Costa Rica: Public Finance Plans are Not Sustainable

By ICEFI and CLALS*

President of Costa Rica Carlos Alvarado Quesada

Carlos Alvarado Quesada, President of Costa Rica, April 2018/ Wikimedia Commons/ Public Domain/ https://es.wikipedia.org/wiki/Archivo:Carlos_Alvarado_Quesada_CAQ_PAC_03.jpg

The Costa Rican government’s draft budget for 2020, presented to the Legislative Assembly on August 30, reveals that shortfalls in tax revenues, high deficits, and accelerated public debt endangers the country’s ability to continue its social services and maintain its traditional level of democratic governability. The fiscal reforms that Costa Rica has undertaken – Law 9635 on Strengthening Public Finances – have proven, at best, insufficient to correct the imbalances envisioned in the new budget.

  • The budget proposes a tax burden of 13.2 percent for 2020 – equal to that observed in 2018 before the tax reforms were implemented but below ICEFI’s estimate for the end of 2019 (13.5 percent). This rollback is alarming because it essentially erases the gains expected from the reforms. It is due to increased levels of tax evasion and avoidance, and illicit capital flows.
  • The government projects public spending to reach 8,475.5 billion Colones (US$14.0 billion), accounting for 22 percent of GDP – slightly below the 22.1 percent approved for this year but higher than ICEFI’s estimate for the end of 2019 (20.9 percent). The 2020 proposal implies cuts to public spending that will affect key ministries, including Education and Public Works and Transportation, the budgets of which will decline 1.4 and 0.4 percent from this year, respectively.

Costa Rica’s fiscal deficit poses another long-term challenge. The draft budget contemplates a deficit that would reach 7.8 percent of GDP, higher than ICEFI’s estimate of 6.1 percent for 2019. For Costa Rica’s fragile public finances, this would suggest an inability to achieve fiscal sustainability in the medium term despite the recent tax reform.

  • The proposed budget would grow national debt to 64.7 percent of GDP in 2020, which is double the debt level observed during the earlier years of the decade (29.9 percent).

The failure of the tax reform law underscores Costa Rica’s urgent need for a fiscal accord that responds to the challenges of economic growth, social development, and democratic governance. To avoid such a scenario, tax officials will have to devise and implement plans and strategies next year that will stop and reverse the steady loss of the Executive’s ability to collect taxes. The cuts to education, public works, and transportation could erode Costa Rican well-being. Public budgets reflect the priorities of a society, and both the Executive and Legislative authorities in San José have the obligation to expand debate to include input from affected sectors. Costa Rica will face even greater challenges if it fails to formulate a budget that includes a responsibly progressive tax regime; reduction in tax evasion and under-reporting; greater control over illicit capital flows, adoption of a principle of worldwide income; increase fiscal transparency and accountability, debt restructuring, and maintenance of spending levels that guarantee adequate universal services. 

November 18, 2019

* The Instituto Centroamericano de Estudios Fiscales conducts in-depth research and analysis on the region’s economies. This is the first in a series of summaries of its analyses on Central American countries.

Costa Rica: Anything is Possible in Upcoming Elections

By Carlos Malamud*

Two boring men look out into space

The apparent front-runners in the Costa Rican presidential election, Juan Diego Castro (left) and Antonio Álvarez (right). / Wikimedia, edited / Luis Madrigal Mena (left) / MadriCR (right) / Creative Commons

In the run-up to Costa Rica’s presidential and legislative elections on February 4, the words “uncertain” and “uncertainty,” “volatility,” and “surprise” are crowding out all others.  Since current President Luis Guillermo Solís’s unexpected victory in 2014 marked the end of two-party domination – in which power was shared by Liberación Nacional (PLN) and the Partido Unidad Social Cristiana (PUSC) – fragmentation has deepened.  Today there are 13 candidates for President and a heightened number of undecided voters.  Alongside the many who don’t know who they want to vote for, there are others, including many liberacionistas, who do not want to reveal their support for other candidates.  The country is in a scenario in which anything can happen.

  • According to most polls, former Minister of Justice and Security Juan Diego Castro (of the minority Partido Integración Nacional, PIN) and Antonio Álvarez (of the PLN) are practically at a technical tie. Castro’s campaign has focused on combating corruption, an issue of steadily growing concern to Costa Ricans, and the threat posed by gangs.  Close behind are Rodolfo Piza (PUSC) and evangelical candidate Fabricio Alvarado (Restauración Nacional).  The latter’s support surged last week when he denounced a decision by the Inter-American Human Rights Court accepting same-sex marriage.  It’s unclear whether any of the candidates’ issues have lasting support or only an ephemeral presence on the electoral agenda.

Since these four top candidates each have about 15 percent of the vote so far, it will be difficult for any to reach the 40 percent necessary to avoid a runoff.  The two strongest – Álvarez and Castro –also have strong negatives.  If, as seems most likely, the undecided and the “hidden vote” do not give one candidate or other a clear victory, there will be a second round between the top two vote-getters on April 1 (Easter Sunday).  Polls also show that many voters see Piza as the best “second option.”  For that reason, the results of a second round of voting are also difficult to predict.

Insofar as Costa Rica was the exception in Central American or even Latin American politics in the past, things have changed very rapidly.  Its distinction in the 1960s and 1970s as one of only four countries without military dictatorships (along with Colombia, Mexico, and Venezuela) has faded into different clichés.  The lauded former President Óscar Arias once made the specious argument that the constitutional prohibition on presidents running for consecutive terms was a violation of politicians’ human rights.  In addition, the conviction of two ex-presidents on corruption charges has laid bare the links between part of the political class and misgovernment.

  • Solís’s election in 2014 ended Costa Rican bipartisanship. It’s possible that the new President will be from the PLN or PUSC, but the two traditional parties’ hegemony is over.  That Costa Rica could become like its neighbors is no consolation.  To avoid that fate, it should strengthen its principal institutions, beginning with the Judiciary and the National Assembly, without forgetting the important role of the political parties, which are key to democratic regeneration.

January 25, 2018

*Carlos Malamud is Senior Analyst for Latin America at the Elcano Royal Institute, and Professor of Latin American History at the Universidad Nacional de Educación a Distancia (UNED), Madrid.  A version of this article was originally published in El Heraldo de México.

Prison Reform in Latin America: Lessons from Costa Rica

By Geoff Thale and Adriana Beltran*

Steven and Darusha / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Steven and Darusha / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Prison overcrowding is a widespread problem in Latin America, primarily because of harsh drug-sentencing laws and inadequate budgets, but Costa Rica may be setting a useful example for dealing with it.  In most countries, guards control the perimeter, but groups of prisoners or criminal gangs organize and control life inside the prison compound.  Rehabilitation and re-integration programs are limited.  Not surprisingly, there is little political leadership for prison reform; the issue wins few points with the general public.  Even dramatic events – like prison riots in Venezuela or prison fires in which hundreds of young men die as in Honduras – don’t generate interest in prison reform.  A key component of the criminal justice system – as a deterrent, a punishment, and as a provider of rehabilitation and reintegration services that will reduce recidivism – the prisons are often neglected.

While Costa Rica faces growing drug-related problems, a multi-country analysis by the Washington Office on Latin America of persistent criminal justice and prison problems in Latin America – aimed at identifying strategic solutions – indicates that the country stands out as having undertaken at least modest reforms of its prisons to prevent them from becoming the breeding grounds for increasingly hardened criminals and gangs.  Prison conditions in Costa Rica have not been among the worst in Latin America, although the U.S. State Department said in its Human Rights Report for 2013 report that they were “harsh” and that “overcrowding, inadequate sanitation, difficulties obtaining medical care, and violence among prisoners remained serious problems.”  Until very recently, when new drug sentencing laws and tough anti-crime measures pushed the prison population up, the system generally did not exceed capacity.  Even today, the system is at 140 percent of capacity – far less than the 200-300 percent seen in other countries.  Prison conditions also seem less abusive than those seen in other countries.  An external oversight body was created to protect the rights of prisoners.  Moreover, the government, with support from the Inter-American Development Bank (IDB), is reaching out to local businesses to support vocational training programs for inmates.

This process has been driven by reformers inside the government and prison system, in contrast to most reforms elsewhere in the hemisphere driven by international donors.  This is a rare example of how reformers inside and outside the system worked to achieve institutional changes that increase citizen security while respecting human rights.  In this case, long-standing mid-level and senior staff of the penitentiary system, with the support of successive Ministers of Justice appointed by President Laura Chinchilla, played a key role in resisting pressures from legislators who want to toughen sentencing, which would increase prison populations.  They have advocated measures to ease overcrowding and ensure proportionality in sentencing.  At the same time, they have also used the IDB loan to both defend and expand the rehabilitation and re-insertion programs in the prison system.  Every country’s situation is unique, and Costa Rica has advantages — a relatively low crime rate, a relatively strong state structure, a relatively well-established respect for the rule of law – that others lack, but San José has shown that reform in this difficult, politically sensitive area is possible.

*Geoff Thale and Adriana Beltran, of the Washington Office on Latin America (WOLA), recently led a small delegation to visit Costa Rican prisons.

Drug Dealing in Costa Rica: A Perverse Path toward Social Inclusion

By Rodolfo Calderón Umaña*

Antonio / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Antonio / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Central America’s emergence as a principal transit route for illicit drugs from South America to the U.S. has given rise to local retail markets supplying users within the region.  A study of three Costa Rican communities – one in greater San José and two along the Caribbean coast – highlights several factors that determine the scale and consequences of these local markets.  Among the most important are the high levels of social exclusion experienced by households in these localities and residents’ motivation to become involved in the business because it offers resources (money, power and prestige) that cannot be achieved through the legitimate channels of education or quality employment.  Other factors include the proximity of the communities to drug trafficking routes and the extent of previously existing demand from local consumers.

One of the most significant characteristics of local drug markets in these communities, as elsewhere, is that they are socially and territorially bounded because trust is the key factor shaping relationships between suppliers, sellers and consumers.  Some local suppliers maintain direct ties to cartels, but they operate their businesses independently.  Youth are assigned the most vulnerable tasks and are thus disproportionately represented among those arrested and convicted of crimes.  Violence serves as the principal instrument for controlling and regulating the drug trade, and the result is that for youth in these settings violence becomes normalized as a routine form of behavior.  This spawns a generalized climate of fear and insecurity, and the typical response of community residents is to retreat from public space and to isolate themselves inside their homes.

These findings support calls for new responses to the drug trade at the community level.  Central American governments, encouraged to a significant degree by U.S. programs, have tended to emphasize repressing and “combatting” the scourge of drug trafficking, yet where this approach has been implemented – particularly in Central America’s Northern Triangle — social problems have only gotten worse.  In Costa Rica, it’s not too late to undertake a comprehensive strategic review of policies in this domain and to bolster programs to stabilize affected areas.  Particularly if designed and implemented from the bottom up, programs can identify and reach out to vulnerable residents before they are drawn into drug micro-markets as vendors, consumers, or both.  Vocational training programs matched to real employment opportunities are absolutely fundamental – to reduce residents’ social exclusion.  Our research findings indicate that enhancement of public spaces where community residents can congregate and initiatives focused on building trust between communities at risk and representatives of the state can also be highly productive.  Costa Rica is at a critical juncture: it can either sustain and expand the participatory policy frameworks that buttress community cohesion and resilience or run the risk of falling into the devastating spiral of delinquency and violence that has plagued its neighbors in the Northern Triangle.

*Dr. Calderón Umaña is a researcher at FLACSO-Costa Rica.  The study is being conducted by FLACSO-Costa Rica with funding from the International Development Research Centre.

Will Costa Rica Seize the Opportunity?

By Fulton Armstrong

Embed from Getty Images

Costa Rican voters have given President-elect Luis Guillermo Solís a mandate for change, but they have also given him a Legislature and culture of political inertia that will make revitalizing the country’s democracy very difficult.  The withdrawal of opponent Johnny Araya from the presidential runoff on Sunday threatened to trigger such low voter turnout that Solís feared his legitimacy would be questioned from the start, but he received 78 percent (1.3 million) of the total votes – more than any other recent presidential victor.  Although he was deeply involved in the National Liberation Party (PLN) until nine years ago, he established himself and the Citizen Action Party (PAC) as viable alternatives to the PLN and Costa Rica’s other discredited traditional party, the PUSC.  His public persona – as a university history professor, former diplomat, a non-corrupt political neophyte, and an unglamorous campaigner – has engendered sympathy even if, as the head of a party with no record, people don’t really know what they’re getting in terms of policy.  Various business groups have signaled they can work with him and presented their wish lists – all touching on energy availability and prices – but that agenda also remains vague.

The composition of the Legislature, elected in February, poses a formidable obstacle to any agenda that Solís develops.  (Click here to see AULABLOG’s first read on this.)  His PAC won two more seats in Parliament – up to 13 out of a total of 57 – but the PLN won 18, the Broad Front (FA) won nine, and the PUSC won eight.  Outgoing President Chinchilla, of the PLN, had a broader base – 24 seats – but obstructionism from across the political spectrum made Executive-Legislative relations rough throughout her term.  The country’s premier economic newspaper, El Financiero, last week gave a generally positive review of President Chinchilla’s performance in ten crucial economic policies – poverty, unemployment, exports, fiscal deficit, and more – and even if that assessment is too generous, the Costa Rican political machines have treated her like an unmitigated failure.  With both traditional parties out of the Executive, maneuvering in the parliament is likely to intensify and be more damaging.

Statements by Costa Rican academics and opinion makers since the lackluster, non-substantive campaigning in the recent elections, suggest a concern that the country is in a funk over the quality of its democracy and democratic institutions.  The political elites are held in low regard for putting their own (often pecuniary) interests before all others.  When Solís takes office on May 8, Costa Ricans will have an opportunity to shake themselves out of that mentality, taking advantage of the new president’s outsider image and his lack of a political machine eager to attach itself as a parasite on the government and economy.  Johnny Araya’s cowardice and his failure to even pretend to have a political program worth fighting for in the second-round campaign, however, bodes poorly for whether the traditional parties are interested in revitalizing Costa Rican politics.  Being the best democracy in Central America has been important to Costa Ricans for decades; being the best it can be is the new challenge.

Central America: Elections Send Different Messages

By CLALS Staff

Salvadoran Presidential candidat Salvador Sánchez Ceréne  Photo credit: Cancillería Ecuador / Foter / CC BY-SA

Salvadoran Presidential candidate Photo credit: Cancillería Ecuador / Foter / CC BY-SA

The two elections held last weekend reflected different states of mind in El Salvador and Costa Rica. In the former, FMLN candidate Sánchez Cerén didn’t win the majority necessary to avoid a runoff, but the rejection of the ARENA party was strong and almost nationwide. ARENA candidate Norman Quijano not only trailed by 10 percentage points; his party’s victory in only one of the country’s 14 departments – remote Cabañas – was a serious blow to its image.  According to press reports, party infighting is intensifying.

Costa Rican Presidential candidate Johnny Araya and Antonio Álvarez Desanti, Chief of the Araya Presidential Campaign  By Lcascante2000 (Own work) [CC-BY-SA-3.0 (http:/via Wikimedia Commons

Costa Rican Presidential candidate Johnny Araya (left) / By Lcascante2000 / CC-BY-SA-3.0 / Wikimedia Commons

In Costa Rica, the eleventh-hour surge of a left-leaning progressive – Legislator José María Villalta – gave rise to a unified effort by the traditional parties to cast themselves as essential to warding off “Chavismo” and even Communism. Commentators judged that Citizen Action Party candidate Luis Guillermo Solís ran a mediocre campaign, but he denied ruling National Liberation Party candidate Johnny Araya – whose large campaign coffers gave him a significant edge – a first-round victory, beating him by about 1.5 percent (but still far short of the 40 percent to avoid a runoff). Both candidates’ red-baiting tactics apparently got people out to vote – abstentionism was not higher than in the past as feared – and popular cries for change shifted to a mandate for the status quo.

Jockeying for the second- round elections – on March 9 in El Salvador and April 6 in Costa Rica – has begun in both countries.  The FMLN’s Sánchez Cerén appears likely to win even without a pact with former President Saca, formerly an ARENA standardbearer. In Costa Rica, Solís is widely believed likely to win, as Araya is burdened by a lackluster record as San José mayor for 21 years and by his party ties to President Laura Chinchilla, whose disapproval ratings have broken records in the history of polling in the country.

Neither new president will have an easy time governing. Their legislatures are deeply fractured, and corruption and weak Executive Branch institutions will plague them as they’ve plagued their predecessors. ARENA appeared as weak as ever and, already showing signs of crisis, will need to retool. As it loses its access to the lucre of government treasury, it’s going to lose the glue that holds it together and infighting will persist and intensify. Costa Rica’s legislators, including those of the majority National Liberation Party (PLN), have in recent years shown little willingness or ability to put aside venal interests and engage in the serious business of policymaking. Insofar as they construe voters’ last-minute rejection of Villalta as a rejection of change, Costa Rican politicians probably judge that the coast is clear for business as usual.

 

 

Violence in Central American Urban Communities: Challenging Common Perceptions

By Juan Pablo Pérez Sáinz*

Urban storefront within a community of Sonsonate, El Salvador / Photo credit: Lon&Queta / Foter.com / CC BY-NC-SA

Urban storefront in a community of Sonsonate, El Salvador / Photo credit: Lon&Queta / Foter.com / CC BY-NC-SA

A recent survey on urban violence revealed that several kinds of violence are more serious in Costa Rica than in El Salvador.  Common wisdom, buttressed by homicide rates and other traditional “hard” indicators, is that El Salvador suffers from violence similar to Guatemala and Honduras, while Costa Rica does not. Historical factors stand out as possible explanations. Conflict among Salvadoran elites in the 1930s left the country deeply polarized and politically closed, laying the groundwork for war in the latter half of the century – with violence continuing, albeit in new forms, after the war ended. Costa Rica, on the other hand, emerged democratic, and the Second Republic created a welfare state committed to development. The structural economic adjustments of the 1980s challenged that order, and the growing inequality resulting from “neo-liberalism” has been accompanied by a rise in violence, but violence in Costa Rica did not reach the levels of its Central American neighbors.

A survey conducted by FLACSO specialists in El Salvador and Costa Rica challenges those theses. Polls of families in nine urban communities cast new light on the problem of violence, revealing important differences in the occurrence of three main categories of violence.

  • Members of 15.1 and 18.4 percent of the families in two Costa Rican communities reported suffering from criminal violence against persons, while the highest figure registered in El Salvador – in a community in Sonsonate – was only 11.5 percent.
  • The three Costa Rican communities also reported a higher incidence of violence against personal property (household wealth), with 26 percent of families in Cariari (in Limón Province, on the Caribbean coast) reporting such violations, and only 12.8 percent reporting this kind of violence in El Salvador’s hardest-hit community.
  • Only in the case of domestic violence did Salvadoran respondents report a higher incidence than did their Costa Rican counterparts.

Several hypotheses may explain these findings. Costa Rica’s higher level of socioeconomic development may be a factor in its higher rate of crimes against property even in less-affluent communities. Another possible explanation is that violence is a relatively recent phenomenon there and has not yet induced attitudes of resignation and acceptance of crime as something natural, leading to more accurate reporting.  In the case of Cariari, where the highest levels of violence in Costa Rica are reported, the existence of a local awareness program may be prompting residents to be more forthcoming in expressing concerns about violence. In El Salvador, on the other hand, the existence of youth gangs – maras – and the government’s abandonment of these communities have given rise to an institutionalization of their role in violence. The maras don’t permit the presence of other actors, and some of their actions may be perceived by communities as legitimate (for example, extortion could be interpreted as an act of protection). In addition, it’s noteworthy that the poll was conducted during the truce among the gangs, which at least until recently appears to have reduced violence. FLACSO will explore these explanations more deeply in the next phase of our research, which is being supported by the International Development Research Centre of Canada (IDRC).

*  Juan Pablo Pérez Sáinz is a senior researcher for the Latin American Social Science Faculty in San José (FLACSO-Costa Rica) and lead researcher in this project supported by the IDRC. For a description of the project please click here.

Costa Rica: Losing Faith in Democratic Institutions?

By Fulton Armstrong

Supreme Elections Tribunal President Luis Antonio Sobrado / Photo credit: izahorsky / Foter.com / CC BY-NC-ND

Supreme Elections Tribunal President Luis Antonio Sobrado / Photo credit: izahorsky / Foter.com / CC BY-NC-ND

Costa Rica is approaching February’s presidential and legislative elections with a distinct lack of enthusiasm, if not with dread.  Most international surveys present Costa Rica as the “world’s happiest country” (the Happy Planet Index), or in the elite club of the world’s “full democracies” (ahead of Japan and Belgium in The Economist’s list), or as the 48th least-corrupt country (out of 174 reviewed by Transparency International).  The economy is expected to grow about 3 percent this year, and the country’s access to foreign direct investment is blunting the impact of the government’s fiscal deficit of about 5 percent of GDP.  Crime is on the rise, but Ticos know that their pain is small compared to that wreaked by the narcos and maras in Guatemala, El Salvador and Honduras.

Reputable polls show, however, that Costa Ricans are gloomy about the state of their political institutions and specifically about their upcoming elections.  According to polls, about 32 percent of the country’s 3 million eligible voters say they plan to abstain, citing corruption, a lack of leadership, insensitivity to the average citizen, and unemployment as reasons to reject not just the candidates but also the political elite in general.  The President of the Supreme Electoral Tribunal (TSE), Luis Antonio Sobrado, acknowledged last month that the election was taking place in the context of “citizen uneasiness … and a lot of anger with politics and politicians.”  Abstentionism was high in 2006 (35 percent) and 2010 (32 percent), but commentators sense a much deeper and darker alienation this time around.  A columnist lamented that the “multiparty” system has been replaced by “atomization,” and another said the political parties have “disconnected themselves from the national reality.”

Further reflecting the malaise, President Chinchilla’s support has nosedived – a July poll showed only 9 percent of voters said she was “good” and none said “very good” – and pundits cite her ineffectiveness as the cause of collapsed highways, dengue outbreaks, and other calamities.  The nominee of her Partido de Liberación Nacional (PLN), Johnny Araya, is widely thought to have an edge in February, but his 12 years as mayor of San José have coincided with a deterioration in the city’s infrastructure and security, and his personal lifestyle (including five marriages) may be a factor in popular skepticism.  The government’s recent announcement that it will contract the services of 4,125 new employees in 2014, mostly in the education sector, drew immediate criticism as yet another example of political patronage to influence the race.

The self-doubt seems at this point indicative of concerns about Chinchilla and the crop of candidates, rather than a rejection of democracy.  Costa Ricans comparing themselves with the rest of Central America still feel good about themselves, and the green image that eco-tourists reinforce is comforting.  But crumbling infrastructure – including collapsing bridges and the exorbitant cost of repeated repairs – and shocking crimes, such as the recent assassination of an environmentalist protecting turtles on a Caribbean beach, fuel the sort of doubts that only effective political and economic leadership can quell.