Caribbean & Central America - November 2013 (ISSN 1741-4458)

Still discussing fiscal reform: On 17 October Costa Rica’s finance minister, Édgar Ayales, presented a government paper entitled Towards Fiscal Consolidation: Agenda for a National Dialogue which calls for a national and cross-party dialogue to reach a consensus on the long-term macroeconomic policies necessary to bring the economy back under control. Its objectives cover boosting economic growth and domestic production and cutting the deficit through increasing tax revenue.

The document calls for five rounds of discussions to take place between now and 21 November on: improving the administrative and legal structures of the tax and customs systems; fiscal governance; public spending; public debt and investment and fiscal policy & environmental sustainability. The first round of discussions – on tax and customs structures – took place on 24 October. “This isn’t a case of a proposal, but rather an analysis and a list of options, not necessarily agreed, but which we are aiming to enhance through the visions and ideas that all those taking part in this process of dialogue bring to the table”, Ayales said presenting the paper. “We shouldn’t allow the fiscal problem to turn into a long-term one. For this reason, discussions and agreement on a solution to the fiscal imbalance must not be put off any longer”, he added. An increasing cause for concern [RC-13-10] Costa Rica’s fiscal deficit has been constantly rising in recent years and is forecast to reach 5% of GDP this year, its highest level since the 1980s when the country was suffering the effects of Latin America’s debt crisis. The government’s aim is to bring the deficit down to around 3.5% of GDP over the next five years, in other words over the remainder of President Laura Chinchilla’s current four-year term that ends in May 2014 and a year into the new administration. However, this goal could be difficult to achieve if the problems currently affecting Costa Rica’s economy persist. Former foreign trade minister, Alberto Trejos (2002-2004), recently pointed out that Costa Rica is suffering as a result of a sluggish international economy as its main trading partners – the US, the European Union (EU), and other Central American countries – continue to suffer slow rates of economic growth. This economic slowdown has resulted in a rise in unemployment in Costa Rica, which now stands at close to 10%, leading to lower domestic demand and falling tax revenues. All of which makes tackling the deficit more difficult. A leading researcher at the University of Costa Rica’s economics science research institute (IICE), Rudolf Lücke also highlighted the need to tackle the fiscal deficit, pointing out that “it prevents the government from carrying out the spending and investment that would invigorate the economy”.