LatinFinance - July/August 2014 - 64

PARTING
SHOT

Despite a rising deficit, mounting borrowing costs
and currency volatility, Costa Rica can avoid a ratings
downgrade, says its new president Luis Guillermo Solís

Another way
Over the last 15 years, Costa Rica has attempted many different
reforms [to improve the fiscal balance]. None of them were
successful. Among other reasons, this was because people didn't
believe that paying more tax would improve their lives.
When you look at the numbers, you find that inequality was
increasing, corruption was increasing, and a number of things that
had to be done by the government were not being done well.
So we decided to try another way: just do our job, collect taxes
better - because tax evasion in Costa Rica is a national sport,
reaching around 50% in income tax. That's too much. We decided to
deal with it [via a new tax law, presented to parliament in June).
At the same time, we're going to prepare Congress, so that by
[our] second year [in government] we have a wider fiscal reform,
including a transition to VAT, ready to be discussed and approved by
parliament.
Rising borrowing costs are a concern, as is the 6% fiscal deficit. It
is not catastrophic. We are not on the brink of a situation similar to
the ones some European countries recently faced, but we have to
take care of it.
We are dealing with the financial system, ensuring monetary
standards and stability of the colon are maintained, and that the
economy grows. If we're able to combine these aims, and I think we
can, then things are going to be better in a few years.
True, the impact of global trends may be detrimental to the
country, but this is true of all countries. We have to ensure that the
macro-economy is stable. So far, I think we've been able to manage
that.
But if the current trend continues, it's going to be very difficult for
this country to be a safe place for investment, and it's going to take a
tremendous social toll. We already have a structural poverty rate of
over 20%. I don't want that.
The objective of making the economy bigger is to make people's
lives better. It's not just about accumulating wealth: that doesn't
make any sense, especially when you have those social statistics to
deal with.
I see the fiscal issue as a central issue in order to guarantee that
the country continues to develop its social structure, which is what
ultimately allows investment.
The components of what makes a country competitive are key.
Infrastructure and connectivity are fundamental, including the cost
of accessing services such as water, electricity, and the internet.

64 L ATINFINA NCE.COM - July/August 2014

And education is a
fundamental matter too.
Education has been central
to Costa Rica's national
strategy since the nineteenth
century. We have to assure the
population this will remain the
case.
The constitution requires
us to spend up to 8% of GDP
[on education]. I want to
achieve that by the end of my
administration.
So these three issues -
infrastructure, access to key
services, and education - are
the three most special, most
important components of our
competitiveness.
I am confident that Costa
Rica can avoid a ratings
downgrade. I am working as
much as I can, and as hard as I
can, to give proof to everyone
who is watching Costa Rica that
the country remains a solid
partner, and that we can grow.
This is what makes [US
computer chip maker] Intel's
decision to invest in Costa Rica
so important.
It shows that above and
beyond the immediate
context - which has not been easy over the past few months - the
country remains stable, and it remains good partner. I hope that
the companies that rate the economy will look upon this with
interest. LF

"RISING BORROWING COSTS
ARE A CONCERN,
AS IS THE 6%
FISCAL DEFICIT.
WE HAVE TO
TAKE CARE OF
IT"

Luis Guillermo Solís, a former academic, took office as new president
of Costa Rica in May, after beating incumbent Laura Chinchilla in an
election in April. He was interviewed by LatinFinance.
http://www.LATINFINANCE.COM
LatinFinance - July/August 2014

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