San José, Costa Rica, since 1956

Minister: Budget Cuts Inevitable

A compromise between the Legislative Assembly andthe Pacheco administration in their struggle over prioritiesfor Costa Rica’s 2005 budget seems even more unlikelynow that Finance Minister Federico Carrillo has refused toaccept budgetary changes proposed by the assembly’sFinance Committee.The committee’s revisions would redirect toward infrastructureand social welfare projects ¢82 billion ($183 million)that in the budget submitted by the Finance Ministryon Sept. 1 would have been used to pay down the nationaldebt. Carrillo announced last week that the government“will not enact” this re-appropriation of funds.Carrillo said that unless the assembly approves thePermanent Fiscal Reform Package, a tax plan designed toincrease government revenues and help reduce CostaRica’s total national debt, which is currently more than $10billion, 2005 will be a year of increased cost of living andreduced funding to a wide range of government programs.According to the Finance Minister, these cuts areinevitable, since without them Costa Rica will default oninterest payments for the national debt.THE ministry’s proposed budget totals ¢1.4 trillion($3.9 billion), almost 10% more than the 2004 budget butsmaller in real terms when inflation, expected to reach 11% this year, is taken into account (TT, Sept. 3).Opponents of the conservative budget,often referred to by Pacheco administrationofficials as “Plan B” – Plan A being to obtainmore funds through passage of the fiscal plan– have argued for months that its austeritymeasures will cripple efforts to improve oreven maintain existing infrastructure, educationaland environmental programs, and thatthe administration is endangering the nationby conditioning funding on the tax plan’spassage (TT, Aug 20).Opponents also say the governmentshould focus on improving the collectionof existing taxes before levying new ones,and that the plan’s proposed corporate taxrate will drive foreign businesses to othercountries with lower rates.HOWEVER, Pacheco and theFinance Ministry have consistentlyemphasized that fiscal reform is necessaryand unavoidable, a position Carrillo reaffirmedlast week.He emphasized the effect of the nationaldebt on future generations, arguing thatthe changes proposed by the legislativecommittee would saddle future generationswith even greater debt.“To spend without income is to keepmaking Costa Ricans poorer,” Carrillosaid, adding that “we are paying the interestscontracted” by “earlier Presidentswithout vision.”Carrillo, who took office Sept. 13 afterthe resignation of former Finance MinisterAlberto Dent due to disagreements withinPacheco’s cabinet (TT, Sept 17), alsourged the approval of the CentralAmerican Free-Trade Agreement with theUnited States (CAFTA), which Pachecohas conditioned on the passage of the taxplan, as a means to ensure “worthyjobs…for our children.”THE minister dismissed the idea it isunfair to ask Costa Rican citizens to payhigher taxes at a time when the national debthas been increased by loans and contractsfrom foreign governments and companiesfor which Costa Rican officials allegedlyreceived illicit payments (TT, Oct 8).Carrillo asserted the ongoing corruptionscandals (see separate stories) do notinvolve the current administration, and alsonoted that, taking into account the size of thenational debt, the loans and contracts inquestion are a relatively small part of theproblem.The Finance Committee’s discussionof the budget continued this week, accordingto the press office of the LegislativeAssembly. The committee is scheduled topresent its budget proposal at the beginningof November to the assembly as awhole, which must approve a final 2005budget by the end of November.Juan Rafael Vargas, director of themaster’s program in economics at theUniversity of Costa Rica, told The TicoTimes on Tuesday there is no easy solutionto the conflict between Carrillo and hisopponents in the Legislative Assembly.“THERE’S going to be somewrestling, and in the end no one will win,”Vargas said. “They will end up somewherein the middle. This is a power play,and it’s a power play in a very messy environment.(The Legislative Assembly) willnot be a very predictable place in the comingmonths.”The power play could be a costly onefor Carrillo, Pacheco’s third FinanceMinister. Both Alberto Dent, who resignedon Sept. 1, and his predecessor JorgeWálter Bolaños, who resigned May 27,2003, left the post under pressure fromstriking public workers who demandedhigher salaries the ministers said CostaRica cannot afford (TT, Sept. 3).Vargas suggested resignation might bein Carrillo’s future as well, depending onthe fate of the legislation he is advocating.The analyst expressed doubt Costa Ricawill default on its interest payments if thetax plan is not passed, a possibility Carrillomentioned last week.“Carrillo will resign before defaulting,”Vargas said. However, he added thatthough he finds that particular scenariounlikely, Carrillo’s job may hang in thebalance.Vargas said the minister will have tocompromise in the months ahead, and “ifhe’s losing all the battles, he will go.”

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