San José, Costa Rica, since 1956

Gap Grows Between Rich, Poor

The good news is Costa Ricans are earning more, studying more and are more likely to have a home phone, electricity and a refrigerator.

The bad news is that the rich have reaped the benefits of growth in Costa Rica’s economy at a much wider rate than the poor.

While per-capita incomes among the richest 20% of the population nearly doubled in real terms from 1988 to 2004, the per-capita income among the poorest 20% barely increased a couple of bucks. The gap between rich and poor in Costa Rica is growing, according to the results of the Household Income and Expenses Survey by the National Statistics and Census Institute (INEC) released last week.

In 2004, the richest 20% of the population earned 52.2% of the wealth, compared with 43.1% in 1988. Meanwhile, the poorest 20% of the population earned 4.6% of the wealth in 2004, compared with 6.4% 16 years earlier.

The survey of 5,220 homes throughout the country was carried out from April 2004 to April 2005.

While some may find such results disconcerting, Victor Hugo Céspedes, president of the INEC council of directors, emphasized positive indicators in the survey. Above all, he said it is important for Costa Ricans to recognize the astounding changes that have transpired in just 16 years.

“Every day when I look in the mirror to comb my hair, I don’t notice all of the physical changes I have undergone. But when I take out an old photo, I am surprised by how much I have changed. Every day we live in this country, and we don’t notice the changes we have lived in just 16 years, a relatively short period in the lifetime of a country,” he said.

Overall, the annual per-capita income has increased by 65.6%, including a respectable 37% increase among the middle class (in real terms, adjusted for inflation).

Furthermore, Costa Rica’s work force has become more educated; the average number of years Costa Ricans over age 15 have spent in school has also increased, from 6.5 to 7.8.

In addition, from 1988 to 2004 the number of homes that have stoves, refrigerators, televisions and other appliances has increased greatly. The number with washing machines has more than doubled (41.6% to 86.2%), color televisions has nearly tripled (35.2% to 90.6%) and refrigerators has increased significantly (61.6% to 89.9%).

“What does this mean? If the annual household survey tells us that in the country around 21% of homes are in poverty, this means that among these poor homes, half or more have these tools that improve the quality of life at least in a material aspect,” Céspedes said.

Public services have also increased significantly over 16 years. In 1988, 29.2% of homes had a telephone; in 2004 that number more than doubled to 61.4%. The number of homes with electricity has increased from 91% in 1988 to 98.3% in 2004, meaning less than 1.7% of homes now lack electricity.

Also notably, the survey found that 35% of Costa Rican households had cars in 2004, up from 14.1% in 1988.

In addition, more families own homes – 71.4% owned their homes (versus rented) in 2004, compared to 67.8% in 1988.

“Speaking in material terms, if we interpret that greater household income… if we interpret that the greater availability of appliances is an improvement, yes, there has been an improvement in Costa Rica,” Céspedes said.

A Look at Poverty

Walking in San José’s Triángulo de Solidaridad shantytown, one is hard pressed to see this improvement.Homes are patched together with scraps of wood and tin; wooden planks provide bridges over streams of trash; the stench of sewage wafts up from time to time; children wait anxiously at the doorway of a home where free plates of lunch are handed out by volunteers serving donated food.

Like so many of Costa Rica’s slums, Triángulo de Solidaridad is in the middle of the city, with wealth a stone’s throw away. It is bordered to the east by the highway to the Caribbean-port of Limón; to the west by well-known Motel Eden; and 400 meters to the south is a Mercedez Benz dealership.

A tangled network of wires overhead indicate that electricity does arrive at these makeshift houses. Walking along the narrow, dirt paths that weave through the maze, televisions and stereos can be heard announcing the lunchtime news or blasting Salsa music. And some homes do have refrigerators, although whether they work or not is questionable.Water is even kind-of available through a series of faucets that residents use to fill buckets and then carry to their homes, although pressure is sometimes reduced to a trickle.

But despite these “advancements,” resident Teresa Chavarría said her life has hardly improved in the six years she has lived in the precario with her children and mother, Germania Chavarría.

“Poverty continues as it always does,” she said. “Is my life better with a television? No. How am I going to feel better just because I have a television if I don’t have anything to eat.”

Chavarría said she was given the television, but added that other furniture and appliances she acquired by finding extra work when she had a job. She has since lost her job and whatever work she can find is used to buy beans for her children.

Falling prices and lower import tariffs have allowed more Costa Ricans to be able to afford appliances, according to analyst Miguel Gutiérrez, director of the State of the Nation program.

“It is a dynamic market with a lot of competition,” he said.

The Growing Gap

While per-capita incomes have increased among all classes, the household income in the poorest quintile has decreased.

In the poorest 20% of Costa Rica households, average household monthly income decreased from ¢85,159 ($195) in 1988 to ¢73,352 ($168) in 2004. (Values are adjusted for inflation to be comparable and given in 2004 colones. Dollar equivalents are based on the average 2004 exchange rate of ¢437/$1). In the most wealthy 20% of households, the average monthly income nearly doubled from ¢579,804 ($1,327) in 1988 to ¢973,265 ($2,227). In the middle quintile, the average increased from ¢216,625 ($496) to ¢235,226 ($538).

Despite the decrease in household income among the poor, and only moderate increase among the middle class, income increases per capita were more significant because the number of people living in each household has decreased from 4.6 to 3.7 – another dramatic change. The average percapita income among the poorest 20% of Costa Ricans was therefore ¢16,774 ($38) – a ¢1,000 ($2.38) increase over 1988; and for rich is ¢333,502 ($763) – nearly double the ¢170,520 ($390) figure in 1988.

“It is unacceptable to me that during the last 16 years, while incomes of the poorest group grew only 6.8%, incomes of the richest group grew 96%. This cannot be,” President Abel Pacheco said Sunday in his weekly radio address.

As he has so many times before, Pacheco then urged legislators to pass the all-butdead Permanent Fiscal Reform Plan that would overhaul Costa Rica’s tax system and, according to Pacheco, place a greater tax burden on the rich in benefit of the poor (TT, March 24, 31).

The National Association of Public and Private Employees (ANEP) used the release of the survey as an opportunity to criticize the economic model used by Pacheco and other recent administrations.

Salary restrictions, high inflation and systematic devaluation are to blame for families’ buying power to be eaten away, according to an ANEP statement.

However, economist Eduardo Lizano, former president of the Central Bank and widely considered one of the architects behind the economic policies Costa Rica has had since the mid-1980s, says Costa Rica must strengthen its shift toward a free-market economy, including ending the ANEP-coveted state monopolies over telecommunications and insurance (see separate story), in order to boost economic growth.

“While we don’t have a growth rate of at least 6% a year, the number of opportunities for the poor is not going to increase,” he said.

It is also important to recognize the labor market’s shift away from agriculture.

In 1988, 30.5% of jobs were in agriculture, compared to 19.1% in 2004. In the same period, jobs in the service sector increased from 47.5% to 61.4%.

Various interpretations of the survey’s results – contained in a 300-page book – will likely continue to emerge as they are evaluated in the coming months, Céspedes said.

In addition to policymaking, the study will help calculate a new Consumer Price Index, which is used to measure poverty and consumer price inflation. It will also be used to calculate the canasta básica (basic food basket), which is also used to measure poverty.


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