Saturday, 24 October 2020

Government resorts to “pawning grandma’s jewelry” to pay debts

Central Bank agrees to the acquisition of treasury bills from the Treasury for ¢498 billion colones as a temporary financing measure for the government

The Government resorted to “pawning grandma’s jewels” to be able to face the debts for the next quarter. Those are the simple words to understand the government’s decision Tuesday afternoon of the issuance of ¢498 billion colones in treasury bills, which can be acquired by the Banco Central de Costa Rica (BCCR) – Central Bank of Costa Rica – for the amount necessary to cover the temporary deficit.

Finance Minister Rocío Aguilar

Finance Minister Rocío Aguilar and the president of the BCCR, Rodrigo Cubero, explained the treasury bills, with a term of 90 days (when the money is to be returned to the BCCR) is an emergency measure to finance current spending.

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Cubero said that the purchase of “treasury bills” will not have inflationary effects since it is a temporary bridge financing.

With this respite, the Treasury will be able to pay the salaries of public employees, who were at risk if this Central Bank short-term loan had not been granted.

The mechanism of “treasury bills” is within the law, Article 325 of the Ley Orgánica del BCCR and establishes that the interest rate of this instrument cannot be lower than the Basic Passive Rate (TBP) that is currently 5.75%.

While opposition legislators see the move as a threat to “the public interest in the case of non-compliance of payment by the Government”, Laura Guido of the ruling party, the Partido Accion Cuidana (PAC) defending the measure, saying that “this does not imply an economic crisis nor is it the end of the world. It is a contingency measure while this (Legislative) Assembly processes the fiscal plan,” she said.

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On the other hand, Jonathan Prendas, from the Partido Restauración Nacional (PRN), warned that the consequences of the country will be a rise in inflation in the short term and an increase (of prices) in the basic basket.

Carlos Ricardo Benavides, head of the Partido Liberación Nacional (PLN) legislative bench, said the measure is equivalent to pawning grandmother’s jewelry. “I would say that just taking into consideration that this is the first time that this has been used since 1994 with Banco Anglo*, it speaks for itself,” explained Benavides.

The Finance Minister said, “This is a decision that has not been taken lightly, with this we seek not to affect the ordinary citizen and guarantee wages in the next three months while looking for other methods”.

“Under the current circumstances, this is the best decision to protect investors,” minister Aguilar concluded.

The Central Bank for its part is expected to monitor the dollar exchange so that this does not affect its current stability.


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