The lack of long-term solutions for reducing the fiscal deficit and improving the structure of public spending threaten the investment grade rating given by Moody's in 2010.
Economist and former president of the Central Bank, Francisco de Paula Gutiérrez, warned that "... 'On the issue of the deficit we are kicking the ball forward believing we have an infinite amount of time. We are spending very unwisely.'"
While the "owners" of the "business" of the State of Costa Rica -public employees - are raising their salaries by at least 4%, their "workers" - the private sector - , were given an increase of 2.35%.
EDITORIAL
As if they lived on Mars, two senior level officials in the government of Costa Rica, the Deputy Ministers of Finance and Labor stated that there will not be any problem with adjusting the salaries of state officials at a percentage that will offset previous inflation - 4.14% - arguing that the increased expense "falls within the available budget."
While the government announces its intention to curb imports of milled rice producers are warning that the current crop will not be enough.
Of the 72,200 hectares planned by the agricultural authorities for cultivation in the 2014-2015 agricultural cycle, producers are claiming that the harvest ending in April 2015 will amount to only 40 thousand hectares. Currently cultivation has a deficit of 6,300 hectares.
Producers are predicting lower production and an increase in costs because of the effects of El Niño, estimating a 15% drop in milk production in September and October.
The National Association of Milk Producers of Costa Rica (Proleche) does not believe that the end consumer prices will increase substantially, but estimates an increase in maintenance costs of farms because of climatic effects on soils.
The Central American Institute for Fiscal Studies has carried out an assessment of the public finances 2010-2013, and prospects for 2014.
From a statement issued by the Central Institute for Fiscal Studies (Icefi):
The Icefi showed that sluggish revenues and a strong increase in public spending accelerated the growth of the fiscal deficit, from 4.6% of GDP in 2010 to 7.9% of GDP in 2013.
The private sector demands limits on the government's ability to borrow, through means of a Fiscal Responsibility Law.
From a press release issued by the Chamber of Commerce and Industry of El Salvador (Camarasal):
The Camarasal has expressed dissatisfaction with the fact that the Legislature has authorized the government to issue a new bond debt for $1.156 million, without having first limited the state's debt capacity through the adoption of a Fiscal Responsibility Law.
If there are no reductions in state subsidies and wages no type of fiscal reform will allow the country to achieve sustainability.
Since 2013 and via an Article IV report for El Salvador, the International Monetary Fund (IMF) has been warning the government about the need to take action to moderate wages in the public sector and correct poorly targeted subsidies, establishing strict controls over costs, which for the current year increased by $281 million.
In order to ensure supply for the domestic market, the government has announced that it is negotiating grain imports from Colombia and Ethiopia.
Given the reduction in the harvest in the months of December 2013 and January 2014, the Government of Honduras has announced that it will resort to importing beans as part of a strategic plan to ensure supplies in the coming months.
Estimates are that the future prices of sugarcane will increase by up to 13% due to drought in Brazil, which in 2013 accounted for 28% of global production of the grain.
A shortfall in global sugar production and consequently higher grain prices is what is seen in the medium term in the global agricultural market. The effects of climate on sugarcane crops in Brazil have resulted in a decline in the production of the world's largest producer.
The 2013-2014 crops in both countries are not large enough to meet the demand of the respective populations.
Laprensa.com.ni reports that in Honduras " ... basic grain producers are warning that importing beans will be necessary, due to the low yield obtained in the 2013-2014 cycle in the country. Juan Valladares president of Prograno, said the shortage of beans in the country is not alarming, but imports of this grain will be needed and one of the markets where they would normally buy from is Nicaragua."
In the period 2014/2015 demand for coffee will exceed supply due to lower levels of grain production in Brazil.
The next coffee crop cycle will be the first since 2009/2010 in which a deficiency will be registered in the market as an overall deficit of 612,000 bags of coffee is foreseen. "2014/2015 will see the lowest level of production since 2011/2012 and the largest annual percentage decrease since 2009/2010."
The supply of homes being built in the country each year covers only 50% of demand.
According to the Chamber of Builders (Cadur), at the moment some 957,000 homes are needed in Nicaragua and demand is growing by 20 thousand units per year. Of that amount the public and private sector only constructed about 10,000 houses, covering only 50% of demand.
The Ministry of Finance and the Central Bank have raised interest rates for periods of 3-5 years in order to discourage short-term investments.
Uncertainty about the future exchange rate and the fiscal situation is leading investors towards short term investments, as they wait for greater clarity before committing resources on longer term investments.
The Government is still unable to curb its current account spending, which in 2013 grew by 8% compared to 2012.
Last year, the Salvadoran government used $3,654 million for consumption and operating expenses, $281 million more than in 2012, according to data from Banco Central de Reserva .
"Of the composition of current expenditure in 2013, 37.9% was needed for the payment of public employees, the purchase of goods and services accounted for 17.2% and commitments to public debt accounted for 15.9% of the spending."
In January 2014, current account expenditure increased by almost 8% compared to January 2013, with the category of Remuneration up 11%.
The monthly figures from the Central Government Revenues, Expenditures and Financing report published by the Ministry of Finance of Costa Rica, shows that the increase in total revenues in January 2014 was almost 11%, which meant a reduction in the fiscal deficit financial compared to GDP of 0.7%.