JUNEAU, Alaska — The COVID-19 pandemic has drastically impacted Latin America’s wealthiest nation. About 26% of Costa Rican households have fallen into poverty since the pandemic began. Contributing to this push toward poverty is the fact that about 256,000 more people faced unemployment by mid-2020. Citizens who retained employment saw average household income shrink at a rate of between 5.7% and 13.7%. The country’s gross domestic product (GDP) contracted by nearly 5% in 2020 due to steep declines in tourism, investment and private spending. These trends have received significant coverage from media outlets, yet the media is greatly overlooking one troubling impact of COVID-19 on poverty in Costa Rica: the exacerbation of fiscal deficit.
Costa Rica’s Deficit
In 1948, Costa Rica abolished its military and used those funds to construct welfare institutions instead. The nation currently guarantees educational and medical services to every citizen. However, welfare-related expenses quickly surpassed the country’s ability to afford such costs.
Costa Rica’s fiscal deficit grew large and its institutions suffered. For example, despite spending roughly 7% of its GDP on education, 15-year-old Costa Rican students ranked second-to-last among countries measured for proficiency in reading, mathematics and science. “The social state,” says union representative Albino Vargas to The Economist, “is slipping away through our fingers like water.”
The Impact of COVID-19 on Poverty in Costa Rica
The country has been on the brink of financial ruin for decades, but COVID-19 was the final straw. Costa Rica’s minister of finance recently warned that half the nation’s 2021 budget will go toward loan repayment, leaving the country with few remaining dollars to fund pandemic relief.
This earned the attention of President Carlos Alvarado Quesada, who set out to treat the fiscal deficit before it further aggravated the impact of COVID-19 on poverty in Costa Rica. Three solutions were immediately obvious to the administration: facilitating economic growth, raising taxes or reducing expenditures. Since nationwide lockdowns eliminated economic growth as an option, Costa Rica’s government pursued the latter two.
Sparking Protests in Costa Rica
Alvarado Quesada quickly reached an agreement with the International Monetary Fund in September 2020. The Costa Rican government would receive $1.75 billion for COVID-19 aid in exchange for enacting necessary fiscal reforms. This deal aimed to raise taxes and reduce public salaries. However, the IMF deal came to a halt in late 2020 when thousands of angry citizens took to the streets to protest. One participant compared the nation’s response to an exploding pressure cooker. Demonstrators voiced opposition to the ill-timed deal and urged the president to eliminate corporate exemptions rather than raising taxes and cutting wages.
Residual tension between Alvarado Quesada’s administration and the people of Costa Rica left the president trying to please the public by facilitating economic growth. “To put public debt on a decreasing trajectory and lay the foundations for economic recovery,” Alvarado Quesada explained in a press conference, “we are targeting a primary surplus of 1% of GDP by 2023 and 1.7% by 2024.”
The administration’s new plan drew criticism from former Costa Rican Vice President Kevin Casas, who argued that it would poorly combat the growing debt problem. So, it seems that fiscal reform has been tabled until an economic recovery occurs. Costa Rica, therefore, needs to fully reopen its borders and economy as soon as possible.
Mitigating the Problem
The country is taking action to expedite financial recovery. By June 1, 2021, 440 million people received full doses of the COVID-19 vaccine, meaning 5.6% of the Costa Rican population was fully vaccinated. Alvarado Quesada recently emphasized his desire to receive additional vaccines from the United States so that the impact of COVID-19 on poverty in Costa Rica may be further minimized. In early June, President Biden announced that six million doses had been designated for Latin American distribution. The number of vaccines that Costa Rica will receive was not specified.
The COVAX initiative is headed by Gavi, the Coalition for Epidemic Preparedness Innovations (CEPI) and WHO. COVAX aims to ensure vaccine equity during the COVID-19 pandemic, acquiring vaccines from the world’s leading pharmaceutical manufacturers and supplying them to impoverished nations. COVAX is honoring its commitments, giving 43,200 doses to Costa Rica in April 2021. It also promises about 175,000 additional vaccines for future delivery.
Individual citizens can help by urging their representatives to support coronavirus relief initiatives. Though Costa Rica’s situation is dire, the nation’s economy is well within the bounds of recovery.
– Thomas Willhoite