Governance problems have long been an issue in Costa Rica, reflected in frequent conflicts between the executive, legislative and judicial branches of government, and in problems pushing forward the executive's agenda in the face of objections from within the legislature and from vested interests. Recognising these obstacles, the president, Laura Chinchilla, has pressed forward with wide-ranging political reform proposals that have the potential to improve the outlook for governability dramatically in the next administration.
One of the fundamental causes of governance problems is the disjointed institutional design of the state. Under the current system, all three branches of government are responsible for promoting and processing laws, without any adequate mechanisms for setting priorities or resolving conflicts between them.
Flawed institutional design
Moreover, there are no limits set by legislative regulations on voting deadlines or motions for modifying bills, making it possible for minority factions to delay or block the passage of laws even when they have majority support in Congress. Added to this is a highly fragmented, low-quality political representation, resulting in legislative paralysis. Recent cases include the failure of two attempts at tax reform. In addition, procurement legislation contains provisions that, besides encouraging corruption, are difficult to enforce and permit an almost unlimited number of appeals, leading to delays or abuse.
Faced with these obstacles, and with her approval ratings sinking to new lows, in mid-2012 Ms Chinchilla nominated a task force of experts from across the political spectrum to propose reforms to the political system. In January the task force presented its recommendations, several of which were incorporated into four bills providing for substantial reforms to public institutions, Congress, and the constitution presented by Ms Chinchilla to Congress in early March.
A comprehensive political reform may be on its way
The first bill is a reform of legislative regulations to speed up the passage of laws. Provisions include deadlines of no more than one year for voting on bills; five-minute limits on the use of the floor (as compared with the 15 minutes currently allowed); fewer sessions for submitting motions and a limit of no more than three months for voting on priority bills.
The second bill proposes a constitutional reform for improving representation and speeding up legislative work. It modifies the way 42 lawmakers are elected, moving from the provincial list system currently in use to one of electoral districts. The remaining 15 legislators would have national representation and would be elected by means of proportionate representation. The Tribunal Supremo de Elecciones (TSE, the electoral court) would determine the number of electoral districts and legislators for each district one year before elections. Also proposed is an elimination of the need for a minimum quorum at the debate stage and an easing of current regulations so that only a qualified majority would be needed for congressional voting. To strengthen political control, ministers who are censured by a qualified majority could be automatically removed from office.
The third proposal amends the Constitutional Jurisdiction Act to decentralise the number of matters heard by the Sala Constitucional (constitutional court) through the creation of new lower courts. Also eliminated is automatic suspension of the effects of an act with the filing of an "amparo" (a challenge to a bill's constitutionality); while an obligation to take into account the state's economic capacity is introduced for resolutions on benefit rights (which entail state expenditure).
The fourth bill seeks to improve the quality and functioning of the public administration. Some of the more significant measures proposed include the establishment of clear rules on the scope and rulings of the the comptroller-general's office and the attorney-general's office; amendments to the Administrative Procurement Act for speeding up procurement procedures, including the setting of deadlines for resolutions, standardisation of requests for proposals and contracts, and the use of electronic media for processing purchases. The executive branch would also be empowered to reorganise by means of decree the functions and competencies of the different ministries' decentralised bodies. Boards of directors would be eliminated for autonomous institutions, except for the Caja Costarricense de Seguro Social (CCSS, the social security institute), state banks, the Instituto Nacional de Seguro (INS, the national insurance institute), the Autoridad Reguladora de los Servicios Públicos (ARESEP, the regulatory authority for public services and utilities), municipal governments and public universities; the functions of those boards would be taken over by their respective executive presidents.
Debate on these bills is expected to begin in the first special sessions of this year, and their passage appears to be politically viable. Ms Chinchilla expects the bills to pass in 2013 and take effect in the next administration. This would significantly boost the effectiveness of Costa Rica's government with positive implications for governability and the passing of reforms for the administration due to take office in May 2014.
March 11, 2013
Political outlook: Political forces at a glance
Laura Chinchilla of the Partido Liberación Nacional (PLN) took office as president for a four-year term in May 2010 after winning a convincing victory in the February 2010 general election. The PLN is also the largest faction in the Legislative Assembly with 24 members (out of a total of 57 seats), but has required alliances with other parties in order to control the legislative directorate-the body of legislators in charge of managing the agenda which is voted on every May 1st. As a testament to the fickleness of legislative politics in Costa Rica, the directorate has changed hands three times so far in the administration. As of May 2012 the directorate is controlled by the PLN in alliance with the leftist Partido Accesibilidad sin Exclusión (PASE) and the Partido Unidad Social Cristiana (PUSC), but this alliance is by no means permanent.
As a testament to the increasing fragmentation of the legislature following decades of PLN/PUSC dominance, there are now five political parties with at least four seats in the legislative assembly, whereas in the 1990s no party aside from the PLN or PUSC had more than two. With no party capable of obtaining an easy majority, negotiation and lobbying will remain a critical aspect of policymaking in 2012-16.
| Distribution of legislative seats, Jun 2011 | |
| Partido Liberación Nacional (PLN) | 24 |
| Partido de Acción Ciudadana (PAC) | 11 |
| Movimiento Libertario (ML) | 9 |
| Partido Unidad Social Cristiana (PUSC) | 6 |
| Partido Accesibilidad sin Exclusión (PASE) | 4 |
| Restauración Nacional (RN) | 1 |
| Frente Amplio (FA) | 1 |
| Partido Renovación Costarricense (PRC) | 1 |
| Total | 57 |
| Source: Asamblea Legislativa. | |
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June 27, 2012
Official name
Republic of Costa Rica
Form of state
Presidential democracy with a Legislative Assembly
The executive
The president ishead of state, elected for four years by universal adult suffrage; he or she appoints a cabinet, as well as the heads of public agencies and the Banco Central de Costa Rica (the Central Bank). Laura Chinchilla of the Partido Liberación Nacional (PLN) took office on May 8th 2010. Her term finishes in May 2014
National legislature
Legislative Assembly, a 57-member single chamber directly elected for a four-year term by universal adult suffrage. Its directorate is elected on May 1st of each year and is in charge of leading the debate during each annual legislative period
Legal system
Supreme Court at the apex of a subordinate court system; magistrates are elected by the Legislative Assembly for an eight-year term
Elections
Laura Chinchilla of the PLN was elected president for a four-year term in February 2010. Her term began in May 2010. Last mayoral elections: December 2010. Next elections: February 2014 (presidential and Legislative Assembly), February 2016 (mayoral)
Main political organisations
Government: Partido Liberación Nacional (PLN)
Opposition: Partido Acción Ciudadana (PAC); Movimiento Libertario (ML); Partido Unidad Social Cristiana (PUSC); Partido Unión para el Cambio (PUC); Bloque Patriótico Parlamentario (BP); Partido Auténtico Herediano (PAH); Partido Renovación Costarricense (PRC); Partido Unión Nacional (PUN); Partido Accesibilidad Sin Exclusión (PASE); Partido Frente Amplio (FA)
President: Laura Chinchilla
First vice-president: Alfio Piva Mesén
Second vice-president: Luis Liberman
Key ministers
Agriculture: Gloria Abraham
Culture: Manuel Obregón
Economics, industry & trade: Mayi Antillón
Education: Leonardo Garnier Rímolo
Environment & energy: René Castro
Finance: Eduardo Ayala
Foreign relations: Enrique Castillo
Foreign trade: Anabel González
Health: Daisy Corrales
Housing: Irene Campos
Justice: Hernando París
Labour & social security: Sandra Piszk
Planning & economic policy: Roberto Gallardo Núñez
Presidency: Carlos Benavides
Public security: José María Tijerino
Public works & transport: Francisco Jiménez
Science & technology: Eugenia Flores Vindas
Tourism: Allan Flores Moya
Central Bank president
Rodrigo Bolaños
January 08, 2013
Outlook for 2013-17
Review
January 08, 2013
Fact sheet
| Annual data | 2011 | Historical averages (%) | 2007-11 |
| Population (m) | 4.7 | Population growth | 1.6 |
| GDP (US$ bn; market exchange rate) | 40,869.8 | Real GDP growth | 3.7 |
| GDP (US$ bn; purchasing power parity) | 53,058 | Real domestic demand growth | 3.7 |
| GDP per head (US$; market exchange rate) | 8,630 | Inflation | 8.2 |
| GDP per head (US$; purchasing power parity) | 11,203 | Current-account balance (% of GDP) | -5.3 |
| Exchange rate (av) C:US$ | 505.66 | FDI inflows (% of GDP) | 5.6 |
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Background: Costa Rica has a long tradition of political stability. A short civil war in 1949 paved the way for institutional reforms that led to a sustained period of rapid economic growth, resulting in significant improvements in human development indicators. However, performance since the debt crisis in the early 1980s has been mixed, as Costa Rica has struggled to define a new economic model. The country has succeeded in attracting investment in high technology, but income inequality and social tension have grown. An economic reform agenda has suffered severe delays, reflecting difficulties in achieving a consensus in a fragmented legislature.
Political structure: The president, elected for a four-year term by universal adult suffrage, is the head of state. The executive is weak in relation to the 57-member unicameral Legislative Assembly. Re-election of the president and vice-presidents is permitted, but not consecutively. A political system historically dominated by the social democratic Partido Liberación Nacional (PLN) and the right-wing Partido Unidad Social Cristiana (PUSC) has become fragmented in recent years, with other parties now wielding increased power, thereby compounding difficulties of governance.
Policy issues: Fiscal reform is needed to raise revenue, reduce public debt, improve monetary policy efficiency and increase potential GDP growth. Reforms are also needed to address deficiencies in the business environment, including patchy infrastructure, scarcely affordable financing and excessive red tape. The administration of the current president, Laura Chinchilla, is committed to capitalising on Costa Rica's entry into the Dominican Republic-Central America Free-Trade Agreement (DR-CAFTA) and attracting foreign investment.
Taxation: The overall level of taxation is relatively low and is dominated by customs, income and sales taxes. The sales tax rate is 13% and the top marginal income tax is set at 25%. Although tax evasion has fallen since 2006, it remains high. A long-delayed fiscal reform has been rejected twice during the current administration's term, after failing to obtain the necessary legislative backing, and so piecemeal measures have been implemented to reduce the fiscal deficit.
Foreign trade: Export-value growth has been rapid, owing to the dynamism of free-trade zones (FTZs) and strong demand for microprocessors from China. However, the import bill has expanded rapidly in recent years, causing the structural trade deficit to widen sharply as a percentage of GDP and the current-account deficit to widen also.
| Major exports 2011 | % of total | Major imports 2011 | % of total |
| Maquila & zonas francas | 51.4 | Intermediate goods | 51.1 |
| Manufactured goods | 21.9 | Consumer goods | 19.2 |
| Bananas | 7.2 | Capital goods | 15.9 |
| Coffee | 3.2 | Fuel | 12.9 |
| Leading non-maquila markets 2011 | % of total | Leading non-maquila suppliers 2011 | % of total |
| US | 38.3 | US | 45.6 |
| China | 6.7 | China | 8.4 |
| Netherlands | 5.5 | Mexico | 6.7 |
| Panama | 5.1 | Japan | 3.8 |
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January 08, 2013
Data and charts: Annual trends charts
January 08, 2013
Costa Rica: Country outlook
FROM THE ECONOMIST INTELLIGENCE UNIT
POLITICAL STABILITY: Costa Rica will remain one of the most politically stable countries in Latin America in 2013-17, helped by its long tradition of democracy (it has had a continuous democratic regime since 1949) and high levels of social stability. Nevertheless, the president, Laura Chinchilla of the centrist Partido Liberación Nacional (PLN), will continue to face a challenging political environment in the remaining year of her term. Ms Chinchilla has unprecedentedly low levels of public approval for a Costa Rican president, owing to a series of corruption scandals that have affected her cabinet. She has also been damaged by an unstable relationship with the opposition as well as with other branches of government, as evidenced by a recent dispute over the re-election of a Supreme Court judge. These tensions are likely to intensify over the next year as all parties begin gearing up for the 2014 elections, and are therefore less inclined to compromise with the government. The elections have also forced the government to become more pragmatic with its final-year agenda, most notably by forcing it to delay a third attempt at fiscal reform that was originally planned for early 2013 but is now unlikely to see the light of day until after the election (with no guarantee that it will be passed even then). Differences within the PLN itself could also be highlighted owing to the fact that its presidential candidate, Johnny Araya, hails from a more traditional social-democratic strand of the party, compared with the current and previous administrations, which were strong proponents of the free market.
ELECTION WATCH: Presidential and legislative elections are due in February 2014, with a new government taking office for a four-year term in May that year. Mr Araya, the popular mayor of the capital, San José, has now positioned himself as the PLN's choice for presidential contender (re-election for consecutive terms is not allowed). Given the fragmented nature of the opposition, the centre-left Partido Acción Ciudadana (PAC) and a faction of the Partido Unidad Social Cristiana (PUSC) have begun working together towards the aim of running as an alliance in 2014. However, a rival faction of the PUSC, which supports a former president, Rafael Ángel Calderón (1990-94), has instead made overtures to the right-wing Movimiento Libertario (ML), making it less likely that all three main opposition parties would run as an anti-PLN bloc. Given the disarray of the opposition, it is unlikely that any party can successfully challenge the PLN single-handedly. Therefore, electoral alliances are the only plausible means by which the PLN could be defeated. However, it is difficult to envisage them as viable in practice, owing to the divergent ideologies of the opposition parties. The Economist Intelligence Unit's baseline forecast therefore assumes that the PLN will retain the presidency, despite the government's low levels of support.
INTERNATIONAL RELATIONS: Costa Rica will continue to pursue trade-policy initiatives and efforts to attract foreign investment in tourism, manufacturing, services and infrastructure. It will also seek to diversify its export markets, with a particular focus on Asia, where a number of free-trade agreements (FTAs) have been ratified (with China), signed (with Singapore) or are being negotiated (with South Korea). An FTA between the Sistema de Integración Centroamericana (SICA), to which Costa Rica belongs, and the EU, was signed in late June 2012 and was recently ratified by the EU parliament. Relations with the US will remain strong, supported by the Dominican Republic-Central America Free-Trade Agreement (DR-CAFTA) and boosted by strong US investment in Costa Rica's high-technology sector. Costa Rica's relations with its northern neighbour, Nicaragua, were severely strained by a territorial dispute in 2010-11, but have since returned to normal. However, some lingering distrust of Daniel Ortega, the Nicaraguan president--who is seen as the instigator of the conflict--will remain.
POLICY TRENDS: Costa Rica's business environment will remain friendly, owing to strong institutions, policy predictability and a favourable attitude towards private investment. In the shorter term, however, the administration will face the challenge of still sluggish global growth and a troubled fiscal outlook, following repeated failures to pass a comprehensive tax reform. This will make it difficult to boost revenue to cover budgetary shortfalls (thereby making further borrowing necessary) and maintain higher social spending, in accordance with the administration's commitments, and those of its likely successor. On the positive side, the government should still succeed in promoting investment in high-end manufacturing and newly liberalised services, capitalising on the country's relatively young and well educated labour force, and exploiting the trade potential afforded by DR-CAFTA. This, along with SICA, will also provide trade and investment opportunities with other Central American economies as regional linkages strengthen.
ECONOMIC GROWTH: Economic growth slowed during the second half of the year but nevertheless averaged 4.9% in 2012 according to monthly activity figures (which are a close proxy to GDP). This is in line with our estimate and will be followed by GDP growth of 4% in 2013. Additionally, external risks have eased and we expect the pace of global economic growth to accelerate from mid-2013, boosted by base-year effects as well as improved performance by Costa Rica's main trade partners including the US and the euro zone (which we expect will be growing again by the second half of the year). China and most emerging markets will also be expanding at a faster pace. In the longer run, the combination of higher investment and a more positive external environment will result in average GDP of 4.4% in 2015-17.
INFLATION: Annual consumer price inflation remained at historic lows in 2012, averaging just 4.5% (4.6% at end-year). However, it shot up to 5.7% in January owing to a 1.3% rise compared with December. Despite the spike in prices, inflation is well within the target range of 4-6% set by the Banco Central de Costa Rica (BCCR, the Central Bank), and should not threaten existing expectations, which are anchored at around 5% over the medium and longer term. There are risks to our baseline inflation forecasts, stemming from the possibility of weather-related disruptions to agricultural supplies and from further bouts of volatility in global commodity prices. Pressure from monetary aggregates is unlikely, as both broad money (M2) and private credit have been growing at less than half of their pre-crisis rates of 30-40% per year. Core inflation remained modest at 3.3% in January (lower than the 3.8% on average seen during 2012), suggesting that demand pressures from abroad continue to have a strong impact on the headline figure.
EXCHANGE RATES: In the short term, the colón will be exposed to global market turbulence, as well as to changes in local demand for US dollars in Costa Rica's highly dollarised economy (more than 40% of credit and deposits are denominated in US dollars). This includes the inflow of speculative capital, which intensified in late 2012 and which has led to the BCCR's reserves rising sharply, reaching US$6.7bn in January (nearly half as high as the previous year). The colón has been close to the band floor (set at C500:US$1) since late August and current trends suggest that it will remain strong in the short term (we expect an end-2013 rate of C505:US$1). Further eurobond issues expected in the forecast period also carry a risk of strengthening the colón, given that inflows of up to US$4bn could enter the country over the next four years. We expect the colón to reach C521:US$1 at end-2017, with the main risk to our forecast being a flight to safety into US dollars in the event of another global shock.
EXTERNAL SECTOR: A large and growing structural deficit in goods trade will lead to a widening of the current-account deficit, from 5.5% of GDP in 2012 to 5.8% in 2013, after which it should fall to 5.1% by 2017. This structural deficit reflects the fact that a large proportion of Costa Rica's manufactured exports are import-dependent and the country lacks a domestic consumer goods industry, relying on imports to satisfy growing consumer demand. The trade deficit will also deteriorate in 2013-17 in light of worsening terms of trade, owing to Costa Rica's position as a net commodity importer. However, the services surplus will increase, partly because of tourism, one of the major sources of foreign revenue, but also as a result of growth in export-oriented business processing and information technology (IT) services. Costa Rica will continue to run structural deficits on the income account, as high profit repatriation by foreign investors more than offsets returns from foreign-exchange reserves. The transfers surplus will remain modest, reflecting comparatively low workers' remittance inflows, which are offset by outflows from resident Nicaraguan workers.
March 01, 2013
Country forecast overview: Highlights
Country forecast overview: Key indicators
| Key indicators | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| Real GDP growth (%) | 4.9 | 3.7 | 4.5 | 4.4 | 4.4 | 4.5 |
| Consumer price inflation (av; %) | 4.5 | 5.4 | 5.6 | 5.5 | 5.5 | 5.4 |
| Budget balance (% of GDP) | -4.4 | -4.1 | -3.2 | -2.2 | -1.2 | -1.0 |
| Current-account balance (% of GDP) | -5.5 | -5.8 | -6.0 | -5.8 | -5.8 | -5.7 |
| Exchange rate C:US$ (av) | 502.8 | 502.6 | 507.8 | 512.4 | 516.2 | 519.3 |
| Exchange rate C:€ (av) | 645.4 | 645.8 | 643.6 | 634.1 | 650.4 | 654.6 |
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January 08, 2013
Land area
51,100 sq km; three major mountain ranges, central highland plateau and highland valleys, with lowlands along Pacific and Atlantic coasts
Population
4.7m (2011)
Main towns
Population by canton in '000 (based on 2011 census)
San José (capital): 286
Alajuela: 255
Cartago: 148
Heredia: 123
Puntarenas: 115
Limón: 94
Climate
Tropical in lowlands, warm temperate on highland plateau and valleys
Weather in San José (altitude 1,172 metres)
Dry season, December-May; wet season, June-November. Hottest month, June (average daily temperature 24-29°C); coldest months, December-January (21-27°C); driest month, February (5 mm average rainfall); wettest month, September (305 mm average rainfall)
Languages
Spanish
Measures
Metric system
Currency
1 colón © = 100 céntimos. Average exchange rates in 2011: C506:US$1; C704:EUR1
Time
Six hours behind GMT
Public holidays
There are nine legal holidays: January 1st; April 11th (Battle of Rivas); Maundy Thursday; Good Friday; May 1st (1856 Campaign and Labour Day); July 25th (Annexation of Guanacaste); August 15th (Day of the Virgin Mary's Assumption to Heaven and Mother's Day); September 15th (Independence Day); and December 25th (Christmas). There are two additional unpaid, optional holidays: August 2nd (Virgin Mary Queen of Angels, Patron of Costa Rica); and October 12th (Spanish discovery of the New World, called Día de las Culturas), both of which may be moved to the following Monday
January 08, 2013