Apathy Surrounds Presidential Election In Costa Rica

by Mike Godfrey, Tax-News.com, New York

08 April 2002

Sunday saw the first presidential runoff in Costa Rica's history as candidates Abel Pacheco, 68, of the ruling Social Christian Unity Party and Rolando Araya, 54, of the opposition National Liberation Party competed in a contest which seemed to attract little interest from voters.

In February, three candidates had contested the first round of voting, with third-placed Otton Solis dropping out for the runoff. Solis, of the Citizens' Action Party, sought to break up the two-party system in place since 1948.

The two presidential candidates share similar visions for Costa Rica's economy and environment: both candidates oppose privatization of state-run industries, and will encourage development of tourism and high-tech industries. Pacheco has promised to protect farmers, modify free trade agreements, and work with a divided Congress to pass stalled government initiatives, while Araya has promised to reform the educational system, protect the country's lush tropical forests and help farmers.

According to polls, barely 50% of voters intended to take part on Sunday. Attempting to generate some interest Roman Catholic Archbishop Roman Arrieta said in a sermon: "Our little country is an example of democracy, and for that we should give thanks to God and go out and vote."

Although Costa Rica is a prosperous place, the election is taking place against a background of government fiscal crisis, with public debt and the deficit soaring out of control.

Finance Minister Alberto Dent said last week that tax increases were the only way to maintain the Central American country's welfare state and public sector without bankrupting the government. He wants to increase taxes by 20%, adopting the recommendations of a cross-party working group of six ex-finance ministers to eliminate the fiscal deficit by 2006.

"The country can afford it," said Mr Dent. "This country has a lot of resources that do not contribute taxes." The tax rises would amount to around 182bn colones ($522m), or $130 each for the 3.9m population. If nothing was done the deficit would reach 11.8% of GDP by 2006, said the report. Government debt would hit 56.3% of GDP, up from 39.8% and debt repayments would soon after consume the entire state revenue.

Costa Rica has maintained a high standard of living through state intervention but government tax revenues represent only 13% of gross domestic product. The report proposed increasing this to 15.8%.

Mr Dent threatened to attack some of the existing tax incentives which have attracted companies such as Intel, which has a giant chip manufacturing plant in Costa Rica. Companies in duty-free zones, such as Intel, would have to pay profits tax of at least 15 per cent.

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