Comments:
The strike continues but it doesn't seem to me that it really has much popular support...
1. Fiscal Crisis: This article sums up CR's fiscal mess. It is getting more and more difficult to kick the can down the road. However, as you can see by the following articles, the unions of the privileged continue to try. It seems that the government went to one of the state banks and demanded a 90 day loan of $500 mil. to keep the government afloat. They decided to self finance since other institutions were reluctant and even if interested, were very expensive. What happens in 90 days? We will find out... I personally recommend US Cash but not deposited in CR state banks or even in private banks... have a fall back position...
2. Legislative Process: It appears long and cumbersome. This is the "fast track" think of the slow track???
3. Labor Courts: Virtually all the government suits against the various unions which have been heard to date, have found in favor of the government and have declared that institutions's / union illegal. Mainly because the union could not demonstrate that they had taken a vote and /or had tried to negotiate options. So what? What will happen? Will the union leaders be fined? Good question... I don't remember it happening in the past. In fact even those members who engage in illegal strikes before, seem to be paid their regular wage during the protest.
4. Police Stop Buses full of Protesters: One way to reduce the number of demonstrators.
5. Talking: Kind of... but nothing appears to be changing.
6. Limon Port Union strike declared illegal... but the strikers continue to withdraw services.
1. Explanation about Treasury Bills: Central Bank threw a controversial life preserver to the Government
To avoid a "mess" in the economy of the country, the government resorted to a controversial rescue of the Central Bank in order to pay their expenses during the third quarter of 2018, which includes salaries, social assistance and public debt. The lifeguard is almost ¢ 500,000 million.
The situation is due to the fact that, due to the worsening fiscal deficit, the market raised the interest rates it charges the Ministry of Finance for lending money through the purchase of sovereign debt bonds.
In other words, as the excess of expenditures increases as compared to revenues, the Government is charged more and more expensive for providing resources. And, if the Executive agrees to pay high fees, these will go up for anyone who has purchased a loan, be it to buy a house, car or develop a business, both in colones and in dollars.
Fenced by the fiscal narrowing, the Treasury then asked the Central Bank of Costa Rica (BCCR) to activate an exceptional mechanism established in the organic law of this entity.
It is about the purchase of "treasure letters", a system that has not been used since 1994 and that former president Rodrigo Carazo used during the crisis of the 1980s.
This was announced by the Minister of Finance, Rocío Aguilar, and the President of the BCCR, Rodrigo Cubero.
What are treasury bills?
The treasury bills are temporary loans that the Central Bank makes to the Executive Branch to help finance the imbalance between revenues and expenses, explained the former finance minister, Thelmo Vargas.
This is an extraordinary measure. In this case, a period of 90 days is granted for the Treasury to return the money to the BCCR.
The mechanism is established in article 52 of the Organic Law of the Central Bank , which allows the BCCR to purchase treasury bills issued by the Treasury only in colones and with an interest rate that can not be lower than the basic passive rate, which it is currently at 5.75%.
That was precisely the rate agreed for this operation, which is well below, for example, the rate of 9.20% that the Treasury had to accept on August 13 when the Bank of Costa Rica (BCR) and the National Institute de Seguros (INS) bought ¢ 60,690 million in bonds that mature in 2021.
In other words, with this rescue, the Central Bank will temporarily finance the fiscal deficit.
Where does the money come from?
And where will the BCCR get the resources? Technically, he will create money, he will issue money, said Rodrigo Cubero.
Despite this, the monetary policy hierarchy said that it is certain that the measure will not cause an increase in the cost of living, that is, in inflation. He said that the mechanism, rather, protects investment, economic growth, consumption and employment.
The ex-presidents of the Central, Eduardo Lizano and Rodrigo Bolaños, agreed that there will be no inflationary effect because the operation is only 90 days.
However, the former finance minister, Thelmo Vargas, explained that the BCCR will do "throw colones to the street" and, if these are not collected and paid soon, there will be an inflationary effect.
Vargas added that the measure depends a lot on the approval of the fiscal reform because, if it is approved in October, the Treasury could return to the market to seek money in better conditions.
However, if that does not happen, the mechanism would only kick the ball forward: "We are facing a short-term action that would be positive only if the fiscal reform is soon and in the required magnitude (that between spending cuts and increases of taxes will reach 4.5% of GDP) ".
On the other hand, according to the president of the Central Bank, this way presses less the interest rates in the market, reason why the inflation goal of 2018 is maintained, which ranges between 2% and 4%.
"We do not expect any inflationary impact because it is an absolutely temporary measure and is reversed within 90 days," he said.
How will the Treasury pay?
The Minister of Finance indicated the following sources of financing to pay the BCCR:
- ¢ 134,000 million that the Treasury had invested in Bancrédito and that will be returned to him with the merger of this bank with the BCR
-The placement of up to $ 800 million (¢ 468,000 million) in bonds of internal debt in the foreign market through the banks, an operation that has already been authorized by the Comptroller General of the Republic
The head said that the government can honor the debt and that the chances of all the backs fail are "very low".
Avoid the 'mess'
Rocío Aguilar denied that there are liquidity problems or the willingness of investors to buy bonds of Costa Rican public debt.
The hierarchy insisted that what emerged were difficulties in the rates.
Investors began to prefer short-term bonds, which require paying the money borrowed in less than a year. In addition, they charged higher interest rates, due to the risk entailed by the worsening government fiscal deficit.
The minister explained that if they continued insisting on the search for resources in the domestic market, it would cause a "mess" in interest rates.
"It is not an issue that no longer want to buy, it is a matter of at what rate and what term they want to buy," explained the hierarch.
Aguilar added that the objective of the measure is to achieve greater financial order in the following weeks and months while the tax reform is approved.
President Carlos Alvarado, in turn, affirmed that the approval of the reform is essential for the month of October.
In his opinion, it would be worse to keep looking for resources, through the placement of domestic debt bonds, in an internal market with such unfavorable conditions.
"It's not that we say there's no funding. Yes there is, "said Cubero. In as much, Aguilar assured: "We have not had problems to accede to the bottoms".
The Organic Law of the Central Bank establishes that the entity must approve the purchase of debt from the Treasury with the support of five of the seven members of the Board of Directors. This issue was approved on Tuesday unanimously.
"The Central Bank must inform the Legislative Assembly, the day after the agreement is taken, each time it purchases treasury bills," is detailed in the law.
The circumstances
The use of the mechanism comes at a time when the economy is slowing down and tax collection is reduced.
Monthly, the expenses of the Executive Power are between ¢ 450,000 million and ¢ 500,000 million, show the data of the Treasury.
Half of this expenditure is destined to transfers to institutions of the rest of the public sector and 40% to the payment of the government payroll.
The fiscal deterioration of the Central Government has generated, in recent years, that the structure of the public debt be tightened more and more regularly to the issuance of short-term debt.
Practically, half of the expenses are financed by indebtedness.
The percentage of short-term domestic debt, which must be paid in less than one year, went from 15% to 18% of the total between 2016 and 2017. In addition, the variable rate rose from 12.3%. % to 20.1% in the same period and, the percentage in dollars, rose from 19.3% to 24.1%.
This deterioration makes the government very pressured to seek new loans to pay off those that are due and exposes it to higher expenses in the face of increases in interest rates and the exchange rate.
On September 17, the Treasury auctioned public debt bonds to raise funds. However, of seven series of bonds that went out to tender, three were declared void.
For September 24, another auction was scheduled.
The premonition of a London bank
On Monday of the previous week, the London-based bank Barclays issued a note recommending its investors to get rid of their investments in Costa Rican bonds, and transfer them to securities of El Salvador.
The financial entity was direct with its investors: it indicated to them that the country is in a "vulnerable" position, and that the possibilities of giving a respite to the local economy through the approval of a fiscal reform are increasingly scarce.
"The initial expectations that the new government of Costa Rica, led by Carlos Alvarado, could hasten the fiscal plan are vanishing, and the reform is being weakened. In fact, even if the reform is approved in its current version, the fiscal path would remain a challenge, "the bank statement said.
The entity highlights the following risk factors:
* At the beginning of the legislative process, the government estimated that the reform could generate fresh resources for Costa Rica equivalent to 1.9% of GDP, mainly through the transformation of the sales tax to the Value Added Tax (VAT). However, after the different modifications, the expectation of collection fell to 1.1%.
With the current text, the reform is expected to generate resources up to 1.4%. However, Barclays warns that even if the government manages to regain muscle, the expectation that the reform will be approved in the coming months continues to fall
* Barclays warns that the approval of the tax reform is not guarantee that the public debt can be stabilized. The banking entity indicates that the difficulties of the Executive branch began in May, when the opposition parties in Congress asked to make new amendments to the bill. In addition, they rejected the first substitute text sent to them for consideration by the Ministry of Finance.
The bank notes the substantial loss of resources implied by the exemption from private education. It also talks about the exoneration that was initially approved on basic basket goods, although Presidential House did manage to recover that tax, with a reduced tariff to the minimum: of 1%.
* Barclays stresses that the National Restoration Party (PRN), which has expressed the most opposition to the tax reform, has 14 of the 57 votes of the Legislative Branch.
* The bank highlights the effect on the provision of public services caused by the general strike held by public unions since September 10.
* The entity notes the growing risk that the vote on the tax reform may be postponed until next year. "Another big risk is that the government can accept a weakened version of the fiscal plan, in order to get something approved this year and thus be able to access international markets in 2018, or potential loans with the International Monetary Fund or the World Bank. In any case, the persistent vulnerability of the fiscal accounts will apparently continue to put pressure on President Alvarado, "Barclays said.
* The bank also notes the extraordinary budget of ¢ 600,000 million presented by the Ministry of Finance at the end of July, in order to face a budget gap left by the government of Luis Guillermo Solís when the national budget for 2018.0 was drawn up...
2. LEGISLATIVE PROCESS
President of the Reactive Congress process of the tax reform from this Thursday Carolina Hidalgo announced to the deputies that she will read the resolution on the admissibility of the 373 motions in the background of the tax plan reiterated by the different fractions and convened plenary sessions next week.
The deputies will work, starting next Monday, a double session of the legislative plenary, morning and afternoon, to process the 373 motions in depth that several legislators reiterated to the fiscal plan, as announced by the president of the Legislative Assembly, Carolina Hidalgo.
At the close of Wednesday's plenary session, while several fraction chiefs met with strikers and some groups of protesters were still chanting slogans against the tax plan, Hidalgo announced that he reactivates the tax project on Thursday.
The parliamentary leader said that she will read, finally, the resolution that as president of the Board of Directors she had to take, where she establishes which motions of reiteration will be accepted for discussion and vote in the plenary.
Hidalgo has taken more than a week to make the resolution, since she opened the reception of motions of reiteration on Monday, September 17 and already on Tuesday, the 18th, at night, there were the motions grouped by articles that modify the fiscal plan.
The parliamentary hierarchy denied, earlier this week, that the dialogue between the government and the strikers, or some kind of pressure from the Presidential House, would have hindered the progress of the Law Plan to Strengthen Public Finances.
However, in the national chain, the President of the Republic, Carlos Alvarado, asked him to reactivate and move forward with the tax reform, given the complicated financial situation facing the State.
The fast track procedure applied to the tax plan is contemplated in the motion of order approved by the deputies in February and adjusted in June, drafted in accordance with what is established in article 208 bis of the Legislative Regulation.
That motion 208 bis gives Hidalgo the power to admit and reject repeated motions, under the principle that motions that have been dismissed in the process of motions in the background can be reiterated in the special committee that studied the legislative file 20,580.
Thus, Hidalgo had to take into account several criteria to determine which motions could be reiterated and which could not, as well as group them or determine when they are discussed in a single act, but with an individual vote for each of the motions.
The special fast-track procedure establishes that, in addition, these motions must be discussed and voted on in the plenary, during six sessions. From the seventh session of the plenary, the motions will be voted without discussion, until all are over.
Although then, ideally, the use of the floor is opened, with 10 minutes for each deputy to talk about the tax reform, the truth is that the decision is to make several consultations to institutions that would be affected by the tax reform and also to publish the text in La Gaceta, since it has undergone important modifications, in relation to the first version presented by the government.
Among the motions that the deputies reiterated, there are several to weaken the collection foreseen by the Ministry of Finance, by exempting various goods and services that are intended to be taxed with the value added tax (VAT).
In addition, in line with the main concern of the unions, there are motions from three political parties, the Frente Amplio, the PIN and the Social Christian Republican, to weaken the measures of saving that the government stipulates in Title III of the project, where it reforms several rules on salaries of the public administration.
3. The Labor Court in San José has declared strikes of employees of six public institutions to be illegal
By A.M. Costa Rica staff
The Labor Court now has resolved cases involving the National Production Council, the Housing Ministry, the National Emergency Commission, the Municipality of Santa Ana, the Central Bank and the Social Protection Board.
The last resolution occurred Wednesday when Judge Siany Barboza gave her ruling on the case of the Social Protection Board, saying, "According to the file, the movement called by the National Association of Public and Private Employees and the National Union of Workers and Workers will be declared illegal.” She also ordered the unions to pay ¢1 million colones (approximately $1,726) for payment of personal and procedural costs.
Barboza’s ruling stated that in the case of the Social Protection Board, "the strike violates two requirements established in the Labor Code to be legal. The first is that the unions failed to prove that they had the minimum support required. Second, it did not state that the conciliation process with the government had been exhausted before calling the strike.”
As part of the legal process, the unions involved have three days to appeal this ruling.
According to the report of the labor judge, 42 government institutions have registered requesting that the strike be declared illegal. Of these, six have been resolved with a ruling in favor of the institutions and against the interests of the union. There are still 36 cases to be resolved.
4. Police stop buses used by unions
By A.M. Costa Rica staff
Germán Marín, director of the Traffic Police, reported that 22 buses were stopped Wednesday because they did not have permits for the service they were providing.
Traffic Police officials had warned that officers would be watching on roads for the illegal use of buses or vehicles used by unions to transport their members to the Wednesday march in San José.
According to the report of the transit officials, the buses have a specific permit according to their functions, be it student transport, public transport or tourist transport. This permit must be in accordance with the activity and routes that were registered before the Council of Public Transport.
"Those permits are only for operating on specific routes, so if the vehicle transits through a non-corresponding route or offers a service for which it does not have a permit, it is subject to a fine of ¢104,000 colones and the seizure of the plates," stated the report. "In the event that the drivers change the route or the nature of their functions, they would be breaking the law, so they were fined and the plates were confiscated," the report ended.
According to the police report, transit officials detained and fined several drivers who transported the members of the unions because they did not have the legal permits to transport union members and alter the routes they regularly make.
The police report said that the majority of buses stopped were in rural areas in Limón, Puntarenas, Guanacaste, Alajuela and Heredia.
According to Wendy Jimenez, spokesperson for the General Directorate of the Traffic Police, "We do not proceed with actions against citizens. We simply verify that the users of the routes circulate according to the current legislation... The police simply do their duty, ensure that each driver respects the law.”
“This morning, at 7 a.m., we reviewed more than 70 units of which we sanctioned 22 for not respecting the Traffic Law 9078, not having the permission of the Public Transportation Council for the service they were providing,” reported Marin.
5. Unions pauses dialogue to support protest march
By A.M. Costa Rica staff
The strike reached its 17th day Wednesday with protests concentrated in the capital where a march began at 9 a.m. Thousands of protesters walked from Paseo Colon through Second Avenue and the Plaza de la Democracia, finally arriving in front of the legislature building. The march cause large roadblocks.
The unions continue their protest against Bill No. 20,580, known as the Law of Strengthening Public Finances.
Among the main unions that organized the march are the National Association of Educators, the Association of Secondary Teachers and the Union of Costa Rican Educators. They also had the support of representatives and students of the University of Costa Rica, members and students of the National University, members of the National Union of Social Security Employees and members of the National Medical Union, the representatives of the unions reported.
These unions were reportedly joined by the taxi cooperatives, which are protesting to pressure the government to declare technical applications for public transport, known as Uber, illegal and avoid possible new regulations that could be presented by the Transport Minister, Rodolfo Mendez, in the next 30 days.
In relation to this new project to modernize the taxi service, Mendez said in August "Transportation services in all its forms are a source of employment and mean a socioeconomic solution for thousands of families. Conscious of the fact that new technologies pose challenges for governments, we are looking for an integral solution that allows us to solve the situation of taxi drivers in a modern and innovative way for the benefit of users."
Municipal Police report only one criminal act during a protest Wednesday. A driver struck at least five staff members from the Calderón Guardia Hospital with her car, police reported. The staff members were participating in the protest. According to police, the driver was traveling around the Calderón Guardia Hospital when a group of protestors closed the road. The driver accelerated to get through and hit at least five people. The driver was a Costa Rican woman, but her name has not yet been released, police said.
Negotiations with union representatives were suspended Tuesday night and will be resumed today. Labor Minister Steven Núñez said "We hope to reach an agreement before the deadline this Friday at 10 p.m.".
"Today we had our sixth meeting with the union units. We deeply regret the decision, unilateral, of the union to suspend this meeting until Thursday. We presented our agreement to continue working, however [the unions] unilaterally decided to continue Thursday at 1 o'clock in the afternoon. We insisted on continuing the dialogue on Wednesday however our proposal was not accepted,” Nuñez said.
There was a transaction of ¢498 billion colones in treasury bonds, which is equivalent to $860 million approximately, between the Central Bank and the Ministry of Finance Tuesday.
The transaction was ordered, and reported by the ministry, to support government liquidity. Nuñez said that this is not the answer to the nation’s financial difficulties, adding “The president of the republic has announced the actions between the minister of Finance and the president of the Central Bank. These are extraordinary actions that denote the serious situation in which the finances of the state are and that require concrete actions and measures."
In addition, the minister reaffirmed the government's support for the new tax plan. "We reiterate our agreement and total willingness to dialogue, but also to move forward and make decisions. That is why we reiterate our support for file No. 20.580 and that the strike movement must end."
Finally the minister criticized the consequences suffered by citizens for the effects on public services. "Costa Rica cannot continue this way: There are children who cannot go to classes, people affected in their appointments to medical centers, shops and tourism also affected. All this negatively affects the national economy," said Nunez.
For his part Albino Vargas, secretary of the National Association of Public and Private Employees said of the marches "We call to all the workers to join the large concentration, because this fight is born from the heart to all social leaders. We are not going to accept plan No. 20 580, because it hits the middle class."
For its part, the president of the Association of Teachers of Secondary Education, Mélida Cedeño, said, "Our proposal is to archive the Bill No. 20.588, and open the discussion of a new file containing an alternative tax proposal, which the union has presented."
This break in the dialogue was requested by the union leaders and accepted by the minister. The negotiations between representatives of the government and those of the union have not had any positive results, based on reports form both sides.
The meetings will continue Thursday at the Archbishop's House in San José.
6. Despite seventh declaration of illegality, strike continues
By A.M. Costa Rica staff
The Labor Court of San Jose, declared the strike of the employees of the Board of Directors of Ports, known as JAPDEVA, as illegal.
According to the judgement, the illegality was declared because these services in ports are considered vital for the country.
In addition, the members of the union did not request conciliation routes, or agreements, before they went on strike on Sept. 10.
According to Judge Francisco Vargas, "the services provided at Moín docks in Limón were essential to the country since the unloading and loading of the ships containing a series of products and foods has been paralyzed," and this renders the strike illegal.
In addition, Vargas said he considered that the members of the union had not even tried to negotiate with the directors or with any member of the government before taking the decision to go on strike. "It did not show the union members met or at least tried to communicate with a representative of the government in order to get or propose any solutions to resolve the national political conflict," said the judge on his decision.
According to the accusation, more than 50 percent of JAPDEVA employees were on strike.
Under Costa Rican law, employees have 24 hours to return to work when a strike is declared illegal.If they do not do so, they can be dismissed without employer responsibility.
Union members, however, have the right to appeal of the judgment.
This is the seventh time that the strike has been declared illegal. Previous declarations of illegality were for employees working at Social Protection Board, the National Production Council, the Housing Ministry, the National Emergency Commission, the Municipality of Santa Ana, and the Central Bank.
According to the report of the labor judge, 42 government institutions have registered requesting that the strike be declared illegal. There are still 35 cases to be resolved.
Despite of the declarations of illegality, the members of the union have reached the 19th day of strike today, with marches and blockades in the main roads.
According to Thursday’s report from traffic officials, the main blockades were in Buenos Aires de Puntarenas, near the Daniel Oduber Airport in Liberia in Guanacaste, in Pérez Zeledón, in Limón, and in front of the legislature in San José.
The unions continues to protest against the proposed tax law known as Bill No. 20,580 for Strengthening Public Finance, and union officials said that the strike will continue until the government withdraws the proposed law from the legislature.
Today, representatives of the government and the unions will have their last scheduled meeting.
The parties had agreed on Tuesday that there would be a 10 p.m. deadline today and that the meeting period would end at that point whether or not an agreement has been reached.
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