Former President Luis Guillermo Solis is being blamed for the country’s current financial situation, his government being accused of disguising the ‘real size’ of the debt facing the country in 2018.
A report by La Nacion expalins how Solis knew the situation, so much so that he moved money from one side to another to try to cover the leaks. However, he did not inform the Legislative Assembly of the situation and left the current administration a gigantic gap in the Budget.
The shortfall is almost ¢800,000 million (as figures with lots of zeros are reported in Costa Rica) because of two major problems.
Last year, the Ministry of Finance (Ministerio de Hacienda) budgeted ¢1.6 billion to pay amortization of public debt in 2018, that is, to return to investors the capital they lent to the Government through the purchase of bonds that are about to expire.
However, the amount was underestimated. Actually, the payout should have been ¢1.9 billion. The Solis administration assumed that the payment of the ¢300,000 million difference could be negotiated through debt swaps.
The debt swap consists of exchanging securities that are about to expire with new long-term ones, which delays the immediate return of the capital, with the understanding that the government will pay interest for a longer time. This is an assumption that is not usually included in the National Budget since it is an expectation.
Short-term bonds (bonos in Spanish)
The second problem was the following.
The ¢1.6 billion approved by Congress to repay debt were distributed as follows:
- Little more than ¢1 billion for long-term debt
- ¢447,000 million for short-term debt
- ¢62,000 million for external debt.
This was authorized in the 2018 National Budget.
The result is the government of Carlos Alvarado, yesterday (Thursday) completing its 100th day, scrambling to get the country’s finances in order, that includes the approval of the much needed Plan Fiscal if it is going to make any headway.
The approval of the Plan Fiscal, that includes tax reforms and cut public spending, has been a goal for the past four administrations.
According to the Central Bank of Costa Rica (BCCR) the economy will face a stunted growth and a growing public debt if legislators don’t pass the Plan Fiscal.