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20 years

Costa Rica hopes to sell $1 billion in public debt to China to help plug fiscal deficit

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September 30th, 2015 (ICR News) The government of Costa Rica, faced with the need to obtain external financing to cover its 2016 budget, is hoping that China will fill in the gap by purchasing $1 billion in Costa Rican public debt in the form of a bond offer.

 

“We’re in the initial stages of negotiations,” Costa Rican president Luis Guillermo Solís told the Financial Times in New York this week.

 

José Francisco Pacheco, acting finance minister, told the Financial Times that he hopes for a response from the Chinese within six weeks as “2016 is just around the corner and we’d like to have the funds to start the year.”

 

Pacheco also said that talks were also under way to secure a further $1 billion in “contingency funds” — half from the Inter-American Development Bank (IDB) and half from the World Bank.

 

President Solis told the Financial Times that a bond sale could help give “a very strong boost to the economy.”

 

He also said that the Chinese financing could be very important in case his administration’s sweeping tax reforms – intended to help tackle the government’s soaring fiscal deficit – are only partially approved, or not approved at all, in the country’s Legislative Assembly.

 

President Solis last week promised “full transparency” with the public surrounding the negotiations with the Chinese.

 

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  • Yaktor

    LOL, here’s a check, but how about signing off on these drilling rights…

    • stfree

      How do you say “about those gold deposits…” in Chinese.

  • Yeims

    This is of course a woeful state of affairs as the ability of
    governments to spend other people’s money wastefully is endless.
    The ability of governments to spend other people’s money in a useful fashion has always proven limited. The road to prosperity involves empowering innovation, small business and bottom-up growth. Top-down government meddling and rapacious taxes don’t help.

  • http://www.AnimalsBigandSmall.com Maxine de Villefranche

    Amazing that Costa Rica is doing the exact same thing that USA is doing, and Greece is doing, that Ireland and Spain and Portugal are doing…what part of being broke (paying these high salaries to government employees) doesn’t the government understand? Imagine having to borrow money and then turn around and pay way too much of it to its own employees and have to pay interest on all that money borrowed for years to come!!!

  • Ben

    Dum goverment of Costa Rica only cares about there own pensions and High salaries. The president of Costa Rica does not have a clue on any issue. I am so sick of the Goverment of Costa Rica. Costa Rican will never get they have sold there country for pennies on the dollar.
    Costa Rica needs a leader and some strong person to run this mess called Costa Rica. More debt and loans are not going to solve the problems in Costa Rica. Wake up people.

  • richard schlinder

    When Pres.Solis took office,there was three things I hoped he would take care of.
    !.Fix the immigration department.It is a smooth as 80 grit sandpaper.
    2.Promote agriculture. C.R. is a garden.We can produce and export much more commodities that the world needs.Ticos have the knowledge and the land to make this happen if encouragement came from the top.
    3.Paydown the debt.We are going the way of most other countries in the world.The country with the least debt will win.When a country goes bankrupt,all the coffee in the world won’t help at that point.
    As Maxine has pointed out,all C.R. has to look forward to is higher taxes,higher unemployment and lowering real estate prices.

  • Ken Morris

    This is a tough call.

    On one hand, without the borrowed billions, it will be do or die for fiscal reform in the legislature. Since unfortunately the legislature is not likely to pass a responsible fiscal reform plan, the borrowed billions will be essential to ward off immediate financial disaster, even as they may also provide a welcome short term stimulus.

    On the other hand, borrowing the bucks will allow and probably even encourage the legislature to continue irresponsibly refusing to address the country’s fundamental economic problems. The consequence will be a worsening of the problems.

    The question Solís needed to ask himself is whether he was willing to play a game of chicken with the legislature. Apparently, he’s already answered this question in the negative, decided to borrow the money, and signaled to the legislature that failing to pass fiscal reform is acceptable to him.

    This is by far the safer course at the moment, but I’d almost prefer that Solís play chicken and force the legislature to either act now or deal with disaster now. However, he surely knows better than I what is politically possible, so I can’t really second guess his decision to take the safer course.

    It is though disappointing that it has come to this. There’s no rational reason why the country’s fiscal problems can’t be solved now, or at least a plan passed that promises to solve them in the near future. To neglect to do so is incredibly irresponsible.

    • Larry Worsham

      Do you really think this problem can be solved considering the intrenched levels of corruption existing in the government and unions? The courts certainly wouldn’t uphold any action by the legislature even if they had the nerve to pass legislation to eliminate the excessive retirement benefits or to make government jobs equal in pay to that of the private sector.

      I miss living in Costa Rica and, contrary to many who post here, never had problems with the local inhabitants of our little pueblo. When I was gone the whole neighborhood would look after my wife and when I was there alone with a broken leg had coffee brought to me every morning by one of the neighbor’s wife or daughter. I would not move back, however, because of the current restrictions and laws that seem to be directly targeting extranjeros.

      • peggy salas

        As one is actively contemplating making the move to CR could I ask what “the current restrictions and laws that seem to be directly targeting extranjeros” are?

        • dunno4x4

          yeah me too.

        • Ken Morris

          Larry should speak for himself (Larry?) but I don’t think you have anything to worry about.

          During the last immigration reform round, the amount required for rentistas increased a lot, and there were drafts that increased the amount required for pensionados, though those increases didn’t pass. Many years ago (before my time) there were evidently some enticements to migrants in the form of waived import taxes on cars and such, but they’re long gone. I suspect that you’re aware of current immigration policies, though, and don’t need information about them.

          Some gringos feel that the luxury tax on houses valued over around $200,000 that was passed a few years ago targeted them, and maybe it partly did. Some also feel that the annual tax on the corporations that people use to own everything from their guns to their houses targeted them too, but in reality affluent Ticos also have a drawer full of corporations (and own luxury houses).

          The current tax reform bills also increase the the real estate transfer tax, as well as adds a tax on services, which can increase the cost of building a dream retirement home. However, we’re not talking a ton of money, the taxes don’t target foreigners, and the bills haven’t been passed. Many predict they won’t pass.

          The single biggest gringo gripe seems to be that they are now forced to pay into the Caja, the public health system, and–go figure–the sweetheart discounts have been eliminated. For those who never use the system, this strikes them as a “gringo tax,” although actually close to half the Ticos don’t use the system either, yet many of them pay the tax too.

          Some gringos are miffed that the current law prevents them from owning a gun unless they become permanent residents, and the draft revision of that law would require them to wait 5 years after becoming permanent residents. If owning a legal gun is a priority, incoming gringos lose out.

          Some get annoyed by the departure taxes, and I actually don’t like them either, but they’re only a few bucks and you don’t have to pay them if you don’t leave.

          Also importantly, Larry phrased it correctly by saying that restrictions are aimed at “extranjeros.” Most extranjeros here are Nicas, and many Ticos attribute most of their country’s problems to them along with the Colombians and Dominicans. There is some sentiment among Ticos that continuing to roll out the red carpet for property-buying and maid-hiring gringos is not in their best interest, as also are some Ticos tired of the old skirt-chasing gringos throwing their Social Security checks across bars, but in the main gringos are an afterthought for their policies. Actually, we only tie Colombians in the number of residents, and together gringos and Colombians only add up to around 10% of the Nicas.

          Things like the rule requiring people to pay into the Caja and restrictions on gun ownership aren’t I believe aimed at us, though they end up applying to us as well.

          I wonder if Larry has more to add.

      • Ken Morris

        Sure, problems can always be solved, though of course whether they will be or not remains an open question.

        The only problems Solís is trying to solve now are the tax shortfall and corruption, not the problems of excessive salaries and benefits for public employees.

        To some extent, solving the problems of the tax shortfall and corruption has the same solution: The VAT. Since unlike the sales tax, the VAT is collected at each stage, it is far more difficult for it not to be paid at all. Replacing a sales tax with a VAT increases tax compliance and reduces corruption.

        Meanwhile, Solís has taken other steps to reduce corruption. While the extent to which they will succeed is unknown, at least he’s targeting the problem.

        As for the excessive salaries and benefits paid to public employees, I’m among those who are persuaded that this is a problem that the country needs to deal with.

        However, the facts are that nobody really knows how severe the problem is and there’s no way to solve it quickly.

        With respect to the severity of the problem, all we really have now are anecdotes, and these don’t prove patterns. Solís has commissioned a study to look for patterns. I realize that people hate studies (because they believe they already know the answers without the facts) but a study really is the first step. On the average, public employees are more apt to be better educated than their private counterparts, and actually the public wants the best public employees it can get. Again, I think the study will show patterns of excessive remuneration, but it won’t show that in every case, and we really should have the facts before we take action.

        Regarding solving this problem, I can’t think of any way to solve it quickly, in part because the the lawsuits that will surely be filed by public employees in response to quick action, but also in part because of the likely strikes and and obstructionist actions on the part of angry public employees that will surely follow quick action. Indeed, quick action will likely prompt the most competent public employees to quit and leave only the deadwood.

        So I think this has to be a phased in solution, and probably nothing that will save much money for at least 5 years or more. However, sure, it needs to be done, and let’s hope it will be done.

        But the “will be” on all this is the unknown. Unfortunately, I have less than a decade in Costa Rica, but the old-timers tell me that these kinds of problems have never been solved in the past and won’t likely be solved in the present. During my tenure, I’ve seen nothing to prove them wrong.

        So maybe nothing will change.

  • Roberto

    In fact, Central American Date, the online financial
    reporter, just called the country an ineptocracy, meaning a place run by the
    inept. The Urban Dictionary describes the term as “a system of government
    where the least capable to lead are elected by the least capable of producing,
    and where the members of society least likely to sustain themselves or succeed,
    are rewarded with goods and services paid for by the confiscated wealth of a
    diminishing number of producers”.

    • Yeims

      Excellent portrait !

  • disgsted

    Reading other papers here. There are roughly 305,000 who work for the government, Not counting the thousands alive or dead collecting pensions. If you take 305,000 workers X $1,000 average salary a month =$305 million a month X that by 12 months. I can see by my fuzzy math CR has to be in big trouble paying this I am sure it much higher than even my humble numbers. This does not account for buildings , Vehicles, and endless entitlements especial from those at the top. 1 billion hardly covers the cost Going also to the world bank for another 1 billion.. If you cannot pay today how is CR going to be able to pay next year? They cannot.

    Then reported it is estimated 250,000 are out of work/looking for work , Plus 10′ of thousand working making only $100 a week. A country of 4.2 million this is a huge amount of unemployment and underemployment.

    China licking their collective lips making a big foot print here in Nicaragua, Costa Rica and about every country. What does CR have to give Pineapples? I don’t think so …….. It their ports and natural resources. Where am I wrong.

    • Roberto

      It would not surprise me if they asked for a naval base or air field.

      • disgsted

        You could be right… This “loan” would have many strings attached to it. and secret side deals to avoid the diputado’s getting involved.. It is all about them keeping THEIR pensions and entitlements at the cost of the future here..

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