Costa Rica: Banking Reform Bill Comes Under Fire From Ex-Central Bank Chief

by Mike Godfrey, Tax-news.com, New York

24 April 2001

According to a report in local newspaper the Tico Times, a bill currently being considered in Costa Rica which would reform the banking sector has been given a resounding thumbs-down by a former Central Bank president, Rodrigo Bolanos, who says the bill is seriously lacking in financial controls.

Mr Bolanos says the bill, which is spearheaded by Banco Nacional and endorsed by five congressmen, would allow banks to ignore monetary and credit policies established by the Central Bank or by the country’s financial-sector regulatory institutions, if the banks decide the policies will reduce the banks’ profits or financial standing. Essentially, the bill would take control of the banking sector largely out of the hands of the government and place it with the country's banks.

Mr Bolanos, Central Bank president from 1994-98, told the Tico Times: 'It seems to me that all this bill (Bill 14199) seeks is to concentrate enormous power with the banks.' He added: 'The bill seeks to protect state banks, but, in reality, it weakens the financial system by limiting the powers of the Central Bank and (financial watchdog institutions).'

If the proposed bill becomes law, state banks would have more power to determine their administrative hierarchies, hire and fire employees, and create internal policies. All state banking-sector employees would be considered as private sector rather than public sector workers. In addition, banks would be permitted to create private, wholly owned corporations to manage or provide any banking services that the banks consider beneficial. Currently, credit cards, brokerage firms and pension funds are handled through private, bank-owned corporations.

Mr Bolanos believes the bill is too radical and is particularly concerned about the "farming out" of bank services to private sector corporations. He told journalists at a seminar last week: 'The bill contains excessive and unheard of proposals. In fact, all the region’s commercial banks are already very influential. If any institution must establish order, it’s the Central Bank – to establish policies that are good for the financial system as a whole, not only for the banks themselves.'

The bill is currently being considered by the Costa Rican Congress' Economic Committee, which says it will need to be studied in-depth before any decisions are made. Member Alex Sibaja told The Tico Times: 'This is a very complex topic that will require analysis to determine the correct point of equilibrium for the banking sector.'

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