Sunday 2 October 2022

With 44 votes in favor, legislators approve IMF loan

Disbursements are subject to compliance with a fiscal adjustment agenda, which includes the reform of public employment and the global income plan, among others

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01 October 2022 - At The Banks - BCCR

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QCOSTARICA – Legislators approved in a second debate, on Monday, July 29, the International Monetary Fund (IMF) loan of US$1.778 billion dollars, which will be disbursed in six-semester tracts subject to compliance with an agenda to clean up public finances.

The unicameral legislative branch of the Costa Rican government, this Monday, approved in second debate the IMF loand that will allow the government to swap current debt with less epxensive debt, saving US$39 millions a year. Photo: Aarón Sequeira. (Aaron Sequeira)

The vote, 44 of the 57 legislators of the unicameral legislative branch of the Costa Rican government in favor, in favor was achieved after a confrontation between the government and the opposition over the appointment of Partido Acción  Cuiadana (PAC) founder, Ottón Solís, Costa Rica’s representative to the Organization for Economic Cooperation and Development (OECD).

Solís resigned from the appointment on Wednesday, July 14.

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This is a win for the government of Carlos Alvarado, obtaining six more than the required 38 votes to approve the financing initiative.

Seven legislators spoke out against it.

The count for the positives came in at fifteen legislators from the Partido Liberación Naciona (PLN), ten from the PAC, five from the Partido Unidad Social Cristiana (PUSC), five from Partido Restoración Nacional (PRN), five from the Partido Nueva Republica (PNR), one from the Paridto Social Cristiana (PRSC) and the independents Zoila Rosa Volio, Ivonne Acuña and Erick Rodríguez Steller.

Votess against were Daniel Ulate, from the PLN; Melvin Núñez, fromf the PRN; Shirley Díaz, from the PUSC; Wálter Muñoz and Patricia Villegas, from Paritdo Integración Nacional (PIN); José María Villalta, from the Frente Amplio; and the independent Dragos Dolanescu.

Six legislators were not present for the vote.

The financing money, which will exceed will be used to replace expensive debt with a much cheaper interest rate.

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Meanwhile, the loan goes hand in hand with the fiscal project agenda agreed by the country with the IMF, in January of this year, for a period of three years.

After the vote, President Carlos Alvarado thanked the legislators for their support.

“This support will make it possible to exchange expensive debt for cheap debt, reduce debt with the CCSS, provide stability, and promote economic recovery. We are moving forward, Assembly,” the president wrote.

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The objective is for Costa Rica to apply a set of measures to achieve a primary surplus equivalent to 1% of gross domestic product (GDP) in 2023. In other words, that revenues exceed expenditures, without taking into account the money that it goes into paying interest on the debt.

In addition, the goal is for public debt to fall to 50% of GDP by 2035. Last year, indebtedness closed at almost 70% of GDP and, in May of this year, it was at 68.2% of GDP. production.

The agreement with the IMF includes a reform to public employment, already approved and currently under consultation with the Constitutional Court or Sala IV, as well as projects for global income, elimination or reduction of tax exemptions (including school salary), tax on awards of lottery over 225,000, modification of the tribute to luxury houses and a contribution of profits from public companies to the public debt.

The approved financing is called Servicio Ampliado del Fondo (SAF) – Extended Service Fund – and has a ten-year term, with a four-year grace period and an interest rate of 2.05%, much lower than current domescti debt financing.

After this approval of the project, Costa Rica will receive the first disbursement of US$292 million, while the other transfers would be disbursed semi-annually depending on the evaluations that the IMF makes each semester of compliance with the agreement made with the State.

These reviews will verify compliance with the goals agreed between the Government and the IMF’s board of directors, specifically on reducing public debt and increasing revenues.

According to data from the Central Bank of Costa Rica (BCCR), replacing the much more expensive domestic market debt with this financing could generate savings of US$39 million per year, during the first four years.

Although since last Thursday the clash between the ruling party and the opposition had been overcome over the Solís appointment, that day the fraction of the PUSC warned of the worsening health of legislator Rodolfo Peña, who has been hospitalized for more than two months because of covid-19.

That day, then, the various fractions chose to suspend the legislative plenary session to keep an eye on Peña’s state of health.

This Monday, with no other hindrances on the horizon, the vote was finally held.

 

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