May 6th 2010 | SAN JOSÉ
From The Economist print edition
From The Economist print edition
Tax increases, trade deals and antidisestablishmentarianism
SHE may be the first presidenta in a long line of Costa Rican presidentes, but when Laura Chinchilla is sworn in on May 8th she is liable to disappoint advocates of women’s rights. She supports her country’s restrictions on abortion and the morning-after pill, and opposes other liberal causes such as gay marriage and the disestablishment of the church.
Instead, her uncuddly passion is fighting crime. Although Costa Rica is relatively safe, a recent increase in violence has led to panic. The outbreak has been caused by growing inequality (says the left) and the spread of drug-trafficking gangs (says the right). Mrs Chinchilla promises to fight on both fronts, strengthening the police and getting more youths into classrooms.
To do this will cost money and there isn’t much. The government collects just 14.8% of national income in taxes, and its deficit is 4% of GDP. Mrs Chinchilla says she hopes to increase revenues by taxing casinos and online gambling, which her officials hope would bring in an extra 1% of GDP. Deeper fiscal reforms will have to wait a year or two for the economy to regain strength.
Even then, to get her policies through, the new president will need to handle the legislature deftly. Mrs Chinchilla, of the centrist National Liberation Party, was elected with a thumping 47% of the vote in a crowded field of candidates, thanks in part to the popularity of her mentor and predecessor, Óscar Arias. Her party is the biggest in congress, but holds only 24 of the 57 seats.
She will be reliant on a pact with the right-wing Libertarian Movement, whose leader, Otto Guevara, won 21% of the vote in this year’s presidential election, compared with just 2% in 2002. “The door to negotiation has opened,” says the confident Mr Guevara, flanked by portraits of his free-market heroes, Friedrich Hayek and Milton Friedman. But in return for supporting the government, he wants tougher sentences for petty criminals and the publication on the internet of the names of all those who receive state benefits. He vows to filibuster tax increases.
Costa Rica is richer, more democratic and more stable than its Central American neighbours. But it faces a choice between a bigger state and more reliance on the market. That dilemma was symbolised by the battle to approve the Central American Free-Trade Agreement (CAFTA) with the United States. Mr Arias campaigned hard for the accord, but only narrowly won a referendum on it in 2007. He also signed similar agreements with China and Singapore. Central America has also concluded free-trade talks with the European Union.
“We are inserting [Costa Rica] into the world economy,” Mr Arias says. His chief opponent, Otton Solís, accuses him of selling the national interest short both with CAFTA, which obliges Costa Rica to open up the state-controlled telecoms and electricity industries, and in cuddling up to China. Mrs Chinchilla seems keen to change the subject. She plans closer ties in South America, and has toured Central America, patching up relations with awkward neighbours such as Nicaragua’s leftist autocrat, Daniel Ortega, with whom Mr Arias was publicly frustrated. One way and another, she may find her predecessor a hard act to follow.