QCOSTARICA BLOGS – Mr. President, as a Canadian Lawyer, Naturalized as a Costa Rican, and practicing law in Costa Rica for thirteen of the past seventeen years that I have resided in Costa Rica, I believe that I have a very good background to comment on the current economic crisis facing Costa Rica, both from a legal and a political perspective.
Indeed, I have written some previous blogs for this website, which address these issues and I have offered solutions to these economic problems. The problem, as I view the short and long-term solutions to these problems, is that there are no policies or solutions being presented by your Government, which will in-fact correct the looming economic crisis and avoid undue hardship to ordinary Costa Ricans in general.
Mr. President, I do not question your personal honesty, or integrity, nor of your wanting to find a solution to these current economic problems that face the Nation. However, possibly due to your purely academic background, there does not seem to be a practical approach to solving these issues emanating from your Government at the moment. The Fiscal Reform Plan, currently submitted to a Legislative review committee, is, in my opinion, doomed to failure, as has been the fate of such predecessor legislative packages considered over the past few years. Changing the Sales Tax to a VAT Tax and implementing a 2% tax increase from the current Sale Tax rate of 13% to the proposed VAT rate of 15%, over a two-year period, will never be accepted, as it is predicated on false premises. The proposed tax increase is merely a cover-up to pay current excessive Public Sector wages and benefits, which are calculated on an error perpetrated by the Oscar Arias Government of two terms previous. In addition, such an increase in taxes would be a hardship to pay for both rich and poor people alike. I see other aspects of the Plan having an equally difficult time to achieve legislative approval.
The Legislative process for the review of the Fiscal Reform Plan will proceed like this:
1) The Legislative Review Committee, where the Plan now sits, will perform its review of the Plan and will recommend cuts in Government spending in the Public Sector, which the Government will not be able to meet under the proposed Plan, the majority of such spending going to the Public Sector for the required payment of excessive wages and benefits;
2) The Plan will be submitted to the Legislative Assembly for debate in the month of October, where is will enter the “feigned support”, legislative “lip-service” phase, where certain Diputados (Legislative Assembly Members), will wax eminently in favour of the Plan being passed, but without any conviction to pass it;
3) In the month of December, the Plan will come-up for a vote in the Legislative Assembly, on the final day of sitting prior to the Christmas break. The majority of the Diputados will miraculously have already “left for the beach”, and no quorum will be present in order for the vote to proceed, thereby avoiding any personal responsibility by any of the Diputados for the Plan’s passage and its negative consequences, if implemented.
4) The Fiscal Reform Plan will languish and the economic crisis faced by the Country will deepen, with an implemented solution becoming increasingly more urgent.
Mr. President, knowing better than I do, that this legislative outcome has been historically proven to be the predictable chain-of-events, would it not be more practical to embark on a solution which will work in solving the current economic crisis in Costa Rica and implementing it on a timely and staged basis, which would minimize the hardship of its implementation on ordinary Costa Ricans?
I offer again, the following three-step solution to solving the current economic crisis facing Costa Rica, which if acted on now, with a staged implementation, would minimize the hardship which would be suffered by the population at-large:
1. Public sector wages and benefits must be capped and in the case of benefits, such as bonuses (“plusas”) and pensions, rolled-back. Wages, likewise must be rolled-back in a staged manner over a short time period, of not more than two years.
2. The tax structure and the related structure for the cost of doing business in Costa Rica (the cost of utilities, etc.) must be made competitive with other countries to attract foreign investment, the tourism sector, and the like. This will have the effect of stemming the current growing unemployment problem in the Country, put more money in the hands of employed Costa Ricans, and generate more general tax revenue through pay-roll deductions for those so employed. There will also be a reduced cost to the Government for social and domestic problem solving associated with the rising unemployment circumstances.
3. The effective exchange rate between the Colon and the U.S. Dollar must be made real, as opposed the current Central Bank manipulated exchange rate currently in effect. The true exchange rate is probably somewhere between 600 and 700 colones to the U.S. Dollar. Obviously, monthly payments to service mortgages and loans would rise for those affected by such an exchange rate adjustment. However, the adjustment would certainly stimulate the Exportation Sector of the Economy and would further bolster foreign investment in the Country and tourism in general; again, producing more general tax revenue.
Mr. President, I realize that my proposals would require a firm hand from you in order to be able to implement them.
I look forward to having the beer with you to discuss them further; I’ll let you pick the time and place.