Costa Rica is pura vida. This is what an overwhelming majority of Costa Ricans believe. Indeed, according to a recent survey by Unimer, a surprising 87% of Ticos (as the inhabitants of this country are known), reported they were “satisfied with the quality of their personal life”. However, what is considered the oldest, strongest and most consolidated democracy in Latin America faces serious problems in terms of its economic, social and political situation.
The country’s economy has to cope with a serious deterioration of its public finances. This year, the central government deficit accounts for 6% of Gross Domestic Product (GDP), while the amount of the total debt is almost 60% of GDP. To avoid a collapse of its finances, congress last December passed a difficult and controversial tax reform – amid prolonged strikes by unions of government employees – which, among other aspects, introduces the Value Added Tax (VAT) and puts a brake on the growth of public spending, especially on issues related to salary increases and the granting of additional benefits.
The fiscal reform enters into force in a context of prolonged deceleration: the Monthly Index of Economic Activity (IMAE) shows a sustained fall since August 2015 – when it marked an annual growth of 5.3% – until slowing down to just 1.5% in June. The renowned economist Eli Feinzag points out that of the 15 activities measured by the IMAE, five contracted in the year until June 2019, another five slowed down and five showed a stunted average growth of 0.84%. Sectors such as agriculture, commerce and mining have been slowing; the non-export manufacturing industry has been in recession for 13 months, while construction registers five consecutive months of contraction. It is not surprising that the central bank recently revised its growth forecasts for this year and lowered them from 3.2% to 2.2%, while economists, businessmen and academics doubt that the growth will finally be higher than 1.5% in 2019.
In this context, unemployment already affects 11.9% of the economically active population – a figure not seen in decades in this country – while informal employment involves 41% of the population. Years of persistent economic deterioration are leading to growing social tension, with a significant increase in strikes and conflicts, especially among employees in the state sector, alongside taxi drivers, transporters, farmers and fishermen. Amid this difficult economic and social situation, the government of president Carlos Alvarado – in power since May 2018 – is paying a high political price for approval of the tax reform: about 77% of Costa Ricans judge the work of the government to be deficient; meanwhile the criticisms and questions of the political opposition, business sectors and trade union sectors increase. The businessmen reproach him for being weak in confronting the union strikes and demand a clear economic recovery plan; the unions hinder the measures tending to contain the exponential growth of expenditures and the political parties do not seem to have a clear course either. Moreover – claiming that they are “autonomous” – public universities, the Costa Rican Social Security Fund and even the Supreme Court of Justice, are reluctant to comply with the tax law that obliges them to cut their budgets.
In a time when the country requires capable and responsible leadership, reaching agreements becomes increasingly difficult due to political atomization. Two political parties governed Costa Rica during the second half of the twentieth century: social democrats and social-Christians. Nevertheless, due to citizen exhaustion with growing corruption, the hegemony of these parties collapsed earlier this century, with the emergence of the party Acción Ciudadana. Today nine political parties are represented in congress. Among them there are two groups of evangelical tendency (18 deputies out of 57), which further exacerbate the climate of growing social tension by opposing marriage equality, in vitro fertilization, abortion; last August they blocked the adoption of a bill for teaching human rights in public schools.
In this difficult and complex scenario, president Alvarado, 39, insists that the country has immense potential to resume the path of growth and prosperity and achieve the goal of being the most developed country in Latin America. A positive step has almost been reached, since Costa Rica is very close to meeting all the requirements for admission to the OECD.
On the other hand, because of the country's investment in education, since the mid-1990s Costa Rica managed to establish a dynamic sector based on high technology. Companies such as Intel, HP, Amazon, Boston Scientific and 3M, among others, have research and development centers, service centers and call centers here. Furthermore, the country is one of the world's leading exporters of sophisticated medical devices.
Costa Rica has about 25% of its territory protected and – in what has been a unique achievement in the Americas – it managed to reverse the deforestation rate to the point that more than 50% of its surface is covered by forests. Thanks to natural resources, tourism continues to grow at a rate of 4.5% annually.
Despite difficulties and challenges, president Alvarado’s foreign policy maintains a course that is deemed traditional in the country, to the point that it can be defined as state policy. Indeed, Costa Rica continues to develop its external relations around three strategic pillars: commercial opening through free trade agreements; promotion and defense of democracy and human rights; environmental protection. On 20 January 2019, Costa Rica was named “UN Champion of the Earth” for its pioneering role in fighting climate change, the first time the UN prize was awarded to a country.
Costa Rica is one of the most open economies in the world and has in force 13 Free Trade Agreements that represent more than 80% of its international trade, including an Association Agreement with the European Union. It is currently negotiating an agreement with the Pacific Alliance which, however, is encountering some difficulties due to the resistance faced by various stakeholders in the country, especially those involved in agriculture.
In the field of promoting and defending democracy and human rights, relations with neighboring Nicaragua are particularly important, characterized by constant friction due to border incidents, illegal immigration of Nicaraguans to Costa Rica and conflicts over the free transit that the Ticos enjoy across the San Juan River border. Since April of last year, when massive citizens’ protests spread in Managua (Nicaragua’s capital city) against president Daniel Ortega, there has been an increase of Nicaraguan refugees in Costa Rica, due to the violent repression Ortega launched against the protesters. The government of San José condemned the violent repression and the outcome has been a new escalation of very old conflicts between the two countries. Since April of last year, president Ortega has several times prevented the passage of vans through national territory, seriously affecting intra-Central American trade. Therefore, Costa Rica is currently exploring the feasibility of a new ferry line from its northern province of Guanacaste to El Salvador.
Ticos, in spite of everything, continue to rely on the strength of the institutions and the rule of law that they have built since the 19th century. This condition has differentiated them from the rest of the Latin American countries. In the past, the country had already known times of crisis and managed to get ahead by remembering and reinforcing the peaceful nature of its national identity (the country abolished the army in 1949); to overcome difficulties, Costa Rica has recurred to the mechanisms of democracy to achieve the necessary agreements. This time shall not be different: Costa Rica must remain a pura vida country.
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