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Costa Rica begins IMF negotiations

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Costa Rica begins IMF negotiations

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Photo: Reuters

Costa Rica will begin negotiations for a loan from the International Monetary Fund (IMF) today.

With a three-year loan, Costa Rica hopes to obtain $1.75 billion from the IMF to respond to the pandemic, expand its fiscal stimulus, reduce the deficit and invest in social programs. This will be the country’s second attempt to reach a pact with the IMF amid an economic crisis prompted by border closures and lack of demand.

The proposed plan to the IMF will reduce public spending from 16.45% of GDP in 2020 to 13% in 2025. San Jose must also accept the IMF’s conditions, including budget cuts, high interest rates and new taxes. Still, the challenge remains in finding necessary support in Congress to support any agreement.

If approved, the loan will give the government space to continue investing in key sectors of the economy, including agriculture, industry and services. However, it will carry a fiscal deficit from high borrowing costs during a low growth period. Nevertheless, expect Congress to be reluctant to adopt new taxes as well as possible protests similar to last year. In the medium-term, the public opinion of the negotiation may deteriorate if the proposal burdens the working class and the vulnerable sectors.

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