Costa Rica's Alvarado pins hopes on dialogue as protests turn violent

Weeks of protests and blockades are complicating Costa Rica President Carlos Alvarado’s plan to secure a US$1.75bn IMF loan and raise taxes to carry public spending through the COVID-19 pandemic.

At least 11 police officers were injured, two seriously, and 28 protesters arrested Monday in widely televised clashes near the presidential residence in capital San José. Tuesday saw protesters continue blockades in southern areas of the country.

“I condemn the brutal and murderous violence with which they have been attacked today,” said Alvarado in regards to the injured police officers.

“We will put the full weight of the law on those directly responsible and the instigators," he said. "We are a country of dialogue and peace, but also of laws and respect for the lives of our fellow men.”

One blockade that has been in place for nearly two weeks at Paso Canoas on the Panama border has generated an estimated loss of US$60mn in trade, according to local media reports.

Protesters began staging demonstrations in late September in opposition to higher taxes being included in new fiscal policies; however, the government may have little choice to do otherwise if it wishes to cement the IMF deal due to an already high fiscal deficit and existing constraints on public spending.

The government withdrew a proposed tax increase initiative on October 4 and Alvarado said on Sunday that he would comply with the results of a multi-sector dialogue that is scheduled for Saturday.

In a televised address, Alvarado and congressional leader Eduardo Cruickshank, a member of the evangelical national restoration party, jointly unveiled the board that will chair the dialogue.  

The multi-sector board will work for four weeks in the search of solutions to the country's financial problems, and in a second stage, address the issues of economic growth and employment.

“Our country faces the most important challenge in its modern history. We need to take measures to generate employment and economic growth, and immediately to avoid an economic and fiscal crisis,” said Alvarado (pictured left with Cruickshank). 

For the president to secure a convincing compromise he will almost certainly need to secure the involvement of the umbrella organization dubbed the national rescue movement (MRN), which has spearheaded the protest movement, as well as stave off attacks from political opponents, including his evangelical opponent in the 2018 election, Fabricio Alvarado.

Alvarado has won political points for coordinating with Cruickshank and for bringing in university leaders to oversee the dialogue process, though not all agree.

Speaking before Monday’s clash, Albino Vargas of the powerful public employees’ union (ANEP) said the union would review the plan but sees the dialogue as a political maneuver orchestrated by  Alvarado and the university leaders as being biased in supporting the president’s centrist PAC party, reported local outlet La República.

Vargas, speaking via his Twitter account, then condemned Alvarado for the Monday violence, accusing the government of sending in infiltrators and demanding the resignation of security minister Michael Soto. 

The MRN, likewise, alleged “a group of people” infiltrated the protests to “provoke chaos and disorder,” adding it is investigating the matter.

The authorities and MRN have both acknowledged that organized crime groups have instigated violence during other manifestations in recent weeks, according to a report in local English-language outlet The Tico Times. 

Fiscal woes

Costa Rica continues to grapple with deepening fiscal deficits year after year despite a tax reform that was passed in December 2018 during Alvarado’s first year in office. 

The reform was deemed too weak to prevent a string of rating downgrades, but was seen as onerous by a large share of the population. 

The pandemic crisis has only exacerbated the fiscal woes with tax revenue hit hard by major losses in trade and tourism, Costa Rica’s primary economic drivers. 

The OECD, in a recent economic survey of the country, found that Costa Rica has the least public spending flexibility of any nation in Latin America, save Brazil. 

The Paris-based organization hailed the 2018 tax reform as a “historic step to restore fiscal sustainability” but it also warned that the fiscal situation “remains a critical vulnerability.” 

OECD estimated that Costa Rica’s deficit would reach 9% this year – above the 8% built into the government’s 2020 budget. 

It added that the large deficits and rapidly rising public debt threaten the strong achievements made in the Central American nation with respect to raising living standards, preserving natural resources and strong commitments to addressing climate change. 

IMF’s updated World Economic Outlook, released Tuesday, forecasts a 5.5% GDP contraction this year for Costa Rica, followed by 2.3% growth in 2021. It also predicts that public debt as a percentage of GDP will jump to 70% this year from 58% in 2019 – and reach nearly 75% in 2021.