Today through a lecture by Dr. José Sánchez, we learned more about the economic situation over the past 50 years. The economy in Costa Rica is ranked 2nd out of all the Latin American countries and 47th internationally. This seems very successful, but there are a great number of issues within the economy and government. Before listening to Dr. Sanchez this afternoon, I had many questions of why the country’s economy is in its current state. Throughout the lecture, some of my questions were answered, and I will discuss a few of them in here.
My first question was: why does the Costa Rican government have such a large deficit? The Costa Rican government faces a great amount of corruption which has caused it to lose sight of its goal of helping its citizens. Currently, the government’s deficit is at 6.6%. Rather than putting its citizens taxes (which are extremely high) back into the country, taxes are solely used to pay the salaries of the government employees. The government employs around 700,000 of the citizens in Costa Rica which accounts for 20% of the workforce. This number is too large, especially for a country this size, and some government employees are getting paid to do hardly anything. Ticos joke that they are being paid to sit around and what other people do work. Since the government is spending so much money on its employees, it is not generating enough income to sustain its spending habits. They also refuse to cut their costs, so the deficit will only continue to increase until their policy changes.
The government’s spending habits also made me wonder why so many people are still struggling when their income per year is constantly growing? Even though the government employees are being paid decent salaries that they have not earned, normal citizens are unable to keep up with the rising inflation rate. Last year, Costa Rica’s economy grew by 4.3% but this growth was not enough to combat the 6% increase in inflation. The Costa Rican government has done nothing to reverse the inflation, and on top of that, they are not putting any money into the economy. If they do not change their policies, inflation will only continue to rise and the country itself will become stagnant because there is no money going into the economy. Companies will be unable to improve their services, and the economy will not be prosperous. Dr. Sánchez told us that the new president, who will take over tomorrow, is a more left-handed leader which will also have negative effects on the economy. This left-handed approach will suppress the specialization that private companies have and force everyone to share the wealth of Costa Rica. He also wants to impose new taxes which will take more money from people as well. Overall, Ticos cannot keep up with inflation because the government is not only refusing to help reduce inflation but causing it to increase even more.
We also discussed the different industries that Ticos work in. We learned how over time the coffee industry has drastically changes and I wanted to find out why. In the 1970’s, the coffee industry was a large portion of the workforce because the government provided the land and supplies if you wanted to work in the industry. This caused massive deforestation because everyone wanted to have their own coffee plantation. At this time, coffee plantations exported the coffee beans as raw materials, and other countries made it into brewed coffee. Most of the beans were exported, and the only ones that stayed in Costa Rica were the ones that were too bad to sell. They then realized that they could make more money if they further processed the coffee through the added value approach. They coffee was worth more this way and the added value exceeded the added cost. The government also charges a 66% tax on a worker’s salary that the company must pay. The worker still receives 100% of their salary but the company must also pay an additional 66% of that salary to the government. This makes it extremely hard for companies to hire workers, but in the coffee industry, companies do not have to pay this tax on the employees who pick the coffee beans in the field because they are not considered “true” employees. This allowed plantation owners to hire more workers since they were paid “under the table.” As more time passed, Ticos realized that the ecotourism industry was better than the coffee industry, so they entered a period of reforestation in order to attract tourists to the rain forests, beaches, and other places throughout Costa Rica. Ecotourism has taken over as the leading industry, and this has caused the coffee industry to decline drastically.
At a first glance of the statistics, Costa Rica seems as if it is in good shape, but a deeper look into the economy and the government made me realize how unstable the country is. I would have never realized it from how happy and peaceful the culture of the Ticos is, but corruption runs the government. It is power hungry and full of greed. The Tico government is treading on very thin ice, and I think that many changes need to be made to avoid a period of depression within the economy or an even greater amount of debt incurred through their spending habits.