Monday, 3 August 2020

IMF Warns Costa Rica At Risk of Abrupt Financial Adjustment

Lorenzo Figliuoli, jefe de misión del FMI y el presidente del Banco Central,Olivier Castro se acomodaban ayer para la conferencia de prensa. El jeraca advirtió que el déficit fiscal sigue siendo muy grande. | JOHN DURÁN
Lorenzo Figliuoli (left), head of the IMF mission in Costa Ric and Olivier Castro, president of Central Bank prepare to sit down for a press conference. | Photo JOHN DURÁN, La Nacion

QCOSTARICA – The high fiscal deficit that is dragging Costa Rica could cause the international credit markets close their doors to the country, forcing a an abrupt financial adjustment, which would affect the weakest sectors.

So warns Figliouli Lorenzo, head of the International Montery Fund (IMF) mission visiting Costa Rica last week.

Figliouli said an immediate fiscal adjustment is needed as the goverenment’s debt reaches this year 5.9% of the GDP, and public sector debt reaches 60.4% of production.

- paying the bills -

According to IMF projections, the Costa Rican economy will grow a maximum of 3.5% in 2015. The IMF considers “unsustainable” the current trend, which will keep the fiscal deficit by at least 6% of GDP until 2019.

An article on reports that “… Figliuoli explained that when the deficit is so large and public debt compared to production grows so fast and exceeds levels of 40% or 50%, the risks for the economy increase . ”

The La Nacion reported Figliuoli as saying, “under these conditions, fiscal adjustment if it is not well designed, if it is not done gradually, would have a negative impact on the economy and, especially in the weaker sectors of society, those who can least defend themselves when things go bad”.

The former miniter of finance, Francisco de Paula Gutiérrez, considered valid concerns of the IMF chief.

“I think we are not facing the problem as due. More than seeking out financing from China, we should be kicking the ball a little more, we should be negotiating with the various political groups to attack public spending and new taxes,” said de Paula Gutiérrez.

- paying the bills -

The former deputy minister of Finance, Edna Camacho, explained that when a country reaches a level of debt considered unsustainable, investors may lose confidence in government’s ability to pay.

“Unfortunately, this distrust is related to confidence in the colon and therefore there is a risk of a disorderly adjustment in the exchange market,” she said.

This morning the Central Bank (BBCR) dropped the basic passive rate (tasa básica pasiva) to 6.25%, the lowest since 1981.

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