In an effort to help the battered Costa Rica economy, President Carlos Alvarado plans to lower the highest wages in the public sector.
Speaking yesterday, the President said he planned to put a bill in front of lawmakers to reduce the salaries of the highest-paid public workers in Costa Rica.
This won’t be the first time Alvarado has gone up against the powerful public sector.
In September 2018, Alvarado stood firm as public sector unions went on “indefinite strike” in protest against a proposed fiscal reform bill.
Back then, the president had overwhelming support from private sector workers. The fiscal reform bill, crafted to tackle Costa Rica’s immense public deficit, passed.
Alvarado ended up a hero to many, the first president in decades to properly stand up to the unions and not back down.
Are you struggling to make it into work in Costa Rica today? Well, you know why, don’t you? The national strike has started. But desperate measures are needed to control Costa Rica’s out-of-control deficit…https://t.co/mGuDyvAkxD#CostaRica #HuelgaCR
— CentralAmericaLiving (@VidaAmerica) September 10, 2018
Almost two years later, Costa Rica finds itself in an even worse financial situation.
COVID-19 and global recession has decimated the already fragile Costa Rican economy.
Unemployment is soaring and the Central Bank predicts a 3.6% contraction of the economy this year. Pre-COVID, Costa Rica had a fiscal deficit of over 6% of GDP. Now it’s expected to hit up to 10% by the end of the year, and total public debt exceeds 60% of GDP.
The four-month (and counting) shutdown has so far cost Costa Rica over $2 billion of lost revenue, according to the Comptroller’s Office.
Costa Rica expects fiscal deficit to reach 9.7% of GDP due to pandemic: https://t.co/qTFMP427zk
— The Tico Times (@TheTicoTimes) July 10, 2020
In short, Costa Rica is in financial trouble.
Things were bad before the crisis. Now, they’re catastrophic. Cutting the salaries of high-earning public officials won’t be unpopular with the Costa Rican public, many of whom are on their knees, especially outside of the GAM.
The IMF brought up the topic of Costa Rica’s bloated public sector in April, as it lent the country $504 million IMF emergency loan to fight COVID-19.
They recommended Costa Rica freeze public wages, conduct civil service reform, increase taxes, and sell assets.
IMF Executive Board approves US$504 million in emergency assistance for Costa Rica to help the country meet the urgent economic needs stemming from the COVID-19 pandemic. https://t.co/vXShLYzG1d pic.twitter.com/a7tStEbAKV
— IMF (@IMFNews) April 29, 2020
In light of this, Alvarado has decided to start with the highest public sector earners, some of whom earn over $15,000 a month.
“We’re experiencing difficult days,” he said. “That’s why we seek to present a plan to control spending, which includes this proposal.”
“We’ll present this plan to reduce the salaries of the upper echelons of the public sector,” he said. “We’ll communicate the details, scales and for how long the reduction will last in a timely manner.”
He went on to stress that this wasn’t a panic move by the administration and that this was something he’d always known needed to be done at some point. The salary reduction will be part of an overall program of public spending cuts.
Ejecutivo presentará proyecto para rebajar salarios públicos «altos» https://t.co/uTDfNEvaC6
— Semanario Universidad (@SemanarioU) July 9, 2020
The president also spoke about the need for more restrictions – expected to be announced today – to tackle the rising number of COVID-19 cases in Costa Rica.
He stressed that whatever the measures will be, he’d try to flatten the curve with the “least consequential impact on the economy.”
James Dyde is the editor of www.centralamerica.com. He lives in Escazu, Costa Rica.