This trend began in the late 1970s when, following oil price rises and a decline in the coffee market, Costa Rica, like rest of Central America, entered a period of economic crisis and was forced to turn to the aforementioned institutions for assistance, and as a result, had to accept the ‘Structural Adjustment Policies’, (SAPS), that accompanied the terms of their loan agreements.
These SAPS included the switch in production strategies and emphasis on trade liberalization as well as imposing certain austerity measures to discourage social spending, reduce the role of the state and privatize state-owned industries. All this was aimed at reducing the country’s deficits and generating sufficient growth to enable it to meet its debt repayments.
However, this objective has not been met. Despite the recent success of its technology industries and the huge rises in FDI, debt continues to rise, currently standing at almost 60% of GDP while trade deficits have increased due to an ever-increasing dependence on imports, both for export manufacturing and domestic consumption. The country also suffers from chronic fiscal weakness, running a persistent deficit in order to maintain its social support systems and the trade incentive policies implemented to encourage investment actually act as a drain on resources, depriving the government of much needed tax revenues and disadvantaging local companies who do not enjoy the same privileges.
Finally, and perhaps most importantly, austerity measures have severely undermined government autonomy in terms of social spending forcing huge cutbacks in the public sector and reducing the ability of the State to provide for its people – leaving the once admired health, education and transport systems starved of resources and increasingly failing to deliver, while devastating small businesses and independent farmers unable to compete with mass produced, subsidized U.S imports.
The tradition of liberal democracy and long established State-centered model of development has begun to be unraveled leaving a weakened State endlessly making new promises and approving new environmental and social legislation yet increasingly ‘unable to fulfill its mandates’.
However, this objective has not been met. Despite the recent success of its technology industries and the huge rises in FDI, debt continues to rise, currently standing at almost 60% of GDP while trade deficits have increased due to an ever-increasing dependence on imports, both for export manufacturing and domestic consumption. The country also suffers from chronic fiscal weakness, running a persistent deficit in order to maintain its social support systems and the trade incentive policies implemented to encourage investment actually act as a drain on resources, depriving the government of much needed tax revenues and disadvantaging local companies who do not enjoy the same privileges.
Finally, and perhaps most importantly, austerity measures have severely undermined government autonomy in terms of social spending forcing huge cutbacks in the public sector and reducing the ability of the State to provide for its people – leaving the once admired health, education and transport systems starved of resources and increasingly failing to deliver, while devastating small businesses and independent farmers unable to compete with mass produced, subsidized U.S imports.
The tradition of liberal democracy and long established State-centered model of development has begun to be unraveled leaving a weakened State endlessly making new promises and approving new environmental and social legislation yet increasingly ‘unable to fulfill its mandates’.
