Today we had the pleasure of meeting Dr. Jose Sanchez who lectured us about the history of Costa Rica’s economy, where Costa Rica stands today, and some of the economic problems faced along the way. Throughout the past few decades, Costa Rica has proven to be successful economically and continues to grow. However, there are a couple questions which I found important to be addressed considering the economic state of the country.
First, a question which came to mind was why Panama consistently leads Costa Rica economically despite the fact that only a few years ago this was not the case. While Costa Rica makes up approximately 25% of the Central American economy, one of the factors which prohibits its growth is its fiscal policy. Unlike Panama, Costa Rica suffers from a structural fiscal debt which has yet to be fixed. The “solution” to this problem has been to raise taxes, which is ultimately detrimental to the economy due to the subsequent decrease in consumer spending throughout the nation. In addition to this, Panama is a fully Right-sided government, practicing liberalization and a competitive economy, while Costa Rica is considered a central-Right nation which has proven to be less successful in the long run.
Another question concerning Costa Rica’s economic progress is why the cost of living is so high compared to other Central American nations. There are multiple potential answers to this question, however, one of the issues discussed in Dr. Jose Sanchez’ lecture was that tips are always included in the bill. This creates an overall increase in service prices and when paired with the high taxes, it creates a relatively high cost of living for the Ticos.
Lastly, a big question which has yet to be answered is how to fix Costa Rica’s fiscal deficit of over 6%. As of now, Costa Rica’s president Luis Guillermo Solís is attempting to keep taxes at a relatively low rate as well as cut spending in order to gain a better control of the money supply. He is also looking to improve tax collection in order to get rid of the immense tax evasion which accounts for about 8% of the country’s GDP. If Solís can successfully implement this plan, I believe that Costa Rica will be headed in the right direction. As far as the Tico’s behavior is concerned, I have observed that there are not many contradictions from the expressed culture. Every Tico I have come in contact with has been pleasant and mostly welcoming which is exactly what I expected coming into this trip. Everyone is laid back without much stress, something I think we need a little more of in America.