Sunday 19 September 2021

Legislators approve US$1.778 Billion loan with IMF

Second debate is expected after legislators return from mid-year recess; Funds will be used to exchange expensive debt for cheaper

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QCOSTARICA -Legislator approved, this Thursday, in the first debate, the load for US$1.778 billion dollars with the International Monetary Fund (IMF).

Second debate is slated for July 12, on return of legislators from the mid-year recess

The loan with the IMF was approved with 38 votes in favor and 6 votes against.

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The vote for the second and final debate is for July 12, after the mid-year recess that beings today.

After the approval of the financing, President Carlos Alvarado thanked the legislators.

“A firm and necessary step, which brings us closer to its final approval and allows us to advance in the fiscal consolidation agenda, which provides an indispensable basis for economic recovery,” said the president.

The favorable votes came mainly from legislators from the Partido Liberacion Nacional (PLN), Partido Accion Cuiadadna (PAC), Partido Restauracion Nacional (PRN), the Parido Unidad Social Cristiana (PUSC), as well as from independent legislators.

Meanwhile, the votes against were two legislators from the PUSC, as well as two from the National Integration Party (PIN), José María Villalta, from the Frente Amplio, and independent Dragos Dolanescu.

Independent legislator Dragos Dolanescu was one of the more expressive against approving the IMF loan

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The head of the PAC, Laura Guido, described the loan with the IMF as a great relief for public finances. She explained that, according to the Banco Central de Costa Rica (Costa Rica’s Central Bank), this project would allow savings of US$39 million per year, during the first four years.

PUSC leader, Pablo Abarca, said he voted in favor because he recognized that it is a loan with better conditions than the internal debt. However, he emphasized that it is not a blank check for the Executive Branch.

On the other side of the same party bench, Shirley Díaz attacked the loan by arguing that cases such as Cochinilla, about alleged corruption in the contracting of road works, generate indignation and corrode confidence in the Government.

“Until we see an action plan, a clear route, this legislator is not going to approve more loans, because there are no signs of efforts to collect taxes,” she said.

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For his part, Frente Amplio legislator, José María Villalta, said that he based his negative vote on the “deep discontent generated by the actions of this government”.

In particular, he pointed out, “there is a lack of clarity about how the Executive Branch is going to use that money” in addition to the confusion about the need or not to approve other bills within the agreement with the IMF, to continue accessing financing.

The loan comes from the Expanded Service Fund (SAF). It has a ten-year term, with a four-year grace period and an interest rate of approximately 2.05%.

The foregoing would allow the Government to have access to financing much cheaper than domestic debt since in the country it is possible to access debt in dollars at a rate of around 11%.

After approval of the loan in Congress, the first disbursement of US$292 million would be received, while the rest of the transfers would be made against semiannual evaluations by the IMF.

These reviews will verify compliance with the goals agreed between the country and the IMF, in terms of reducing public debt and increasing income.

The agreement involves achieving a primary surplus equivalent to 1% of gross domestic product (GDP) in 2023.

In addition, the Government is committed to reducing debt to GDP from 2023, until it reaches 50% of production in 2035.

Before the loan was ruled on in the Treasury Commission, legislators approved to allocate 10% of the funds to pay the debt that the State has with the Costa Rican Social Security Fund (CCSS).

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"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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