Costa Rica has reached an agreement in principle with the International Monetary Fund (IMF) for a $1.75 billion loan.
Before the loan is finalized, it must receive further approval from IMF management and its Executive Board. That process will begin in the upcoming weeks, said Manuela Goretti, IMF representative and mission chief for Costa Rica, who announced the news on Friday afternoon.
“We are confident that we can make progress over the next months, so that by March we can have approval,” she said.
Once the IMF Executive Board approves the program, the agreement with Costa Rica will be finalized.
“This is a milestone for the country. It represents a seal of confidence that will provide Costa Rica better financial and market conditions,” said Rodrigo Cubero, president of the Central Bank, during a press conference.
When a country borrows through the IMF’s Extended Fund Facility (EFF), as Costa Rica is doing, it “commits to undertake policies to overcome economic and structural problems,” according to the financial entity.
According to La Nación, possible policy adjustments include the following:
- Budget cuts: The Finance Ministry will limit purchases and salaries for some government institutions until 2025.
- Pension freeze: A proposed law would suspend cost-of-living increases for the largest pensions that are paid out of the national budget.
- Public-employment reform: The project would replace the current scheme of compounding salaries.
- Reduction of tax exemptions
- Global income: Costa Rica would place taxpayers in brackets based on their global income.
- Tax on lottery prizes.
- Luxury home tax: 0.5% of homes valued at over 150 million colones.
- Inspection of merchandise at Customs to improve tax collection.
New IMF-related legislation should be passed by Costa Rica in the first half of 2021, Goretti said. The financial entity will verify Costa Rica’s compliance with the agreement biannually.
“It will be critical for all of these elements to pass through the legislative process,” she said. “It is important that everything be done as agreed.”
The IMF said the loan will help stabilize Costa Rica’s tenuous finances and send a “strong signal” to the international lending market.
This is a breaking news story and is being updated.