Costa Rica, CAFTA and Leadership

Ξ August 10th, 2005 | → 0 Comments | ∇ Costa Rica |

The Central America Free Trade Agreement (CAFTA or TLC – Tratado de Libre Comercio) is always news here. Things are finally beginning to heat up a bit… as well they should.

The current president of the republic is Abel Pacheco, who certainly can be described as someone who “just doesn’t get it”.

For many months, he has been holding the TLC in his office, refusing to submit it to the Legislative Assembly until they pass his tax bill. The tax bill, however, will never be passed in its current form as it contains provisions that, at best, should be considered idiotic. The most onerous provision taxes Costa Ricans and foreigners living here on income earned anywhere in the world. It also contains a variety of regressive tax measures which will further burden the average Costa Rican. Even worse, the tax bill will never solve this country’s monetary crisis, but is being touted as the law that will save Costa Rica.

The TLC is supported by the majority of Costa Ricans according to a poll taken last week. Not surprisingly though, the most vocal groups against its passage are ICE, the communications monopoly here in CR, and the other major monopoly, INS, that handles (poorly) all insurance in Costa Rica. Both groups are terrified that competition will destroy their cozy little situations, and that is probably true. Both ICE and INS are vastly overstaffed and inefficient with almost non-existent customer service (though I will say ICE seems to be trying now to get better at this in recent weeks!).

Competition will reduce prices and increase customer service, both of which will benefit the average Costa Rican.

What is not good for these unions is that ICE and INS will be forced to operate competitively which may mean a lot of people who currently do very little, may lose their jobs. There are, of course, many hard working people who do a great job… and it is those people who may benefit most from the passage of the TLC as they will most certainly be in demand when new companies enter the market. The really good employees of ICE and INS don’t seem to understand that there will be numerous new jobs created with companies who will offer higher wages, better training, and better benefits.

A couple of days ago, a group of pro TLC protesters marched on the Casa Presidencial to make it known to Pacheco that he needs to send this bill to the assembly. It was a pretty good sized crowd too numbering from 3,000 to 5,000 people who came to San Jose from all over the country. Usually, it is only the unions who make these protest marches, so this was pretty interesting stuff!

Pacheco received their delegation, but as usual, promised nothing. He is scared to death of ICE and the other unions and is stalling long enough to just get out of office so the next president will have to deal with this. His latest ploy is his “gold seal” commission of dignitaries who are reviewing the TLC so they can make a recommendation for or against passage. Just more delay and silliness. Also provides a handy scapegoat so he will not have to accept the responsibility of leadership.

I have briefly looked over the TLC… and I can see both benefits and drawbacks to its passage here. Sadly though, Costa Rica really does not have any option here. As the TLC eliminates a bunch of tariffs both on exports and imports, they simply cannot place the businesses here (especially farmers and small manufacturers, etc) at such a competitive disadvantage. Costa Rica has already suffered the near total loss of their banana export business and is currently suffering greatly because of decreased coffee exports due to the emergence of coffee exporting countries like Vietnam.

Maybe I am being overly simplistic here, but to me, Costa Rica can solve all, or nearly all, of it’s current financial problems by simply imposing and enforcing a property tax law. Real estate in Costa Rica is going off the charts, yet I know a ton of people who own $500,000 to $1 million homes who pay less than $200 per year in taxes. How dumb is that when this country is now functionally bankrupt? I’ll save this rant for another time.

Increasing sales taxes and the other measures currently on the table will never fix the problem and will simply cause a greater separation between the haves and have-nots. If this is allowed to continue and the lower classes cannot see anything but hopelessness and despair, the results will not be good.

The Archbishop of the Catholic Church here in Costa Rica made mention of this separation of classes just two weeks ago, and I think he is exactly on target. His comments regarding a public and a secret Costa Rica are dead-on and in my opinion, ignoring his words will certainly haunt Costa Rica in the next few years.


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