains a thorn in its side for preventing the economy from reaching its full potential.
From a statement issued by the International Monetary Fund (IMF):
January 30, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Costa Rica.
In a clear warning signal, the ratings agency has changed the outlook for Costa Rica's sovereign debt from stable to negative, arguing that there is a lack of measures to reduce the fiscal deficit.
From a statement issued by Fitch Ratings:
Fitch Ratings-New York-22 January 2015: Fitch Ratings has revised the Rating Outlook on Costa Rica's Long-term foreign and local currency Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at 'BB+'. The issue ratings on Costa Rica's senior unsecured foreign and local currency bonds have been affirmed at 'BB+'. The Short-term foreign currency IDR has been affirmed at 'B' and the Country Ceiling at 'BBB-'.
Although the product has remained steady in its level of potential, the country's economic prospects are not as promising due to the weakening of economic fundamentals.
From a statement issued by the International Monetary Fund (IMF):
This note summarizes preliminary findings and recommendations of the IMF staff mission that visited Costa Rica during October 28–November 11 to conduct the 2014 Article IV consultation.
Moody's has removed the country's rating of "investment grade", citing the increase in public spending and political inability to implement fiscal reform.
From a statement by Moody's:
New York, September 16, 2014 -- Moody's Investors Service has today downgraded Costa Rica's government bond rating to Ba1 from Baa3. Moody's has also changed the outlook to stable from negative.
The academic corporatism which has come to power in Costa Rica brings a "vision of the world of the Social Democrats of the sixties and seventies."
An analysis carried out by Juan Carlos Hidalgo on his blog on Elfinancierocr.com on the proposed Costa Rican state budget points to a decalogue of macroeconomic horrors that besides contradicting election promises on cost containment and austerity, show an outdated vision of the new government regarding the alleged benefits of increased public spending in the functioning of a modern economy.