Caribbean & Central America - May 2016 (ISSN 1741-4458)

President Luis Guillermo Solís marked two years this month since his centre-left Partido Acción Ciudadana (PAC) government took office for a four-year term. While quick to point to positive economic indicators, in his state of the nation address President Solís reiterated calls for the 57-member unicameral legislature (in which his PAC has just 13 seats) to pass a much needed fiscal reform to reduce the country’s fiscal deficit which closed at 5.9% of GDP in 2015. The chances of this happening, however, remain slight – not least given that the annual 1 May vote to pick the six-member legislative directorate produced a victory for the opposition.

In his address delivered on 2 May, President Solís pointed to GDP growth of 3.7% in 2015 and said that Costa Rica’s Central Bank and the International Monetary Fund (IMF) were forecasting 4.2% growth for 2016. A presidential press release, issued on 25 April, noted that the 2015 figure was up from 2.9% in 2015 and 1.7% in 2013.

President Solís was also quick to flag up other signs of progress such as Costa Rica’s improved rankings in the latest World Bank’s ‘Doing Business’ index released in October 2015. The WB report, which measures 189 economies worldwide, had singled Costa Rica out as one of ten economies (the only one in Latin America and the Caribbean) to have registered a significant improvement in its rankings in the past year. Citing three key improvements – ease of access to electricity; access to credit; and low business taxes rates – the report ranks Costa Rica 58^th, up from 79^th the previous year. This is the fourth best score for a Latin American country after Mexico (38^th), Chile (48^th) and Colombia (54^th). President Solís also pointed to improvements in foreign direct investment (FDI) in 2015, noting that while FDI inflows to Latin America dropped 23% that year, FDI to Costa Rica grew 3.7% to US$2.85bn. He said Costa Rica attracted 32 new investment projects – in the services sector, life sciences, light manufacturing, and advanced manufacturing – generating 12,000 new jobs directly.

As well as progress in the economic and social sphere (see sidebar), Solís also expressed concerns regarding the fiscal deficit, urging legislators to take action and approve a fiscal reform. Sent down in August 2015, the reform includes, among other things, a provision which would replace the current sales tax of 13% with a value added tax (VAT) that would rise to 15% in the second year after entering into force. It also proposes increasing income tax marginally for low-to-middle income earners and introducing two higher-level tax bands for top wage earners, with those earning between ₡2.10bn and ₡4.21bn (US$7,800) to pay 20%, and over this figure, 25%. Warning the fiscal problems would not be solved by “draconian cuts in public spending” – alluding to the opposition’s insistence that it would continue to oppose tax reform without big public spending cuts, Solís said in his state of the nation address that the proposed reforms would reduce the fiscal deficit by 3.75%. He also warned that if the reforms are not approved, the next government due to take power in 2018 could face a deficit of over 8% of GDP.

Congress presidency

On 1 May, legislators elected Antonio Alvarez Desanti (Partido Liberación Nacional, PLN) as president for the 2016-2017 term, taking over from Rafael Ortiz (Partido de Unidad Social Cristiana, PUSC). Elected with just 26 direct votes, Alvarez defeated the PAC’s Emilia Molina, who received 22 votes (including votes from the Frente Amplio [FA] which has nine seats). While short of a 29 vote majority, as per internal rules, Alvarez also received all null and blank votes cast during the third round of voting.

As was the case the previous year, the election of Alvarez, a seasoned politician (see sidebar) was the fruit of negotiation between six of the opposition parties – the PLN which has 18 seats; PUSC (eight); Movimiento Libertario (ML) (four), Alianza Demócrata Cristiana (one), Partido Renovación Costarricense (PRC) (two) and Partido Restauración Nacional (one) - which inked an agreement outlining their legislative priorities. In a further setback for Solís, the new 2016-2017 directorate does not include a single PAC deputy. The vice-presidency went to Alfaro Jiménez (ML) while, of the four other positions, another went to the ML; two to the PLN and the other to the PRC.

In a speech to the national assembly following his election, Alvarez again reiterated that the directorate would not back new taxes unless the executive advanced public spending cuts and underlined that the new legislative leadership would seek to fast-track legislation aimed at constraining public spending. This includes a bill (19,923) to rationalise public spending which would reduce public sector salary benefits and a bill (19,922) which would make changes to pension legislation – both of which are vehemently opposed by unions.

Union unrest

On 26-27 April, thousands of people took to the streets in San José and around the country in a strike called by the umbrella trade union, Bloque Unitario Sindical y Social Costarricense (Bussco), insisting that the PAC government address a list of 18 demands. Chief of these is a call for no more taxes as well as the bill 19,923 which would rationalise public spending.

Bussco includes influential unions like the Asociación Nacional de Educadores (Ande) teachers’ association and the Unión Nacional de Empleados de la Caja y la Seguridad Social (Undeca), which represents employees from the national social security institute (CCSS). According to a 27 April press release by Ande, more than 40 000 people took part.

On 2 May, the government and Bussco reached an agreement which sets out an agenda to analyse union demands; establishes that lost work will be made up; and establishes that those taking part in the strike will not be sanctioned as long as dialogue remains open and the union does not hold further meetings calling for strike action.

• Progress

In an earlier presidential press release issued on 25 April, President Solís cited recent examples of his government’s commitment to public education, public health, and vulnerable sectors. These include a US$189m investment in school infrastructure; a US$420m loan signed with the World Bank which, if approved by the legislature, would pay off nearly 50% of the government’s debt with the national social security institute (CCSS); improvements in medical infrastructure, such as the construction of three new hospitals; and the national poverty reduction strategy which benefits some 27,388 families living in extreme poverty.

SIDEBAR: Alvarez

Antonio Alvarez Desanti served as the president of the legislative directorate in 1995-1996 under former President José María Figueres (Partido Liberación Nacional [PLN], 1994-1998). He also made an independent presidential bid in 2006 after losing a PLN nomination contest to former President Óscar Arias Sánchez (1986-1990, 2006-2010).