San José, Costa Rica, since 1956

Poverty Rises, Wages Fall

Despite decades of economic growth, includingincreased exports and investment, the minimumwage today is similar in real terms to theminimum wage in the mid-1980s, according tothe annual State of the Nation report releasedlast week.Furthermore, real incomes (adjusted for inflation)among employed Costa Ricans fell in 2004for the third year in a row. The incomes of rich andpoor alike have fallen by an average of 5.8%.This reality has been met with decreased socialspending and an increasingly competitive world, all ofwhich threaten Costa Rica’s quality of life, the reportconcludes.“Costa Rica… is deteriorating,” said State of theNation Program Director Miguel Gutiérrez Saxe. “CostaRica is eating away at its future to maintain, in the shortterm, the appearance of normalcy.”The more than 400-page report serves to inform policymakers and leaders about, as the name suggests, thestate of the nation, offering pages of statistical analysis sponsored by the country’s four public universities and the Ombudsman’s Office.COSTA Rica is the number oneexporter per capita in Latin America andexports this year have increased 10%, butthis has not translated to improved conditionsfor the country’s labor pool.“The quality of jobs has fallen,”Gutiérrez said.This drop has been stimulated by the“new economy,” based on tourism, so-calledservices and manufacturing companies basedin free zones, which receive tax breaks.“These produce well-paid jobs, but nota lot of them,” compared to the former,agriculture-based economy, Gutiérrez said.Since the rise of this new economy 15years ago, the informal job sector – streetvendors, parking attendants, pirate taxi drivers– has grown at a faster rate than theformal job sector.Informal jobs provide low, irregularwages. Avendor wandering the sidewalks tosell hammocks or cell phone covers maymake a couple hundred dollars a month; thelivelihood of an orange-vested parking attendantis based on a handful of coins here andthere, offered by appreciative drivers.Last year, the poverty rate reached itshighest point in more than 10 years, with21.7% of the population – approximatelyone million people – considered poor, saidreport coordinator Marcela Román.“In 2004 the fall in income hit all homes,so many fell into poverty,” she said.THE poor have been hit with a doublewhammy: the drop in wages and adecrease in social spending for the secondyear in a row.Social spending has not kept up withpopulation increases, and the amount ofsocial spending, per capita, was 20% lessin 2004 than it was in 1980, according tothe report.“We have fewer cops than we did 20years ago, although the population hasgrown,” Gutiérrez said. “We are only nowfinally achieving the goal of 6% of thegross domestic product (GDP) for education.If we don’t educate poor youth, theseproblems will never end.”The amount the country has for discretionaryspending – costs other than legalobligations such as pension payments,salaries and interest payments on thenational debt – is falling because of insufficienttax revenue. In the second half ofthe 1980s, 70% of the country’s tax revenuewas for discretionary spending;today, that figure is only 50%, translatinginto less money for everything fromschools to police to direct aid to the poor.FUNDING has also been cut in infrastructure,which not only reduces quality oflife, but also equates to fewer opportunitiesby reducing the country’s competitiveness.Gutiérrez compared the country to afamily living in a large, old house, withleaks and cracks and poor maintenance.“They begin to tear down doors to lightfires to stay warm, because the electricity hasbeen shut off… and they begin to sell theirwindows to get money for food,” he said.But only the people sleeping near the firestay warm, and the windows don’t bring inenough money to provide food for everybody,which breeds discontent among thehouse’s residents, he continued.Inequality rates between the rich andpoor continued last year to be greater thanin 2000, with the average income of thewealthiest fifth of the population 10.2times larger than the average income of thepoorest fifth of the population.As the economy has shifted, it hasbrought increased poverty to the city. For thefirst time, the percentage of urban homes inpoverty exceeded the number of rural homesin poverty.Evidence of this urban jump: the numberof homes in shantytowns in the greater SanJosé area has doubled from 1987 to 2002,showing weaknesses in the government’shousing policies, according to the report. Andin recent years, shantytowns have grownmore rapidly. The growth rate increased from3.2% between 1987 and 1991 to 6.7%between 2002 and 2004.President Abel Pacheco said Tuesdaythat he is confident the Permanent FiscalReform Plan, which would reform the country’stax system, will be passed soon in theLegislative Assembly. This plan, Pachecosays, will allow the government to increasesocial spending and reduce poverty.BUT while the fiscal plan will increasetax collection, it will not be the enough tosolve the country’s battle with poverty,Gutierrez said.“It won’t provide enough for theinvestment we need in education… insecurity,” he said. “We have to figure outhow to widen the tax base.”During the early 1990s, 31% of thecountry’s tax base came from foreign commerce.Today, only 5-6% does. The end offree-zone benefits for manufacturing companiesat the end of 2007, as stipulated by theWorld Trade Organization, will help withthis problem, but foreign companies heremust pay a portion of their taxes here and aportion in their home countries. Throughinternational treaties against double taxation,Costa Rica usually ends up getting the shortend of the stick, Gutierrez explained.BEYOND increasing the tax base,Gutiérrez advocates increasing linksbetween local companies and multinationalexporters, through which local companiescan produce and sell materials used bymultinationals.The country should focus on further cultivationof ecotourism, which brings greaterearnings to Costa Rica than other kinds oftourism because of greater inclusion ofCosta Rican-owned businesses and products,according to Gutiérrez, who added thatincreased support is also needed for thecountry’s small and medium businesses.The global context is exacerbatingCosta Rica’s shortcomings, according tothe report’s conclusions. High petroleumprices are pressuring inflation; increases ininternational interest rates has meant an endto the age of cheap and abundant money;the rapid growth of China’s export market ischallenging Costa Rican exporters; and theCentral American Free-Trade Agreementwith the United States (CAFTA) is creatinga new political context.Despite the problems, all is not lost inCosta Rica, Román and Gutiérrez emphasized.The tourism and coffee sectors continueto grow here; state investment in educationis improving; and Costa Rica continuesto boast the oldest and most stabledemocracy in Latin America.“But if we don’t do something, we facegreater deterioration,” Gutiérrez said.“This is a time of change and a large socialtransition is necessary… above all with thesectors that have received little supportfrom the state.”

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