Economists say the government must cut spending to reach an agreement with the International Monetary Fund
Experts inside and outside the country warn that the Naguib Boukil government’s speech that it will fight tax evasion and thus achieve a guarantee for the $ 1.3 billion loan it is requesting with the International Monetary Fund (IMF) is neither real nor sufficient.
The economic and social situation in El Salvador is very critical, and for the government to reach an agreement with the International Monetary Fund to obtain a loan of $ 1,300 million, a letter of combating tax evasion rather than raising taxes will not be sufficient. Economists warn.
“I can almost assure you that the fund will not sign an agreement with El Salvador just for the idea of eliminating tax evasion; that is a very attractive rhetoric if it is possible, but it is not. Costa Rican economist Roberto Artavia, chairman of INCAE Business School, warned in a recent TV interview, “It must necessarily specify financial liabilities in income, spending and structure in the public sector.”
He added, “In an ideal world, the idea of combating tax evasion can be said to be the happiest, because it means that we do not burden anyone. The IMF will never accept the following: In the first place, because the bulk of tax evasion comes from the informal economy, and it comes From smuggling, from illegal activities already … “.
Artavia’s analysis stems from the fact that the government has been in negotiations with the International Monetary Fund since the end of last year to lend it money, but it is known that the agreement with this device requires strict fiscal measures, such as increasing the value-added tax, for example.
Although, according to the Minister of Finance, Alejandro Zelaya, the government’s strategy will be to combat tax evasion and not raise the value-added tax.
Zelaya emphasized, “The value-added tax will not increase. We do not include this part in the agreement, and what we will do is fight tax evasion, and the International Monetary Fund is taking this as a financial measure for the amendment.” March 17 this year.
The government expects a package of value-added tax (VAT) of $ 2,643.4 million, a figure that is impossible to achieve according to an analysis by the Salvadoran Foundation for Economic and Social Development (Fusades) and has overestimated the $ 603.8 million. .
Given this, Salvadoran economists agree with Artavia that the executive will not be able to come to an agreement with the IMF with this strategy.
“The government says nothing about how to fight tax evasion, I think it is not focusing on combating smuggling and tax evasion. If we thought they would collect 3 or 4 points of GDP within a year, based on the methodology of persecuting those who actually pay taxes, that would be negligible. Extremely, “says economist Luis Membrino.
Economist Raphael Lemos also indicated that the IMF may be able to certify the government that it is ready to develop good practices or successful fiscal adjustment, but that when it sees non-compliance, it can suspend the agreement, if it is finalized.
This was also mentioned by Dr. Artavia when he said that he could assert that there would be no agreement with the fund if the entire government’s plan was to attack tax evasion; He tells them this is unreliable, and neither is it consistent. “The financial problem in El Salvador is much larger than the problem of Costa Rica in terms of debt and imbalance,” said Lemos.
Regarding that if he saw that the fund could ask the state to impose new taxes, Lemmos considered that the discussion could go further in cutting expenditures.
“The fund will warn that the size of El Salvador’s amendment is much larger than the size of Costa Rica and that this country has been asked to take measures of income and spending, and with the government of El Salvador it will be the same, so it is not so,” Artavia said: Suffice it to say that it will pursue the evaders.
In its analysis, Artavia considered that if it must tax the country, it must be a well thought out structure and not just a lift.
“In El Salvador, the tax burden will be relatively greater, to say: taxes on wealth, not on production; taxes on pollution, not on investment; taxes on idle capital, not on productive capital; and in this sense, taxes should not be increased simply because of an increase. Focus on taxes that generate additional income without compromising the productive drive, nor the investment the country requires, “the Costa Rican expert said.
Manuel Enrique Hinds, economist and former finance minister, said tax collection in El Salvador is “not bad”, but warned that negotiating with the International Monetary Fund could go more for transparency and cutbacks, to increase the tax burden.
But Membirinho noted that “the desire to reduce government expenditures is also not seen, and moreover, with the level of indebtedness that the country suffers from, it cannot maintain this level of expenditures.”
About pension reform
Another issue on which Artavia expressed his opinion is that of pensions, and he considered that El Salvador should work and make a real pension reform for a decade.
The problem is that there are not enough shareholders; They are not contributing enough; And each time, retirees will receive a lower percentage of their standard of living. He added that while 70% of the population works in the informal sector, “there will not be enough money to support pensions.”
In Artavia’s opinion, the Salvadoran pension system should be supportive. He added, “A higher retirement age must be set, the contribution increased, and a workable situation for the informal economy must be sought for everyone who does not contribute and leaves the pyramid without a foundation.”
He added that El Salvador has a double problem: the informal economy and the huge number of young people who have emigrated who do not feed the pension system.
“They fuel remittances through transfers directly to consumption and some to investments, but not to the pension base,” Artavia said.