San José, Costa Rica, since 1956

Business outlook: ‘Positive but cautious’

Managers of Costa Rica’s 237 biggest companies think that the economic landscape is showing minor improvements, that President Laura Chinchilla is underperforming and that tax reform proposed by the Chinchilla administration in January is critically flawed.

Those opinions were highlighted in a recent study conducted by consulting firm Deloitte, which interviewed top executives from Feb. 14 to March 23. According to the study, the companies and business groups surveyed spanned 25 economic sectors, collectively earned $14.3 billion and employed 102,850 workers in 2010.

Companies were asked about their outlook on the current economic landscape, opinions of the Chinchilla administration and thoughts on the proposed tax reform, which has since been scrapped by lawmakers. Responses were then compared to the results from Deloitte’s previous survey, conducted last August.

In the area of economic confidence, Deloitte found most companies were “positive but cautious.” Less than half of companies (44 percent) felt the economy is in a better state than it was a year ago, while 47 percent believe there has been little to no change, and 9 percent say it has worsened.

The results are mostly positive, but they also indicate that companies are less confident then they were last year. Seven months ago, 84 percent of respondents predicted a business climate marked by economic growth for the upcoming year, while 63 percent predicted their revenues would increase. In March, those numbers dropped to 73 percent and 57 percent, respectively.

“The volatility of the exchange rate and depreciated value of the U.S. dollar creates an uncertainty for many national businesses, even some of the largest companies,” said Juan Pablo Segura a trader for the financial consulting firm Aldesa. “The exchange rate has moved very little this year, though there is never a guarantee that it will remain the same in six months or a year’s time.”

Of the companies surveyed, 61 percent expect the exchange rate to hover between 510 and 540 during the next 12 months, while 20 percent predict it to stay between 480 and 510.

Slightly more than half of the companies (53 percent) say they do not expect to hire or fire workers, while 38 percent do plan on hiring and 9 percent predict job cuts.

Not Loving Doña Laura

Company leaders’ opinions on President Chinchilla’s approval rating shadow recent polls.

According to the Deloitte study, only 25 percent said they approved the steps the Chinchilla administration has taken during her first year in office. Thirty percent said they disapproved of her administration and 44 percent of respondents remained on the fence. During the August 2010 survey, Chinchilla’s approval rating was 43 percent. 

Though Chinchilla’s approval rating fell more than 18 percent since then, 58 percent of respondents said they felt the government had succeeded in reducing unemployment; 57 percent thought the government had taken appropriate steps to improve the economy; and 52 percent said they were pleased with improvements in education.

The Chinchilla administration received its lowest marks in crime reduction and public security, at 28 percent approval, followed by infrastructure improvement at 34 percent. 

Neglect to Collect

Companies’ most unanimous discontent was with tax collection, tax reform and the fiscal deficit. Of the 237 businesses and business groups surveyed, 75 percent agreed that an improved method of collecting taxes was vital to reducing the fiscal deficit.

According to the Comptroller’s Office, more than 60 percent of eligible Costa Rican taxpayers didn’t make payments in 2010.

“Nobody wants to pay taxes, right?” Francisco Villalobos, general director of Costa Rica’s Tax Administration, said last March. “But it’s a law. If you live in a country and you take advantage of the infrastructure or the things offered to citizens by the state, it seems to me that you have to contribute. If you refuse paying taxes and disagree with the state for whatever reason, in other countries, you are punished for being delinquent. Here, we are just starting to arrive at that level of consciousness.”

When asked what methods should be used to reduce the fiscal deficit, 75.5 percent of respondents said better tax collection methods, while only 4 percent considered an increase in taxes to be the solution. The tax reform made public in January, which will be replaced this month with a new plan following overwhelming opposition, aimed to increase the national value-added tax from 13 to 14 percent. It also planned to tax owners of motor vehicles, private education institutions and private medical caregivers.

“The fiscal reform proposal is dead,” said Constantino Urcuyo, a political analyst and professor of government and public policy at the University of Costa Rica. “That doesn’t mean that it won’t get done during Chinchilla’s administration, it just means that the proposal drafted this year is dead.

“If there are any hopes for a fiscal reform, it is going to have to be simple. In the past, only simple modifications to fiscal and tax policies have worked. Unfortunately, there are so many internal bureaucrats that want a big, perfect reform that pleases everyone. That is just not possible,” said Urcuyo.

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