Thursday 16 September 2021

Former Finance Minister Edgar Ayales: “Moody’s Downgrading Is A Chronicle of a Death Foretold”

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COSTA RICA NEWS – In granting an interview with CRHoy, former Minister of Finance, Édgar Ayales, said he did not want to be critical of the government with respect to Moody’s Investors Service downgrading Costa Rica bond rating from “investment” four years to “junk” a few days ago.

Former Finance Minister, Edgar Ayales.
Former Finance Minister, Edgar Ayales.

According to Aayales, the Moody’s announcement was “the chronicle of a death foretold.” (Crónica de una muerte anunciada – Chronicle of a Death Foretold – is a novella by Gabriel García Márquez, published in 1981.)

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The former Finance Minister says that the country had been warned last year and reiterated six months, that if nothing was done about the fiscal situation, it would be downgraded and for that reason the previous administration began a series of sectoral consultations and left behind for the new government a Plan to achieve fiscal consolidation.

“Initially there was a consensus among the presidential aspirants, but later the situation changed and Luis Guillermo Solís announced that his government would wait two years to propose changes”, said Ayales.

Ayales, who since 2012 warned the administration of Laura Chinchilla of the seriousness of the fiscal problem, reiterated, “the fiscal problem is very serious and should not wait two years to be acted on. Costa Rica cannot wait. I was certain they (Solís government) were going to take action in May and apparently – according to me and the risk takers – the measures taken so far are insufficient.”

Where to start? According to Ayales, “reducing the burden of public employee salaries and pensions should be the first step and the point I recommended to don Helio Fallas (current Minister of Finance).”

The former Finance Minister says that he recommended the new minister set the public wage increase to equal inflation, “because anything higher, as was done, would nearly double the inflation when taking extras into consideration.”

With respect to the cap on high end pensions, Ayales explained that the measure had already been researched by the Attorney General’s Office, who said it would be difficult to implement and result in appeals, such as it has occurred. The former minister added that the impact of the measure is less than half the expected and the savings will be around ¢5 billion and not ¢12 billion as the government says.

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Ayales is sure that the current measures taken are insufficient.

“What Hacienda (Finance Ministry) has done is freeze wages and cut spending … these measures is what every past administration has done and are not new and will not change the situation, unless there is a drastic change in the sales tax, like moving to a value added tax and a real reform in income tax.”


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