Article on Costa Rica and the economy

Advanced Business English students can read this article and discuss how their own organisation is planning for the future
The Pygmalion Effect & Costa RicaBy John R. Holtz*
What is truly difficult to do, and I really want do it, is write a lot of positive editorials about Costa Rica other than the expected such as our natural beauty, wildlife and inviting beaches that have been written about and publicized time after time.

But I scan all of the news outlets, even the Latin Business News, it comes down to asking myself, “How come so many other countries in Latin American are not drowning in poor economics and we are?”

Look at Chile, Brazil, Panama and even little Uruguay. They are thriving and we are digressing. The shout-it-out “Pura Vida” has become a semi-intelligible mumble which is barely audible.

The United States and Europe are not the only places on earth to see consumer confidence plunge and a possible recession close at hand; put our own Costa Rica on that list as well. My concern is focused on Costa Rica because that is where we live and there is a sense of sadness and disappointment that is permeating among both expats and Ticos alike.

Certainly perception has a lot to do with it and so does reality. In Costa Rica, mix the two in equal parts and we have the recipe for abject failure.

We are a small, compact country. The ripples in the water are felt from here to Guanacaste and from there to the Osa Peninsula. We talk, and we talk and we talk some more each time an exaggeration, more distortion along with flat out untruths that eventually become reality.

The newest trend to get published is to do an encuesta – a poll. Do one, release it to the media and it will become fact. Some are legit like from Unimar and University of Costa Rica (UCR) and El Financiero while many are just whamo numbers.

Much like the U.S., which we mirror, the Consumer Confidence Index (CCI) of this country has dropped five full points in three short months according to the UCR pollsters.

The “optimistic group” declined from 21.5% of the population to only 13.9% while the “pessimistic group” increased by 27.9%.

El Financiero´s 27 economists or “analysts” as they refer to them said that 61% believe Costa Rica will be in a recession within five years. Meanwhile, 66.2% believe the current economic conditions and social conditions are “poor”.

Only 6% approve of the government´s economic policy while a measly 6.4% say the government is doing a good job. (UCR)

At a recent celebration honoring municipality work, President Chinchilla told them, “You will need to do more with less.” Those are not very encouraging words and the press picked it up that day.

To sell, not market, the Draconian fiscal (tax) plan Laura Chinchilla and her sidekick, Minister of Economy (Ministerio de Hacienda) Fernando Herrero have repeatedly played the “scare card” in order to tax just about all that can be taxed.
Both, with a lot of help, are selling catch all fear. They sell simple fear that we will dissolve into the pits of destruction and poverty unless we pass their unabridged tax plan.

Last Thursday, Herrero said, “We are living on the brink.” Again, less than enthusiastic words to promote confidence.
Since 1948 Costa Rica has lived “on the brink” from borrowing money in the international market place and I have not noticed an appreciable difference in the social network. As well, we have been able to attract foreign investment in call centers and the tech companies such as Intel, Boston Scientific and Panasonic, to name a few.

Costa Ricans and expats have the absolute right to be pessimistic if not downright depressed because we are being told to feel this way almost daily.

It boils down to the Pygmalion effect: A self fulfilling prophecy. If enough times and enough people keep on repeating that Costa Rica will fall apart, we will and I do not want that to happen.

Massive taxes, under no circumstance will cure the economic and social ills of Costa Rica and I´ll argue that to the grave.

We very much need leadership, positive leadership that offers both a defined direction and economic opportunities. What we do not need are more scare tactics to pass a tax plan and if we do not, the people of this country need to prepare themselves for Armageddon.

The construction industry, Costa Rica´s largest private employer, laid off 35,000 to 40,000 workers in 2008 and 2009. Then in late 2010 and the first half of 2011, new construction projects bounced back again. However, the forecast for the remainder of 2011 and early 2012 is not to realize new projects but only to finish up those in progress.
Why?

Who in their right mind would invest in a country where taxes and tax collection have not yet been defined? And the proposal which is floating around from the central government would tax rents, education, healthcare, global income, real estate and for the first time, capital gains. We really have not been told what good will come from all these taxes, only the great harm that will befall upon us by not having them.

A clear example of how the government intends to manage Costa Rica´s finances was the release of the national budget by the Ministry of Economy.

After all the feel-good rhetoric that finally something is about to be done concerning rampant crime, the 2012 budget calls for an increase in funding of a meager 6%. Subtract an expected 5% inflation rate and, “yes,” that comes down to a net 1% increase. That means the proposed $300 corporate tax will pay for the much needed security measures or perhaps frittered away for something else. Who really knows?

The central government also plans to borrow 47% of the entire 2012 budget just to pay salaries which La Naciόn claims to be an illegal move since the constitution prohibits borrowing money to pay current obligations.

The true fear factor of Ticos and expats is that the CR government will abuse or steal whatever money is raised from taxes as historically been the case. If we could be assured of transparency and if we could be assured our money would be used for in-country development and not to put more fat on an already obese government while continuing to feed the still untamed dragon of corruption, I think we would have passed, at least in part, this plan a year ago.

For now, selling fear and avoiding hard questions is about all we've got while never saying, “…here is the good that we will do with your money.” Ergo, our nation continues to walk on with its self-fulfilling “poor me” prophecy when in fact we are economically and socially bankrupt, not poor.*John Holtz can be reached at jrh@modernmanagement.org