by Rod Hughes

Central Bank President Francisco de Paula Gutierrez warned the country yesterday that vigorous “economic adjustments” are on the way in order to combat the effects of the skyrocketing petroleum and worldwide food prices and slumping foreign trade. Among these measures will be tighter credit, higher interest rates and a push to increase exports.

Gutierrez, in an exclusive interview with the daily La Nacion, stated, “The adjustment has to come from every side, from less internal demand. There will be restrictive monetary policies.” Internal demand includes buying by consumers, companies and the government from sources within the country, he explained.

During April, May and June, the Central Bank began a campaign of buying up colones, using millions of dollars in its reserves. And, already public banks have begun to raise interest rates. The measures will mean that Tico consumers have fewer colones with which to buy things, a condition that will hardly make retailers happy. Nonetheless, Gutierrez promised that the changes would be gradual and not abrupt. The search for new export markets also cannot be accomplished overnight.

Especially worrisome is the balance of payments deficit caused by soaring petroleum prices and shrinking export trade. Gutierrez foresees this continuing for a time. The government has already taken measures to reduce gasoline use by trying to reduce the time motorists spend idling their engines in traffic jams. This measure, introduced in late June for peak traffic hours, will definitely be extended for all day on one day per week, according to the final number of the license plate. The daily La Nacion observed in today’s edition that after peak hours, long convoys of trucks cause further traffic jams and this simply alters the time of the jams instead of eliminating them.

Gutierrez said that the opening of the telecommunications and insurance markets may alleviate the balance of payments somewhat by stimulating foreign investments. Those bills have passed the Legislative Assembly after a long, hard political battle.

But the country’s top banker is promising no rose gardens. “Costa Ricans have to understand that the situation we are currently navigating is much more difficult than what we had a year ago. It will require more prudence and discipline from people.” A year ago, unemployment was at record lows and the government was able to reduce the national debt while ending the year with a budget surplus.