Costa Rica unveils plan to help poor, reduce layoffs

January 30, 2009

As Costa Rica takes a beating from the global financial crisis, President Oscar Arias announced measures last week to reduce layoffs and defaults on debt, while expanding programs that give cash, food and healthcare to poor people.

In a presentation Thursday on what he called his “shield plan,” Arias said, “The coming months will be difficult. We will have to make sacrifices…But we will pull through.”

Some economists are predicting that Costa Rica´s GDP will grow a mere 1 percent this year, down from 3.5 percent last year, as a global recession slows tourism, investment, and exports. Unemployment, now at around 5 percent, could increase to 8 percent this year, according to one analyst.  

Arias´ presentation, which introduced several new programs while repeating old ones, drew criticism from some business leaders, economists and opposition politicians who said it was not ambitious enough.

“These measures will offer some consolation to the most vulnerable,” the financial advising firm Aldesa said in a statement. “But they are probably insufficient to reverse the recession that our country faces.”

Arias plans to increase to about $120 from $105 a monthly cash transfer for low-income senior citizens, people with disabilities, widows, sick people and orphans. The president will also expand his signature Avancemos program, which pays families to keep kids in school, to include 150,000 students, up from 132,000 today.

For three months beginning in February, the Mixed Institute for Social Aid (IMAS) will give a weekly package of food to more than 16,000 children who live in the poorest areas of the country.

In addition, Arias has asked the state banks – Bancredito, Banco Nacional, Banco de Costa Rica and Banco Popular – to reduce by 2 percent the interest rate for loans for small and medium-sized businesses, as well as home loans of about $90,000 or less

Arias is also seeking to reform the Labor Code to allow four-day work weeks and shorter work days. Making labor laws more flexible would slow job loss, he said. The plan will also soften the pain of a layoff by offering state healthcare to fired workers for six months, up from three months today.

Arias also announced a $500 million loan from the Inter-American Development Bank to help Costa Rica´s Central Bank keep the currency stable as dollars grow scarce. The loan must be approved by lawmakers, who are also now debating loans of $850 million for infrastructure projects, $500 million for the Costa Rican Electricity Institute (ICE), and $72.5 million to develop the Caribbean port city of Limón.

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