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 2017 budget drawn up by the government of Costa Rica is the result of an arithmetic exercise, where the political will of the Solis administration has barely reduced maintenance and has increased privileges in the dominant state corporations.
EDITORIAL
Scandalous could be the best word to describe the magnitude of the increase of 12% which the Solis Rivera administration has made in the 2017 public budget.The 12% increase not only far exceeds the projected inflation for this year, but is disproportionate and far from reality, considering the serious and urgent fiscal problem facing the country.
As in old fashioned patriarchal homes, if there must be suffering, the first to suffer are the stepchildren, and only afterwards, if necessary, the legitimate children.
EDITORIAL
The announcement by the Solis administration that it has a plan B in case it does not manage to get legislative approval for the proposed tax increases designed to address the serious and growing fiscal deficit, highlights the existence in Costa Rica of first class citizens and second class citizens.
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.
"There are many ways to define populism, but perhaps the most accurate is that it is a form of social and economic demagogy that sacrifices the future of a country for a fleeting present" - Mario Vargas Llosa
Editorial
In fits and starts, the president of the Legislative Assembly of Costa Rica has approved the state budget for 2015, after a majority of legislators voted against it, in an arbitrary exercise supposedly covered in a legal vacuum on the subject. Previously, the Assembly had rejected three different motions containing spending cuts in the budget, including one generated from the very same Ministry.
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 current conditions in the money market are different from those in 2013 and raising government funds abroad is no longer the best option.
The reality is that the incoming administration of Luis Guillermo Solís is stuck between a rock and a hard place, not only because the cost of financing abroad has dramatically increased, but because raising money in the local market could bring negative consequences for inflation and the exchange rate.
The main political parties running in the upcoming presidential and legislative election point to the need for tax reform.
Johnny Araya, candidate for the Partido Liberación Nacional, believes what should be done is to "create a National Tax Agency (NTA), to improve collection, as a decentralized agency of the Treasury, with a special procurement regime.