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Costa Rica stands out in the turbulent Central America: decades of democracy and political tranquility have yielded dividends with great prosperity, an enviable welfare state, and generous public sector wages.
Covid-19 has led to the calculation. Last year the economy fell by 4.5 per cent and the major tourism sector fell by 40 per cent to 70 per cent of gross domestic product the debt burden was unsustainable, forcing the president Carlos Alvarado to provide long-term reforms and get into the hands of the IMF $ 1.8 million loan.
Alvarado told the Financial Times that he has votes in Congress to approve the public sector wage bill within a few weeks. “There’s a sense of need,” he said. “It’s urgent to accept that.”
The agreement to restructure the public sector wage bill, an agreement that earns more than 2,000 people more than the president, is believed to pave the way for a congressional agreement on the IMF loan.
There have been street protests against the IMF agreement and the wage bill, which has had a bad run in Congress, with Alvarado having less than a fifth of the seats. But as he approaches the last year in office, he sees tackling the debt problem as one of his main assets.
“At a time when there is so much populism, I’m on the opposite side of the spectrum, doing what’s right, not being populist,” Alvarado said in a video interview from San Jose. Costa Rica is holding presidential elections in February.
Despite its debt problems, Costa Rica is unlikely to be a feat. record job creation, increase in exports and large foreign investments last year, despite the Covid-19.
“During the pandemic, what are the foreign investments coming to Costa Rica or increasing operations or hiring new people? It’s counter-intuitive to think that operations will grow in such a context,” Alvarado said.
“We need stability, even if it seems boring at times – in the long run it’s so much better. Stability means peace, stability in jobs, stability in certainty, stability in growth.”
Although peaceful Costa Rica has been a close destination for more than two decades, Trump is to be thanked for his turbulent years during the pandemic for helping to strengthen his investment credentials.
“What has happened in recent years is the relationship between the US and China. . . has a lot to do [with investment dynamics], ”he said.“ Some of the value chains that were located in Asia are looking to the Americas again. He is one of the key players. “
At the top of that list is Intel. The U.S. technology company took over Costa Rica in 1997 and within a few years, microchips accounted for 36% of the country’s total exports.
In 2014, during a downturn in the personal computer market, Intel relocated Chinese manufacturing to China, Malaysia and Vietnam, cutting 1,500 jobs and eliminating a quarter of Costa Rica’s foreign sales.
Now, Intel has done it U-turned that decision, announced last December that it would return manufacturing to Costa Rica, but still maintained its research and development center.
Alvarado rolled out a list of other major companies that made major investments in Costa Rica in 2020 and 2021, including technology provider Amazon Web Services, MicroVention life sciences group, Philips electronics manufacturer, AstraZeneca pharmaceutical group and health company Viatris.
Still, in dollars, from Costa Rica foreign direct investment it fell 38 percent last year. Jorge Sequeira, head of Cinde’s investment promotion agency, argued that job creation – which had increased by 12 per cent in 2020 – was a more important measure now that a large part of the economy has shifted from manufacturing to services.
“Last year, in the midst of the pandemic, we created nearly 20,000 new jobs in multinational corporations. We think the number could be higher this year, maybe even significantly higher, ”he said. “We’re very rough on that follow-up.”
Costa Rica generates 99 percent of its electricity from clean fuels – a multinational that makes it easier to achieve ambitious green targets in the US or Europe located in Costa Rica.
“If you mean your production is 100 percent renewable, the place to come is Costa Rica,” Alvarado said. “We’re not dreaming big, we’re just playing.”
These intentions extend to education and human capital, with the goal of teaching Scandinavian-style English. “Everyone who comes out of public education in the next two decades will be bilingual. That’s a competitive advantage, ”Alvarado said, speaking English well.
Costa Rica’s economy was close to crisis in late 2018, when its bonds and currency fell and stayed weekly protests against last year’s tax hikes and the IMF agreement. Powerful unions continue to oppose public sector wage renewal.
But Alvarado is confident that his country will be able to overcome its debt deficit of almost 9% by 2020 and a debt that will reach 76% of GDP by 2023.
“We’re serious about this as we send the right signals to the market,” he said. “What we’re going to guarantee in the end is fiscal and have stability for this and future generations.”
But even for Costa Rica, where political calm is the envy of those around it, this cannot be taken for granted. “Stability is not carved in stone,” he said. “You have to be constantly fed.”
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