San José, Costa Rica, since 1956

Poor Getting Poorer As Economy Grows

Why, in a country where the economy has grown by leaps and bounds and social spending has increased steadily for decades, do the richest Costa Ricans keep getting richer and the poorest 20% keep slipping further into poverty?

It may not be an age-old question, but the discrepancy between the country’s progress and the stagnancy of poverty levels has certainly been the fodder of conversation among Presidents, legislators and academics for years. A survey of the country’s leaders turns up various explanations of the problem – from a tax structure that favors the rich, to heavy reliance on the export sector, to disorganization within government aid programs, to the changing face of the tourism market.

According to Rebeca Grynspan, a Costa Rican economist who serves as Regional Director for Latin America of the U.N. Development Programme (UNDP), part of this country’s problem may stem from region-wide pessimism.

“No one believes inequality can be fought in Latin America,” she said during a recent conference on poverty at the Central American Bank for Economic Integration (CABEI) in San Pedro, east of San José. People tend to think such a gap “is structural and historical… that’s false, and there are many examples in the world (to prove it).”

Costa Rica’s troubles are right in line with the world’s, according to Grynspan.

“This is a time of the greatest growth we’ve seen recently… and of the greatest explosions of inequality,” she said.

Achilles’ Heel

In the past 15 years, Costa Rica’s gross domestic product (GDP) per capita has grown 40%. The government’s social spending, devastated by the economic crisis of the 1980s, has slowly recovered to pre-recession levels.

But that wealth simply isn’t reaching the poor. The 2006 State of the Nation report revealed that since 1986, the average income of the country’s poorest homes has decreased by 13.9%, while the average income of the richest homes increased 67.9% (TT, Nov. 7, 2006). Although small increases or decreases in the poverty levels calculated by the National Statistics and Census Institute (INEC) make headlines each year, those levels have stayed around 20% for more than a decade.

The reasons? It depends on whom you ask – though Fernando Zumbado, who leads the governments’ efforts to help the poor as the Minister of Housing and the Fight against Poverty, takes an “all-of-the-above” approach. He says changes from education to investment patterns to organization overhauls for social service agencies must take place if the problem is to be resolved.

The controversial Central American Free-Trade Agreement with the United States (CAFTA), nearing a vote in the Legislative Assembly, has prompted nationwide discussions about the economic development model Costa Rica has embraced since the 1980s: one dependent on foreign investment, exports and tourism for growth. While Zumbado, named by pro-CAFTA President Oscar Arias, stands behind the trade pact, he says Costa Rica must change its development model if it is to attack poverty.

“We have to truly change the development style,” he said at the CABEI event, at which research and training center Procesos presented a new book entitled “Pobreza: Talón de Aquiles del desarrollo costarricense” (“Poverty: The Achilles’ Heel of Costa Rican Development”). Zumbado, who contributed a chapter to the book, attributes much of the gap between rich and poor inhabitants to the fact that the most significant economic growth has come from the export and services sector, while most Costa Ricans work in the internal consumption sector.

Most foreign investment has gone to the export and services sector as well, with little left for domestic and small businesses, he said. The Arias administration is working on initiatives to address this problem by linking small businesses to major exporters to expand the country’s supply chain; providing tax breaks for large businesses that work with smaller counterparts; and restructuring the banking system to improve access to loans for small businesses.

The country’s tax structure is another problem. Former Finance Ministers, Presidents and other leaders have long blamed insufficient taxes on the wealthy for the persistence of poverty, though others, particularly members of the Libertarian Movement Party, which opposes any tax increase, cite poor taxcollection rates as the primary culprit.

After years of debate during the administrations of former Presidents Miguel Angel Rodríguez (1998-2002) and Abel Pacheco (2002-2006), proposed tax reforms designed to address these problems met their demise last year because of procedural errors. The Arias administration has also announced plans to overhaul the nation’s tax system, but has yet to present its income-tax bill.

Tourism Partly to Blame?

Another possible culprit: tourism models that place earnings into the hands of foreigners or a few well-educated Costa Ricans, rather than local residents. That is, the growing number of massive, foreign-owned resorts, hotel chains and residential communities sprouting up along the country’s beaches – especially on the so-called “Gold Coast” in the northwestern province of Guanacaste – are driving up Costa Rica’s overall tourism-industry revenues, but providing fewer benefits for the average Tico.

State of the Nation Director Miguel Gutiérrez brought up this possibility when he presented the organization’s annual report in November, calling the trend “the switch to ‘glamorous’ and residential tourism.” Though a tourist at a large resort spends more than one at a small Costa Rican hotel, he said, the large hotel is more likely to import products or have managers and owners who are not from the area.

Mauricio Céspedes, executive director of the Guanacaste Tourism Chamber, agreed that the rich-poor gap is growing in that province – not just because of the trend Gutiérrez described, but also because local residents don’t have the education they need to take advantage of it.

“First of all, the average guanacasteco isn’t prepared for a management post or a job in a chain,” Céspedes told The Tico Times. “There’s a basic education problem that must be fixed. It can’t be that in schools here, kids aren’t taking English, not even in many high schools.”

Because of this, businesses “are importing people from other countries or from the metropolitan area,” said Céspedes, who is originally from San José. Locals take lower paying jobs that don’t prepare them to face the rising cost of living in Guanacaste, where skyrocketing real estate prices mean that businesses charge much more in Guanacaste than in San José.

“A social breach is opening ever wider between the average guanacasteco and the people who come from San José,” he said.

Tourism Minister Carlos Benavides disagreed that “mega-projects” could be playing a role in the rich-poor gap.

“In no way does it seem to me that (foreign investment) could broaden the gap between rich and poor,” he told The Tico Times. “I think the generation of jobs contributes to improving the quality of life of Costa Ricans.”

Zumbado, however, echoed Céspedes argument that the fight against poverty must start with education.Growth in the export and service sector has created a plethora of new jobs, he said, but most Costa Ricans just aren’t prepared to take them, thanks once again to the economic crisis of the 1980s, when public spending on education dropped significantly.

In 1990, Costa Rica was spending only 3.8% of its gross domestic product on education, compared to a projected 6% this year.

Grynspan poked fun at Latin America’s slowness to recover from crises compared to other areas of the world, citing unstable economies as the reason. However, the region as a whole has stabilized, and some of Costa Rica’s neighbors – which haven’t had the relative stability and prosperity Costa Rica has enjoyed, and thus have more ground to cover – are improving much faster than Costa Rica, threatening to overtake this country.

“What we need isn’t to walk forward, but to run,” she said.

Social Services Run Amok

A final aspect of the poverty gap mentioned by Zumbado and Ombudswoman Lisbeth Quesada – the “Defender of the Inhabitants,” as her title reads when translated directly from Spanish – is the lack of a clear policy governing the public agencies designed to help the poor. Though social spending has increased overall since the 1980s crash, strategies for reducing poverty have shifted from administration to administration, creating a wide range of unconnected programs with little oversight and evaluation.

Zumbado said that the Arias administration, after taking office in May 2006, conducted a diagnostic of existing programs targeting poverty. It showed 24 public institutions administering 34 programs. Such institutions include a veritable alphabet soup of social-aid acronyms: the Mixed Institute for Social Aid (IMAS); the Agricultural Development Institute (IDA), the pensions system; a hefty school scholarships program from the Public Education Ministry (MEP) including Arias’ new grant program, “Avancemos”; the National Institute for Housing and Urban Development (INVU) and the Mortgage Housing Bank (BAHNVI), both of which offer housing aid; and other assorted programs.

Zumbado added that the diagnostic also showed employees of these myriad programs rarely have a clear sense of whether their efforts are making a difference.

Most organizations have little information about how their efforts are helping people, partly because they lack computers.

The national pension system operates entirely using paper files, making it impossible to effectively track users. A national information structure that allows all organizations to compare notes is badly needed, the minister said.

“No one sees the real impact,” he said. “And there’s a loss of faith – like, ‘This has no solution.’”

Ombudswoman Quesada said the Arias administration has not yet provided the sense of direction the state needs.

“There’s a lack of investment by the Costa Rican state – the state, not each (presidential) administration – in clear policies of development,” she said, emphasizing the need for consistent strategies that won’t change every time a new President is election.

“We Costa Ricans still don’t have a sense of a true north.”


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