San José, Costa Rica, since 1956
Economy

President Solís warns that budget 'shock treatment' would do more harm than good

President Luis Guillermo Solís addressed the nation Sunday evening in a televised speech urging lawmakers to keep his proposed 2015 budget largely intact as a general strike by public sector unions against budget cuts loomed Monday.

Solís said that while he acknowledged the deficit is a serious issue, it is not the most pressing matter for Costa Rica or his administration, which has expressed a desire to reinvest in infrastructure and public works projects.

“The fiscal deficit and the rising debt of the state accumulated during many years, and it is not necessary, nor prudent, to demand a hasty decision in the short term, with sudden cuts to the national budget. This is not even what international [financial] organizations are asking,” Solís said.

The president warned that so called “shock treatments” to the budget could do more harm than good, adding, “the risk is a deterioration of essential public services, which would lead to setbacks in health, education or security, that we should not and do not have to take on.”

Solís isn’t alone on this point. Officials from government agencies, including the Public Security Ministry and the judicial branch, among others, have stated that proposed cuts would affect their ability to operate effectively. Students demonstrated earlier this month at the Legislative Assembly against proposed cuts to public universities. Solís, a former professor at the University of Costa Rica, supported the student mobilization.

Solís urged lawmakers instead to consider his government’s efforts to improve tax collection and control public spending. The president claimed that since taking office in May, his government had improved tax collection by ₡21 billion colones — more than $39 million — and reduced government spending by the same amount during the same period. The Solís administration had said it plans to propose a value-added tax by the end of the year and a global income tax some time in 2015.

After returning from a trip to New York in September, the president maintained that international financial organizations were not clamoring for Costa Rica to impose draconian budget cuts. Some international observers, however, have signaled concern about the state of the coffee-producing country’s debt. In September, Moody’s Investor Services joined Fitch and Standard & Poor’s when it downgraded the country’s sovereign debt to junk status.

The president has struggled to build consensus around his budget, the largest ever proposed at ₡7.9 trillion ($14.5 billion). Some of the most ardent deficit hawks in the legislature have come from Solís’ own Citizen Action Party (PAC), most notably PAC founder and current lawmaker Ottón Solís, who chairs the Financial Affairs Commission.

Public sector unions announced a general strike on Monday starting at 8 a.m. The strike, made up of at least 15 unions, will likely close streets in downtown San José, between Central Park and the Legislative Assembly along Second Avenue.

Now that the budget has moved out of commission, the Legislative Assembly has until Nov. 30 to approve it for 2015.

Contact Zach Dyer at zdyer@ticotimes.net

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SDPUS

Austerity budgets have not worked very well around Europe or in the USA in recent years. I agree 100% with President Solis on this, and yes, he most likely is taking the advice from the USA- specifically from economists like Paul Krugman. The Republican Party (Tea Party Libertarians) have sought to push these policies. The have been an abject failure. It has also been a failure all throughout the Eurozone.
http://www.theguardian.com/commentisfree/2012/jun/02/austerity-failed-will-hutton

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Ken Morris

I am cautiously with the president on this issue.

Yes, the country’s public budget is seriously in the red, and something needs to be done about this fast. However, rash budget cutting may do more harm than good. I note for example that some of the proposed cuts are to infrastructure, even though Costa Rica was recently criticized by an international body for failing to spend enough on infrastructure to propel economic development. Too much cutting too fast could make the problems worse.

The real issue is not this year’s budget but what the overall plan is to get Costa Rica out of the fiscal mess it is in. Insofar as I fault the president, it is for not yet laying out a coherent 4-year economic plan. He seems to have one–at least his instincts appear sound–but he hasn’t articulated it clearly enough for some of the rest of us to believe it will succeed.

It’s a roll of the dice, but for the moment I’ll oppose the cuts in the hopes that the 4-year plan will work.

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Mark Kahle

The National deficit is a self inflicted wound. That this or any government would admit to the seriousness of it is asking too much. The accepted treatment is always the same..put a bandaid on the gash. Doesn’t matter if it stops the bleeding or not the good people in Government that want to keep their jobs and be re-elected get to point out their efforts.

As to strikes by Public sector Unions… disband the Unions. They have broken the contract. They and every Government employee need to learn that the money they have and or are paid came from the pocket of a Private sector worker or company. They are a huge part of the nations debt. Everything they have is because the government took it away from the people. They purchase nothing, they pay no taxes, they are a 100% cost to the working people and business sector yet demand to treated as princesses…. It is time to be rid of the public sector unions and the damages they cause.

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Dan Gibson

Appears as though President Solis is spending way too much time with the politicians in the US — has basically taken their tactics as his own — not good!

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