June 12, 2024. Macroeconomic stability, monetary policy, inequality and poverty, competitiveness and labor participation were some of the main topics in a heated debate between the representative of the Central Bank and a critical economist, moderated by Roberto Artavia, president of VIVA Idea, at the Encuentro Costa Rica.
Costa Rica is at a crucial economic juncture, where the decisions it makes in the coming years will define its future. During the Costa Rica Meeting, organized by VIVA Idea and Global Forums, experts such as Alonso Alfaro, Director of the Economic Division of the Central Bank of Costa Rica, and Gerardo Corrales, Director of Economía Hoy and former manager of BAC, analyzed the country’s economic outlook and the challenges it must face to ensure sustainable and equitable development.
Alonso Alfaro offered a vision on the importance of macroeconomic stability and monetary policy to sustain the country’s growth. Alfaro indicated that, despite the challenges, Costa Rica has managed to maintain low and stable inflation, which is crucial for the country’s economic well-being. “Price stability is fundamental to maintain the purchasing power of households and the competitiveness of companies,” said Alfaro. He also stressed that one of the Central Bank’s priorities is to promote policies that encourage financial inclusion and regional development. “It is essential that economic policies not only aim at growth, but also at a more equitable distribution of the benefits of development,” he commented.
The debate flared up when both economists made their presentations. Alfaro showed the good performance of the government and the Central Bank and Corrales criticized the lack of action in substantive matters that the institution is responsible for. While the former showed positive numbers achieved, not denied by the latter, the latter showed the inequalities, inequities and lags that still remain in the Costa Rican economy.
“What you heard from the Central Bank is a Costa Rica, real or not, is my questioning. We expect a more efficient, competitive and smaller public sector,” began Gerardo Corrales. “The Central Bank paints one thing and the president goes accelerated at another pace.”
Corrales was very critical of Alfaro’s presentation and the government’s performance. He pointed out that Costa Rica is an unstable nation, both socially and politically. According to him, the vision of the authorities is very focused on the day to day. He questioned the characterization of Costa Rica as an economic “Jaguar”, stressing that the country leads in income inequality and poverty, in addition to facing exchange rate appreciation, low labor participation and high youth unemployment rates. “To be a jaguar or tiger you have to be sustainable over time,” he concluded.
Corrales also stressed that Costa Rica has been able to quickly reverse complicated fiscal situations, even before the pandemic. However, he identified the “two Costa Ricas”: the more developed central valley and the coastal and border areas with fewer opportunities, reflecting territorial, gender and generational disparities. Youth, in particular, face fewer opportunities due to lower education and a private sector divided between export companies and MSMEs with little access to opportunities.
Labor participation is another important challenge. Costa Rica ranks among the worst in the OECD in terms of labor participation and youth unemployment. “The youth unemployment rate is more than double the OECD average, placing it in the sixth worst position,” Corrales mentioned. In terms of competitiveness, Corrales pointed out the loss of real competitiveness due to the appreciation of the colon, which has not been adequately addressed by the authorities. This is reflected in the reduction of the labor participation rate and a high unemployment rate, which would be 11.7% if the unemployed who have stopped actively looking for work are considered.
Alfaro responded to this criticism by explaining that the Central Bank is constantly working to maintain a balance that favors both price stability and economic competitiveness. “The appreciation of the colón is a reflection of confidence in the Costa Rican economy, but we are vigilant to prevent this from negatively affecting our competitiveness,” he assured.
On the other hand, Roberto Artavia, president of the Board of Directors of INCAE Business School, added a perspective on the need to take immediate measures to take advantage of the country’s potential and avoid a fall in social, environmental and productive indexes. “Costa Rica’s future depends on taking immediate action to take advantage of its potential and avoid a drop in social, environmental and productive indices,” Artavia said, underscoring the importance of addressing economic challenges with a comprehensive and sustainable approach.
The discussion concluded with a call to action: “Costa Rica must focus on closing the gaps and strengthening its social contract to protect its future development,” said Corrales. Alfaro and Corrales’ participation made it clear that, although significant challenges exist, with the right policies and a vision for the future, Costa Rica can overcome these obstacles and continue on its path towards sustainable and equitable development.