San José, Costa Rica, since 1956

Arias’ ‘Shield Plan’ Drawing Fire From Experts

President Oscar Arias’ plan to combat the current economic crisis, the so-called Plan Escudo, or Shield Plan, is getting a second look from economists and other experts as sectors such as construction and tourism continue to contract.

Almost exactly a month after President Arias announced his plan, the Casa Presidencial released a 14-page report detailing the status of each of the recommended measures in the plan throughout the different sectors of the economy.

One initiative that has received a great deal of attention over the last few months was a recommendation for all three state banks to drop interest rates for housing and personal loans. Each of the banks has agreed to implement the measures, and the lower rates will come into effect this month. (See chart).

While the plan has been praised for measures with a positive social impact, such as a program whereby the government will spend ¢1.6 billion ($2.8 million) to provide meals for more than 16,000 underprivileged children during weekends, a proposal to provide unemployment insurance, or another increasing pension benefits, the plan is still drawing fire from many economic experts.

On Wednesday morning, a group of well-known academics, economists and bankers met at the Hotel Real Intercontinental in Escazú, a western suburb of San José, to debate the plan’s overall practicality and potential effectiveness in the face of the current crisis. The event was sponsored by the Costa Rican-American Chamber of Commerce (AMCHAM).

Luis Delgado, president of Banco de Costa Rica (BCR), spoke for many when he said, “The Plan Escudo has united us. It is not an adequate plan. … It clearly requires a (revised) version.”

For example, the job initiatives mentioned in the plan are not new measures, the experts say. According to José Salas, a consultant for the Chamber of Industries, the work-day flexibility measure, whereby employees would be able to work four, 10-hour days instead of the current five, eight-hour days, has been in the works for the past 10 years.

“These job initiatives included in the plan will not necessarily create jobs and reactivate production in the country,” said Luis Mesalles, president of the Central American Academy, also present at the event. “They might, however, help some workers retain their jobs.”

Mesalles added that controlling salary raises among higher-paid individuals during the crisis was a factor missing from the current plan.

High on the agenda of of these economic experts is the pressing need to reactivate the economy.

“I don’t think the plan is sufficient to reactivate production,” said Jorge Guardia, economist, columnist and former Central Bank president who spoke at the meeting.

“The plan does not quantify the possible effect of the crisis or the impact of these measures.”

On a positive note, Delgado noted that on March 17 the president’s office sent a bill regarding a loan for $500 million from the Inter-American Development Bank (IDB) to the Legislative Assembly, a measure which would strengthen BCCR and its ability to increase credit lines.

Mayi Antillón, communications minister to the president, mentioned during a press conference at Casa Presidencial earlier this month the possibility of introducing a “Plan Escudo number two” in coming weeks.

State Banks

Banco de Costa Rica: Reduced its interest rates by 2 percent, established a top interest rate of 15 percent for housing loans for the next six months starting this month.

Banco Nacional: Reduced its interest rates by 2 percent in loans lower than ¢50 million ($89,000), authorize credit line for ¢10 billion ($17.8 million) for a varied financing outline for housing bonds.

Bancrédito: Decreased its interest rates by 2 percent for loans under ¢50 million ($89,000).

Other institutions

Social Security System (Caja): reduced its interest rates by 2 percent. Measure is applicable until Dec. 31, 2010. Around 9,932 families will benefit from this measure. INFOCCOP: Reduced its housing loan interest rates by 5 percent.

Private banks: Have no immediate plans to reduce interest rates.

Source: Casa Presidencial


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