If you can’t win, force a second round seems the end strategy of the Frente Amplio presidential candidate José María Villalta, with less than two weeks to go before Costa Rica votes, and the latest poll results giving no one candidate the majority required.

Jose Maria Villalta, Costa Rica’s opposition presidential candidate, poses for a photograph at his campaign office in San Jose, Costa Rica on Jan. 14, 2014. Photo: Isabella Cota/Bloomberg

Cutting tax deductions, boosting salaries of police and teachers if elected president, and the concerns about the country’s growing budget deficit could be part of a strategy to force a second round vote with Partido Liberacion Nacional party candidate, Johnny Araya.

The poll of decided voters by CID-Gallup by Repretel published on Tuesday puts Araya in the lead at 39% and Villalta in second at 26%.

Under Costa Rica’s election rules, the winning candidate must have at least 40% of the popular vote on February 2, failing a run off vote by the top two candidates on April 6.

Costa Rica is second-biggest economy. In September, Moody’s put a negative outlook citing widening budget deficits, a rising debt burden and a failure to pass fiscal legislation. The strength of Villalta’s candidacy is making it harder for the government to pass fiscal reforms before a second-round vote, Citigroup Inc. economists Jorge Pastrana and Jeffrey Williams wrote in a January 7 report.

“It’s likely that the neoliberal economists who have led the country in previous years have blown the issue of the fiscal deficit out of proportion,” Villalta, who heads the Frente Amplio party and is their only representative in the Legislative Assemly, told Bloomberg in an interview yesterday in San José. “But we do think it’s a problem that needs to be tackled in an holistic way.”

Rising Debt. Weighing down the ruling PLN party and its candidate is the Chinchilla government spending the past year drafting a plan to limit the growth of public sector jobs and salary increases. The 56-year-old Araya, who stepped down as mayor of San José to campaign, said he’ll boost financing for young entrepreneurs and consider scrapping the country’s 13 percent sales tax and replacing it with a higher value-added tax.

Moody’s said its negative outlook was justified by a fiscal deficit that climbed to an average 4.4 percent in the 2009-2013 period, up from about 1 percent in the previous four years. The ratio of debt-to-gross domestic product was headed toward 37 percent in 2013 from 25 percent in 2008, Moody’s said.

“Large fiscal deficits and a rising debt burden remain Costa Rica’s main medium-term credit risk and ratings constraint,” according to the Sept. 23 report.

Moody’s rates Costa Rica’s US$45 billion economy BAA3, the lowest investment-grade level, putting it in the same category as Indonesia and Spain. Both Standard & Poor’s and Fitch rate Costa Rica below investment grade.

Widening Gap. Costa Rican dollar bonds have lost 2.1 percent the past six months, compared to a 1.6 percent return for Latin American debt, according to JPMorgan Chase & Co.’s EMBIG index. The economy grew 5 percent in the third quarter from a year earlier, up from 3.8 percent in the same period of 2012.

As president, Villalta said he would seek to reduce tax deductions for companies and raise salaries for public sector workers near the bottom of the pay scale, saying senior managers in the government bureaucracy are overpaid at the expense of workers including teachers and policemen.

“There is a great lack of balance between salaries,” Villalta told Bloomberg. “Many are underpaid.”

Sitting in a sparse downtown office with a yellow party flag flying outside, Villalta said he wants to renegotiate parts of the country’s free trade agreement with the U.S., Dominican Republic and Central America, known as CAFTA-DR, to improve intellectual property protections and labor rights and allow him to set price caps on medications.

Voters in the country of 4.7 million people have grown weary of corruption scandals in the government and are ready for change after eight years of rule by the National Liberation Party, or PLN, Villalta said.

Finance Minister Fernando Herrero resigned in 2012 after newspaper La Nacion said he avoided paying property taxes, a charge he denied. The transportation minister also resigned that year over alleged corruption on a road project. Last May, the communications minister resigned and Chinchilla fired her anti-narcotics chief and a deputy minister after questions arose about her use of a private jet to fly to Peru.

Ahead of next month’s election, the PLN has started an advertising campaign telling voters not to “vote left,” saying a victory for more liberal candidates would put private sector jobs at risk.

The 13-point gap between Araya and Villalta in the latest Gallup poll, which had a margin of error of 3.2 percentage points, is wider than a December survey which showed the two candidates just five points apart. Villalta dismissed the PLN’s campaign ads and said the surveys show relatively weak support for Araya after his two PLN predecessors won with over 40 percent support in the first round.

“Those in charge of propaganda in the PLN saw a chance to distract voters from the corruption and mistakes this government has made,” Villalta said. “Campaigns based on fear never add votes. They’re done to destroy other candidates or boost abstentions and that’s what is happening in Costa Rica.”

Source: Bloomberg

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