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Cablegate: Costa Rican Fiscal Transparency

VZCZCXYZ0005
OO RUEHWEB

DE RUEHSJ #0220/01 0781819
ZNR UUUUU ZZH
O 181819Z MAR 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9535
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN JOSE 000220

SIPDIS

SIPDIS

DEPT FOR WHA, WHA/CEN, WHA/EPSC PMAIER AND EEB/IFD/OMA
ASNOW AND RFIGUEROA;
PLEASE PASS TO TREASURY: SGRAY

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL CS
SUBJECT: COSTA RICAN FISCAL TRANSPARENCY

REF: STATE 16737

1. SUMMARY. The GOCR is transparent with the management
and conduct of its fiscal and financial affairs. The
budgeting process is public and readily accessible by
electronic means. The Minister of Finance directs the
process with a commitment to real reform. Treasury's
Office of Technical Assistance is an effective catalyst to
the process with its assistance in the areas of tax
administration, budgeting, debt management, and internal
enforcement. A 2007 IMF report confirmed the fiscal
transparency of Costa Rica's fiscal policies. End Summary.

2. In accordance with reftel, Post prepared the following
report:

Begin Report

The current executive management of the Ministry of Finance
is committed to improving the overall performance and
enhancing the transparency of fiscal policy and
administration. The Minister and the two Vice Ministers
are eager to embrace reforms and believe in the public
dissemination of information regarding the Finance
Ministry's operations and annual budgets, a hallmark of
transparency.

The GOCR publishes its annual budget in both hard copy and
electronic formats for easy access. The budget
incorporates all of the activities of the central
government (composed of eighteen ministries, the national
legislature, the judiciary, and the electoral tribune).
Separate from the central government budget are the budgets
for decentralized state institutions such as the state
insurance entity, the state telecommunications and
electrical utility, and the public universities. Each of
these organizations publishes it own separate budget.

The GOCR budget provides an accurate and meaningful plan on
how the government intends to allocate expenditures and to
gain revenue. Typically, total actual expenditures and
revenue will vary from the originally budgeted expenditures
and revenue within a reasonable range of 5% to 10%. The
Ministry of Finance normally proposes amendments to the
budget during the fiscal year that do not significantly
vary from the original projections.

In the accounting area, the National Accounting Department
is currently undertaking an ambitious reform project to
implement most of the International Public Sector
Accounting Standards by 2009. Once achieved, this reform
will greatly enhance the quality and quantity of
information made available through the GOCR's annual
financial statements.

The Comptroller General of the Republic supervises all
public spending, including those of decentralized
institutions and government sponsored enterprises, for
compliance with budgets and related rules and regulations.
The Comptroller General publishes an annual evaluation of
the GOCR's financial performance and position and issues an
evaluation of the President's fiscal proposals during the
budget formulation process, including a validation of the
revenue estimates for the budget year. These and other key
Comptroller General reports are published in hardcopy and
are available on the Comptroller General's website.

The GOCR is committed to fiscal transparency as evidenced
in the most recent budget approval process. The Finance
Ministry developed a budget which included such
advancements as the introduction of different budgeting
scenarios (reflecting different spending priorities and the
revenue consequences) and multi-year planning. As required
by Costa Rica's constitution, the Ministry submitted the
budget to the Legislative Assembly for mandated discussion
during the month of November. The national legislature
discussion focused on the social spending priorities,
particularly education. The Legislative Assembly approved
the budget before the end of the month, and the debate was
openly reported on in the national newspapers.

The U.S. Department of Treasury offers assistance to the
Costa Rican central government through its Office of
Technical Assistance. Currently, OTA sponsors three
advisory programs: tax policy and administration, budget
policy and management, and government debt issuance and
management. The first two programs yielded noteworthy
results in 2007. Tax administration improved with revenue
collection up nearly 30 percent. Budgeting reforms included
spending scenarios to set national spending priorities, and
the GOCR declared a budget surplus for the first time in 50
years. The Finance Ministry also launched an inspector
general's unit. The tax and budget policy advisor programs
introduced management systems designed to achieve specific
objectives, with both programs tightening and strengthening
overall management objectives, control, and execution. The
third program, debt management, started in early 2008 and
is too new to report results.

In addition to USG assistance, the GOCR received assistance
from the Inter-American Development Bank (IDB) over the
2002-2005 period. The IDB provided assistance on CAFTA-DR
and tax reform issues with benefits realized in education,
health, environment, and energy. In 2007, IDB provided
technical assistance to the GOCR in the areas of budget and
program evaluation. The objective of this project was to
improve the GOCR's ability to evaluate the effectiveness of
the use of public resources and to communicate such
information to the public and other stakeholders, including
the Legislative Assembly and the Comptroller General.

The World Bank has also been providing Costa Rica technical
assistance in debt management through its FIRST initiative.
The initiative includes a transparency component,
encouraging better communication of funding plans and debt
strategy. The OTA debt program is coordinating some of its
efforts with the FIRST initiative.

In addition, the International Monetary Fund (IMF)
completed a study in 2007 entitled Report on Observance of
Standards and Codes - Fiscal Transparency Module (IMF
Country Report No. 07/372, November 2007). Key findings
from the report included:

- "The (Costa Rican) budget process is well specified and
publicized."

- Government responsibilities are "clearly specified," with
the Central Bank of Costa Rica and Comptroller's General
office operating independently.

- The GOCR has made "significant progress in centralizing
and improving debt and cash management, updating accounting
norms, and upgrading the data management systems."

- Cross-government institutional responsibilities need
further clarification in order "to avoid duplication" and
"improve coordination."

- Future reforms in the budgeting process need to include
"integrating government autonomous institutions into the
budget, developing priorities for the "evaluation and
approval of investment projects," and "eliminating
earmarked spending mandates."

The IMF's findings lauded the public access to information;
the independence of the Finance Ministry, Central Bank, and
Comptroller's General office; and the overall transparency.
The IMF, however, recommended that the GOCR focus on
improving the mechanics of governance.

End Report

=======
COMMENT
=======

3. Costa Rica has experienced significantly lower levels
of corruption than other countries in the region, with
greater fiscal transparency as one of the underlying
explanations. Minister of Finance Guillermo Zuniga seeks
continued improvements, however. His willingness to make
positive changes, coupled with the effectiveness of
Treasury's Office of Technical Assistance, has created an
environment conducive to real fiscal and financial reform.
This partnership has been a win-win for the GOCR and the
USG.

BRENNAN

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