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Costa Rica Imf Agreement

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Costa Rica and IMF: Economic Challenges and Opportunities

Costa Rica has reached an agreement with the International Monetary Fund (IMF) for a $1.8 billion loan program aimed at stabilizing its finances, promoting growth, and reducing inequality. The agreement, which was approved by the IMF Executive Board on March 12, 2021, involves a series of policy measures and reforms that reflect the structural and fiscal challenges facing the country.

The Costa Rican economy has been facing multiple pressures in recent years, including high debt levels, low productivity, persistent fiscal deficits, and social tensions. The COVID-19 pandemic has exacerbated these challenges, leading to a contraction of the economy by 4.5% in 2020 and a projected recovery of only 2.6% in 2021. Moreover, the pandemic has exposed and deepened existing inequalities, particularly in terms of income, education, and access to health care.

Against this backdrop, the IMF loan program aims to support Costa Rica`s efforts to address the root causes of its economic problems and improve its resilience to future shocks. The main targets of the program include:

– Reducing the fiscal deficit and stabilizing the debt-to-GDP ratio: Costa Rica has one of the highest debt levels in Latin America, amounting to around 70% of GDP. The IMF program aims to gradually reduce the fiscal deficit from 9.3% of GDP in 2020 to about 1% by 2025, through a combination of revenue measures, including a value-added tax reform, and expenditure measures, including pension and salary reforms.

– Promoting investment and productivity: Costa Rica has a relatively diversified economy, with strong tourism, services, and technology sectors. However, the country has struggled to attract more foreign investment and boost productivity, due to factors such as high labor costs, bureaucratic procedures, and inadequate infrastructure. The IMF program aims to address these issues by promoting regulatory reforms, improving the business climate, and investing in transport, digital, and energy infrastructure.

– Enhancing social protection and inclusion: Costa Rica has a relatively high level of social spending, but also high levels of poverty and inequality. The pandemic has worsened these trends, as many vulnerable groups have lost their jobs and incomes. The IMF program aims to strengthen social protection systems, including through targeted cash transfers and public employment programs, and improve access to education and health services, especially for rural and indigenous populations.

While the IMF loan program has been welcomed by some sectors of Costa Rican society as a necessary step to avoid a deeper crisis and promote long-term growth, it has also faced criticism from others who see it as a threat to national sovereignty and social rights. Some argue that the austerity measures proposed by the IMF could deepen the social divide and harm the most vulnerable groups, while others point out that the government should explore alternative sources of financing, such as taxing the wealthy or reducing military spending.

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