National Debt, Spending Debate Continues

FINANCE Minister Federico Carrilloand members of the Legislative Assemblyappear to be at a fiscal impasse regardingthe nation’s spending and debt.Carrillo maintains his position thatreducing the national debt must be a toppriority for the government, even at theshort-term expense of investment in otherareas, while the assembly’s FinanceCommittee has redirected funds in the2005 budget from debt payments to governmentprograms (TT, Oct. 15).According to the committee, ¢86 billion($191 million) of the funds originallydestined to pay off interest on the burgeoningnational debt have been redirectedtoward social spending.In the original budget presented to theassembly on Sept.1 by the FinanceMinistry, $2.63 billion, approximately50.7% of the total budget ($5.18 billion),was set aside to pay interest on the debt(TT, Sept 3).CENTRAL Bank spokeswoman OlgaMarta Monge told The Tico Times thenation’s total debt exceeds $10 billion.This figure includes debt incurred by thegovernment, the Central Bank, and the restof the non-financial public sector.The committee’s re-appropriation offunds would set aside approximately $2.44billion for debt interest payments, a reductionof approximately 7.3% from theamount designated by the Ministry.The assembly is scheduled to begindebating the 2005 budget on Monday andmust approve a final budget by midnighton Nov. 30.According to the Finance Minister,however, the budget’s approval by theassembly does not guarantee its execution.This week, Carrillo told The Tico Timesthrough his press officer, FabiolaMartínez, that the assembly’s budget is arecommendation that the Finance Ministrydoes not necessarily have to follow.“THE Finance Ministry is not obligatedto comply with (the budget) establishedby the assembly members,” he said, adding,“in Costa Rica, the budget is an authorizedspending maximum, not an obligatorymandate for the Finance Ministry.”Carrillo also said his priorities for thenational debt have not changed.“The Finance Ministry cannot neglectinterest payments to redirect money to otherends,” he said. “It cannot, and we are notconsidering it. The Ministry will dedicatethe necessary resources to attend to the paymentof interests on the public debt, independentlyof the ‘cosmetic’ changes theLegislative Assembly might effect.”The Finance Ministry and thePacheco administration have argued foryears that the long-term importance ofreducing the national debt outweighsshort-term sacrifices.CARRILLO is the third FinanceMinister to make the argument since thebeginning of Pacheco’s administration;the previous two ministers both resignedunder pressure from public workersdemanding higher salaries which, accordingto the ministers, Costa Rica cannotafford (TT, Oct 15).Carrillo reiterated the administration’sposition again last week when heannounced the government would not beable to pay ¢20 billion (approximately $44million) to the Social Security System(Caja) to help cover medical expenses ofuninsured patients, La Nación reported.The Caja had reportedly asked for the ¢20billion as an advance on the nearly ¢145billion ($322 million) that the state owesthe organization.CARRILLO said that while he recognizesthe state’s debt to the Caja and toother state institutions like the NationalRoadway Council (CONAVI), the centralgovernment is unable to pay back the debtor make further investments in social programsbecause almost all the state’sincome is dedicated to public salaries andinterests payments.According to a statement released Oct.7 by the Finance Ministry, 94% of fundsspent by the government go towardsalaries and pensions of public employeesand interest payments of the national debt,leaving only 6% for investment in otherareas.Carrillo has also predicted Costa Ricamay default on its interest payments if the2005 budget does not include increasedfunds for that purpose (TT, Oct. 15).THE administration’s stance on thenational debt, which amounts to an ultimatumfor the Legislative Assembly – passthe Permanent Fiscal Reform Package, atax plan that would generate more revenuesto help reduce the debt, or take themoney from government programs – is anunpleasant but necessary one, according toCosta Rican economists.“(Finance Minister) Federico Carrillois like the father who’s telling the children,‘If you don’t eat your soup, bad things willhappen,’” Juan Rafael Vargas, director ofthe Master’s Program in Economics at theUniversity of Costa Rica.“If they don’t eat the soup, will (all hispredictions) come to pass? Maybe not.But that’s what a good Finance Ministerhas to do, “ Vargas said.Economist Pablo Sauma echoedVargas’ sentiments. “The new Ministerhas a very difficult job,” Sauma told TheTico Times. “There are no magic solutionsfor the problem, and he will have toconfront great social discontent. He hasvery little room to maneuver.”MONGE, of the Central Bank, toldThe Tico Times it is difficult to compareCosta Rica’s debt to that of other countriesin real terms because it is important toview debt figures in the context of a country’sproduction.Nevertheless, Costa Rica’s debt representsalmost 50% of the nation’s grossinternal production, a figure that is “veryhigh” and “worrisome,” Monge said.The debate about how to deal with theproblem has been under way for years.In fact, according to Vargas, it is thevery longevity of the debate that sometimesprevents government leaders fromrealizing the severity of the problem.“People say, ‘Six years ago, peopletold us we were going down the hill, butwe’re not yet at the bottom,’” Vargas said,describing an argument that helps justifypostponing sending more funds towardsthe payment of the debt.