Costa Rica, Reality

This series presents some views of people concerned with the developments in this central american country.

Costa Rican Reality

Introduction

A. Kappatsch

Costa Rica is not only one of the most beautiful parts of the world, it has many advantages that could make it as prosperous and nice to live as its name indicates.

Just citing a few:

it is centrally located with easy access to the Atlantic, Pacific, North and South America
it has water in abundance, of excellent drinking quality and generating 98% of its electricity
it has a tradition to avoid civil war conflicts, from which most of Latin America suffered
it has a stable banking system of high international standards

For a long time near the top 10 of the 'threshold countries' of the world and considered a model for Latin America, Costa Rica is loosing ground each year even within the Latin world, where it has been overtaken since a long time by countries like Chile, Mexico and others.

This series of articles is trying to analyze the situation and show where the problems are. The emphasis is on facts and concrete examples, rather on solutions.

A country in decline

E. Perez Alfaro

In recent years, most economic and social indicators of Costa Rica have slowly but steadily turned red.

Highest Inflation Rate

The inflation rates are by far the highest in all Central America and probably in all Latin America: 10% in 2002 and 2003, acceleraring to more than 13% in 2004, six times as high as Paraguay!. No change in sight for 2005.

High Money Devaluation

The devaluation of the local money (colones) with respect to the dollar is roughly 10% per year, without change even in times of a devaluating dollar.

High Fiscal Deficit

Like a bad company management, Costa Rican government spends much more money than it earns.

The government's solution ? Higher taxes.

Increasing Criminality at all Levels

Long time considered as 'pick-pocket' type, criminality in Costa Rica is not only increasing but turning dangerously violent and more and more organized.

Now even regular buses are attacked or high-jacked and all passengers robbed. In many places people don't even leave cloths hanging at night.

Huge Infrastructure Defects

Costa Rica has only few paved roads, but they are among the worst in the hemisphere. Pot-holes up to 1 ft depth are frequent and cause considerable damage. Dangerous provisional bridges and crumbling roads usually last for years.

Telephone lines - and thus internet - are not even available to all residents living along the Interamericana or other paved roads. The current cellular system is of outdated technology (TDMA). The future one (GSM) is a better choice, but by the time when it was operational (2003), other countries (Mexico, Chile,...) already have functional third generation systems.

Until recently, the country had only one container port (Limon, Atlantic). The efforts setting up a Pacific port (Caldera) are slow. Existing port structures (Golfito) are decaying.

None of Costa Rica's airports are apt for intercontinental direct flights of high capacity aircraft.

The country's official detailed maps (1:50 000) are unusable: they have not been updated since 1979.

Tax Festival

Import taxes are extremely high and still going up. Some goods are so foolishly taxed (e.g. boats), that they are practically banned from the country. Cars worth more than ca. 18 000 $ (7 M colones) are considered 'luxury' and thus taxed additionally. Companies are taxed on their property in addition to their income.

Consumer tax is high compared to neighboring Panama, for example.

Control Chicanery

Example: Traffic controls

Traffic control has become Costa Rica's main obsession. For example, between Palmar Norte and Paso Canoas (about 90 km) there are between 5 and 7 control posts each day. Only one or two of them are dedicated to customs or drugs, the rest is: license, car papers, and - the never ending story - technical car control.

Example: Revision tecnica

The CR government is haunted by the idea to lift the country's cars up to European standards, whatever the cost may be. And this cost is high, given the state of the roads and the poor equipment and experience of the repair shops.

But, since Costa Rica is a sovereign country with high technical requirements, even new, imported cars are subject to technical revision (this has been objected, though).

Examples of a 'technical fault': inscription on the door (e.g. company sign), lacking sun screen at driver's seat (!), ...

To complete the picture, add

Increasing Poverty

Bureaucratic Barriers

Sloppy legal standards

Sloppy legal standards

B. McGuire

One of the worst things that can happen to a country in development is to get a reputation of legal insecurity. Legal security is the main factor when foreign companies consider investments. Even an unfavorable but clear legal environment might be better than an apparently favorable one with sloppy rules.

Legal insecurity is a vast area and is partially subjective. It starts with

excessive delays for simple 'tramites' like getting a company registered

over

unclear posession rights for property, legal fights with squatters

and ends with

legally obtained permits being invalidated overnight and
corruption

San Salvador made an effort to simplify paperwork for newly created companies, being proud that a company can be registered by a 'normal citizen' in one day It is one of the few Latin countries that could increase foreign investment in 2002.

In Costa Rica - despite needing a lawyer for each and everything - not only delays for getting permits are very long. What is worse, when the document finally is obtained, you must be careful that it still valid tomorrow.

Two examples from Costa Rican reality shall illustrate the case.

Plano catastrado

Suppose your property got (after several months) a 'plano catastrado' duly stamped by the Ministerio de Ambiente y Energia (MINAE). Remembering that in Costa Rica a simple plano catastrado is not very significant, you take it to a lawyer to get it 'titled' (informacion posesoria). In that process (another year or more) new requests are put up, for example you can be requested to pay for setting up mark stones at the coastline, which is the task of the national geographic institute IGN.

Example: revisión tecnica

According to usual legal standards, when an administration certifies that your car is technically o.k. for one year, this certificate can only be revoked in case of a detected malfunction. Any changes in the control procedures can only take effect after the permission has expired, when the car is controlled again.

Not so in Costa Rica. If you got a valid permission from the MOPT, say in January 2002, you had to present your car again in July/August 2002, because new procedures have been invented. The delivered permission had implicitly become invalid with you driving illegally - obviously without any notification to you.

But it's even worse: Suppose one of the many traffic controls detects that your exhaust values had shifted. In other countries they would give you one week to get it right again.

Not so in Costa Rica: They'll fine you and even suspect that you used tricks to illegally get your (valid) certification.

Monopolies

A. Kappatsch

Costa Rican economy is mined with monopolies and privileges granted to public and private companies - from alcohol production, transport service over insurances up to telecommunications, petrol, electricity - the list is long.

Theoretically (i.e., according to the union leaders) monopolies provide a better public service. In reality, they have only disadvantages:

First, they lead to inefficient solutions, since without pressure neither from competing companies nor from clients, innovation - and even basic maintenance - is not a priority.

Second, monopolies handicap international trade agreements. Whereas Chile has free trade agreements with neighbors, with Europe and the with United States, Costa Rica does not even have abolished custom barriers with Panama - not to mention Central America or USA.

In fact such agreements are difficult. The point is simple: if you protect your monopolies, I will continue to support my home industry.

Third, as in socialist counties, prices are fixed by bureaucrats and are not reflecting the market. In practice they are always higher than in a market with competition.

Last but not least, granted privileges favor corruption. As a Costa Rican deputy turned it: "donde hay permiso, hay chorrizo".

Case Study: telecommunications

The absurdity of Costa Rican monopolies is best exemplified by the telecom monopoly, fiercely defended even in the TLC negotiations (free trade agreements with the United States).

By the end of 2005 Costa Rica will be one of two or three - if not the only - country between Alaska and Fireland, which maintains telecommunications under strict state monopoly, admitting no competition to its the public telecom company ICE, neither internal nor external.

Apart from Cuba, even the smallest Caribbean island will have left this exclusive club.

The consequences of the telecom monopoly are dramatic:

poor telephone line coverage

except for cities, the ICE is unable to provide normal telephone lines even along paved roads, not even along the interamericana. In most parts of the country, the ICE offices don't even accept telephone line requests from people outside the connected area. The logic is simple: '¡no hay red!', i.e., you cannot request a telephone line when there is none !

no internet where it is most urgently required

Internet is a 'must' for most economic activities in particular for the tourism industry, one of Costa Rica's biggest income sources. In remote parts of the country, learning per internet would be highly important for development.

In five years, when the last indian resort in the brasilian jungle will have high speed internet connection, the Ticos living along the Interamericana will be lucky if a public telephone is within some kilometres reach.

errors in appreciation of telecom technologies

Cellular telephones are extremely cheap and getting a 'line' is instantaneous - at least when they use the mainstream cellular technologies like GSM used in most parts of the world. The monopolist's engineers chose a singular technology, TDMA - and the Costa Ricans paid the error in form of very high hardware prices and cumbersome line attribution procedures.

Although this error was recently corrected, the small country now is maintaining two 2nd generation technologies in parallel: TDMA and GSM.

high telephone prices

While Costa Rica's happy neighbors Nicaragua and Panama just reduced prices for telephone calls, Costa Rican long distance communication tariffs are high and deputies even thought about additional taxation of cellular telephony (they finally abandoned it).