The deputies of the Finances Permanent Commission of Congress, pre-approved more than $1.7 billion loan from the International Monetary Fund.
- A.M. Costa Rica illustrative photo -
Deputies pre-approve $1.7 billion loan from IMF
Published Thursday, April 29, 2021
By the A.M. Costa Rica staff
The deputies of the Finances Permanent Commission of Congress, pre-approved bill No. 22,433 on Wednesday, to allow Costa Rica to receive more than $1.7 billion loan from the International Monetary Fund.
As part of the protocol to be followed in these cases, the bill will be sent for final review by government institutions including the General Comptroller, Ministry of Finance and the Ministry of Planning, said the Congress in its statement.
According to the Ministry of Finance, the loan will help the country recover and stabilize from the economic damage caused by the pandemic.
The pandemic negatively impacted the tourism sector. While the government’s prompt response helped to avoid a greater health crisis, the financial impact has been considerable, said the IMF in its statement.
"A new economic program, supported by the IMF’s Extended Fund Facility, aims to stabilize the economy and ensure debt sustainability while protecting the most vulnerable," the organization added.
President Carlos Alvarado said the loan plays a key role in three areas: technical support to the program’s design, implementation and follow ups; the credibility it brings to the process and to the macroeconomic policy program at the national and international level; and access to cheaper financing by mobilizing resources from other official creditors and supporting market confidence.
"The covid-19 shock was of such magnitude, not just on lives and livelihoods but also on public finances, that fiscal consolidation is unfortunately inevitable," said Alvarado in an interview published by the IMF. "Having the IMF’s support helps us to smoothen this process and strengthen our public finances in a way that ultimately benefits all Costa Ricans."
The medium-term nature of the three-year program will also help ensure policy continuity throughout and beyond the 2022 elections, thereby boosting consumer and investor confidence and supporting economic growth and job creation, Alvarado said.
In January, the Ministry of Finance presented to Congress its plan to reach the loan.
According to the ministry, with the loans and adjustments in government expenses and income, the economic stability of Costa Rica in the medium and long term can be guaranteed.
To generate income, the government proposes to create more taxes, for example, charge an income tax to the school bonus for public employees.
The school bonus is an extra payment for public employees made in January as support to cover the expenses of their children at the beginning of the school year.
The plan also includes canceling or reducing some exemptions, increasing the tax on luxury homes, creating a universal income tax, creating a new tax on lottery prizes, and others.
The Government also plans to sell the loan assets portfolio of the National Commission for Education Loans, which provides loans to university or academy students to continue with their careers.
When it comes to reducing public spending, several projects were proposed such as changes in the public employment law (which reduces privileges to public employees), reducing expenses in the purchase of goods and services and reducing the pensions that are paid out of the government budget.
The plan proposes to reduce spending from 16.45% of GDP to 13% in the next five years.
According to the ministry, many of the government's plans are the result of conversations with organization leaders, chambers of commerce and political leaders. Those meetings were held last year, as a condition to end blockades by many organizations that protested against the IMF loan.
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