Tuesday 28 September 2021

Tax hike an uphill race for government to negotiate with the IMF

The Minister of Finance had not finished presenting his proposal with a heavy fiscal burden and reactions against it were already abounding. What comes next is anyone's guess.

Front PagePolitical EconomyTax hike an uphill race for government to negotiate with the IMF

The Minister of Finance had not finished presenting his proposal with a heavy fiscal burden and reactions against it were already abounding. What comes next is anyone's guess.

(QCOSTARICA) A varied and wide outbreak of criticism and manifestations of discontent arose almost simultaneously with the presentation of the proposal prepared by the Government to start negotiations for an agreement with the International Monetary Fund (IMF) that the authorities consider critical to stabilizing finances public of the country.

Union, social, business organizations and almost all the political parties represented in the Legislative Assembly expressed their rejection of an approach that is offered as a new fiscal adjustment after the legal reforms approved in 2018, given the serious effects of the pandemic on state finances.

Due to the strong weight that the tax increase and the creation of new taxes have in the proposal, organized sectors coincide in considering it unacceptable, which puts even more pressure on legislators and reduces to a minimum, if not zero, the proposal’s political viability.

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The Partido Liberacion Nacional (PLN) bench, the largest in the Legislative Assembly and decisive in the approval of the tax reform at the end of 2018, took only 24 hours to issue a statement that rejects the possibility of approval for the proposals presented on Thursday, September 17 by the Minister of Finance, Elian Villegas; the Minister of Planning, Pilar Garrido, and the President of the Banco Central, Rodrigo Cubero.

Dozens protested outside the home of President Alvarado last weekend after the presentation of the proposal for negotiations with the IMF.

“The evident imbalance in the nature of the proposed measures is further aggravated by the absence of proposals for economic reactivation,” said the PLN in a statement issued after several hours.

It criticized that 80% of the proposal was based on new taxes and only 20% on the austerity measures demanded by the opposition, although it did not completely close the door to any increase in taxes.

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The adverse statement to the Government came out despite the position of former president Óscar Arias, inclined to new taxes as an inevitable way to face the collapse of finances during the pandemic, the call for negotiation made by former president Laura Chinchilla and the role that some legislators attribute in that proposal to former minister Rodrigo Arias (Oscar’s brother).

Hours later, before dawn on Saturday, the Restauración Nacional party (PRN) bench that has side closely with the Government also wanted to make its position clear: “no more taxes”, the phrase that had already become a slogan on social networks, in comments from analysts linked to political parties and in the synthesis of numerous press releases from different business groups.

“Accepting the feelings of the Costa Rican people, I do not see the environment in the Legislative Assembly to approve new taxes on the back of those who carry a burden that is already heavy due taxes,” said Eduardo Cruickshank, PRN legislator and president of Legislative Assembly.

This “feeling of the Costa Rican people” takes on more sense as the electoral campaign to elect a new President and new deputies approaches, which will officially begin in almost a year, but which already conditions the movements of relations within the political parties.

This “Costa Rican people” is the one that supports the Alvarado government the least, which expresses that unemployment is the country’s main problem above the COVID-19 pandemic and that the vast majority reject new taxes on salaried employees, regardless of the amount of their salary, according to a survey published this Monday, September 21 by the National Council of Rectors (Conare) of public universities.

The rejection of the taxes is joined by representations of local governments, religious organizations, professional and academic associations from different ideological angles, despite the Executive’s insistence on qualifying this proposal as “balanced”.

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“It is disproportionate,” said Olman Segura, director of the International Center for Economic Policy of the National University (Cinpe-UNA), as it implies a hard blow to the Costa Rican middle class and business and, in addition, it seems impossible to discuss the proposal and analyze it in a short time, UNA reported in a statement.

In defense of the Government came its legislative fraction, which may have little drag with its 10 legislators compared to 47 of the opposition with varied positions in a context of difficult negotiation due to the weakening of leadership in the groups.

Elian Villegas, Minister of Finance, said that the economic team will analyze the changes that will be made to the economic adjustment plan that will be presented to the IMF. Photo: Roberto Carlos Sánchez / Casa Presidencial

Minister Villegas insists that the proposal is not written in stone, that it is subject to possible changes based on the document presented. But the reactions suggest that slight variations would not suffice, but rather a rethinking that would complicate the financial goals set by the Executive as an offer to the IMF.

Those goals are ambitious, said former Vice Minister of Finance Fernando Rodríguez, considering that it is proposed to have a surplus in 2022 that would imply improving finances by almost five points of Gross Domestic Product (GDP). However, the Government could negotiate with the IMF without guaranteeing political viability, with the risk that later the goals will be breached and the confidence that international economic actors have in Costa Rica’s ability to reach agreements and meet objectives.

Former Presidents Arias, Chinchilla and Solís ask for openness to dialogue

Presidents of the last three governments called on the political sectors to maintain openness to dialogue and not close in a categorical rejection of the proposals made by the current administration to negotiate with the IMF and try to stabilize state finances.

Óscar Arias (2006-2010), Laura Chinchilla (2010-2014) and Luis Guillermo Solís (2014-2018) agreed on the need for opposition political parties and pressure groups to maintain negotiation margins with the government of Carlos Alvarado, above of the initial demonstrations against the tax increase.

“The main consequence of not reaching such an agreement (with the IMF) would possibly be a devaluation of our currency similar to the one we had in the government of former President Rodrigo Carazo (1978 – 1982).

A devaluation, as is known, means a generalized impoverishment for all Costa Ricans, where the poorest sectors would be the most affected, ”Arias wrote on his Facebook.

“There is nothing more urgent than reaching an agreement within our Legislative Assembly,” added Arias in line with a message posted on Twitter by his successor Chinchilla: “Negotiation, proposal and counterproposal are imposed. All this with the sense of urgency and responsibility that serious circumstances demand”.

The former president asserted that “our country is not governed by referendum,” in an apparent call to political representatives to make decisions over and above popular opinions.

The positions of the former PLN presidents are added to the one that Luis Guillermo Solís, of the Partido Acción Ciudadana (PAC) – the ruling party –  said on Monday about the imminent negotiation process with the IMF, “an essential negotiation to guarantee the stability of Costa Rica in the short term, and the continuity of its development in peace with justice and equity”.

Former PUSC presidents Rafael Angel Calderon (1990- 1994) and Miguel Angel Rodriguez (1998- 2002) PUSC) have also expressed themselves on the need for an agreement with the IMF, but in various media they have criticized the tax burden contained in the current Executive proposal in the face of a cut in public spending they consider reduced.

PLN former president Jose Maria Figueres (1994 – 1998) has chosen to repost on his Facebook comments from various political sectors such as legislator Wélmer Ramos (PAC), economists Gerardo Corrales and Sofía Guillén.

The government tries to scare with a “campaign of fear” to press for agreement with IMF; Exporters demand merger or closure of institutions before more taxes; Commerce criticizes new tax plan and demand cost reductions from the State

The tax proposal

The Plan to overcome the fiscal impact of the pandemic includes cutbacks on government spending and a series of new taxes, including a tax on banking transactions, a temporary increase in income tax rates for businesses and individuals, as well as for wages, a new property tax, and global income.

On Tuesday night (September 22), on a national television broadcast, that the Government said the country could face “very drastic” consequences if the agreement for a US$1.750 billion dollar loan with the International Monetary Fund (IMF) is not reached.

Source: Semanario Universidad

"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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