Now the pandemic has turned what was already unsustainable into a debt crisis. Even before covid-19 the country of 5m had the third-highest government debt in Latin America and the highest interest payments. But last year its economy shrank by 4.5%, partly thanks to a reduction in tourism, while the fiscal deficit rose to 8.1% ofUnemployment has risen to 18%, from 12% last year.
The country has lurched from one fiscal crisis to the next for years, but the scale of this one prompted the government to agree, in January, to a loan from the. It is dependent on a package of reforms which must be enacted in the coming weeks. The most controversial part of the deal, currently being debated by congress, is to reform public employment.
Much of this is thanks to top-ups to public-sector wages. A pay bump for getting married has been abolished, but others, such as for working in hot conditions, remain. The bill would cut these and instead pay a single salary. No one would be allowed to earn more than Carlos Alvarado, the president, as 2,200 of the 305,000 state workers currently do. Mr Alvarado says theIt is, however, controversial.
By contrast, this deal is likely to pass. Many reforms have been toned down—for example, the measures to increase revenues, such as by raising a consumer tax, have been removed. The focus is on reducing spending, mainly through lowering the cost of state employees. Indeed, the most accurate criticism is that the deal is too timid. Past governments only took small steps to stave off sovereign default, says Kevin Casas, a former vice-president. This one is no better.
The true risk to the welfare state comes not from this deal, but from the lack of deeper structural change. That unhappy task will fall to the next government . Mr Alvarado is weak; his party holds only 10 of 57 seats in the legislature. His government previously enacted a tax reform and a cap on spending linked to debt and economic growth in 2018. TheSuch reforms are urgently needed. The quality of public services is deteriorating. Costa Rica spends fully 7% ofafter Scandinavian countries.
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A precursor to what's going to happen in Biden's US, perhaps?
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