Through much of 2020, Costa Rica appeared to be a Latin American success story, with staggeringly low COVID-19 contagion rates. However, in 2021, even with impressively high vaccination rates, the situation changed drastically with new infections and coronavirus-related deaths placing it among the hardest hit countries in Latin America. The resulting strain on Costa Rica’s welfare state and care economy, along with a stall in the nation’s most valuable tool for economic stimulus—tourism—has caused a debt crisis that threatens the very infrastructure needed to ensure care for the vulnerable and threatens to reverse the progress made by the country prior to the pandemic.
Prior to the COVID-19 pandemic, Costa Rica’s welfare state reforms placed it among the highest in the Americas for life expectancy, access to public health services and sanitation, social security coverage, and environmental protection. Foundational to this success is the Costa Rican Social Security Fund (CCSS)—a governmental organization in charge of most of the nation’s public health sector and the administration of the public pension system—and the Equipo Basico de Atencion Integral de Salud (EBAIS, or basic integrated health care team)—a robust primary health care delivery model made up of multidisciplinary teams that serve a geographically-dispersed population. Both of these agencies work to provide a social safety net and accessible, free healthcare to citizens. Further, a new childcare network created in 2016 (National Network for Child Care and Development or REDCUDI) has reduced female unpaid work and supported the increased integration of women into the labour force while benefiting the social and academic development of youth.
Despite its early success in managing COVID-19—including the early implementation of social distancing measures and social assistance supports along with a strong healthcare system—Costa Rica is now faced with two predicaments. First, Costa Rica’s early success has been undermined by its decision to re-open too soon, resulting in a huge increase in the COVID-19 rate. Initially, staggeringly low contagion rates counted only 755 cases and 6 deaths by May 2020. However, following its decision to re-open while observing these low rates, the country has now seen 567,263 infections and 7,309 coronavirus-related deaths since the beginning of the pandemic. This after the World Health Organization had warned many Latin American countries back in September 2020—including Costa Rica—that their plans to resume normal life were premature and that premature re-openings would lead to dire consequences if all major control interventions were abandoned.
Second, Cost Rica’s early measures and generous social assistance supports have unfortunately resulted in a large fiscal deficit. As is the case for many Latin American countries, the economic ramifications of the COVID-19 pandemic are considerable and threaten to be long-lasting. In Costa Rica’s case, even before the pandemic, the country had the third-highest government debt in Latin America and the highest interest payments. But last year its economy shrank by 4.5%, partly due to a reduction in tourism, while the fiscal deficit rose to 8.1% of Gross Domestic Product (GDP), up from 6.7% in 2019. Now, unemployment has risen from 12% in 2020 to 18%. Consequently, 26% of Costa Rican households have fallen into poverty since the beginning of the pandemic. Now, even with COVID-19 cases dropping following a series of surges—including one in September where 17,667 cases were recorded in one week—and high vaccination rates, the social security of Costa Rica is under threat.
The scale of the fiscal crisis in Costa Rica stimulated by the pandemic prompted its government to agree, in January, to a loan from the International Monetary Fund (IMF) of $1.8 billion, around 3% of the country’s GDP. This loan is dependent on the enactment of a package of reforms, including a freeze on public sector wages and a decrease in social spending, particularly on healthcare expenditure and social protection—something the IMF stressed that nations must do “once the crisis abates.” In fact, the IMF loan is essentially encouraging a country hard hit by the economic fallout from the pandemic to adopt more tough austerity measures in the aftermath of the health crisis. Some experts argue, though, that the true risk to the country’s welfare state comes not from the IMF deal, but from the lack of deeper structural change by the government itself. Economists largely agree that the nation must enact widespread fiscal reform to curb the debt crisis—something no recent government has successfully done—and that these potential reforms place the CCSS, EBAIS, and REDCUDI in the crosshairs for cuts. Already, the government has announced a 1% cut to public spending entirely while promising that social programs would not be affected. Despite this, an “educational blackout” has already been declared due to a lack of investment in public education throughout the pandemic, and the same can also be seen in public childcare and health care programs. Currently, it seems that the government is choosing between widespread austerity measures and targeted taxation tactics—including increasing taxes on the most wealthy and cracking down on tax evasion—to help solve the debt crisis. If austerity is adopted as the government’s primary tactic, reforms to the CCSS as well as cuts to EBAIS and REDCUDI would not be unexpected.
With notable disagreement demonstrated by Costa Rican citizens regarding the implementation of austerity measures, it seems that the only thing standing in the way of the government taking drastic action on fiscal reform are the residents of Costa Rica themselves. However, with pressure from the IMF and other international monetary organizations, policymakers in Costa Rica should remain on high alert. Placing pressure on the international community to remove the austerity measures associated with COVID-19-era loans might be its last chance to preserve the welfare state it has long worked to build.
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