83. Memorandum of conversation, August 13, between Ambassador Facio and John W. Fischer1
SUBJECT
- Costa Rican Budgetary Problem
PARTICIPANTS
- His Excellency Gonzalo J. Facio, Ambassador of Costa Rica
- Mr. John W. Fisher, Deputy Director, Office of Central American and Panamanian Affairs
I explained to Ambassador Facio that I wanted to continue the conversation on the Costa Rican budgetary situation which we had started on August 10 at a reception but had been unable to continue because of interruptions.
The Ambassador said he much regretted that a misunderstanding had arisen which had resulted in Ambassador Telles’ calling Mr. Martin from San José on August 10. On August 9 during a luncheon meeting which Ambassador Facio had with officials of the IMF and Mr. Oliver Sause of AID, the latter had remarked that he had seen no official request from the Costa Rican Government for emergency fiscal help, but only a communication from our Embassy at San José on the subject. Ambassador Facio mentioned this in a telephone call to his Minister in San José, where it unfortunately got somewhat out of context before it reached Ambassador Telles.
I said the Embassy’s communication was sufficient evidence of Costa Rica’s request for help and that the lack of a formal piece of paper from the Costa Rican Government has not stopped us from giving the problem serious and urgent consideration. I said we are studying ways in which Costa Rica’s problem can best be approached. We have now asked our Embassy for information expanding and elaborating on that in the report of which the Ambassador spoke. Among other things, we need more details about the development projects in the current Costa Rican budget which have been suggested as possibilities for AID loans. At the same time, we are taking great interest in the measures which Costa Rica is taking to correct its fiscal situation once the current emergency is overcome.
[Facsimile Page 2]Ambassador Facio said that the Finance Committee in the Costa Rican Congress has already approved several of the measures introduced to improve tax revenues, and passage by the Congress is virtually [Typeset Page 216] assured. These measures include a requirement to deposit disputed taxes, pending litigation; establishment of a full-time tax tribunal in lieu of two part-time bodies; and the placing of tax collections on a current pay-as-you-go basis. He expects a bill will be passed to establish a revenue office to tighten up on tax collections, an exceedingly important part of the problem. He said he personally is anxious to see taxes collected from large numbers of people who now pay none, although well able to do so. He said Costa Rica is taking steps to withhold taxes from salary earners, starting with Government employees. I said it would be helpful to have up-to-date, realistic estimates of the effects of these and similar measures as they approach actuality.
Ambassador Facio said some of the earlier estimates on the budget situation assumed adoption of various tax reforms around May; it is now August and they are still not in effect, obviously reducing the amounts which can be realized from the reforms this year.
Ambassador Facio said he has inquired at the Eximbank about postponement of Costa Rica’s loan repayment schedules, but he got no encouragement. He said the annual amount involved is around $2.5 million. If all payments could be postponed until 1964 and if the emergency help needed now is forthcoming, the Government would be able to get back on its feet after next year, with a budget deficit it could manage on its own.
Ambassador Facio said it is not correct to say that the Administration does not have central control of the budget. As a former Minister of Economy, he can testify that the Minister has the duty of making the other Ministers conform to the budget plan. He said Minister Hess is a strong personality, quite capable of exercising the discipline needed.
Ambassador Facio wondered whether Minister Hess should come to Washington in the near future to furnish information on the situation. I said that we have already asked our Embassy for the information needed at this juncture and I would recommend that the Minister not come now.
Referring to the IMF report on Costa Rica, Ambassador Facio said he disagreed with its recommendation to augment Government revenues by increasing tariff duties on non-essential imports. He said Costa Rica has already cut down imports considerably, with the result that its balance of payments situation is good, but its Government revenue picture is bad because import duties are the principal source of revenue. Increases in import duties now would further reduce imports and total Government revenues.
Ambassador Facio said he felt reassured to hear again that we are working on the Costa Rican fiscal problem. He said he would try to bring back as much information as possible when he returns on August 18. He is departing for Costa Rica on August 13.
- Costa Rican budgetary problem. Official Use Only. 2 pp. DOS, CF, 818.00/8–1362.↩