Costa Rica's president backtracks on austerity plan aimed at securing IMF loan

SAN JOSE, Oct 4 (Reuters) - Costa Rica’s president said on Sunday he would withdraw a contentious austerity proposal aimed at helping the government secure a major loan from the International Monetary Fund (IMF), after four days of tense street protests.

President Carlos Alvarado’s government last month proposed a series of measures meant to help the tourism-dependent economy weather the coronavirus crisis, including hiking taxes and freezing public sector wages, as part of a negotiation with the IMF for a $1.75 billion loan.

Alvarado, whose center-left party has a minority in Congress, said he still hoped to reach an agreement with the IMF for the loan, but would communicate with various sectors to retool the economic recovery plan.

“Understanding the sentiment that exists and the need to take viable actions, the government will not go ahead with its initial proposal,” he said in televised remarks.

Last week, he said Costa Rica’s economy would suffer inflation, unemployment, higher interest rates and possibly a weaker currency if the government did not secure the IMF aid.

The IMF said last week it had begun talks with Costa Rica, and commended the effort by authorities for “broad based political and social dialogue.”

Costa Rica’s economy relies heavily on tourism, as well as exports of medical devices. The pandemic has pushed the government to spend more to cushion the blow, with this year’s budget deficit at 9.3% of GDP. (Reporting by Alvaro Murillo, Writing by Daina Beth Solomon; Editing by Kim Coghill)