Costa Rica is often referred to as Central America’s ‘Switzerland’. There are more palm trees and less Rolex watches, but in many other regards the comparison – from a lively pluralistic democracy to economic prudence – is compelling. However, as voters headed to the polls over the weekend to elect a new president, a gloomy economic outlook clouds the horizon.
A member of the National Liberation Party explained, “Costa Rica is politically stable, but our national debt is rising, exacerbated by expenditure to mitigate against the effects of Covid. The country’s next president will need to effectively manage that debt. José María Figueres leads polls and has stated that if elected, external debt will not exceed 50% of GDP – that may be difficult without imposing austerity measures.”
“Costa Rica is politically stable, but our national debt is rising, exacerbated by expenditure to mitigate against the effects of Covid.”
Member National Liberation Party, Costa Rica
Covid has forced the government to contend with tightening fiscal conditions. The economy contracted 4.5% last year and the revenue from the important tourism sector slumped to 70% of GDP. In response, president Carlos Alvarado requested a USD 1.8 billion-dollar loan from the IMF which provoked widespread protests. The IMF has insisted on restructuring a public sector wage bill which will see reduced salaries for a broad range of public sector workers.
Turnout was around 60% which could bode well for Figueres, a former president. He has emphasised fiscal competence and has promised Costa Ricans ambitious growth rates of around 5% per year. He led polls for much of the presidential campaign. What is less clear is who he may face in a likely second round runoff in April.
Fabricio Alvarado of the New Republic party has done well, preliminary results suggest. His popularity has taken usually moderate Costa Rica by surprise – he is an ultra-conservative evangelical who opposes abortion and same-sex marriage. Another potential runoff candidate is the economist Rodrigo Chaves of the Social Democratic Progress Party – his proposals to improve tax collection went down well, sexual harassment allegations during his tenure at the World Bank, less so.
Relations with the neighbourhood also matter – Panama to the south is facing unprecedented migratory flows and Daniel Ortega to the north continues to cement his iron grip over Nicaragua. A political science professor explained, “Nicaragua is San José’s eternal headache – political instability would have profound implications for the country. The administration is nervous about the treatment of its citizens in Nicaragua too – the government can sometimes take an intolerant line towards them.”
“The administration is nervous about the treatment of its citizens in Nicaragua too – the government can sometimes take an intolerant line towards them.”
Professor, political science, Costa Rica
Costa Rica’s public sector, though well run by regional standards is nonetheless let down by glaring deficiencies, prominently among them, healthcare. “Covid exposed how crippling it can be for Costa Ricans that they do not enjoy access to universal health coverage. More than a third of citizens do not have access to healthcare – we must solve this challenge, public-private schemes would be a good place to start,” explained the party member.
To maintain Costa Rica’s enviable reputation, the new president will have to embark on meaningful public sector reforms and manage repayments to the IMF. Foreign investment will provide fiscal manoeuvrability, but austerity measures will inevitably need to be implemented at some point. Promising high rates of growth to voters is electoral politics as usual – telling them the truth would show real leadership.