The country’s fiscal deficit could be brought down drastically by cutting the public payroll, reducing existing and future pensions and capping salaries.
None of this appears to be possible despite promises by central government officials to take action.
President Luis Guillermo Solís made some public proposals Tuesday, but the best he could offer was to set up a discussion over salaries in the public sector. After that, he said the government would come up with a plan to make public employees more efficient and evaluate the results. Then legislation will be presented to continue the effort.
The president’s plan immediately received attacks from supposed political allies and opposition politicians who saw the proposals as trivial.
The only people who should be happy about the current situation are lawyers because any action by the central government to cut salaries, pension or jobs will most certainly result in lengthy court actions. The general legal theory here is that once given, the government cannot then reclaim any benefit. They are derechos adquiridos.
If Solís engineers big layoffs, employees are due severance pay based on their years of employment, not to mention the Christmas bonus and other accrued benefits. Some long-time employees will qualify for several years of salary.
These are the same rules private employers must follow, and these laws that heavily favor workers are the reasons, in part, why companies are reducing their presence here in favor of other countries.
Rawlings de Costa Rica in Turrialba announced Tuesday that it would cut its workforce by 200 by the end of the year and move its textile operation to El Salvador. Snack food maker Jack’s also is moving part of its operation. And Intel decided to move chip production to Vietnam.
Private companies have more flexibility, and they do not have unions paying close attention to every detail. Public employees already have taken to the streets in a protest they said was to protect their wages.
The bad guys from their point of view are lawmakers Ottón Solís of the president’s own Partido Acción Cuidadana and Otto Guevara of Movimiento Libertario, who have made public some astronomical salaries and pension, and the news media for reporting what they said and showed.
Any attempt to cut salaries certainly will bring immediate responses from the Asociación Nacional de Empleados Públicos y Privados and allied unions that believe in what they call democracy of the street. These organizations are capable of shutting down the country for an extended time.
Then there are the elections. Rough times cause voters to make bad choices. The country of Greece is an example. Here in lieu of lower pay and fewer public jobs, a politician could win the presidency promising to repudiate the country’s international debt.
International credit agencies are already flirting with the idea of putting Costa Rican bonds in junk status.
International organizations such as the International Monetary Fund want to see government action here in increasing taxes. Such measures probably will not get through the legislature because there are politicians there who want to see Solís fail.
Expected increase in the available interest rates are likely to cause even more of a financial squeeze because nearly half the annual government budget is borrowed money.
The U.S. Federal Reserve is expected to increase interest rates soon, and this will cause an increase in the value of the dollar that Costa Rica has to use to pay international debts.
To say the government is sending mixed signals is an understatement. Officials talk about the fiscal deficit which may soon reach 6 percent of gross national product. But then they are promoting a $35 million convention center and a ciudad gobierno that will cost $300 million.
The government reported Tuesday that overtime had been reduced, plus some other expenditures were cut. Still the gap between income and expenses continues to grow.
The best the government could do so far is a bill that is designed to make public salaries reasonable and proportional. The bill, No. 19.156 is just one page, and it would cap salaries for the eight lowest employment levels in government and tie higher salaries to increases based on the rate of inflation.