No matter what is said about Laura Chinchilla, she does not give up easily. On October 3rd her government is expected to present once more the Plan Fiscal (fiscal plan) to reduce expense and raise taxes.
This sudden urge to do it again was born from a rather stern message from Moody’s credit rating agency that basically said, “Your time is up Costa Rica.” We do not see any progress and the country will, more than likely be downgraded to “Below Investment Grade.”
Already Standard and Poor’s and Fitch Ratings have designated CR “Below Investment Grade” and if all three rating agencies agree, it will result in an increase in interest rates for borrowing as well as stave off many foreign investors. Edgar Ayales, Minister of Finance, told La Nación that losing investment grade by Moody’s would be disastrous for the country and further hit public finances. Keep in mind that the government pundits used the word “disaster” as a grand part of its last fiscal plan sales pitch which fell flat.
The leading candidates for president plan to focus on collections rather than a tax increases. Also do not overlook that every price increase on every product or service automatically increases tax revenues. For example the 83% increase in the cost of landlines will certainly be taxed. The water increase, the fuel increases, the transportation increases, etc.
Somehow it is difficult for me to understand how all the new fees and increases in public services will invigorate a really poor economy.
While we cheer le Sele, unemployment went from 9.8% in the second quarter of 2012 to 10.4% in the second quarter of 2013. Costa Rica underemployment (Those people not working a full 40 hour week) went from 11.4% to 13% during the same period.
“Extended Unemployment” jumped to another 12.3%.
The Central Bank estimates that Costa Rica started to lose domestic production since April 2012. Until this year it was annualized at 7% but in April 2013 domestic production plummeted to a meager 2%.
The increases in cost of living, increases in tax certainly will and do not foster a healthy economy and we do not need Paul Krugman to tell us that.
Sources: Statistic and Senses Institute (INEC), Ministry of Finance, La Nación, Central Bank