Wednesday 22 September 2021

Costa Rica Headed For An Unpredictable Vote?

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Marked by widespread national dissatisfaction, after eight years of power by the Partido Liberiación Naiconal (PLN), of a party that has synonymous with corruption, cronyism and embezzlement, Costa Ricans may be looking for change on Sunday.

Image from http://aboutcostarica.org/
Image from http://aboutcostarica.org/

So, it wasn’t a too much of a surprise the strong following of legislastor José María Villalta of the Frente Amplio showed in December and today, two days to election day, is one of the leading candidates to take the presidential chair.

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For decaes, Costa Rica has been a two party system – the PLN and the Partido Unidad Social Cristina (PUSC) alternating power every four years.

In 2010, the election of Laura Chinchilla, the PLN holding two for two consecutive terms, broke the pattern.

In 2014, the pattern could be broken even more, with the election of another PLN term, in longtime mayor of San José, Johnny Araya. However, the air change may be even more radical in the election of Villalta. Or possibly sliding in between the two, Otto Guevara of the Movimiento Libertario, in his fourth bid at the presidency.

Political experts consider the 2014 elections as one of the most important elections in a generation and at stake is the eonomic model that for the last 25 years had produced economic growth, though failing greatly to significantly reduce the poverty rate.

“The election really is about people who are breaking away from traditional political parties here. And so that electorate has either cut right or they’ve cut left,” is the opinion of experts in Costa Rica’s politics.

Costa Rica has long attracted investment beyond its neighbours in Central America due to its strong US ties and political stability.

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After an acute crisis from 1980 to 1982 swelled the poverty rate to 54 percent, Costa Rica put in place reforms to move the economy toward an export-oriented model. he country set exchange rates to provide more certainty to exporters and established free-trade zones and entered into free-trade agreements with the United States, the European Union and China, among others. It also privatized inefficient state-owned enterprises and opened certain industries to competition.

These reforms brought significant growth. Since 1987, Costa Rica has been growing an average of 4.7 percent a year, one of the fastest rates in Latin America.

But since 1994, poverty has remained stagnant and income inequality is on the rise. In fact, Costa Rica is one of only three Latin American countries where inequality has risen since 2000.

So why has Costa Rica been unable to lower its poverty rate despite healthy growth rates? Because its economic model is still in significant ways based on a mercantilist system that is biased toward certain favored sectors of the economy (exports, tourism) at the expense of the poor, writes Juan Carlos Hidaldo of the New York Times.

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Hidalgo cites the country’s monetary policy of the Cental Bank “actively” intervening in the foreign exchange, driving up inflation. Trade policy is anothe problem, as Costa Rica opened up to imports in the early 1990s by cutting tariffs on many consumer goods, it maintains high tariffs on a number of key farm goods like milk, rice and chicken, which drives up prices.

“And yet these are precisely the products most consumed by the poor. A 2002 study by Costa Rica’s Incae Business School found that agricultural protectionism constituted a 17.5 percent income burden on the poorest 20 percent of the population. In 2013, the cost of a basic basket of food products required to meet an average person’s minimum caloric intake represented 82 percent of the average per capita income of the poorest Costa Ricans”, says Hidalgo.

The Government’s tax and regulatory incentives to multinational companies, while suffocates local businesses with high taxes and crippling regulations, is yet another problem. The country ranks 102 (out of 189 economies) in the World Bank’s Doing Business Report. The total tax rate amounts to 55.3 percent of an average local business’s profit. As a result, many people can’t cope with the high costs of doing business and turn to the parallel economy: The latest data show that one in three Costa Ricans work in the informal sector.

No question that the 2014 election is a close race and a strong possibility that no candidate will obtain the required the 40 percent, forcing a runoff election on April 6 between the top two candidates.

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