New Costa Rican President Endorses Regional Plan

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

10 April 2002

Abel Pacheco, of the ruling Social Christian Unity Party (PUSC), turned out to be the winner of Costa Rica's presidential election. In the run-off election held last Sunday between Pacheco and Rolando Araya, the candidate from the opposition National Liberation Party (PLN), with 94% of votes counted Pacheco had obtained 58% of valid votes and Araya had 42%. Neither of them had received the 40% of the votes needed for the Supreme Electoral Tribunal (TSE) to declare a winner during the first round of elections held on 3 February.

Pacheco will be sworn in as president on 8 May. In a victory statement, the president-elect said that Central Americans must focus on all the elements of unity, rather than on the few points of separation. "This region must start thinking about itself and understand that, in the framework of globalization and economic blocs, it must also make a bloc of itself. In this sense, Mexico is called upon to take a prominent role and Costa Rica has a considerable contribution to make," he said. "We must look at what divides us, which is very little, and see everything that unites us, which is a lot."

"I believe that we Central Americans must start thinking about ourselves," he remarked during his first interview with an international news medium after the announcement of his victory as Costa Rica's new leader.

Mexican President Vicente Fox has been promoting a Central American development project since 2000 called the Puebla-Panama Plan (PPP), involves an area that encompasses eight Mexican states and the seven countries of the isthmus.

The PPP forecasts joint efforts within a framework of economic opening up and development that covers fields such as communications, infrastructure, energy, tourism and development of micro, small and medium-sized enterprises.

Pacheco admitted during an interview that the isthmus's political integration would be a step too far, but maintained that in fields such as the economy, education and tourism, it is possible. "A political integration, well I do not think that would be received in a good environment."

"But we do have to set our sights on long-term goals and we can become integrated in many aspects - in educational aspects, in monetary aspects and tourism," he said while suggesting "we should start to unite our peoples".

As to internal policy, Abel Pacheco opposes privatization of state-run industries, and will encourage development of tourism and high-tech industries. He has promised to protect farmers, modify free trade agreements, and work with a divided Congress to pass stalled government initiatives.

Although Costa Rica is a prosperous place, the election has taken 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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