(QCOSTARICA BLOGS) On October 13, 2014, I wrote and submitted a blog to this site entitled, “The Costa Rica Budget, Or Will Costa Rica Be The New Greece”. As current matters unfold in Greece, with their likely default on their international debt and their subsequent ouster from the Eurozone, I can’t help but see the same parallels developing in Costa Rica.
Although the Contraloria (Comptroller General) for Costa Rica has indicated that the continued payment of Public Sector wages and pension benefits at the current levels is unsustainable, based on projected tax revenues and the Editorial in the newspaper “La Nacion”, as of yesterday drew these same parallels with Greece and its debt problems, the Government of Costa Rica has taken no affirmative action toward avoiding a similar debt crisis arising in Costa Rica. This includes the continued borrowing from international financial agencies, the funds required to support these unsustainable Public Sector wages and benefits payments.
This is exactly the same scenario that the Government of Greece followed, to put itself in the debt crisis that it now finds itself in. Foreign money borrowed by Greece from the German and French banks that are now demanding repayment, was based on a projected GDP from an Economy based on tourism and olive production.
Greeks were retiring at age fifty-five with substantial government pensions based on these borrowed funds. Greece has no domestic, or foreign investment in manufacturing of high-tech gadgets, or other exportable items such as generic pharmaceuticals, nor Multinational Company call centers, like Costa Rica does.
In short, there was no realistic way for Greece to repay the borrowed funds based on any realistic growth projection of their GDP.
The foreign investment aspect in Costa Rica is, in my opinion, the short and long-term solution to the current economic woes faced by Costa Rica. Otherwise, you are looking at an Economy based on tourism, bananas, and coffee, not dissimilar to the Economy of Greece.
However, since taking office, the current Costa Rica Government has taken steps to make such continued foreign investment unattractive from a “cost of doing business” point-of-view, with the threat of increased taxes, high employer pay-roll deductions and employee wages, and high utility costs.
Foreign investment has been leaving Costa Rica and unemployment in this sector of the Economy has been steadily rising. Clearly, the approach must be the wooing of foreign investment based on tax-breaks and lower costs of doing business, with the corresponding benefit of increased revenues from pay-roll deductions arising from increased employment. In that scenario, everybody wins, Costa Ricans have jobs and the Government has the revenue.
The U.S. Dollar/Costa Rica Colon exchange rate is hurting Costa Rica exporters and they have recently stated such. The Colon is obviously being manipulated by the Central Bank, to maintain a much higher value as against the U.S. Dollar than is realistic, as is reflected in any other World currency.
Canada, which has a much stronger Economy than does Costa Rica, has devalued its Canadian Dollar currency by almost 25% over the past year as against the U.S. Dollar, where the Colon has stayed essentially stable in its relationship with the U.S. Dollar. This cannot reflect the true state of affairs in this regard and is the root of the issue hurting Exporters.
Should matters come to pass in Greece as I have predicted with their ouster from the Eurozone, the life-style of the Greek population will be very negatively affected. Greeks will have no international credit and imported goods will be virtually non-existent.
This diminished life-style will continue for many years and the Greek population will suffer considerably for the “sins” committed by their previous governments.
I would hope that the Costa Rica Government would take note of these developments in Greece and would implement an economic strategy for Costa Rica which would avoid such similar negative developments to be the not too distant future case here.
