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Costa Rica

Costa Rica: Thriller for Chinchilla – The Economist

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For decades Costa Rica has been an oasis of stability in the troubled Central American isthmus. It is the only Latin American country to figure on a list of the world’s 22 “older democracies” compiled by Robert Dahl, an eminent political scientist. It rides high in regional rankings for health care, education, public safety and equality. For all that, its traditional social democracy has recently come under strain. The main job for Laura Chinchilla, who won a presidential election on February 7th with 47% of the vote, will be to retain her country’s unique strengths while trying to adapt it to a globalised world.

Ms Chinchilla will become Latin America’s fifth elected woman president, but she and Chile’s Michelle Bachelet are the only ones not to owe their victory to marriage to a politically prominent husband. Rather, she is a protégée of Óscar Arias, the outgoing president whom she served as vice-president and justice minister.

Mr Arias, who cannot run again until 2018, won a Nobel peace prize for his efforts to end Central America’s civil wars during his first term from 1986 to 1990. This time he focused on economic policy, with a mix of investor-friendly policies and social-welfare measures. His main accomplishment was to win a referendum in 2007 on a free-trade deal with the United States and the rest of Central America. This will require Costa Rica to dismantle several state monopolies. However, he also bumped up spending on schools, pensions, and health care.

Ms Chinchilla benefited from Mr Arias’s popularity, and a divided opposition. To her left Ottón Solís campaigned against the free-trade deal. Her other main rival was Otto Guevara, a right-wing libertarian. Though Ms Chinchilla’s party was originally social-democratic, under Mr Arias it has moved to the centre. She has promised to continue his economic policies and his wooing of foreign investment in industries such as semiconductors and medical equipment. Those policies have helped make Costa Rica’s economy the second most dynamic in Central America, behind that of Panama. But they have also made it one of the few countries in Latin America where income inequality has recently risen.

Some believe there is a link between this and a recent rise in violent crime that saw the murder rate nearly double between 2004 and 2008. But the spread of drug-trafficking gangs in Central America is a more likely cause. Ms Chinchilla proposes to hire more police and expand special courts that dispense swift sentences to offenders who are caught red-handed.

But money may be tight. Mr Arias borrowed heavily to shield Costa Ricans from the world recession. Public debt stands at 46% of GDP, and is forecast by the Economist Intelligence Unit, our sister company, to rise to 52% by 2011. That is a heavy burden for a country where tax revenues amount to just 15% of GDP. The budget will be further strained by the loss of revenue from import tariffs as the free-trade deal comes into effect.

Ms Chinchilla’s powers will be limited too. Her party was expected to win only 23 of the 57 seats in the parliament. Under Costa Rica’s constitution, small groups of legislators, as well as individual citizens, can ask the courts to review bills, causing endless delays. The need to secure near-unanimity for changes has stymied many reform efforts. But these are problems that other Central American countries, variously battling organised crime, poverty and instability, would love to have.

Source: The Economist

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