Friday 20 May 2022

Uncertainty Persists in Costa Rica, Even With Tax Reform

Rodrigo Cubero, president of the BCCR, acknowledged that the pessimism of consumers and businesses

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20 May 2022 - At The Banks - BCCR

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In Costa Rica, the Banco Central (Central Bank) predicted that confidence would again prevail among businessmen and consumers once the tax reform was approved, but that has not been the case.

At the beginning of the year, the BCCR foresaw an increase in household consumption of 2.4% of GDP for 2019, but in the revision of its projections, in the middle of this year, it reduced it to 1.9%. Photo: Mayela López.

In December 2018, after a year of Legislative debates and after being reviewed by the Constitutional Court, the legislators approved the “Reforma Fiscal” (Tax Reform) the law of strengthening public finances.

With the approval, the uncertainty in the Costa Rican economy was expected to disappear, but according to the authorities’ pessimism is still present.

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Rodrigo Cubero, president of the Central Bank of Costa Rica (BCCR), told Nacion.com that “… The Central Bank made an estimate of how the confidence of the financial and exchange markets was going to be transmitted and how it was going to be reflected in the confidence of consumers and businessmen, with the consequence of more consumption and investment, but that did not happen’.

Cubero added that “… What is contributing to the low level of confidence of consumers and businessmen is the uncertainty of how the (Ley de Fortalecimiento de las Finanzas Públicas) will affect their own finances, how it will hit me in my pocket. That question introduces uncertainty and generates less consumption.

For 2020, the Central Bank expects a production growth of 3%; but cut it to 2.6%.

Rodrigo Cubero, president of the BCCR, acknowledged that the pessimism of consumers and businesses

For the president of the Chamber of Commerce, Yolanda Fernandez, the sector she represents is concerned, since no clear policies are observed by the government. She added that “… We don’t see a firm step towards an economic reactivation. Nor a greater forcefulness in clear decisions on the part of the Executive Branch.

The businesswoman insisted that one of the biggest threats of trade is informality. She even said that in the center of San José, opened, a few blocks from the Ministerio de Hacienda (Ministry of Finance), a new supermarket that does not accept credit cards for purchases.

The representative of the Chamber stressed that clear actions are urgently needed against these types of establishments, since they threaten employment and formal businesses.

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According to the Índice Global de Expectativas (Global Expectations Index), prepared by the University of Costa Rica (UCR), between the second and third quarters of the year reported a 9% decline, explained by a deterioration in the prospects of all productive sectors.

Consudmer confidence: 11.2% optimistic, 40.7% pessimistic, 48.1% ambivalent

The fall in the general optimism of the business sector originates in the weakening of the indexes of services, manufacturing, trade and construction and to a lesser extent, agriculture, explains the document.

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