The Tico Times Online Daily Page

Chamber of Commerce Criticizes
President's Stance on Trade Pact
By Katherine Stanley
Tico Times Staff
kstanley@ticotimes.net

According to the Costa Rican Chamber of Commerce, which this week released predictions of moderate growth and slightly lower inflation in 2005, the ratification of the Central American Free-Trade Agreement with the United States (CAFTA) remains the key to the country's economic success in the coming year.

Economist Jorge Corrales, who presented the chamber's projections for next year, said doubt surrounding the future of the agreement in Costa Rica could have a crippling effect on foreign investment.

“Who is going to invest in a country where we don't know if the market will be opened?” Corrales said. “There will not be foreign investment while we don't know (CAFTA's future).”

Corrales and Chamber president Evita Arguedas both criticized President Abel Pacheco for maintaining he will not send CAFTA to the Legislative Assembly until his administration's Permanent Fiscal Reform Package, a plan to increase government revenues by levying new taxes and improving collection of existing taxes, is approved.

The passage of the controversial tax plan, which has already spent 28 months under debate in the assembly, is far from certain, and legislators from the commission charged with studying CAFTA within the assembly have indicated they would need at least nine months to evaluate it once the assembly receives it. Therefore, Pacheco's position makes it likely other countries, including the United States , El Salvador , Nicaragua and Honduras , will ratify the treaty before Costa Rica .

“These things make no sense. Why link a tax package to a free-trade agreement?” Corrales said.

“We don't consider it logical,” Arguedas added. “The two should be completely independent.”

Corrales also said that while the chamber is in favor of tax reform, that support is contingent on additional tax revenue being directed toward reducing the national debt. He added it is not clear at the moment whether that will be the case, and he fears the government might raise taxes but spend the revenues on public salaries or pensions.

“In the U.S. , they call that ‘tax, tax, spend, spend,'” he said. “We would end up in the same place.”

Arguedas said the chamber planned to increase distribution of information about the agreement in the months ahead.

Other CAFTA proponents, such as the Costa Rican-American Chamber of Commerce (AmCham), launched similar publicity campaigns on the benefits of the agreement after the re-election of U.S. President George W. Bush in November all but guaranteed the agreement will be sent to the U.S. Congress early next year (TT, Nov. 12).

Aside from CAFTA's passage, a major focus for the chamber in 2005 will be supporting the creation of the Central American Customs Union, an effort to standardize customs requirements in the region to simplify travel and commerce, according to Arguedas.

“It is a complex process,” she said of the ongoing negotiations of customs requirements. She emphasized the importance of clearly defined goals and steps to guide the governments' planning.

The chamber will also continue to seek increased consistency in Costa Rican contract law, improved infrastructure and modernization of the Costa Rican Electricity Institute (ICE) and National Insurance Institute (INS), Arguedas said.

For 2005, Corrales – basing his estimates on data from the National Census Institute and the Central Bank, among other sources – projected 3.5% growth (3.0% without Intel), 12% inflation and 9.5% devaluation, which would place the colon at ¢505 to the U.S. dollar by year's end.

He also projected an 11.5% increase in total exports (10.6% without Intel) and a 5.0% increase in the total public-sector debt.

Following a recent trend on the part of President Abel Pacheco to resort to prayer as a means toward government progress – in recent weeks, Pacheco has said he is asking God to help the Legislative Assembly make quicker decisions, and that he would ask the Christ child for the passage of the tax plan – Corrales said he hopes “that God will help (Finance Minister Federico) Carrillo” maintain his restrictive approach toward government spending in 2005 to limit the growth of the national debt.