The text of the approved bill loan will be sent to the Presidential House to be signed by President Carlos Alvarado.
- Photo for illustration purposes only -
Published on Tuesday, July 20, 2021
On Monday, with 44 votes in favor and seven against, Congress approved bill No.22,433 in the second and final round of votes, allowing Costa Rica to receive a $1.778 billion loan from the International Monetary Fund, IMF.
The text of the approved bill loan will be sent to the Presidential House to be signed by President Carlos Alvarado, with which the IMF will make the first disbursement of about $300 million.
The approval of the loan in Congress was scheduled for last week but deputies rejected the appointment of Ottón Solís (former deputy and former founder of the Citizen Action Party, PAC, who is currently in government) as Costa Rica's representative to the Organization for Economic Cooperation and Development (OECD), delaying the process.
Solís resigned his appointment to the distinguished post shortly after being appointed by President Alvarado.
In April, President 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.
· 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," Alvarado said in an interview published by the IMF in April. "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 loan 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. Some ideas included: 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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