CR is in worse financial shape than previously admitted. In addition, before any tax reform can / will occur, there are over 1,000 amendment / revisions to work through in the legislature before anything can be implemented...
Government of Luis Guillermo Solís disguised the real size of the debt that the country had to pay in 2018
He knew the situation, so much so that he moved money from one side to another to try to cover one of the leaks. However, he did not inform the Legislative Assembly of the situation and left the current administration a gigantic gap in the Budget.
The government of Luis Guillermo Solís disguised the real size of the public debt that the country had to pay this year to its creditors. He knew the situation, so much so that he moved money from one side to another to try to cover one of the leaks. However, he did not inform the Legislative Assembly of the situation and left the current administration a gigantic gap in the Budget.
The shortfall is almost ¢ 800,000 million because of two major problems.
Debt swaps
Last year, the Ministry of Finance budgeted ¢ 1.6 billion to pay amortization of public debt in 2018, that is, to return to investors the capital they lent to the Government through the purchase of bonds that are about to expire.
However, the amount was underestimated. Actually, the game should have been ¢ 1.9 trillion. The Solis administration assumed that the payment of the remaining ¢ 300,000 million could be negotiated through debt swaps.
The debt swap consists of exchanging securities that are about to expire with new long-term ones, which delays the immediate return of the capital, with the understanding that the government will pay interest for a longer time. This is an assumption that is not usually included in the National Budget, since it is an expectation.
The spending plan approved by the Assembly says: "The estimate of this item involves the service to be executed for the placement of securities in force at the end of 2017, whose maturity occurs during the 2018 period, amount that presents a reduction of ¢ 300,000 million considering the effect of possible swaps to be made in the 2018 period".
With that assumption, the first big problem occurred, because those debt swaps did not materialize.
A report from the Comptroller General of the Republic confirms that, during the first semester of 2018, "the goal of debt swaps was not achieved".
Short-term bonds
The second problem was the following.
The ¢ 1.6 billion approved by Congress to repay debt were distributed as follows:
-Little more than ¢ 1 billion for long-term debt
- ¢ 447,000 million for short-term debt
- ¢ 62,000 million for external debt.
This was authorized in the 2018 National Budget.
However, the estimated amount for short-term debt was far below reality. To calculate the figure, the government had to add the short-term bonds placed in the first semester of 2017, due in 2018, plus those that it expected to place in the second semester.
The Treasury estimated placing ¢ 292,000 million in the second part of last year, but the reality was this: in the second half of last year, the Executive placed ¢ 772,000 million in short-term bonds because investors fled to the bonds of long-term government.
The figure exceeded ¢ 480,000 million, as a result of loans made in the last quarter of 2017, which matured in the first months of 2018.
This means that, by the beginning of this year, the previous government already had two things clear: an imbalance of at least ¢ 480,000 million in the budget to pay short-term amortizations and the ¢ 300,000 million gap due to the failure of the debt swap.
The movement of money
The situation merited the presentation of an extraordinary budget at the beginning of 2018, with the objective of obtaining authorization from Congress to cover the shortfall.
However, instead of doing so, the Ministry of Finance issued decree 40995 on March 14, 2018, which lowered the long-term amortization item by ¢ 413,000 million, in order to allocate them to the payment of short-term debts.
By making that change, the government of Solis left uncovered the item to pay the long-term amortizations that were due to cancel in the second half of this year.
That explains why the current administration had to cancel some ¢ 134,000 million in long-term bonds without budgetary content, a figure reviewed by the Comptroller General.
At the same time, the previous government continued assuming that the debt swaps would be carried out, but these only reached ¢ 88,000 million.
For this report, this media tried to obtain a version of the former Treasury Minister, Helio Fallas. He was even asked to consult through the former Minister of Communication, Mauricio Herrera, but it was not possible.
Just in January 2018, the Treasury had already consumed 77% of the item to amortize short-term debt, added comptroller general, Marta Acosta, in a report to the deputies. That figure rose to 90% in June.
On July 31, the Ministry of Finance requested the Assembly authorization to increase the payment of debt in ¢ 600,000 million.
The Office of the Comptroller stated: "It is even foreseen the presentation of a second extraordinary budget in order to meet the lower expected collection of current revenues in 2018 compared to the amount currently budgeted, less collection than this Comptroller estimated in the order of ¢ 335,000 million, as a result of lower expected economic activity and a lower internal tax yield of the main economic sectors. As you can see, the country is immersed in a perverse circle in tax matters, "the institution added.
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