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President of Legislative Assembly doesn’t see viability of Costa Rica’s IMF proposal

September 21, 2020

The president of Costa Rica’s Legislative Assembly expressed his displeasure with the Presidency’s fiscal measures that are intended to help the country secure financing from the International Monetary Fund (IMF).

“I don’t see an atmosphere in the Legislative Assembly to approve more taxes,” deputy Eduardo Cruickshank said in a video shared to his social media pages. “The government has a very difficult task to manage for these taxes to pass.

“I honestly don’t see its viability.”

The Costa Rican Presidency last week announced the fiscal measures it hopes to present to the IMF as part of negotiations to secure $1.75 billion in financing.

Among them are a 0.3% fee on banking transactions, higher income taxes for Costa Rica’s top earners, and a 0.5 percentage points increase on real estate property taxes.

When a country borrows through the IMF’s Extended Fund Facility (EFF), it “commits to undertake policies to overcome economic and structural problems,” according to the financial entity.

A three-year agreement with the IMF “is our best option,” said Rodrigo Cubero, president of the Central Bank, who joined President Carlos Alvarado in asking for the Legislative Assembly to approve the proposal.

Too many taxes, not enough cost-cutting

Critics of the Presidency’s proposal say it relies too heavily on new taxes rather than on other cost-saving measures.

“The evident imbalance in the nature of the proposed measures, 80% of which is based on taxes and barely 20% on cost cutting, is further aggravated by the absence of proposals for economic reactivation,” read a statement from the National Liberation Party (PLN), which comprises the largest faction of deputies in the Legislative Assembly.

Cruickshank, of the evangelical National Restoration Party, said the government should prioritize battling tax evasion, which he says represents $3.8 billion annually.

At the same time, Cruickshank said, the government should tax sectors that are currently “not paying a single colón” in duties. This includes Costa Rica’s tax-free zone areas, Cruickshank argued.

“The ship is sinking, and if the ship is sinking, we’ll all go down with it,” he said.

According to Casa Presidencial, the Executive Branch’s proposal protects key institutions — such as the Social Security System (CCSS) — without placing undue burden on the middle and lower classes.

President Alvarado said IMF financing is necessary to stabilize Costa Rica’s economy, which has been hard-hit by the coronavirus crisis, and that a long legal battle “would be costly.”

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