After a long and tense wait, the Constitutional Chamber granted the approval for the Law to Strengthen Public Finances to be voted in Congress with a simple majority.
The Court's judgment prepares the way for the law to advance more quickly in the coming weeks in the Congress. Now legislators will be able to vote their approval in the second debate, ending a long period of uncertainty, which led to a significant depreciation of the Colon against the dollar, a rise in interest rates and a general concern about the economic future in the short term.
The constant increase in Costa Rica's public debt seems unstoppable, which could generate "a sudden change in investor confidence" and force "a messy macroeconomic adjustment".
Even if in the coming months they manage to secure parliamentary approval for tax measures currently requested by the government, public debt will continue to increase and in 2019 will represent over 50% of GDP.
The technical redefinitions that make up a successful tax reform should be based on a reformulation of the social contract which establishes national goals.
Nacion.com reports that "According to Augusto de la Torre, Chief Economist at the World Bank, the fiscal debate is more than just an economic debate, it is almost a philosophical debate about the kind of state we want to have."
In a worst case scenario, debt could climb to 50% of GDP within 2 years.
According to economist Thelmo Vargas, a partner at the consulting firm Ecoanálisis, the forecast is of a base scenario in which interest rates are 5%, the economy grows at a rate of 4% and a primary deficit of 3% is registered for production.
"However, in a scenario with more pessimistic assumptions, Government obligations could grow from 38.7% of GDP expected for 2013 to 50.3% of production in 2015," noted an article in Elfinancierocr.com.
In order to fulfill his campaign promises, the new president, Otto Perez Molina, must achieve consensus for the approval of a tax reform.
For the former vice president of the Banco de Guatemala (Banguat), Mario Garcia Lara, the priority is "to bring order to public finances."
The journalist Lorena Alvarez summarizes in her article in Elperiodico.com.gt, opinions of analysts, economists and representatives from the private sector, regarding the new government’s priorities.