San José, Costa Rica, since 1956

Government Borrows to Make Ends Meet

The holiday season is fast approaching,  and with it comes the need to close the books on the 2009 budget and approve another for the new fiscal year.

Finishing off a year rattled by a deep recession, government leaders found that monies budgeted for this year’s expenses weren’t quite enough, and they would need more money to meet spending commitments for next year.

In September, President Oscar Arias made the unusual move of asking the Legislative Assembly to violate budgetary ordinances to fund annual operating expenses with debt.

Opposition leaders cried ‘foul’, saying such a move would be unconstitutional and would set a frightening precedent for the country’s financial management.

“It’s dangerous,” said legislator Luis Antonio Barrantes of the Libertarian Movement. “It’s like swiping your credit card when you don’t have money. It will mean future costs for a country like Costa Rica.”

To gain approval for a supplemental appropriation for the 2009 budget, Arias’ financial team threatened it couldn’t pay aguinaldos (Christmas bonuses) if the extra monies were not forthcoming.

Responding to a potential uproar among public sector employees, legislators approved a supplemental budget of ¢450 billion ($750 million) in late October.

It marks the first time in history that aguinaldos will be paid with borrowed money, according to Finance Minister Jenny Phillips. Public employees will get their Christmas bonuses on Dec. 8.

“I am thankful that the men and women of the Legislative Assembly approved this budget, which allows us to finance the spending obligations for the remainder of the year, as well as various elements and resources needed for different public projects,” Phillips said when the budget was approved.

“In the context of the crisis that we are currently experiencing, the boost the government can give public spending to the slow economy is fundamental. The importance of this budget is that it provides funding to avoid a relapse of the national economy, one that has started to see the first signals of recuperation.”

Aside from approval of the supplemental budget, the Finance Ministry was able to generate the funds to pay aguinaldos by collecting on bonds that were sold to investors and public institutions. The government has assured investors the money will be paid back when the funds become available.

One Year Done, One More To Go

Yet, the extraordinary budget appropriation still leaves the central government short for 2010.

With promises to pay scholarships for the educaional program Avancemos and a commitment to fund a food security program, Arias has asked legislators to take on an additional $1.4 million in debt.

To comply with his requests, legislators would have to ignore Article 6 of Law 8131, which states that “to achieve adequate financial management, it is prohibited to finance operating expenses with capital.”

The Arias administration defended the request, saying it is the only way to lift Costa Rica above the worldwide economic crisis. At the beginning of this year, as the Arias administration watched economic indicators for neighboring countries dip into the red, it increased the number of education scholarships and beefed up welfare programs to mitigate potential problems.

Yet, the social initiatives cost the administration, especially because the government was collecting fewer taxes.

Presidency Minister Rodrigo Arias assured the press this week that Costa Rica is not in a financial crisis.

“We are on a secure level financially,” he said on Wednesday. “Our debt is lower today than the debt we inherited at the beginning of this government.”

To continue programs begun in 2009 and to fund new initiatives, Arias said he needs what amounts to a 12.23 percent increase in the next budget to fund 700 new police positions, poverty alleviation and a food security program, among others.

Twenty-eight legislators, mainly from the National Liberation Party, approved the proposal Tuesday, moving the bill toward second debate, which is expected to take place sometime before Nov. 30.

Chrissie Long contributed to this report.

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