This record is a partial extract of the original cable. The full text of the original cable is not available.

081521Z Sep 05

UNCLAS SECTION 01 OF 02 SAN JOSE 002090 
 
SIPDIS 
 
WHA/CEN 
EB FOR WCRAFT, BMANOGUE 
E FOR DEDWARDS 
WHA FOR WMIELE 
WHA/EPSC FOR KURS, LGUMBINER 
H FOR JHAGAN 
STATE PASS TO USTR FOR RVARGO, NMOORJANI, AMALITO 
 
E.O. 12958: N/A 
TAGS: ETRD ECPS ECON PREL PGOV SOCI CS
SUBJECT: STATUS OF FISCAL REFORM 
 
REF:  SAN JOSE 01455 
 
¶1.  (SBU) Summary.  Three years after starting discussion 
of the fiscal reform bill and 3 months after voting to 
utilize a "fast-track" review, the Legislative Assembly 
members remain far away from approving the bill. 
Disagreements about the bill between political parties and 
also between the President's own Social Christian Unity 
Party (PUSC) and the Administration may have doomed this 
tax revenue bill.  Recently, Gerardo Gonzalez, the 
President of the Assembly and a PUSC deputy announced that 
this project is no longer the Assembly's top legislative 
priority.  It is unclear how this will affect President 
Pacheco's self-imposed requirement to pass fiscal reform 
prior to sending the United States-Central America- 
Dominican Republic Free Trade Agreement (CAFTA-DR) to the 
Assembly.  End Summary. 
 
¶2.  (SBU) Despite breathing new life into the fiscal reform 
bill on May 23, 2005 when the Legislative Assembly voted 38 
to 19 to utilize the recently created "fast-track" review 
process, major divisions about details of the tax package 
soon developed between the President of the Assembly 
Gerardo Gonzalez and the Administration.  (Note: The fast- 
track review was intended to give the Assembly the ability 
to limit the time period in which amendments could be 
proposed and discussed in order to quicken the legislative 
process (Reftel).) Gonzalez stated that he did not think 
the bill was fair to poor Costa Ricans and he insisted on 
changes to various parts of the bill.  Finance Minister 
Federico Carrillo soon became the target of Gonzalez's and 
other PUSC deputies' complaints, and in recent weeks the 
public exchanges between Gonzalez and Carrillo have turned 
personal and ugly, culminating in Gonzalez's demand that 
Carrillo be fired. 
 
¶3.  (U) At first the bill's most vocal opponents were the 
five Libertarian Movement party (ML) deputies, who, in an 
attempt to kill the bill, proposed over one thousand 
amendments on the first and only day they could do so. 
Each amendment would have to be discussed and would result 
in more delay.  As the deputies continued to review the 
bill, opposition arose within the President's own party. 
The major opposition party, the National Liberation Party 
(PLN), found itself in the odd role of supporting the bill 
and urging deputies from the President's own party to move 
forward on the Administration's self-proclaimed highest 
priority. 
 
¶4.  (SBU) Gonzalez never followed through on his promise to 
lengthen Assembly sessions and devote extra time for the 
review of the fiscal reform bill.  On August 31, 2005, in a 
sign of how bad the relationship between Gonzalez and 
Carrillo had become, Gonzalez stated that he would follow 
through on this promise only if Carrillo were no longer the 
Minister of Finance.  The increasing number of deputies 
opposing the bill also used tactics such as walking out of 
the Assembly to ensure there was not a quorum, thus 
stopping discussion of the bill.  Carrillo has also been 
accused of a lack of loyalty to the PUSC.  Note: 
Carrillo's mother, Joyce Zurcher, is a PLN deputy, and 
there have been rumors that Carrillo would stay on as 
Finance Minister if Oscar Arias, the PLN presidential 
candidate in the upcoming elections, wins. 
 
¶5.  (U) The PUSC deputies opposed to the bill state that 
Carrillo is cutting funds that were earmarked for social 
programs.  Federico Vargas (PUSC) criticized Carrillo for 
sending to the Assembly a budget in which he moved 
approximately $180 million from social programs to other 
government expenses such as debt payments.  Carrillo has 
stated that his proposed budget deals with the current 
fiscal situation in a sound manner and, unfortunately, 
there is no money to pay for some social programs.  He also 
has made some peculiar statements about the PUSC's 
political future.  For example, Carrillo stated that 
because of problems with corruption scandals involving 
kickbacks and two PUSC ex-presidents, there is little 
chance that the party will win the next election.  Lilliana 
Salas, a PUSC deputy, said that Carrillo's "comments are 
ill-conceived and unfortunate at this time when we are 
debating fiscal reform." 
 
¶6.  (U) President Pacheco weighed in by saying the deputies 
"tell me that they want money for social programs.  I say 
to them, with pleasure; but give me the money by passing 
fiscal reform." 
---------------------------- 
ASSEMBLY VOTES ON PRIORITIES 
---------------------------- 
 
¶7.  (U) On September 1, 2005, Gonzalez offered a resolution 
regarding the Assembly's legislative priority list. 
Gonzalez stated that he prioritized legislative projects in 
accordance with the Constitution and input from the 
Constitutional Court.  The resolution which officially 
placed fiscal reform as number three on the priority list 
was passed by 37 of the 50 deputies present. 
 
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COMMENT 
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¶8.  (SBU)  Even though not a top priority, discussions can 
still continue on this bill, especially since the projects 
with higher priorities are mostly at the stage of being 
reviewed by Assembly Commissions and have not yet made it 
to the floor for discussion.  However, the vote to move 
fiscal reform to the number three position in the Assembly 
is a clear signal of continued waning support for the bill. 
The President may choose to make fiscal reform a top 
priority, which he can only do during the Extraordinary 
Sessions of the Assembly which will not begin until 
December.  If the President does this, there is no 
guarantee that the deputies' lack of support on this issue 
will change. 
 
¶7.  (SBU) Officially, the President has not changed his 
requirement that fiscal reform be passed prior to him 
sending CAFTA-DR to the Assembly.  It is now appearing less 
likely that fiscal reform will be approved during this 
Assembly's tenure which ends in May 2006.  Although the 
President may change his mind, especially if the Commission 
of Eminent Persons reports positively on the agreement, the 
fact that Pacheco has not dropped the linkage between fiscal 
reform and CAFTA does not bode well for his sending CAFTA-DR 
to the Assembly any time soon. 
FRISBIE