UPDATE 2-Costa Rica's Alvarado pitches IMF package as economic lifeline

(Adds quotes, details on IMF negotiation)

SAN JOSE, Sept 23 (Reuters) – Costa Rican President Carlos Alvarado on Wednesday predicted more economic pain for the country without a major loan package from the International Monetary Fund (IMF), including worsening inflation and unemployment, he told Reuters in an interview.

The Costa Rican government is set to begin formal negotiations with the IMF over a $1.75 billion package to help the Central American country’s struggling economy, which has been battered by the coronavirus pandemic.

However, resistance to the government’s economic package aimed at reaching a deal with the IMF, in particular proposed tax increases, has complicated its prospects in the opposition-controlled Congress.

The center-left leader said his government could still walk away from the talks, which were announced in July, but he believed that would be unwise.

“The economy makes its own adjustments, and (no IMF deal) would lead to inflation, unemployment, a loss of investor confidence, higher interest rates and possible weakening of the currency,” said Alvarado.

“This isn’t a time for ideologies,” he added, speaking at his offices in the Costa Rican capital, taking off a face mask just before the interview began.

Costa Rica’s economy relies heavily on tourism, as well as exports of medical devices, and the pandemic has pushed the government to spend more to cushion the blow, with this year’s budget deficit at 9.3% of GDP.

Alvarado said the economic downturn over the past few months has been worse than any other in decades.

“We’re in a tense, difficult situation,” he said, speaking with his trademark measured delivery, “but there’s a possibility of improvement.”

He touted how a deal with the IMF could open up other sources of funding, as well as helping the government’s credit rating.

If a deal were reached, it would also allow the government to borrow on better terms, he said.

“If there’s no deal, it will be more difficult.”

Ahead of the IMF negotiations, the finance ministry and central bank unveiled a joint plan last week that includes hiking income and property taxes, a tax on banking transactions, as well as freezing public sector wages. It would also sell off a state factory that makes alcohol, a government-run bank and some land holdings.

Alvarado said he was “open to listening” on possible privatizations, but stressed that he sees more opportunity to make the government more efficient.

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