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TWELFTH STATE OF THE NATION REPORT ON SUSTAINABLE HUMAN DEVELOPMENT (2005)Summary

TWELFTH STATE OF THE NATION REPORT

ON SUSTAINABLE HUMAN DEVELOPMENT

(2005)

SUMMARY

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TABLE OF CONTENTS

TWELFTH STATE OF THE NATION REPORT ON SUSTAINABLE HUMAN DEVELOPMENT (2005).......................................................................................................1

TWELFTH STATE OF THE NATION REPORT..................................................... 1ON SUSTAINABLE HUMAN DEVELOPMENT......................................................1(2005)............................................................................................................................ 1Foreword.......................................................................................................................6Prologue .......................................................................................................................9

A time of political transition ............................................................................................. 9

An era of shortfalls and citizen discontent....................................................................... 9

Revitalize enthusiasm....................................................................................................... 10

Governance is the name of the game...............................................................................11

The State of the Nation Report........................................................................................11

General assessment of the state of the nation in 2005.............................................19Equity and social integration..................................................................................... 23

General assessment of equity .......................................................................................... 23

Although there is a decline in the average income of the employed, average household incomes rise...................................................................................................................................25

Social investment falls for the third consecutive year................................................... 26

Still no change in poverty incidence and income inequality grows over the last twenty years........................................................................................................................................................28

Continued unequal access to the labor market ............................................................. 31

Progress toward achieving universal social security coverage .................................... 32

The number of secondary students expelled or failed continued to grow................... 33

Economic opportunities, stability and solvency........................................................ 35 General assessment .......................................................................................................... 35

High growth but weak production linkages................................................................... 37

Reactivation of export-oriented industry and agriculture ........................................... 38

Direct foreign investment: achievements and challenges..............................................39

The fiscal deficit and total public debt have declined, at the expense of sustained growth........................................................................................................................................................40

Incomplete financial reform.............................................................................................42

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Harmony with nature................................................................................................. 43 General assessment .......................................................................................................... 43

Rapid and rampant urban sprawl threatens natural resources...................................44

No long-term solutions for the high consumption of fossil fuels...................................46

Air quality depends to a large extent on the transportation sector..............................48

The water supply continues to be at risk but new instruments were created to improve water management....................................................................................................................... 49

SINAC: more protected areas but insufficient funding ............................................... 51

Double jeopardy: poverty and vulnerability to natural disasters ............................... 52

Strengthening of democracy ..................................................................................... 55 Overview ........................................................................................................................... 55

End of the bipartisan system that led the country until the late-20th century........... 57

More positions open for election and more candidates................................................. 59

Highest abstention in the last 44 years...........................................................................60

The legislature: low effectiveness and unable to achieve agreements..........................61

Foreign policy: inconsistent advocacy of peace and human rights.............................. 64

Special topic: Current status of road infrastructure.................................................66 Current extension and condition of the road network.................................................. 67

Estimated value of the road asset and depreciation of that capital..............................68

Management of road infrastructure................................................................................68

Incomplete institutional reform; disappointing results.................................................70

Weak sectoral planning capabilities................................................................................70

Bibliography............................................................................................................... 72

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Tables1 Average household income, by household decile. 1988 and 2004.2 Relative share in GDP and growth of GDP, by line of economic activity.

1995-20053 Remittances received in Central America. 20044 Primary and financial results of the Central Government. 2000-20055 Legislative agreements, by decision-making body. March 2005 to April of

20066 Laws approved, by type of right and funding. May 2005 to April 2006

Boxes1 Living democracy2 Challenges highlighted in earlier editions of the State of the Nation Report3 Institutional fragmentation and limitations complicate land-use management4 Moving toward a modern and efficient road network in Costa Rica: options

and practical challenges

Figures1 Evolution of real average earnings from the main job, by level of worker

skill. 1990-20052 Evolution of real per capita public social investment. 1980-20053 Total poverty incidence in households, by region. 1990, 1995, 2000 and

20054 Real minimum wage index. 1987-20055 GMA: Performance indicators of national high school exams and dropout

rate, by type of educational center. 2002-20056 Performance of the index of GDP and ANI. 1991-20057 Composition of the balance between ANI and GDP as compared to GDP.

1993-20058 Growth rate of vehicles by type. 1998-20059 Number of visitors to protected wilderness areas and revenues received.

1982-200410 Abstentionism in the 81 counties of the country (2006 elections)11 Public investment and under-execution of the road infrastructure budget.

2001-2005

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Maps1 Gini coefficient at the county level. 20012 Concentration of NO2 in some counties and districts of San José. 20053 Homes affected by extreme natural events, by county. 2000-20044 Winning party in the 2006 elections as compared to the 2002 elections

Photographs1 Urban growth, 1975, 1986, and 2005

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Foreword

This summary was prepared to facilitate the dissemination and discussion of the findings of the Twelfth State of the Nation Report. As a means of introduction, the Prologue provides an overview of the situation of the country at the time the Report went to press; it also briefly describes the premises and methods of its work since 1994. For the purpose of accountability, it details the principal actions taken by the State of the Nation Program in the past year.

The first part of this summary provides a general assessment of sustainable human development in the country in 2005, and of the electoral process that culminated with the February 2006 elections. The second part takes stock of the country’s performance in the four areas normally monitored by the Report. For each, a synthesis was included to facilitate a more in-depth examination of certain topics of particular importance for understanding the situation of the year under study, or where methodological progress was made or new indicators added.

Finally, the section “Debates on development” summarizes the special chapter of the report that analyzes the current state of road infrastructure in the country, presenting a comparative perspective and proposals for future action.

For a broader and deeper analysis of specific subjects, readers are invited to consult both the complete Report and the specialized papers available to the public at the web site www.estadonacion.or.cr. (Spanish only)

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http://www.estadonacion.or.cr/


Credits

Advisory Committee

Rodrigo Aguilar, Mayi Antillón, Rolando Barrantes, Marta Campos, Wilson Campos, Rodolfo Cerdas, Jorge Arturo Chaves, Alejandro Cruz, Helio Fallas, Clotilde Fonseca, Rodrigo Gámez, Leonardo Garnier, Miguel Gómez, Milena Grillo, Francisco de Paula Gutiérrez, Pedro León, Gabriel Macaya, Rodrigo Madrigal (r.i.p.), Guido Miranda, Sandra Piszk, Samuel Rovinski, Marco Vinicio Ruiz, Pablo Sauma, Eduardo Ulibarri, Constantino Urcuyo, Gloria Valerín, Albino Vargas, Guido Vargas, Saúl Weisleder, Samuel Yankelewitz, Fernando Zumbado, Joyce Zürcher.

Steering Committee

Yamileth González, Lisbeth Quesada, Daniel Soley, José Andrés Masís.

Framework cooperation agreementsOffice of the Ombudsperson, National Council of University Presidents.

Program director Miguel Gutiérrez Saxe.

Technical teamRonald Alfaro, Guido Barrientos, Vera Brenes, Enrique González, Karla Meneses, Leonardo Merino, Alberto Mora, Natalia Morales, Isabel Román, Marcela Román, Arodys Robles, Susan Rodríguez, Elisa Sánchez, Jorge Vargas Cullell, Evelyn Villarreal.

Administrative support teamArlene Méndez, Mary Rivera (r.i.p.), Guisselle Rojas, Guiselle Sánchez, Joani Valverde.

General research coordinatorLeda Muñoz.

Thematic consultantsEduardo Alonso, Bernal Arias, Pascal Girot, Isabel Román, Guillermo Monge.

PublisherState of the Nation Program.

Editor, Spanish textAlexandra Steinmetz.

English translationSusana Raine

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We gratefully acknowledge the steadfast contributions and work performed by Eugenio Pignataro in supporting social dialogue and the State of the Nation Program. A distinguished Costa Rican, he helped mediate agreements from his position at the Costa Rican Union of Chambers and Associations of Private Enterprise (UCCAEP), where he worked indefatigably to build understanding with other social sectors in order to arrive at agreements that promote the advancement of the country and its people.

When this report was at press, we were saddened by the death of Rodrigo Madrigal Nieto who supported us with his sage advice and guidance as a member of the Advisory Committees of both the State of the Nation and the State of the Region. His thoughts and commitment to his country inspire us all to maintain and expand our Program’s sense of public service.

With natural joy and devotion, Doña Mary gave us a portion of the last years of her life. Today, we also wish to acknowledge her down-to-earth contributions of common sense to the report. We will miss her.

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Prologue

A time of political transition

For the third time in its history, the State of the Nation Report is being published in a time of political transition. When this occurs, the report documents what happened during the last year of a constitutional term of office, presents the electoral results, and focuses on the principal challenges of sustainable human development the society and the new government face but do not necessarily address. Although these years of transition are complex, they have generally been of low-risk for this publication; they are also years that offer a certain renewal of hope.

For this reason, it would appear that the greatest emphasis of this report would be on political relations. However, we cannot ignore the fact that, in the Costa Rica of today, the word “political” encompasses and expresses social issues that have accumulated during a pilgrimage of more than a decade, one that has not always been easy or straightforward, related to changing a style of economic growth and the distribution of opportunities among the inhabitants of the country.

An era of shortfalls and citizen discontent

As affirmed in the Tenth Report, the last decade was not a time of stagnation, nor was it another “lost decade.” However, viewed strategically it was a time of shortfalls stemming from a weakened position caused by the debt crisis of the 1980s. The new economy is very dynamic but it has weak linkages. The absence of development policies to stimulate the production activities of most of the country’s enterprises (micro, small, medium-sized) has been singled out as one of most serious shortcomings of the actions taken to foster a style of economic growth in Costa Rica that produces well-being for its citizens. Development policies focused primarily on sectors of the new economy, had weak social linkages (generating few job opportunities), weak production linkages (importing their inputs, making limited domestic purchases, and sending their profits in payment for external factors), and weak fiscal linkages (paying little or absolutely no taxes). Some notable exceptions include ecological tourism and certain nontraditional agricultural exports.

An era that began with the consolidation of a new development style now finds itself with a society entangled in increasing struggles over the distribution of possessions and positions. Growth alone was insufficient. The warning sounded in the Second State of the Nation Report regarding the need to combine economic and social goals in order to overcome the obstacles was, in addition to being ethical, entirely realistic. Thus, the major imperatives of our nation continue to be growth and stability, stronger social investment, and a redistribution of income toward the poorest segments of the population. These purposes took shape in the last decade as follows: 4% more income for the poorest sectors, 6% of GDP for education, a 4% inflation rate, and 6% annual growth. But only partial progress was achieved in those areas; in others an involution occurred (State of the Nation Program, 2004). What was intended to be an increase in the additional income of the poor became an almost 50% decline in their incomes, which

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fell from an allocation of 6% of national revenues to a mere 4% (INEC, 2006). Moreover, the earned income of households or the employed, as well as social income, declined in recent years; both affecting in a general way the population.

Revitalize enthusiasm

Things being as they are, one cannot expect an enthusiastic climate when incomes are falling, inequality is increasing, social income is declining, and basic health services, security, and roads are deteriorating, while, on the verge of a paroxysm, there is vigorous growth in GDP and exports, and important gains in the financial sector. There is a new and buoyant economy but it does not have meaningful production, social and fiscal linkages: this translates into meager results for the people.

Clearly, that development style must be corrected if the intention is to have the support of the population. Today we have a pressing need to renegotiate among ourselves. After all, democracy is not just a procedure for electing; it is a collection of results and opportunities demanded by the citizens, especially after many years of growing democratic promises and a diminishing “capacity to deliver” by the State, as was seen in the last elections.

The electoral process revealed a political system besieged by citizen discontent and characterized by a high abstention rate, a cold electoral climate, low participation, and no outright winners. No political party has sufficient power to claim a mandate and implement its own program; none of the principal forces won more than a quarter of the votes in these presidential elections. Thus, to govern it will be necessary to reach an understanding, especially with a population that is clamoring for attention to its demands, and to redistribute benefits as well as contributions and sacrifices. Many issues have been piling up, one on top of the other. The country has not managed to move past critical thresholds, particularly in relation to changing its institutions. Many tasks are pending, the most pressing being related to fiscal matters, without which the rest will be impossible or ruined in a scenario of inflation, instability, and impoverishment.

To be able to move forward, the fear and mutual mistrust among the political and social forces will have to be reduced, as they have been paralyzing in recent years. As far as our relations of trust are concerned, we are still experiencing some of the effects of the last “hot war of the Cold War” fought a few decades ago in Central America. But even that polarization is no longer enough to consolidate specific support for politics. Now, democracy is appraised at the point of direct contact between citizens and institutions. What matters for achieving legitimacy is effectiveness, the quality of personal treatment, appropriate use of resources, absence of corruption and influence peddling, and sanctions for those who break the rules. Thus, the political impetus of a series of deep and restrictive economic reforms, including the downsizing of the State, has widened the gap between electoral promises of greater well-being, a Constitution that enshrines these principles, and “the hard facts of government.” Consequently, politics, politicians (of practically any political or social representative), the institutional

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framework, and even sharing a common destiny as a nation have been called into question.

Governance is the name of the game

These practical and pressing problems of governance have been aggravated by certain trends of the State. Efforts to transform institutions in order to make them more efficient have met with a number of obstacles, including the squeeze caused by the debt service and a shortage of funds. The practice of having a “core staff” with a margin of technical autonomy and the mechanism of institutional decentralization have been replaced by coordination based on political influence. Today decision-making is not based on plans and objectives forged in many institutions; rather they are based on the decisions of executives appointed according to the “four-to-three ratio,” which becomes “seven-to-zero” when a party has been reelected to a second term in office. With this, responsibility and autonomy vis-à-vis the institutional mission are lost. Of course counterbalances have been created in the form of processes and controls, which do not necessarily catch influence peddlers, the corrupt, or those who squander resources, but do indeed put obstacles in their way.

Moreover, due to changes in the correlation of forces and political practices, in the Costa Rica of today objectives cannot be governed or administered, nor are stable coalitions being built. In fact, it is just barely possible to create short-lived legislative majorities that have limited scope and make minor achievements. Little can be done, achievements are very unstable, and the citizens have become exasperated. Thus, this not only represents a systematic loss for the political party sitting in the Executive Office amidst accusations of ineptitude and lack of direction, it also represents a loss for the entire political system, and it loses a great deal, as has been confirmed and is documented in this Twelfth Report.

The State of the Nation Report

The extensive quote by Dana Munro in Box 1 brings to mind the importance of valuing the unique road traveled by this country in the past, and the need and desirability of getting back onto that path again. While recognizing the difference of scale, it also confirms the task of the State of the Nation Report: to provide society with easily accessible instruments for understanding its evolution, developing mechanisms of accountability, strengthening mechanisms for participation and negotiation, and contributing to building national consensus. This is an independent initiative, one whose mission is to improve citizens’ access to broad, timely and truthful information on matters of public interest. Reporting constructs democracy and strengthens channels for processing interests as well as conflicts.

The job of balanced reporting with credibility is a difficult one, and is not free from risks. To date, after twelve national reports and two regional Central American reports, this effort is bolstered by an important accumulation of prestige, and a method none other than the one that characterizes scientific inquiry: new conclusions prevail provided they are the outcome of rigorous and sound study; at the same time, at every step new

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information and criticism suggest new research challenges. For this reason we value criticism as a tool for obtaining results, regardless of its content or its source.

Box 1

Living democracy

As Dana Munro pointed out in his book on the Central American republics at the outset of the 20th century:

“The worst features of the Central American governments are due chiefly to the fact that the officials are subject to so little control by public opinion. Those who benefit by the acts of the administration support it whatever its defects, while those who do not, oppose it regardless of its merits. The sentiment of the ruling class as a whole may influence the government in non-political matters, but in taking measures to strengthen their own position the president and his advisors are rarely deterred by considerations of legality, popularity or morality. An administration does not weaken itself so much by the violation of rights guaranteed by the constitution as by failing to provide offices and other rewards for its own supporters. The press, as a means for shaping public opinion, has little political importance, for even in those countries where it is not subject to a close censorship, the majority of the newspapers are too partisan or to venal to command general respect.

“The only remedy against bad government is revolution. This, unfortunately, almost invariably proves worse than the evil which it seeks to cure. The civil wars of the last ninety-six years have brought incalculable harm in all of the five republics, except Costa Rica, not only by the destruction of lives and property, but by making force the only basis of authority, and by placing men of military ability rather than constructive statesmen in positions of power. The numerous Central American patriots who have worked with all their will and energy for the establishment of efficient administration and the economic progress of their countries have found their efforts nullified by the continual disorder which has made peaceful evolution impossible. …

“… some of the republics of the Isthmus have made little progress since their declaration of independence, although those which have enjoyed comparative peace have advanced rapidly in prosperity and civilization. The first requisite for the improvement of the economic and political conditions of Central America is the substitution of some peaceful means of changing the personnel of the governments for the costly and destructive method of revolution.”

Source: Munro, 2003.

Since the beginning, this initiative has been protected by checks and balances, and by its procedures to refine, select, and specify the contents and structure of the Report. The Advisory Committee, made up of distinguished and eminent citizens recognized for their personal records and their pro-development efforts, is substantively responsible for the document, as that mission was entrusted to it by the National Council of University Presidents (CONARE) and the Office of the Ombudsperson when the State of the Nation Program was created. For the research, a vast network of scholars, thematic consultants, and sources of information is identified and coordinated. With a process that includes two or three consultation workshops for each chapter, specialists and representatives from social and institutional sectors help prepare the Report, fine tuning the conclusions and specifying the appraisals. Responsible and informed participation

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shapes the outcome. A core technical team carries out the very complex task of managing the process and converting the mandates, suggestions and even disagreements among the various agencies and groups into a text that must be rigorous, sound, balanced and, above all, understandable and interesting to public opinion.

The three guiding principles of the State of the Nation are manifested in that process: academic rigor, social legitimacy, and extensive dissemination.

Academic rigor. The Report is based on the articulation of the research capabilities available through the public universities, which makes it possible to obtain quality information and analyses without having to create complex structures. For the present Report, almost 600 bibliographic references were systematized and some 55 specialized studies carried out. This generated a current of research on sustainable human development as well as new policies for scientific and social research at the national and subnational levels. Moreover, the task of processing data from a wide range of sources had a real impact on the design of indicators, from identification to the methods used, and has brought to light topics that have received scant attention in the country.

Social legitimacy. To ensure its authority and legitimacy, special working methods were designed as an essential part of the process to prepare the Report; these were briefly discussed above.

Extensive dissemination. The third principle is to maximize dissemination of the report, other publications, and the State of the Nation Program itself. Some elements of the strategy are:

Direct communication: presentations to groups and sectors, workshops, forums with scholars, social organizations, educators, students, civil servants and communicators.

Publications, articles, and reports in the printed, radio, and television media.

Web site, which receives a large volume of visits from nationals and from abroad.

Community outreach actions, in order to reach many parts of the country.

Activities within the educational system, including: organization of refresher courses for educators and advisers; publication of the book Costa Rica contemporánea, raíces del estado de la nación (Contemporary Costa Rica: roots of the state of the nation), for secondary schools and introductory university courses; use of the publications in university courses on the state of the nation; and design of teaching modules for primary and secondary education, as well as for schools attended by immigrant children.

As of 2005, the Report included a new section that contains proposals, discussions, and contributions of a more practical nature. So far, two special chapters

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have been written: “Universalization of secondary education and educational reform,” for the Eleventh Report, and “Moving toward a modern and efficient road network: Options and practical challenges,” for this Report. The aim is to stimulate discussion on public policy and generate proposals on certain issues that this publication has examined over the years and for which it therefore has compiled a considerable amount of information. We hope in this way to help lay the groundwork for nationwide agreements that will generate enthusiasm and form part of a road map to a new era of social progress, stable economic growth, and stronger democratic institutions. This is a good reason for existing.

Miguel Gutiérrez Saxe

Director

State of the Nation Program

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Note 1First Report on the State of Costa Rican Education

The First Report on the State Costa Rican Education, an examination of national performance in the area of education, was published in February 2006 (Spanish only). Its aim was to measure how close Costa Rica has come to, or how far it has moved away from, fulfilling the aspiration of providing the population with equitable access to quality education. Another objective of the study was to help pinpoint the principal educational challenges facing the nation. CONARE recently decided to produce a second report on the subject and to create an Advisory Council for the State of Education. It also established a fund that researchers from the public universities who wish to conduct relevant studies on educational policy in Costa Rica may participate in, by means of competition.

Note 2Gaps among counties in meeting the rights of children and adolescents

Within the framework of the UNICEF Action Plan for 2005, the State of the Nation Program was commissioned to conduct a study on the rights of children and adolescents, with a focus on county and regional gaps. The study was carried out during the 2005-2006 period and covers a wide range of subjects, variables, and indicators. It has provided valuable information on the protection afforded to children and adolescents at the county level.

Note 3Third report for the Central American region

In 2005, efforts were undertaken to compile the resources needed for a third edition of the Report on the State of the Central American Region. As part of this effort, the possibility was explored for joint action and cooperation with agencies such as the World Health Organization (WHO), the Pan American Health Organization (PAHO) and the office in Mexico of the Economic Commission for Latin America and the Caribbean (ECLAC-Mexico). Different proposals for the approach, general characteristics, and elements required for a conceptual design of the study were assessed. As part of this preparatory process, some thirty renowned individuals and experts were consulted and asked to propose relevant topics to be included, and to suggest a first characterization of the regional report.

Note 4Information and training for civil servants and social organizations

The State of the Nation Program conducts a variety of informational and educational events throughout the country targeting the employees of public institutions, educators, private and social organizations, and the population as a whole. As part of its efforts in the 2005-2006 period to disseminate its work, the Program participated in activities with elected government representatives, legislative advisers, new municipal authorities throughout the country, the staff of the Office of the Comptroller General of

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the Republic, civil servants, educators, university communities, as well as members of different trade associations and professional groups.

Note 5The State of the Nation Report in the university community

CONARE’s Commission of Vice-Presidents approved the establishment of an inter-university commission to promote the State of the Nation Report in the academic communities of the public universities. Its objectives include fostering and designing activities that make use of the Report and other State of the Nation publications, promoting a process of education and information, and developing research and new indicators on sustainable human development with the active participation of the academic community of the public universities. Within this framework, on-site activities and video conferences were held in 2006 in coordination with various university centers.

Note 6The State of the Nation Report in the educational system

A bipartite commission of MEP staff and State of the Nation Program staff has been at work since 2003. In the 2005-2006 period, a training program was held for educators and library technicians throughout the country, in which the cross-cutting nature of information in the Eleventh State of the Nation Report was linked to the educational objectives of the social studies, civics and science curricula. In addition, various State of the Nation publications were distributed to secondary school libraries, and the module Viaje al desarrollo humano sostenible en la region centroamericana (The route to sustainable human development in the Central American region) continued to be distributed.

Note 7University of Costa Rica Radio - State of the Nation Forums

In a monthly program broadcast by the University of Costa Rica radio station, university scholars and researchers from the State of the Nation Program address topics of critical importance to national life. Each forum examines current processes and trends in Costa Rican society, from a duly documented and well-founded perspective.

Note 82006 Elections

Through many initiatives and research activities, the State of the Nation Program has sought to strengthen democratic practices in the country’s political life. In that spirit, as part of the 2006 electoral process an urgent appeal was made with other social actors for citizens to volunteer as polling officers and to ensure clean elections. As part of that initiative, members of the Program’s team technical served as polling officers and electoral delegates on 5 February. The Program also prepared a brief document on the national situation, and provided this material to the international delegates and observers involved in the activities of the Supreme Electoral Tribunal (TSE).

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Note 9Costa Rica in light of the Income and Spending Survey

In order to make timely use of the findings of the National Income and Spending Survey (ENIG), researchers were invited to submit proposals for analyzing and researching economic, social, and methodological topics associated with the findings of that survey. The studies were discussed at a symposium held on November 8-9, 2006. This initiative involves joint efforts among the National Statistics and Census Institute, the Central Bank of Costa Rica, the State of the Nation Program, and the University of Costa Rica, through its Central American Population Center and Social Research Institute.

Note 10Cooperation agreement with INFOCOOP

In 2006 a new cooperation agreement was signed between the National Institute for the Development of Cooperatives (INFOCOOP) and the CONARE/State of the Nation Program. The aim of the agreement is to continue promoting efforts to strengthen socio-business development in the cooperative movement, through training and research on subjects of common interest. Last year, the findings of a study on development banking and small- and medium-sized enterprises were presented.

Note 11Social Dialogue Forum

The State of the Nation Program facilitates the Social Dialogue Forum, which brings together different social advocates of the country. The group reached consensus on a bill to create an Economic and Social Council to serve as a mechanism that the Executive and Legislative Branches can use to consult with society regarding public policy issues. The new Legislative Assembly has taken up the matter again, forwarding the bill to the Social Affairs Commission. For their part, the social sectors –with the support of the State of the Nation Program– have sought to develop a common strategy to promote approval of the bill, given that this initiative can help channel social conflict by creating an ongoing mechanism for institutionalized social dialogue.

Note 12Greenwood Encyclopedia

Under a cooperation agreement with the Friends of Learning Program (ADA) and the United Nations Children’s Fund (UNICEF), content was written on the topics of health, abuse, and abandonment for the Costa Rica chapter of The Greenwood Encyclopedia of Children's Issues Worldwide.

Note 13Results of the 2005 Latin American Index of Budget Transparency

In October 2005, the State of the Nation Program, the Arias Foundation for Peace and Human Progress, and the University of Costa Rica master’s degree program in

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economics published the principal findings of the Third Latin American Index of Budget Transparency. The objective of this initiative is to better inform citizens of the technical, political and administrative procedures involved in the formulation, approval, control and evaluation of national budgets. The possibility of a fourth index is currently under study.

Note 14Action Plan for Public Policy on Youths

The State of the Nation Program delivered the Action Plan for Public Policy on Youths commissioned by the United Nations Population Fund and the National Board for Public Policy on Youths. It discusses strategic actions, expected impacts, and the sectors involved in each priority line of action, which were determined during the social dialogue process.

Note 15Support of opportunities for reflection on key development topics

The State of the Nation Program participates actively in efforts promoted by different stakeholders of Costa Rican society to reflect on and develop proposals for key aspects of national, sectoral, and regional development. Its most recent contribution in this regard was made at the seminar “Strengthening economic democracy: a challenge for democratic governance,” which was organized by the Ministry of the Presidency, the State of the Nation Program, INFOCOOP, the National Confederation of Cooperatives (COONACOOP), the Central American Bank for Economic Integration (CABEI), CPCA, Fedejoven R.L. and the La Catalina Consortium R.L. In addition, it participated in a forum on the development of health and social security systems, with a focus on risks and challenges in the 21st century, organized by the WHO/PAHO, the Ministry of Health, the Costa Rican Social Security Institute (CCSS), the International Social Security Association, and the State of the Nation Program.

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General assessment of the state of the nation in 2005

The outstanding development of the year 2005 noted in the Twelfth State of the Nation Report is the end of a political era. For the first time since the 1948 Civil War, the divisions and traditions that emerged from that conflict were not decisive factors in the electoral preferences of Costa Ricans. The 2006 national elections brought an end to the bipartisan system that had governed the country for the past twenty years. The key fact, however, is that most citizens do not belong to a political party, and no political party has a loyal constituency, which weakens the capacity of the political system to express interests and process conflicts. In these adverse conditions, the parties, the institutions, and the citizens are faced with the difficult task of moving important reforms forward precisely at a moment when the capacities of the political system are diminished.

These political changes occurred in an economic and social setting characterized by a basic tension between the rapid changes in the production and distribution of goods and services, on the one hand, and the country’s inadequate capacity to address long-term human development challenges, on the other. With the adoption of a new style of development, the Costa Rican production apparatus changed profoundly within a period of just twenty years. The traditional economy was replaced by an economy dominated by the financial sector, duty-free zones, and tourism. This trend continued vigorously in 2005, encouraged by historically high levels of direct foreign investment and exports, which stimulated a high growth rate.

In terms of income distribution, the information available indicates that Costa Rican society is now significantly more unequal than it was two decades ago, the reverse trend experienced between 1960 and 1980. The short-term improvement of the Gini index of inequality observed in 2005 was, rather than a sign of recovery, the result of a generalized fall in the income of the employed. Positive economic performance was insufficient to counteract this trend given the lack of production, social and fiscal linkages between the most rapidly expanding sectors and the rest of the economy. Thus, nothing in the performance of Costa Rican society in 2005 changes the appraisal made in the previous report of insufficient human development. The signs of “a new and more dangerous phase” mentioned in the last Report have grown stronger. The image of a deteriorating shared house continues to have meaning: there was once again an erosion of political representation, a decline in the incomes of the employed, and new cutbacks in social investment. Although a certain increase in household incomes was noted, this was because new family members entered the job market, many of them with part-time, poor quality jobs.

In 1988, the Prologue of the Fourth Report used the metaphor of a vehicle to describe “a society that has ground to a halt, and is surrounded by the smell of something burning,” where different sectors were contending for leadership, braking and accelerating the vehicle at the same time. That situation has now sharpened: with the passage of time, the brakes, accelerator, and steering wheel no longer respond as they used to. The protagonists not only continue to obstruct each other, they are not even aware that the vehicle needs repairs and is rolling along without much direction, down

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hills and alongside chasms, with people on the side of the road and other vehicles moving around it. In this new environment, rash driving or the illusion that the dispute taking place inside the car can continue indefinitely involves risks for all.

The slopes that keep the vehicle rolling are shaped by political, social and economic forces of different inclinations and intensity. In the political arena, growing and extensive citizen discontent with national performance is a powerful force for change that has already shaken up the party system. This discontent became evident in the mid-1990s and was exacerbated by new triggers such as the corruption scandals of 2004, citizens’ pessimism regarding the country’s progress, and a negative appraisal of government performance. In the social sphere, advanced demographic transition and uncontrolled and disorderly urban growth are forces that have given rise to a society that differs considerably from the Costa Rican society of earlier decades. As mentioned earlier, the force of change in the economy is a new development style that has been consolidated but that displays problems of articulation and productivity. These forces push the country in different directions and at different speeds, intensifying the tensions documented in earlier versions of this Report. Left by themselves, they “do not add up to” or produce a clearly defined and ordered change; on the contrary, they are on a collision course. Hence the crucial importance of forging political agreements: they are indispensable for taking advantage of the momentum generated by the slopes, finding a safe route, and steering the vehicle toward a common destination.

This panorama poses a complex and unique strategic dilemma for Costa Rica. On the one hand, if it is to maintain its institutionally and legally entrenched social achievements and strengthen environmental protection, it will need to undertake profound economic, social, and institutional changes to address the changing social landscape and the shortfalls of its economic development. On the other, Costa Rica’s democratic system provides for a gradual, heterodox and limited course of action for the design and implementation of such change. The crisis of the party system, combined with the deterioration of the State’s institutional capabilities, threatens to turn this gradual approach into paralysis. In sum, the country urgently needs to implement deep changes but the political system, which was not designed to process change rapidly, is particularly incapable to do so at this time.

At the same time, the possible ratification of the Free Trade Agreement with the United States, Central America and the Dominican Republic is creating tension in the political environment as it will involve implementation of a series of institutional reforms that will require substantive adjustment in several sectors of the State. If, in the current situation, stakeholders are guided by the belief they must “risk everything” in order to impose their interests or hold on to their positions, this could trigger situations that undermine political stability. In sum, Costa Rica must resolve in the short term how to use democratic means to bring about major reforms in society, the economy and the State.

It is important to recognize that the uniqueness of the Costa Rican dilemma is not due to its exceptional nature. Other societies share several of the elements: the average level of development, the strategic location of the country, the lack of cooperation funds,

20


the absence of natural resources for extractive economic activities, its democratic experience, or the crisis in the political party system. Other elements, however, are indeed unique to Costa Rica: the particular arrangement of its State, and its leadership in Latin America in terms of social development and environmental conservation. What is truly singular about the strategic dilemma facing Costa Rica is the combination of all the aforementioned factors in its current situation. By way of comparison, few countries have the need to simultaneously solve complex economic, political, and institutional problems with the aim of spurring a new period of rapid human development with consolidated democratic institutions. Costa Rica must act on several fronts in a short period of time, now not only to advance to higher levels of development but also to preserve its achievements (Box 2).

The country rests upon a threshold of high human development that has gradually become firmly entrenched through the recognition of rights for the population, and that today constitute a key element in its endowment of factors. Fifty years ago, the underpinnings of this threshold were universal elementary education, extension of health coverage and other basic services, expansion of political rights, and protection of the natural heritage. In the Costa Rica of today, it is imperative to ensure the sustainability of this accumulation of human development achievements; even though it will require significant effort, not to do so would be inexcusable. But the core problem still lies ahead: as mentioned in the Tenth Report, in the coming years the country must rapidly boost productivity, improve social equity, make sustainable use of its natural resources, and enhance democracy so that it improves the well-being and quality of life of its population.

Once again, the State of the Nation Report underscores the urgent need to negotiate political agreements in order to promote reforms that will inaugurate an era of accelerated social progress, well-founded economic growth, and enhanced democracy. According to last year’s report: “In order to move forward, a social pact needs to be negotiated to distribute opportunities and benefits among the country’s inhabitants, especially the sectors that have gained little or nothing from economic opening and the international trade policies implemented over the past twenty years. Since every solution has a cost, sacrifices will also have to be distributed, but they should not be shouldered by the most vulnerable groups.” This challenge still lies before us, and it has become even more pressing in the current political situation. However, to suppose that a comprehensive and perfect pact can be achieved immediately could very well be the best way to make it impossible. The agreements the country needs could be sparked by specific experiences that help reestablish mutual trust among the political and social forces through the achievement of concrete results.

Where to begin? This Report has been able to confirm the existence of wide-reaching agreements, despite differences and distrust, on certain policy objectives and the need and desirability for organizational change. For example, the universalization of a diversified and quality secondary education –the special topic of the Eleventh Report– and the importance of removing obstacles to the development of modern road infrastructure –the special topic of this Report– are two areas where common and viable visions and objectives have been identified for overcoming barriers that a few years ago

21


were cause for confrontation. These could serve as “laboratories” where the social forces can develop a new style for conducting politics in the country, a style that is closer to the needs and aspirations of the population.

Box 2

Challenges highlighted in earlier editions of the State of the Nation Report

• Rekindle faith in politics and its institutions; improve the quality of democracy.• Create better and more productive jobs and business opportunities; articulate new exports

with the rest of the economy.• Modernize transportation and communications infrastructure.• Control domestic debt.• Close development gaps among the different regions of the country.• Close social, economic and political gaps between genders.• Enact national policies for key areas including the tax regime, poverty, immigration, and

relations with Nicaragua.• Expand the coverage, improve the quality, and diversify secondary education as a means to

advance firmly to reduce poverty and increase productivity.• Address the cumulative deterioration in social equity.• Develop a social pact that distributes opportunities and benefits among citizens.

Source: Prepared by the authors

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Equity and social integration

General assessment of equity

In 2005 Costa Rica moved away from the aspiration that people can improve their earnings in order to live a decent life. For the third consecutive year, two trends converged to undermine the well-being of the population. One was the reduction in real terms of income earned by the employed (3.7% in 2004 and 9.5% accumulated over two years). The other was the reduction in the social income received by households and individuals from the State (which, in per capita terms accumulated a real 6.3% contraction in the last three years). The declining income of the employed was the result of a downturn in economic stability which, in turn, was affected by rising inflation and the number of persons employed in low-productivity jobs. The erosion of social income stems from restrictive public policies seeking to maintain stability in a setting marked by a serious fiscal shortfall. In 2005, the 1% cutback in social investment resulted in concrete actions that affected social spending on health and housing. This had a critical impact on the Fondo de Desarrollo Social y Asignaciones Familiares (Social Development and Family Allotment Fund - FODESAF): for the first time in its history it received no transfer payments from sales tax revenues. To cope with this situation, families had to send new members to work, usually in poor quality jobs that did not help reduce their vulnerability to poverty.

This poor performance in human development has been occurring in a society where social inequality has been growing over the last twenty years. According to the Income and Spending Survey of the National Institute of Statistics and Census (INEC), the Gini coefficient rose from 0.358 in 1988 to 0.475 in 2004. This means that Costa Rica went from having inequality levels resembling those of the European countries to levels closer to those of other Latin American countries included among the most unequal in the world. The short-term measurements provided by the Household Survey, although varying from year to year, confirm this long-term trend and demonstrate a process of impoverishment in the middle-income strata of society. Between 2001 and 2005, measurements of inequality with this instrument showed an improvement in equity that, far from being good news, actually reveals that the general decline in incomes in the country is reaching mid-level professional sectors (the tenth decile covered by the survey). This means that the gaps are closing because the incomes of those groups are falling and approaching the lower ranges.

With these conditions, the economy is not expanding opportunities for the bulk of the population. Moreover, in light of a difficult situation in the Public Treasury, policies to contain investments have had a strong negative impact on social programs, which hurt the mechanisms for direct transfer payments to the poor and make it increasingly difficult for the State to close the widening gaps among regions and age groups, and between genders. In the case of the latter, data indicate that not only have the gaps between genders not been closing, they have been stagnating, and a more accurate measurement obtained in 2005 showed that many of gaps are deeper than before.

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The impact of the poor results obtained in terms of equity and, to a certain extent, poverty (given the high economic growth) has not been worse because the country is underpinned by a threshold of high human development, which makes it easier to sustain trends or at least to correct setbacks. This occurred in the early 1990s when capacities lost in the 1980s were recovered, especially in the area of education. This particular strength of Costa Rica’s is based on the fact that, although social investment has been insufficient it is still relatively high, enabling institutions that have applied universal social policies for decades to sustain, and in some cases to increase, capacities accumulated in key areas including life expectancy, educational coverage and social security.

However, social institutions are facing serious challenges, not only because further progress is becoming increasingly costly, but also because in the current tight fiscal situation, inefficient use of the limited resources available is a luxury the country cannot afford; this was seen in the cases investigated by the Comptroller of the Republic and documented in this Report. In addition to being able to make sustained social investment, these institutions must be able to maximize efforts to reach their social objectives with scant resources, especially to improve the quality of services. This is clearly the situation for the social security system (infrastructure, human resources, campaign against dengue). In the educational system, although relevant initiatives have been undertaken to improve educational quality with various programs (scientific and technical schools, for example), it is unacceptable that when performance and results are measured in national tests, the first public school to appear on the list occupies the 63rd place, or that student failure and expulsion costs the country 0.5% of GDP annually, over and beyond the negative implications for the students’ future.

Costa Rica’s performance in 2005 in the areas of equity and social integration raises two important issues. First, although it is not facing an immediate crisis, social vulnerability is indeed growing and must be addressed to prevent greater political disillusionment and undesirable social costs. In the long run, the strategic problem facing Costa Rica is that it is obtaining poor social results at a time when the advanced process of demographic transition requires more equity and social integration to boost economic productivity. Due to the relative endowment of factors –the absence of extractive resources and a small population– future development is critically linked to having a highly trained work force that has access to business and job opportunities. What is not clear in the panorama described for 2005 is whether the country can take the leap forward to address the challenges and to close the widening gaps in the absence of a more relaxed fiscal situation and a context of increasingly restrictive policies.

The country rests upon a threshold of high human development that has gradually become firmly entrenched through the recognition of rights for the population and that today constitute a key element in the endowment of factors. If fifty years ago development was built on the foundation of universal elementary education, reduction of infant mortality, increase in life expectancy, expansion of political rights, and protection of the natural heritage, today Costa Rica must not only ensure the sustainability of these human development achievements –which will require increased and sustained public

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and private social investment– it must also create a highly trained work force and have an increasingly proactive citizenry.

Although there is a decline in the average income of the employed, average household incomes rise

In 2005 the average remuneration of the employed (main job) declined once again in real terms, this time by 3.7% as compared to 2004 (when it fell by 5.8% as compared to 2003). The decline in 2005 was felt in all employment sectors: 5.4% in the informal sector, 1.6% in the formal sector, and 1.5% in the agricultural sector (Sauma, 2006). With this sharp fall, average incomes in the informal sector in 2005 reached levels similar to those of 1992; those of the formal sector hit pre-1998 levels; and those in the agricultural sector, although lower, were not significantly different from those observed since 2002.

With respect to the evolution of employment earnings by level of employee skill, the average earned income of skilled workers (secondary education or more) fell in 2005 for the fourth consecutive year, this time by 3.9%, to approach 1997 levels (Figure 1). The average earned income of unskilled workers (less than secondary education) continued the long and slow downward spiral that began in 2001 and was only interrupted by a small improvement in 2003. In 2005, the decline was 2.6% as compared to 2004.

Figure 1Evolution of real average earnings from the main job, by level of worker skill. 1990-2005

(in thousands of January 1995 colons)

20

30

40

50

60

70

80

90

100

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Thou

sand

s of

colo

ns

Skilled (secondary or more) Unskillled (less than secondary)Total employed

Note: The 1990-1999 expansion factors were adjusted for the estimate.

Source: Sauma, 2006, based on the EHPM, INEC.

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According to the findings of the Multipurpose Household Survey (EHPM), despite the decline in the average earnings of the employed, average household incomes rose by 2.8% between 2004 and 2005, and by 3.8% in per capita terms. This was due mainly to the growth in the number of persons in the household earning an income, which rose from 1.44 to 1.51 (a 4.9% increase). It should be noted that better employment information was collected in the 2005 EHPM, which impacted on the findings.

Social investment falls for the third consecutive year

Social investment is what the State budgets for actions to improve the quality of life of the population, either by directly providing a variety of services, such as education and health, making monetary transfers to enable families to purchase goods and services that help meet their most basic needs, or financing public institutions that provide low-cost or free meritorious goods and services.

For over two decades the level of public social investment (PSI) in Costa Rica has been lower than in the late 1970s, and the improvements gained since 1990 should be viewed in terms of a per capita PSI that has not recovered its historical high (Trejos, 2006). In 2005 the PSI was 48% higher than in 1980 and 59% higher than in 1990, with a 1.6% real average annual growth between 1980 and 2005, and 3.1% as of 1990. This expansion was accompanied by a recovery of its long-term macroeconomic and fiscal priority, so that by 2005 it represented 18% of GDP and 78% of government spending, which is proportionately similar to the levels of twenty-five years ago.

Despite that recovery, the real growth in PSI was insufficient to keep pace with population growth. In 2005 per capita social investment was 21% less than twenty-four years ago. This indicator experienced a marked downturn during the 1980s, a mid-decade recovery, and a mild upswing during the 1990s and early 2000, with occasional dips in 1995 and 1999. Nonetheless, the growth has not been sufficient to recover lost ground. This becomes even more dramatic when one takes into account the fact that in the last three years, per capita PSI experienced a cumulative real contraction of 6.3% (Figure 2).

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Figure 2Evolution of real per capita public social investment. 1980-2005

(colons of 2000)

170

190

210

230

250

270

290

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Thou

sand

s of

col

ons

Source: Trejos, 2006, with data from the STAP, COREC II, participating institutions, BCCR, CGR and CCP.

In Costa Rica, the State contributes an average of almost one minimum wage to each household through social investment. Thus, a reduction in this investment, together with the decline in the earnings of the employed, represents a double blow to Costa Rican families, which have reduced the impact with the income earned by additional family members entering the work force.

In addition to the changes in the levels of social investment, it is important to consider how these resources are used. An exploratory work based on 32 studies of social programs operating in the areas of social services, health and education conducted by the Office of the Comptroller of the Republic between 2000 and 2005 has shown that the management problems of the institutions are closely related to: i) difficulties stemming from political decisions, ii) weak management skills among authorities and the mid-level executives of the institutions, and iii) weak or nonexistent planning processes and records of beneficiary populations. These conditions impede the periodic evaluation of processes and the implementation of measures to tackle problems. All of this occurs, moreover, in a tight fiscal context that reduces or restricts access to resources and weakens services (Martínez, 2006). These findings show that the shortfalls in social investment could be attenuated with improvements in the management of social programs.

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Still no change in poverty incidence and income inequality grows over the last twenty years

In 2005, 21.2% of Costa Rican households were below the poverty level, which means that for the twelfth consecutive year –beginning in 1994– poverty incidence has held steady at close to 20%, plus or minus 1.5 percentage points (within the margin of error of the EHPM). In addition, extreme poverty held still at the 2004 level (5.6%), where it is has been since 1994. As in previous years, the Brunca region registers the highest poverty incidence, both in terms of total poverty and extreme poverty, followed by the Chorotega region. Because the Central region is highly populated, it accounts for 52.2% of poor households and 44.6% of households living in extreme poverty (Figure 3).

Figure 3Total poverty incidence in households, by region. 1990, 1995, 2000 and 2005

0%

10%

20%

30%

40%

50%

60%

Central Chorotega PacíficoCentral

Brunca HuetarAtlántica

HuetarNorte

Source: INEC, EHPM.

In 2005 the real minimum wage index did not change much compared to 2004, moving from 112.8 to 113.1 after a 1.9 dip between 2003 and 2004, thus maintaining the trend observed since 1998 (Figure 4).

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Figure 4Real minimum wage index. 1987-2005(base 1984=100, average for the year)

85

90

95

100

105

110

115

12019

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

05

Source: BCCR.

Two sources of information were used to measure inequality in this Report: the Household Surveys (EHPM), which are conducted annually, and the 2004 National Income and Spending Survey (ENIG), conducted sixteen years after it was last applied in the country.1 The results of the 2004 ENIG confirm the trend of increasing inequality or concentration of income noted in these Reports. In 1988, 10% of the richest households (based on per capita income) had 12.4 times the income of 10% of the poorest households; by 2004, the ratio had risen to 28.4. This increase in inequality is also reflected in an increase in the Gini coefficient during the same period, from 0.358 to 0.475,2 according to INEC data. Table 1 shows the variation in average incomes of households organized into deciles, according to per capita family income for each year studied.

29


Table 1Average household income, by household decile.a/ 1988 and 2004

(colons)Household decile 1988b/ 2004 Difference

(%)All households 270,885 360,337 33.0 I 59,046 47,502 -19.6 II 112,119 99,304 -11.4 III 146,539 134,352 -8.3 IV 173,636 175,735 1.2 V 192,420 203,716 5.9 VI 242,033 266,742 10.2 VII 276,549 322,993 16.8 VIII 341,084 407,025 19.3 IX 434,540 595,511 37.0 X 730,797 1,350,369 84.8

a/ In ascending order, by per capita family income.

b/ In comparable 2004 colons. The average value of the CPI from November 1987 to November 1988 was 31.30, while the average for the April 2004 to April 2005 period was 302.10; an adjustment factor of 9.65 was used.

Source: Sauma, 2006, with data from the 1988 and 2004 ENIGs, INEC.

The widening income gap between the poor and the rich in the period under study is explained by the fact that, in the first quintile, average household incomes earned from wages fell by 14.9% in real terms while increasing by 59.7% in the fifth quintile. In addition, the average income of poor households (first quintile) earned from what the ENIG calls “independent informal work” fell by 54.8% in real terms, while the same income for households in the fifth quintile grew by 77.7%. As far as the annual average growth rate is concerned, the income of the poorest sectors experienced a real decline of almost 1% per year during the sixteen years under study, while the income of the rich grew by slightly more than 3% annually in that same period.

For its part, the EHPM makes it possible to analyze the annual trend, despite the difficulty to obtain data on the revenues of the richest decile of the population. As compared to 2004, the data from 2005 show a decline in inequality for several indicators including the Gini coefficient; nonetheless, the value of the latter continues to be higher than the 0.400 registered in 1999.

Inequality gaps between counties are wider than inequality gaps at the national level. According to Carmona et al. (2005), the counties of Alvarado (0.367), Alajuelita (0.373), and Alfaro Ruiz (0.378) have the best Gini coefficients. In contrast, the counties with the highest inequality indices are predominantly in the province of Guanacaste: Nicoya (0.532), La Cruz (0.523), Santa Cruz (0.513), and Upala (0.512) (Map 1).

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Map 1Gini coefficient at the county level. 2001

Note: Read in the legend box “County border” instead of “Límite cantonal” and “Enlarged area” instead of “Area extraída”. The printed area of each map is proportional to the size of the population of its counties. Maps 1.50,000 IGN.

Source: ProDUS, 2006 with data from Carmona et al., 2005.

Continued unequal access to the labor market

Between 2004 and 2005 the number of employed in the country grew from 1,653,879 to 1,776,903, with the entry of an additional 123,024 people into the labor force, a considerably larger number than observed in previous years.3 This was reflected in the performance of the net rate of participation,4 which was 56.8% for both sexes. The strongest growth in employment, as compared to 2004, occurred among women (11.2%), while among men it was 5.5%. This increased women’s share in the total number of employed from 33.9% in 2004 to 35.1% in 2005. However, because women’s share had been 34.8% in 2003, the variation with regard to that year is not as significant (Sauma, 2006).

An analysis of the growth in the number of employed shows that one quarter of the increase occurred in the category “private households with domestic servants.” The breakdown by educational status was as follows: one third had completed secondary

31


education, one fourth higher education, and slightly more than 40% had received some primary education. By level of skill, one third is “unskilled,” followed by “average level of skill,” and “specialized non-professional skill.” Plus there was a relative increase in the magnitude of part-time employment: in 2005, 1 out of 5 persons worked less than fifteen hours a week, while another 1 out of 5 worked between fifteen and thirty hours a week.

Not all population groups have equal access to the labor market. Indeed, relative differences continue to show up in key indicators, revealing gaps according to gender, area and region of residence, age group, and level of skill. These, in turn, are reflected in the principal unemployment and underemployment indicators. Open unemployment is higher among women than among men; among inhabitants of urban areas than among rural dwellers; among inhabitants of the Pacific Central region than among those living in other regions; among youths (especially between 12 and 17 years of age, but also between 18 and 24) than among older people; and among the least skilled (less than secondary education) than among the more highly skilled (secondary or more).

When visible underemployment is taken into account, that is, when people work less than full time but wish to work full time, the breakdown is similar to that for open unemployment, except for area of residence, where the rate is higher in rural areas than in urban areas. In the case of total underemployment (visible plus invisible), the most seriously affected are women, inhabitants of rural areas and the Brunca region, youths, and unskilled workers.

The total rate of employment underutilization, which is obtained by adding the open unemployment rate and the underemployment rate, rose to 15% in 2005, but with significant differences between categories (ranging from 9.2% among skilled workers to 32.4% among youths between the ages of 12 and 17). By category, once again the highest rates correspond to women, rural inhabitants, inhabitants of the Central Pacific region, youths (12 to 17 years and 18 to 24 years), and unskilled workers (Sauma, 2006).

Progress toward achieving universal social security coverage

The extensive coverage of Costa Rica’s social security system has helped attain important milestones in the efforts to achieve the aspiration of affording a long and healthy life to its population. The most significant of these achievements in the last decade include a 2-year 4-month increase in life expectancy, and a reduction in infant mortality to less than ten deaths among children under the age of 1 per thousand live births. Life expectancy in 2005 was the highest ever recorded in the country: for the population as a whole it was 79.1 years, while men’s life expectancy was 76.9 years and women’s was 81.4 years.

High life expectancy and changes in the epidemiological profile pose serious challenges that must be addressed by the health system if it is to maintain its achievements and also cope with new challenges. Some problems reported in 2005 that require attention include the spread of dengue, the risk of financial unsustainability of the

32


social security system, deficient hospital infrastructure, and insufficiently prepared human resources and deficient equipment in hospitals and local health centers (EBAIS).

Universal coverage is a basic principle that underpins the care model of the social security system, which aims to provide the entire population with access to social security services and recognizes health as a basic human right. According to data of the Costa Rican Social Security Institute (CCSS), in 2005 contributory coverage provided health insurance to 87.6% of the population, 0.2 percentage points less than in 2004. By type of insurance coverage, 24.7% were directly insured, 12.2% were State insured, 6.3% were retired, 44.4% had family insurance and 12.4% were uninsured. Regarding the economically active population (EAP), health insurance covered 55% of the total, 61% of the wage-earning EAP, and 45.3% of non-wage-earning EAP. Between 2004 and 2005 there was a remarkable 6.1 point increase in coverage of non-wage-earning EAP. These data reflect the CCSS’s efforts to cover the self-employed as part of its institutional policy to increase contributions to health insurance and pensions5 (CCSS, 2006a).

By December 2005, the CCSS had 1,095,187 direct health insurance beneficiaries, 6.9% more than in 2004. Wage-earning workers, especially in the private sector, were the category that showed the greatest absolute increase (42,394 people). However, there was a remarkable 13.5% increase in self-insured beneficiaries that brought another 18,416 people into the system, for a total of 154,393 beneficiaries in that category. This group also registered 24.9% growth in average wages as compared to the previous year.

Although the IVM (pension) system showed a 7.6% increase in insured workers between 2004 and 2005 (for a total of 934,241), barely 46.8% of total EAP is insured under this program (56.2% wage earning, 26.4% non-wage earning). As in the case of health insurance, there was a considerable increase in coverage of the non-wage-earning EAP (18.5%), although the growth in pension insurance coverage was greater.

The number of secondary students expelled or failed continued to grow

There were no significant changes in 2005 in the general trends of the indicators of formal education. Although the country continues to expand coverage at all levels, there is persistent concern about the low coverage in the ciclo diversificado (last two years of secondary school), which in 2005 was barely 40.1%. After evidencing a downward trend, student expulsions, especially from secondary schools, rose again, to 12.5% in 2005. A factor contributing to this phenomenon is failing grades, particularly in secondary schools, where slightly more than one fifth of students do not pass the school year.

A study conducted for the Twelfth Report on the efficiency of social investment in education showed that Costa Rica spends nearly 51 billion colons annually (nearly 0.5% of GDP) due to students dropping out of school or failing.6 Information available for the 2002-2005 period on various school performance variables in the Greater Metropolitan

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Area (GMA) reveals gaps between public education (in its different forms) and private education (Figure 5).

Figure 5GMA: Performance indicators of national high school exams and dropout rate, by type of

educational center. 2002-2005

Note: Data refers to the average for the 2002-2005 period. The 215 schools in the GMA were selected because of the availability of information.

Source: Unimer R.I., 2006, with data from the Department of Statistics and Quality Control of the Ministry of Education (MEP).

Moreover, exploratory qualitative research was undertaken for this Report to identify factors that might explain the success of different types of secondary schools. The aim was to determine whether they share common elements or whether success is linked to special characteristics of each type of school.7 The study found that all schools rated as successful shared a series of traits, some of which could be considered as aspects to be strengthened in the design of educational policy. The common traits are the following: they are sought out because of their academic rigor; they have a clearly defined identity and a strict focus on academic goals; they have a clear idea of the desired profile of their graduates; planning and discipline are important to them; channels of communication have been established among parents, students, and teachers; they provide feedback to teachers; and school principals are active and involved in the daily work of the institution.

0%10%20%30%40%50%60%70%80%90%

100%

Publicacademic (85 schools)

Subsidized(9 schools)

Private (105 schools)

Technical (14 schools)

Scientific (2 schools)

Total(215 schools)

Passed Average exam grade Average high school grade Average drop-out rate

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Economic opportunities, stability and solvency

General assessment

In 2005, overall economic performance was characterized by strong GDP growth, which reached 5.9% and is almost two percentage points more than growth in 2004. Growth was bolstered by a large swell in external demand, which translated into a new export record, as well as larger payments to external factors. Paradoxically, it was also characterized by lower growth (as compared to GDP growth) in the per capita available national income (ANI), a decline in the earnings of the employed, and unchanged poverty incidence. This is a scenario of high growth but scant progress for people, who manage to boost their family incomes by incorporating new members of their households into poor-quality jobs.

Compared to Latin America as a whole, GDP growth in Costa Rica is not low; in fact it is higher than in the rest of the Central America countries. However, its positive performance was due, primarily, to increased exports from duty-free zones, whose added value grew from 8% in 2004 to 24.9% in 2005; agricultural exports also showed remarkable buoyancy (3.3%). What makes this economic performance inadequate is its relative isolation, which shows up in the widening gap between GDP and available national income, and is disproportionate considering the aspirations for greater well-being and human development. Moreover, as mentioned in previous reports, in strategic terms, the country has still not addressed crucial problems for development. Thus, 2005 was yet another year in which no groundwork was laid for sustained growth supported by economic stability and solvency and capable of offering greater opportunities to the population in the long run.

Thus, 2005 was another year in which in-depth solutions were postponed, which limits the possibilities for greater human development. Economic performance was not significantly different than in previous years and therefore, given the critical circumstances of the times, 2005 can be considered a year of strategic defeat. The gravity of this statement merits a brief explanatory discussion to help discern how positive some achievements have been, what they suggest about the sustainability of trends, and what the major challenges are.

In the past three years, available national income grew at a slower pace than did GDP. This was due to a deterioration of the terms of trade –caused by the worldwide hike in oil prices– and also to the net payment to external factors. Thus, the increase in the GDP is explained by the strong upsurge in external demand that did not have a proportional impact on domestic demand. The increase in export-oriented activity did not lead to greater internal buoyancy because of weak production, social and fiscal linkages between export companies and the rest of the economy, and because no local actions were taken by either the public or the private sectors to stimulate equivalent performance.

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In 2005, the Costa Rican economy continued to be fragile, which was reflected in a continued deterioration of economic stability and solvency. Three matters stand out here: the trade deficit, inflation, and policies to narrow the fiscal gap.

The current account deficit rose by 0.5 percentage points of GDP, basically due to the increase in the trade deficit. The trade deficit, in turn, was affected by the oil bill, which was double that of 2002. There is a growing dependency on income from direct foreign investment to finance the current account, given the sharp increases in the trade deficit in recent years and despite tourism revenues. More than two thirds of this deficit is financed with resources from direct foreign investment, which totaled US$861 million in 2005. More than half of this amount is reinvestment, even though approval of the Free Trade Agreement with the United States is still pending. The increase in the current account deficit was less than expected, however, due to the impact of adjustment policies adopted in response to the oil shock. It is also interesting to note that revenues in the form of family remittances tripled in the last 5-year period,the net balance of which now represents 1% of GDP.

Inflation continued to be persistently high in 2005, reaching its highest level in recent years (14.1%), under pressure from less favorable international prices. Although a restrictive monetary policy was followed, it was not possible to achieve the goal of 10% inflation proposed by the Central Bank.

The third point concerns the cutbacks in social investments and infrastructure undertaken to maintain fiscal balance in light of an absence of a greater tax effort; this action seriously compromises opportunities for future growth. The tax effort is insufficient to tackle development tasks of strategic importance and to meet society’s demands and expectations of government action. This further weakens solvency, which is understood as society’s capacity to cover its expenditures and make the social and physical investments needed to support sustained economic growth. Without increased tax revenues, and given the ongoing stringent measures taken by the central government to contain spending, the fiscal deficit vis-à-vis GDP fell by more than one half between 2002 and 2005. The categories suffering the sharpest cutbacks were capital expenditures and current transfers, and the institutions most seriously affected were the National Highway Administration Board (CONAVI) and the Social Development and Family Allotment Fund (FODESAF), the former linked to road investments and the latter to poverty reduction.

This fiscal situation, in turn, influences the lending conditions for investments, even when the financial sector provides its own resources. The lending-rate spread is high, especially in colons; the interest paid on deposits is low or even negative in real terms; little has been done to bring people and companies (especially small- and medium-sized companies) into the banking system, and bank services are costly. Although financial reform was undertaken many years ago, it is still incomplete and fragmentation of regulatory and tax-related issues continues to exclude offshore banking and foster segmentation and inequality.

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During 2005 considerable information was compiled on the pivots of economic growth, direct foreign investment, exports, and tourism, which are generating a larger GDP but not conditions that will afford the population benefits in the form of opportunities, such as steadily growing incomes or robust investments that lay the groundwork for the future. It is not just a question of improving the terms of Costa Rica’s participation in the international economy (still undefined given the failure of the Doha or Development Round). The shortfalls associated with these pivots of economic growth also pose a series of challenges for public action, including public policies to strengthen and develop the domestic economy, greater fiscal revenues and a more efficient and equitable tax collection system, more strategic public investments to stimulate growth and competitiveness, and a more effective use of public funds, which makes improving institutional management a priority.

High growth but weak production linkages

In 2005 national output, measured in terms of the real GDP, grew by 5.9%, which is 1.8 percentage points more than in 2004. For its part, available national income (ANI) registered a 3.7% increase, or 0.8 percentage points more than the 2.9% of 2004. As documented in previous reports, since 1992 both real GDP and real ANI have shown positive growth, although the growth has been erratic, unsteady and insufficient.8 In 2003, 2004, and 2005 income growth was lower than the growth of output (Figure 6). This suggests that, in order to evaluate opportunities, the ANI and not the GDP should be used as the reference, and although the terms of trade have been negative in the last two years, the element that caused the gap between GDP and ANI was the net payment to external factors.9

Figure 6Performance of the index of GDP and ANI. 1991-2005

(base 1991= 100)

100110120130140150160170180190200

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

PIB IND

Source: Prepared by the authors with data from the BCCR.

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GDP ANIGDP


Viewed with a medium-term perspective, the absolute contribution of net transfers to the balance between real GDP and real ANI was positive during the 1993-2005 period, with that trend accelerating during the last two years. Similarly, the absolute contribution of the terms of trade was positive between 1993 and 2003. However, it is noteworthy that, until 1998, the profit performance of the terms of trade and net transfers exceeded the net payment to factors, so the income generated in the country was slightly diminished by the payments to external factors, reaching a balance of 2.4% (1997) of real GDP. As of 1998, the net balance became negative and in 2005 it amounted to 9.5% of GDP (Figure 7).

Figure 7Composition of the balance between ANI and GDP as compared to GDP. 1993-2005

Object 2

a/ Net payment of factors (NPF).

b/ Terms of trade (TT).

c/ Net transfer of factors (NTF).

Source: Matarrita, 2006, with data from the BCCR.

Reactivation of export-oriented industry and agriculture

The results for 2005 showed a recomposition of the contributions of the sectors to economic growth, although their percentage share in GDP did not change significantly (Table 2). While industry and agriculture expanded after a decline in 2004, the service sector registered a slight downturn. The manufacturing sector was very buoyant in 2005, due primarily to performance in duty-free zones, where value added grew from 8% in 2004 to 25% in 2005. Despite being the second-fastest expanding sector (9.8%), growth in the transportation and telecommunications sector was two percentage points less than in 2004. In terms of share in GDP, the service sector continued to hold the lead.

As far as the other sectors are concerned, growth in the agricultural sector was closely tied to the performance of its export products. Although agricultural growth had stalled in 2004, it posted a 3.3% increase in 2005. The main causes for this were a 31.1% expansion in pineapple production and an increase in coffee output. These

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positive results helped cushion the decline in banana production caused early in the year by adverse climatic conditions. The hotel and restaurant industry performed positively, especially the hotel subsector, where room occupancy expanded by 59%. As compared to the previous year, however, it experienced a slight slowdown, with growth falling from 4.2% in 2004 to 3.8% in 2005. The construction sector experienced a sharp contraction, with growth falling to 0.2% in 2005 from 6.3% in 2004.

Table 2Relative share in GDP and growth of GDP, by line of economic activity. 1995-2005

(Percentages)Growth Share in GDP

1995-2003 2004 2005 1995-2003 2004 2005 GDP at market pricesa/ 4.4 4.1 5.9 90.5 91.1 91.2 Primary sectorb/ 3.3 0.2 3.2 11.0 9.9 9.6 Secondary sector 5.4 3.6 11.8 22.1 22.1 23.3 Tertiary sector 4.4 5.4 4.5 57.3 59.1 58.3

a/ The net taxes of subsidies on products were not included, so the total does not add up to 100%.

b/ Includes agricultural, forestry and fisheries activities, and extraction from mines and quarries.

Source: BCCR.

More jobs were created in the agricultural sector than in the manufacturing sector. The number of people employed in agricultural work increased by 10%, from 245,328 in 2004 to 269,975 in 2005; this increase is partly due to improvements in the Household Survey’s ability to collect information on employed women. This performance is of special interest because the number of people employed in agriculture had fallen for two consecutive years.

Direct foreign investment: achievements and challenges

In 2005 direct foreign investment (DFI) totaled US$861 million, equivalent to 4.3% of GDP. Of this total, 48.7% was reinvested, continuing the trend observed in previous years, despite the fact that the Free Trade Agreement between Central America and the United States (FTA-CA) has still not been approved. Some 80.4% of direct foreign investment originated in the United States and most went to duty-free zones. DFI has become the principal source of financing for the current account deficit, and already covers 89.7% of same.

In order to attract foreign investment, Costa Rica has positioned itself with its differentiating factors, including its political, social and economic stability, its extensive track record in attracting prestigious multinational companies, and the availability of quality labor at competitive costs (CINDE, 2006). For this reason, most DFI has concentrated in the manufacturing sector, which is primarily a technologically intensive activity. The service sector has also grown in importance, mainly through operations empowered by info-communications technologies (call centers). During the 1997-2005 period, the industrial sector was the principal beneficiary of DFI, receiving 61.5% of the total, followed by the tourism sector, which received 13.1%. In the industrial sector, the electronics and medical devices subsectors accounted for, on average, 35% of the total during the last decade.

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Costa Rica’s competitive position relative to DFI could be improved by addressing certain areas of the investment climate. Four areas in particular require action in the short term: the incentive system, telecommunications, human resources, and the procedures that need to be followed to transact any business. The extensive system of tax incentives for duty-free zones should be replaced for two reasons: because of Costa Rica’s commitments under WTO and because of the weak fiscal linkages. It is paradoxical that DFI, which have an urgent need for large numbers of skilled human resources, does not help finance the country’s educational system by paying taxes. According to the WTO Agreement on Subsidies and Countervailing Measures (ASCM), as of December 2009 Costa Rica may no longer maintain the duty-free zone system in its current form. To date, however, the country has not defined a new incentive system for exports that is compatible with WTO agreements.

It is interesting to note the contribution of remittances relative to DFI. There was a three-fold increase in remittances over the last five years, which now represent 2% of GDP. Although compared to the rest of Central America (Table 3) the absolute amount is relatively low, its recent increase suggests that emigration is the result of a lack of opportunities for the population.

Table 3Remittances received in Central America. 2004

Country Absolute amount(billion US$)

Remittances received as a percent of GDP

Remittances received relative to DFI

(times) Guatemala 2.7 10.0 17.3 El Salvador 2.5 16.1 5.5 Honduras 1.1 15.1 3.9 Nicaragua 0.8 17.8 3.2 Costa Rica 0.3 1.7 0.5

Source: Prepared by the authors, based on Machinea. 2005.

The fiscal deficit and total public debt have declined, at the expense of sustained growth

In 2005 there was an improvement in the fiscal deficit as compared to the preceding year. The consolidated fiscal balance for the public sector as a whole went from -3.6% of GDP in 2004 to -2.3% in 2005, the lowest recorded in the last five years. This reduction was due to a steady increase in the primary surplus (total revenues minus non-interest expenditures) which, in the last three years, accumulated a 3.2 percentage point increase of GDP. This alone explains the financial improvement observed since interest payments did not change between 2002 and 2005.

The growth of primary surplus seen between 2003 and 2005 was the outcome of an increase in revenues and a reduction in spending. Increased revenues represent 21.7% of that outcome and the reduction of non-interest expenditures accounts for the remaining 78.3%. The total revenues of the Central Government accumulated a 0.5 percentage point increase of GDP in the last three years. This is equivalent to slightly more than 20% of the growth (2.1 percentage points of GDP) in the primary surplus during that period (Table 4).

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Table 4Primary and financial results of the Central Government. 2000-2005

(percentage of GDP)2000 2001 2002 2003 2004 2005

Total revenues 12.4 13.4 13.3 13.7 13.6 13.8 Current expendituresa/ 11.8 12.4 13.4 12.6 12.2 11.8 Primary surplus 0.6 1.0 0.0 1.2 1.5 2.1 Debt interest 3.6 4.0 4.3 4.3 4.1 4.1 Total spending 15.4 16.4 17.7 16.8 16.3 15.8 Financial deficit -3.0 -2.9 -4.3 -2.9 -2.7 -2.1

a/ Excludes interest.

Source: Rosales, 2006, with figures from the CGR.

Despite the absence of fiscal reform, results were satisfactory in 2005, buoyed up by the further growth of GDP. The outcome can be attributed to improved collection of sales tax and, to a lesser extent, income tax, which rose by 0.2 and 0.1 percentage points of GDP, respectively.

In addition to short-term factors that contributed to the growth in tax revenues, including the booming sales of cellular phones and larger revenues from tourist exit taxes, other permanent factors help explain that growth. First, the reforms to the Tax Standards and Procedures Code strengthened the collection of interest and penalties on overdue payments. In addition, tax collection administration has been improving for several years since Treasury authorities now have better qualified staff and electronic systems for crosschecking information and facilitating tax collection. Further, the 2005 Comprehensive Tax Control Plan made it possible to bring about substantial improvements in the quality and effectiveness of tax collection administration by bringing all relevant areas of the Finance Ministry under a single administrative umbrella. This resulted in a marked increase in the number of payers of income and sales tax, which expanded by 48% between 2000 and 2005 (139,525 taxpayers more than five years ago).

On the spending side, the Finance Ministry has issued various directives since 2003 to contain public spending with a view to reducing the fiscal deficit as a proportion of GDP. The greatest decline in non-interest expenditures was recorded in 2003 (0.6 percentage points of GDP); in the subsequent two years it fell by 0.5 percentage points of GDP. There has been a gradual recomposition of the Central Government’s expenditures, toward categories referred to as “spending triggers” (wages, pensions, interests), given their size and rapid growth in the past. The steady decline in these expenditures over the years has continued, with capital expenditures and current transfers being the categories that have lost the greatest share in total expenditures; the cumulative decline over the last three years was 0.9 points of GDP. As far as transfers are concerned, the situation of two institutions is important: the National Highway Administration Board (CONAVI), responsible for investments in the road network, and the Social Development and Family Allotment Fund (FODESAF), which works to reduce poverty. In the last six years the government has made sharp cutbacks in the transfers to these institutions, which fell by 41.1% in real terms between 2000-2002 and 2003-2005. Transfers to CONAVI were cut by 17% and those to FODESAF by 79.2%. In 2005

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transfers to CONAVI increased as compared to 2004, but without reaching pre-2002 levels.

Due to the sharp reduction in the fiscal deficit, total public debt fell from 59.3% of GDP in 2004 to 55% of GDP in 2005. The total amount of the public debt is US$10.898 billion, of which US$3.626 billion (33%) is foreign debt and US$7.272 billion (67%) is domestic debt. Although the outcome of efforts to reduce the debt was positive, there is concern over the negative impact of the cuts in social investments and infrastructure vis-à-vis medium and long-term development.

Incomplete financial reform

The financial sector is essential for generating business and job opportunities for the population, as it harnesses the resources available in the economy. A key challenge that must be addressed in order to strengthen the role of the financial system in the country’s growth and development is the promotion of competition. However, the financial reform undertaken in Costa Rica is incomplete, as can be seen in the magnitude of the lending rate spread, the segmentation of financial business, and the limited number of services available to less sophisticated economic agents. This is particularly true for small-scale savers and borrowers, micro- and small businesses (especially in the informal sector) which, in terms of sheer numbers, constitute the vast majority of businesses in Costa Rica. In the medium term, this unconcluded reform poses a serious threat to the domestic financial system itself because of current imbalances relative to foreign competitors. This applies to both public and private operators; in the case of the former, because of inefficiency and regulatory limitations, in the case of the latter, for having grown complacent with competing in an undemanding environment.10

The threat of competition to the State banking system is something that must be assessed with the utmost care, and a decision must be made regarding its function and approach. Should it be reoriented toward “development banking” or should it continue with the traditional functions of commercial banks? Should the latter be the choice, very clear economic and social arguments will have to be found to keep it in the public realm, and it will be necessary to determine the real possibilities of “leveling the playing field” through flexible treatment. The gradual approach to financial reform in Costa Rica has made it impossible to address this dilemma and efforts have therefore focused on trying to standardize the rules of the game. State banks are asking to be freed from constraints so they can face the competition, while private banks are requesting prerogatives (such as State guarantee on deposits and access to the deposits of public institutions), which are only available to State banks and certain other institutions, including credit unions and the Banco Popular y de Desarrollo Comunal (BPDC). Analysts agree that, as competition steps up so will the tension and it appears unlikely that a full leveling of the rules of the game will be feasible. Leveling should occur not only between public and private banking systems; it should embrace all stakeholders involved in the domestic financial market.

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Harmony with nature

General assessment

In 2005 the Basic Law of the Environment (LOA) completed ten years in force. Today, it is clear that the decision made in 1995 to position the environment as a political and strategic priority for national development has been downgraded in practice. This can be seen in the insufficient efforts to strengthen the capabilities of public environmental institutions and the dwindling interest of key economic stakeholders. Aside from using the image of Costa Rica as “an ecological country” and some good practices, this turn of events has limited the possibility of developing new environmentally friendly production activities.

Ten years after it was enacted, we can draw important lessons from the implementation of the LOA. For one, Costa Rica has been proactive and innovative in enacting legislation and establishing an institutional framework for the environment; moreover, it continues to be a world leader in this area. In 2005 the country continued to expand the regulatory framework and protection efforts, which included enactment of the Law on Fisheries and Aquiculture, and approval of levies on effluents and environmentally adjusted water use. Moreover, in the spirit of the LOA, new instruments were created in 2005 for appraising environmental services, establishing criminal offenses related to the environment, increasing the total area of protected territory (State and private), recovering forest coverage in critical areas, and accumulating more knowledge on biodiversity, especially in marine and coastal areas.

The overall balance of the results of the LOA, however, reveals a series of “bottlenecks” and serious weaknesses in environmental management resulting from the sector’s loss of political priority. Thus, key agencies involved in environmental control and protection (i.e., National Technical Secretariat of the Environment (SETENA) and National System of Conservation Areas (SINAC)) are under funded. Furthermore, the State has a limited capacity to generate more revenues through progressive fees, rates, and taxes that rewards energy and water conservation, recycling, and the reduction of pollution, while penalizing excessive consumption and pollution. Nor has the LOA been able to reverse the trends of increasing pollution and unplanned urban sprawl. This was compounded by institutional limitations caused by insufficient financial and human resources and management problems, which in some cases resulted in an under execution of already tight budgets.

Environmental performance in 2005 confirms much of the progress and impediments described above. That year, the country moved farther away from many of its human development aspirations related to the environment, which include: using natural resources at a pace slower or equal to their capacity for regeneration, producing waste and pollution at a rate equal to or lower than the environment’s capacity to assimilate them, reducing environmental degradation, minimizing the impact of natural disasters, and providing more equitable access for the enjoyment of natural resources. As in previous years, there were serious shortcomings in the information available for monitoring environmental management.

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The oil invoice rose for the fourth consecutive year but this did not motivate the population to change its patterns of consumption or to adopt new energy policy instruments. Far from declining, there was an increase in the consumption of petroleum products and in the size of the vehicle fleet. The garbage crisis in the county of Tibás once again showed that the serious solid waste management problems affecting the San Jose metropolitan area, mentioned in earlier editions of this Report, have not been solved. With regard to environmental degradation and quality of life, acute air pollution was recorded in densely populated areas, and weak controls allowed urban growth to continue to expand in a disorderly fashion.

Poorly planned growth also took place in marine-coastal areas. Limited environmental control and non-enforcement of regulatory plans facilitated rampant development of the tourism industry in some areas. This, associated with other activities including expanding real estate operations, makes environmental management difficult in those areas. This is causing alarming levels of pollution and a steady degradation of coastal ecosystems, which aggravates the social conditions of communities living in poverty and inequality. With regard to risk management, the severe economic and social impact of weather phenomena in 2005 –one of the years with the the highest number of such events– underscored the country’s high risk and vulnerability, with the Caribbean being the hardest hit region. This indicates how much still needs to be done in this area.

Instead of using the oil crisis as an opportunity to prompt substantive change based on the use of alternative energy sources, short-term measures led the way in 2005, relegating once again to the back burner initiatives to find long-term solutions by tapping the country’s strengths to make innovative and intelligent use of its natural resources (biodiesel, for example). Without a sharp change in direction, the imperative need to further economic growth within the framework of a prolonged energy crisis may lead Costa Rica down the traditional path based on the exploitation of fossil and mineral energy sources.

This overview clearly reveals the challenges the country needs to address if it is to ensure the sustainability of its environmental achievements and overcome both cumulative and new problems, especially those associated with urban sprawl. If the country is to move forward in this area, the population must become increasingly proactive and, above all, a political decision must be made to return the environment to a priority position on the national agenda.

Rapid and rampant urban sprawl threatens natural resources

Originally a primarily rural society, in the last forty years Costa Rica has become an eminently urban society. Its population density per square kilometer doubled from 36.6 to 74.6 in those forty years, and the percentage of urban inhabitants rose from 43% to 59%. Most of this growth is concentrated in what is known as the Greater Metropolitan Area (GMA), which measures 1,778 kms2 and stretches from Paradiso (Cartago province) in the east to Atenas (Alajuela province) in the west. Today, the GMA is home to 2,016,319 people, or 53% of the country’s population. By the year 2000, population density in the GMA was 1,134 inhabitants per square kilometer and significantly higher

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in poor neighborhoods, where it can be 20,000 people per square kilometer (State of the Nation Program, 2004).

The constructed area has grown at a dizzying pace. The number of construction permits given annually for buildings and homes throughout the country has risen from 20,843 in 1994 to 33,061 in 2005. Between 2004 and 2005 alone, the constructed area grew by 12.1%, from 2,723,683 m2 to 3,053,300 m2 (INEC, 2006). Photo 1 depicts the rapid urban growth experienced in the GMA during the 1975-2005 period, mainly toward the counties of Escazú and Santa Ana in San José province; toward Belén, Flores, San Pablo, San Rafael and the central county of Heredia province; and in downtown Alajuela. East of the capital, growth concentrated in Coronado, Goicoechea, La Unión and Desamparados. Cartago also experienced rapid and intensive urban growth (Photo 1).

Photo 1Urban growth, 1975, 1986, and 2005

Note: Read “Counties” instead of “Cantones” in the legend box. The images were taken by the satellites Landsat MSS (1975), Landsat TM (1986), and Landsat ETM+ (2005). Due to the nature of satellite images, area classified as urban may include some small farming areas, or combinations of brush and urban areas.

The expansion of land use for housing has been disorderly (Box 3) and has aggravated aquifer recharge problems. Furthermore, unprotected forests in construction areas have been leveled to such a degree that “of the eight principal life zones in the GMA, there are three where remnant forest patches have been almost completely eradicated, especially in the case of premountain moist forest” (MIVAH et al., 2006). Growth has gone hand in hand with a surge in the amount of solid waste, an increase in the vehicle fleet, and greater air and water pollution (MIVAH et al., 2006). An estimated

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4,500 tons of household solid waste are generated daily in Costa Rica, nearly 30% of which is disposed of on streets, in rivers and vacant lots, clogging up sewage systems, creating eyesores, changing river flows, and compounding environmental degradation (IFAM et al., 2003). The municipalities have been given the responsibility of handling household solid waste, but serious administrative, economic and political obstacles hinder their capacity to fulfill that mandate (Soto, 2006). The garbage collection fees charged by most municipalities come nowhere near to covering the real cost of service (I:11 Zumbado, 2006). Furthermore, not even 10% of recyclable materials are recovered (Soto, 2006).

Box 3

Institutional fragmentation and limitations complicate land-use management

The rampant urban sprawl described above is taking place in a context of institutional fragmentation and minimal planning. There are 27 laws in effect in the country that give responsibility for land management to 22 institutions (MIVAH et al., 2006). The 1995 Basic Law of the Environment establishes that is a function of the State, the municipalities, and other public agencies to define and implement national land management policies with the aim of regulating and promoting human settlements and the business and social activities of the population. They are also responsible for managing physical-spatial development with a view to striking a balance between the best possible welfare for the people, the use of natural resources, and environmental conservation.

However, ten years after the Law was enacted, the regulations that directly or indirectly impact on land management can be described as inarticulated and incoherent. Moreover, the diversity of institutions with competence in the area makes it difficult to implement the legislation. The Constitutional Court has ruled that the municipalities have the authority to plan land use at the local level through regulatory plans that can even impose limitations on private property if it is considered to affect the common good. Few municipalities, however, have actually taken advantage of this instrument. The most recent efforts in urban areas have been the establishment of the National Urban Planning Board (2000) and the Secretariat of the National Urban Development Plan (2001). The Regional and Urban Planning Project for the GMA (PRUGAM), currently being implemented, is financing the following projects, among others: the urban electric train (INCOFER, CNFL), optimization of the water supply system in Cartago (municipality and federation of municipalities of Cartago), “San José Posible” (municipality of San José), “New Face for the María Aguilar River” (municipalities of Montes de Oca, Curridabat, San José and La Unión). The outcome of these initiatives may be evaluated in the future.

Source: Prepared by the authors.

No long-term solutions for the high consumption of fossil fuels

In 2005, fossil fuels, a major source of pollution, accounted for the largest part (67.3%) of the total amount of commercial energy consumed (mainly in the transportation sector). Some 22.4% of demand was provided by electricity, with high consumption being registered in the residential sector; the remaining 10.3% was obtained from biomass resources including firewood, sugar cane bagasse, others used

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in the residential and agroindustrial sectors, and biofuels including biodiesel (Blanco and Quirós, 2006).

The growing size of the vehicle fleet limits the possibility of reducing fossil fuel consumption. Although the rate of automobiles and light trucks per 1,000 inhabitants has remained stable the last three years (Figure 8), the total number of automobiles has grown; between 2004 and 2005 alone the number of automobiles increased by 61,528 to a total of 1,013,823 in 2005.

Figure 8Growth rate of vehiclesa/ by type. 1998-2005

(per 1,000 inhabitants)

1

2

3

4

1998 1999 2000 2001 2002 2003 2004 2005

Bus

es a

nd ta

xis

40

60

80

100

120

140

160

180

Aut

os &

ligh

t tru

cks

Buses Taxis Autos & light trucks

a/ Vehicles that have paid the annual vehicle circulation tax.

Source: Prepared by the authors with data from the Mandatory Insurance Department (INS) and CCP-UCR

The transportation sector consumes 46.7% of the diesel, 43.9% of the gasoline, and 9.4% of the liquefied petroleum gas, jet fuel, and kerosene. In 2005 consumption of super gasoline fell by 14%, while that of regular gasoline and diesel rose by 6.4% and 5.2%, respectively; the last two grew at a faster pace than in 2004 (I: Quesada, 2006). In addition to the environmental impact, this heavy dependency on imported fossil fuels increases the vulnerability of the domestic economy. The oil invoice rose from US$699 million in 2004 to US$998 million in 2005 (BCCR, 2006). Average prices to consumers for fossil fuels used in transportation rose by 39% between 2004 and 2005. Even so, consumption increased from 15,685,416 barrels of oil in 2004 to 16,078,701 barrels in 2005 (RECOPE, 2006).

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In this scenario, short-term policies were the main response in 2005, and little support was given to efforts to spur major changes in the national dependency on traditional energy sources. In 2004, the Executive Branch started taking measures to deal with the situation, including restricting motor vehicle traffic in downtown San José, changing the working hours of public institutions, changing public lamps, and granting tax breaks for importing hybrid-electric vehicles. In addition, an intercity passenger train was launched, and a pilot plan was implemented to use 7.5% ethanol in gasoline-powered vehicles in the Central Pacific area. Still under consideration is the possibility of promoting the use of biodiesel; according to the National Energy Plan, this could reduce pollution and the oil invoice, and stimulate agricultural production. Despite these measures, fuel consumption continued to rise. The country not only needs structural changes in the consumption patterns of the transportation sector, but also to reduce the pollution caused by poor urban planning.

Air quality depends to a large extent on the transportation sector

Because of the environmental and economic impact of the country’s consumption patterns and transportation system, firm measures are needed to reduce air pollution and the strong dependency on fossil fuels. With regard to environmental impact, air quality monitoring is of critical importance because of the direct impact of air pollution on human health and because of the great concentration of people in areas with high vehicular traffic and various kinds of air pollutants. According to samples taken periodically by the Air Quality Studies Program (PECAire) of the National University, it was determined that between 2003 and 2005 the amount of nitrogen dioxide in the air increased in key spots of the San Jose metropolitan area. High levels of these oxides can cause serious health effects. The most seriously affected area is in front of the San Juan de Dios Hospital, where an annual concentration of 51 μg/m3 was reported, which exceeds the limit set by the WHO (PECAire, 2006).

In addition, during 2005 the Sustainable Development Research Center (CIEDES) and the Environmental Pollution Research Center (CICA), both of the University of Costa Rica, assessed the risk12 of exposure to air pollution in San José, and found other areas where concentrations of nitrogen dioxide (NO2) exceed WHO limits (Map 2). These studies took into account emissions from boilers, thermal plants and vehicles, among other sources. Areas of high concentration include La Uruca, southeast of the ICE thermal plant; the area around Hospital Mexico; and near the UCR Law School. All three locations are next to roads that are subject to heavy traffic and therefore are receive a high degree of vehicle emissions, making them of higher risk.

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Map 2Concentration of NO2 in some counties and districts of San José. 2005

Note: Read in “District limits” instead of “Límites de distrito” and “Concentration of μg/m3” instead of “Concentraciones en μg/m3”.

Source: Araya and Segnini, 2006, with information from ProDUS, CIEDES, CICA, Ministry of Health and USEPA.

The contribution of vehicular emissions to air pollution underscores the importance of effective technical control. The German Cooperation Agency (GTZ) evaluated the impact of technical inspection of vehicles on the control of certain specific pollutants. The study examined 94,000 tests of carbon monoxide emissions (CO) and unburned hydrocarbons in gasoline vehicles in the GMA during the 2003-2005 period, when the number of these vehicles rose from 365,900 to 417,500. The study concluded that the technical inspection prevented the emission of 23,761 tons of CO in 2003, or 34% of the total that would have been emitted if the technical inspections had not been conducted. Between 2003 and 2005 there was a 9.4% reduction in total CO emissions, from 46,564 tons to 42,178 tons, despite the fact that the vehicle fleet increased by approximately 14% during that period (Herz et al., 2005).

The water supply continues to be at risk but new instruments were created to improve water management.

In 2005 important efforts were made to collect information on the state of water resources and to improve water quality, while new legal instruments were created for water management. Several studies have shown how water quality has been deteriorating in different parts of the country. For example, it was documented that, for the first time in several years, in 2005 there was a slight decline in the population

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supplied with quality potable water. The provinces with the lowest coverage were Alajuela (64.2%) and Puntarenas (71.6%), while San José had the greatest coverage (93.9%). A total of 76% of the national population receives water that is disinfected on an ongoing basis, and 63.5% consumes water that has been checked by quality control programs (Mora and Portugués, 2006). The issue of access to quality potable water is more critical among the highest-risk populations of the country. A health risk assessment of 37 water supply systems in indigenous territories, conducted by the National Water Laboratory during the 2003-2005 period, determined that more than 90% of those water supply systems had fecal contamination, 12 (33%) posed high health risks, and 5 (14%) posed very high risk (Feoli and Mora, 2006). In response to this problem, the Board of Directors of the Costa Rican Institute of Water and Sewage Systems (ICAA) implemented a policy to supply potable water and sanitation to concentrated indigenous populations, through an agreement with the National Indigenous Commission (Feoli and Mora, 2006).

Once again, severe groundwater pollution occurred in different parts of the country. The first event occurred early in the year when 4,000 wells in Sarapiquí and Limón were damaged as a result of the January floods that affected the Caribbean area. Another was the contamination of a well in Barreal de Heredia caused by fuel seepage, which was detected in September 2004 and confirmed by the CCSS that November, at which time the use of water from that source to produce serum was suspended. Although on December 8, 2005 the Office of the President of the Republic and the Ministry of Health declared the situation a national emergency, more than a year after its detection the problem has still not been corrected (I: Chacón, 2006).

Uneven progress was made in 2005 vis-à-vis the management of water resources. At the governance level, the Strategy for Integrated Water Resource Management (EGIRH) was presented in response to the country’s commitments to the Millennium Summit (2000) and the World Summit for Sustainable Development (Johannesburg, 2002) to improve the management and coverage of sanitation and potable water services. Some of its guiding principles are: water is an inalienable public good that cannot be appropriated; water has a function as a source of life and survival for all species and ecosystems; water has economic and social value; and communities should participate in water management at the watershed level, which should be the unit for planning and management (EGIRH, 2005). In addition, in 2005 the Legislative Assembly’s commission on the environment endorsed the Water Resources Bill but little progress has been made since then to secure its approval.

Two important advances were made in the area of water management with the approval of two fees: one for environmentally adjusted water use and the other on effluents. The first culminates a process of dialogue begun in 2002 with the production sectors to determine the technical, legal and political feasibility of effective and sustainable implementation. This fee must be paid by all public agencies and private water users, and the funds collected will help finance water resource management through payment of environmental services to protect water on 117 million hectares of private land (small and medium-sized owners) and a similar amount in State-protected areas. The funds will also be used to strengthen the hydrometeorologic network and to

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invest in local infrastructure for water flow control and rural water supply systems (Zeledón, 2006). Implementation of this levy includes a program of incentives and will involve the private sector in designing good practices; the fees will be collected gradually over a period of seven years. For its part, the environmental fee on effluents reflects the principle that “whoever shall pollute shall pay”; it will be collected from agents that generate pollution for the damages caused to third parties and to ecosystems.13

SINAC: more protected areas but insufficient funding

Four new natural wildlife refuges were created in 2005: Maquenque, in the Arenal-Huetar Norte Conservation Area (mixed), Jardines de la Catarata, in the Central Volcanic Mountain Range Conservation Area (private), Ara Macao in the Pacific Conservation Area (mixed), and La Nicoyana in the Tempisque Conservation Area (private). In addition, boundaries were redrawn for the San Lucas island refuge and its associated wetlands. The new refuges add 52,843 hectares of protected area in the country, which had stabilized for several years at around 25% of national lands and now represents 26% of the country’s continental territory (SINAC-MINAE, 2006).

Although efforts continue to extend and study protected areas, these efforts have still not been provided with more funding and better capacities. In 2004, the National System of Conservation Areas (SINAC) estimated that US$17.7 million was needed to administer the system as a whole. However, the funds earmarked for managing protected wilderness areas are insufficient to cover the basic operations of many such areas, especially those visited by a rapidly growing number of national and foreign tourists (Figure 9). Most of the revenues collected from tourism come from three of the most frequently visited parks (Poás, Irazú, Manuel Antonio), which receive 60% of their collections. Although SINAC’s regular budget grew from US$7.8 million in 2000 to US$12.9 million in 2005, these resources are not used with maximum efficiency, as already mentioned in previous editions of the State of the Nation Report. In addition, SINAC’s human and technological capital has not been increased or updated in accordance with the increase in its budget and responsibilities. (Adamson, 2006). In 2005 a good part of the budget was spent on purchasing land for protected areas. A total 1.259 billion colons was spent to buy 2,124.7 hectares of land (25 farms) (SINAC-MINAE, 2006). Since then, however, problems have arisen for making significant progress to settle those debts. According to SINAC’s Protected Areas Management Office, some US$76.3 million14 is needed to cover the 9.5% shortfall (Adamson, 2006).

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Figure 9Number of visitors to protected wilderness areas and revenues received. 1982-2004

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Source: Adamson, 2006, with data from the GEF-UNDP-SINAC project.

Double jeopardy: poverty and vulnerability to natural disasters

According to the National Emergency Commission (CNE) and the Desinventar database, of the 939 events in 2005 caused by natural hazards, 68% were floods, 29% landslides, and 3% strong winds. Most of the floods occurred in the central provinces, but they were generally of low intensity. There is a growing trend in urban areas of daily reports on rain-caused damages including landslides and overflowing sewerage systems (CNE, 2006). In the outlying provinces, the situation was different: Limón had fewer floods but their impact was significant, as was the case in Puntarenas. The greatest number of events associated with floods occurred in the counties of Aguirre (6.8%), Cartago (6.3%) and Desamparados (6.2%). Among the municipios, Desamparados had the greatest number of landslides (8.1%). Three people died in 2005 as a result of this type of disaster.

Based on information from the Desinventar database, ProDUS-UCR generated a map illustrating different levels of risk to natural hazards, based on the dwellings affected in the different counties (Map 3). The highest values correspond to areas impacted periodically by heavy rains and floods; these areas are usually associated with high levels of poverty because the dwellings do not usually meet construction standards and are not adapted to the climate of the region. Hence, more dwellings were affected in the counties of Talamanca and Upala than in Pococí and Limón (ProDUS, 2006).

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Residents Nonresidents Total Revenues


Map 3Homes affected by extreme natural events, by county. 2000-2004

(per 1,000 homes)

Note: : This is the sum of homes affected by any natural disaster between 2000 and 2004, according to the National Emergency Commission. It should be noted that the same home may have been affected more than once during that period. The printed area of each map is proportional to the population of its counties: Map A, 43% of total population; Map B, 33% of total population and Map C, 24% of total population. Read in the legend box “County border” instead of “Límite cantonal” and “Enlarged area” instead of “Area extraída”. The printed area of each map is proportional to the size of the population of its counties. Maps 1.50,000 IGN.

Source: ProDUS-UCR

The storm that hit the northern zone and the Caribbean slope in mid-January 2005 was rated by the National Meteorological Institute (IMN) as the strongest of its type in the past 35 years. Taking into account rainfall measurements over 24-hour periods, the value of 344 cumulative mm of rain in 19 hours on 8 January exceeded the monthly average (303 mm). This storm affected eleven counties in four provinces: Limón, Talamanca, Matina, Siquirres and Guácimo (Limón province); Sarapiquí (Heredia province); Paraiso, Alvarado, Turrialba, and Jiménez (Cartago province), and the town of Chachagua in San Ramón (Alajuela province). Specific data show the vulnerability of two counties that had record rainfalls: Talamanca and Sarapiquí. Both are among the counties with the highest number of poor households (49.7% and 35.1%, respectively). The municipio of Talamanca suffered the greatest amount of damage to its production, educational, and sanitary infrastructure; Sarapiquí was the county with the greatest

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number of people requiring shelter (2,186). The impact of this storm warranted the first declaration of emergency in 2005 due to hydrometeorologic conditions. The CNE estimated over 43.88 billion colons in damages in numerous sectors (education, housing, health, road infrastructure, energy), with 281 communities and 60,000 people affected. Solidarity campaigns to support the victims collected 800 million colons (CNE, 2006).

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Strengthening of democracy

Overview

With regard to this topic, the most striking characteristic of the period under study (January 2005 to early March 2006) was the decline in the quality of electoral democracy and in the exercise of political representation, as compared to previous years. For one, the national and local elections of 2006 showed a serious organizational and functional deterioration of the electoral system and the political party system, first observed in the late 1990s. The Tenth State of the Nation Report noted a trend of declining institutional capacities of the political system to fulfill mandates received from the citizenry and an erosion of representative democracy: this trend has sharpened.

The decline in citizen participation and their disengagement from the party system created a weakness in what has always been considered a strength of Costa Rica’s political system: electoral management. In these elections, manifest shortcomings in the design and management of the electoral process came to light. Although this did not alter the outcome of the elections, it revealed problems in the mechanisms used to select political representatives that should be viewed as warning signals. This situation occurred at a time of weakened political parties, both in terms of their constituencies and their internal organization, and gave rise to a wide range of electoral preferences, a decline in the number of political activists, and marked differences in the magnitude of support received in different regions. The outcome of these factors was an unexpectedly narrow margin of difference between the main contenders, greater disparity in the transformation of votes into legislative representatives, and a high degree of electoral volatility.

The bipartisan PLN-PUSC system that characterized Costa Rican politics during the past twenty years disappeared with the 2006 elections, giving way to a new and fragile multi-party system. The electoral collapse of the PUSC, which was the dominant party of the 1990s and early 2000s, brought an end to a political era and to the party system: for the first time since the mid-20th century, the political divisions and traditions originating in the Civil War of 1948 were not decisive factors in the electoral preferences of Costa Rican voters.

The current political setting is characterized by two factors that are difficult to combine. First, the bipartisan party system became a multi-party system with fragile ties from voters. Second, the will of the people as expressed at the polling stations produced a divided government at both the national and local levels, with limited room for political maneuvering. This new scenario poses a very complex political dilemma for the country: a fragile party system must process critical reforms in order to shore up human development and provide leadership, at a time when government lacks the political capabilities to respond to citizen demands. In short, this is a combination of adverse political factors for a political regime such as Costa Rica’s, where presidential leadership is of key importance.

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With regard to responsible political management, the legislature postponed approving electoral reforms that were under consideration, and made no significant progress with matters pending in other areas. Rather, the regulations approved during the last legislative session were generally of limited importance. This political impasse obliged the president of the Legislative Board to adopt resolutions to activate discussion, given the lack of reforms to the regulations. For its part, the effectiveness of the Executive Branch was low in 2005. The last year of the 2002-2006 administration was characterized by weak ties with the other branches of government, institutional dispersion, and low profile of strategic ministries. The Pacheco administration, which began 2002 with a divided cabinet cut off from its party leadership (PUSC), concluded its term of office with a disjointed team and without the political backing of its party’s legislative group. This seriously limited the possibilities of forging political partnerships and close ties between the Executive and the Legislative Branches. Given this erosion in political representation, the Report describes how the country has made use of grassroots mechanisms, such as referendums and grassroots initiatives, for consultation and to trigger action. Today the greatest challenge for direct democracy is to answer the question of how to make use of these consultation instruments.

As in previous years, the performance of the administration of justice system continued to be linked to the progress being made in the institutional modernization process. Although not optimal, the results contrast with the deterioration observed in the areas of electoral democracy and responsible political leadership. General indicators of the Judicial Branch attest to certain overall improvements, including transparency in judicial management. Nevertheless, the study of three areas of judicial action (labor, agrarian, and contentious-administrative) revealed shortcomings and weaknesses in topics such as management and duration of legal proceedings, despite the measures taken.

With regard to the aspiration of participation and accountability, the findings described in earlier reports did not change much in 2005 due to a continued lack of coordination among the organs of control, and the incipient development of the inter-institutional system for the control of public action. The “Interinstitutional Network for Transparency” initiative promoted by the Ombudsperson is also in its early stages since few institutions participate in it and those that do provide information of uneven and sometimes poor quality.

An examination of foreign policy in 2005 revealed conflicts and inconsistencies in efforts to promote values such as peace, and to strengthen human rights systems at the Inter-American and world levels. In 2005 Costa Rican diplomacy was characterized primarily by joint regional actions agreed upon with members of Central American Integration System (SICA); this meant not promoting national objectives through bilateral relations. Viewed overall, the work of the authorities of the 2002-2006 administration revealed serious foreign policy errors that deflected the country from the course of international action it had built in the past.

As in 2001, another pre-electoral year, social conflict declined significantly in 2005 as compared to the previous year. However, unlike in 2001, this time social

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organizations were more active and burst into the electoral scene to play a leading role in an unprecedented political event: the possibility of not recognizing the legitimacy of the new government.

In short, in the period under study the inability of the political system to process citizens’ demands was intensified. Low credibility and the ineffectiveness of the representative bodies accelerated the trend observed in the Tenth Report of political and institutional actors transferring political decisions on matters of public interest to the judicial branch. This places major pressure on legal institutions designed to administer justice but not to resolve matters that are supposed to be handled through political deliberation. This creates progressive atrophy in the capacity of the parties and the Executive and Legislative Branches to effectively represent the citizens.

End of the bipartisan system that led the country until the late-20th century

The principal outcome of the 2006 elections was the end of the bipartisan era during which the National Liberation Party (PLN) and the United Social Christian Party (PUSC) led the country since the 1980s. Another less visible but important outcome was the weakening of the political parties themselves, and their inability to hold the loyalty of the voters and their territorial base. This has given rise to a multi-party system with fragile and unpredictable citizen support, and, as a result, the emergence of a large number of political groups, without political majority, in all government structures that have proportional representation (national and local).

This political scenario poses a complex challenge for Costa Rica: its weak party system needs to push through reforms to boost human development while at the same time providing clear government leadership. This is occurring at a time when its capacity to address these demands is lower than it has ever been in the last decades.

The PLN won the 2006 elections with 40.9% of the votes, while the Citizen Action Party (PAC) came in second with 39.8%. The 18,169 votes that separated the two parties –equivalent to 1.1% of total valid votes– constitute the second smallest difference between two political parties in Costa Rican electoral history15 (Alfaro, 2006).

The most remarkable occurrence of the 2006 elections was the collapse of the PUSC, which only received 3.5% of valid votes cast. It had been the principal political party from 1990 to 2006, having won three out of four elections in that period. It occupied the Executive Branch since 1998 and, since then, had the largest legislative faction and majority control of the municipios in the country. In the 2006 presidential elections, however, the PUSC only won in the district of Cachí, county of Paraiso. Moreover, almost all the administrative districts that had been strongholds of the PUSC in 2002 moved over to PLN and PAC control in 2006. In the outlying provinces, the party that gained most from the losses of the PUSC was the PLN, which won the elections as a result of that support. There were also important shifts in districts, from PLN to PAC and from PAC to PLN, although the latter to a lesser extent (Map 4).

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The PLN’s support came mostly from voters in coastal and border areas, which are characterized by being larger in territory, lower in population density, with lower human development indexes, and lower levels of political participation. As in the 1998 elections, the winning party in 2006 surpassed its nearest rival by a broad margin in the three outlying provinces (Guanacaste, Puntarenas, Limón), winning in only one central province (Cartago on this occasion and Alajuela in 1998). The outlying provinces have determined election outcomes in four out of fourteen elections: 1958, 1966, 1998 and 2006 (Alfaro, 2006). In the first three, the winning party was running against the PLN; in 2006, those provinces gave the victory to Oscar Arias (PLN). This reveals a process of disaffection of the middle class toward the PLN, and greater support from the socioeconomic extremes, as had traditionally been the case of PUSC sympathizers.

Map 4Winning party in the 2006 elections as compared to the 2002 elections

Note: Read “Changes 2002 – 2006” instead of “Cambios 2002-2006” in the legend. The numbers in parentheses represent the number of districts won by the given parties in the two elections.

Source: Alfaro, 2006.

For its part, the PAC experienced remarkable growth in electoral support, as it unified the “anti-Arias” opposition votes of middle class and urban strata of society. Support for the PAC in these presidential elections not only grew in comparison with 2002, but also expanded in territorial terms even though it had difficulties extending its

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geographical electoral base. Unlike the PLN, the PAC’s main support came from communities in the center of the country, where population density and human development levels are higher. These outcomes reveal a shift of political support that has led to a recomposition of the party system: the PAC turned the PLN into a party backed by the outlying provinces and not the center of the country, as opposed to how it stood in the past (Alfaro, 2006).

Finally, the Libertarian Movement (ML) did not achieve its objective of capitalizing on the electoral collapse of the PUSC to increase its political strength and its role in the legislature. Due to the polarization of competition between the PLN and the PAC, the new parties were clear losers in the 2006 elections.

More positions open for election and more candidates

As noted in the Ninth State of the Nation Report, the Costa Rican political system has expanded opportunities for citizens to exercise their right to elect and to be elected. This resulted both from legal reforms and from increases in the number of political candidates. The 1988 Municipal Code considerably widened the number of officials chosen by popular vote by providing for elections for certain local authorities (mayors and civil magistrates) separate from the presidential elections held every four years in February. Moreover, there was considerable growth in the number of parties participating in elections at the national, provincial and county levels, especially during the last two elections (2002 and 2006). Nonetheless, in spite of expanded opportunities and a greater supply of parties, Costa Ricans’ involvement in political-electoral events continues to decline.

A total of 1,066 public positions were filled in the 2006 elections (one president, two vice presidents, 57 legislative representatives, 503 regular municipal councilors, and 503 alternate municipal councilors), from a total 11,996 candidates registered for positions open for election. Two important facts stand out in connection with gender equity: women accounted for 51% of the candidates, which exceeds the 40% quota set by the Supreme Electoral Tribunal for elected positions. In comparison with 2002, there were 144 more candidates for the position of Legislative Assembly representative (diputado), and 1,816 more for municipal elections (Alfaro, 2006).

Costa Rican democracy has experienced an expansion in terms of political choices. Of all the elections held in the 1953-2006 period, the largest number of political parties took part in the 2006 electoral process. Interestingly, half of the 54 parties registered had never participated in an election before. Increased competition was particularly notable for legislative positions due to the emergence of many provincial parties: of the fourteen participating in the election, nine did so for the first time. Two factors combined to spur growth in the number of county parties (24 in these elections): the permanence of more groups and new local groups in a larger number of counties. In the case of the latter, a contributing factor was the fact that an increasing proportion of municipal councilor seats are in the hands of county parties (Alfaro, 2006).

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Highest abstention in the last 44 years

The last three elections (1998, 2002 and 2006) were characterized by declining voter turnout, with abstentionism reaching more than 30% in all three. In 2006, 35% of eligible voters did not vote. This is higher than the abstentionism recorded for previous elections, except in 1958. In that year, rather than being a matter of individual choice, absentionism was an aftermath of the 1948 Civil War when two political parties (Republican National and Popular Vanguard) were barred from participating (State of the Nation Project, 1998).

Once again in 2006, abstentionism in the provinces of Guanacaste, Puntarenas, and Limón was higher than the national average, reaching 45% in the latter two (Figure 10). Abstentionism was also higher than the national average in 31 of the country’s 81 counties. The regions with lower voter turnout are characterized by fewer opportunities and lower development, which highlights the need to address existing political gaps.

Because no post-electoral studies were conducted, it was impossible to determine the profile of persons who did not vote in 2006, or to compare them with voters in previous elections. What is known is that only a very small portion of abstentionism was due to structural factors, such as distance from polling stations or emigration. This means that, in principle, the decision to vote or to abstain from voting in an election depends primarily on factors related to the disposition of the voters.

Figure 10Abstentionism in the 81 counties of the country (2006 elections)

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Source: Alfaro 2006.

Although the reasons citizens do not exercise their right to vote are varied and change from election to election, only a minority alleges “technical” reasons (illness,

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transportation, pregnancy, lack of documents) (Raventós et al., 2005). There is no reason to believe that things were different in 2006. Furthermore, both the UNDP study of 2004 based on the Latinobarómetro survey and Vanderbilt University’s OPAL project of that same year agree that the proportion of people claiming they were pressured to vote or not to vote in Costa Rica is very small (and within the margin of error of the measurement) (UNDP, 2004; Vargas and Rosero, 2004).

The legislature: low effectiveness and unable to achieve agreements

Legislative activity is a key ingredient of political development in contemporary societies. Legislatures are the most important institutional arenas of modern democracies and, consequently, the epicenter of political debate on social coexistence.

During 2005 the exercise of responsible management and political representation were seriously impaired. The effectiveness of the deliberations of the Legislative Branch on substantive laws for human development was low. As in previous years, much of legislation approved addressed administrative matters and, once again it was impossible to change internal procedures in order to stimulate legislative activity. For its part, the Executive Branch showed a lack of initiative, poor capacity to articulate a public agenda, and contradictions with regard to topics of importance to the country.

In the 2002-2006 period, both the make up of the Legislative Board and the legislative agenda were characterized by the enormous volatility of political parties, a sharp weakening of party lines, and marked dissidence within parties (State of the Nation Program, 2005). Without exception, internal dissidence affected every party that took office in 2002, resulting in new parties and break-away representatives. Because of this political fragmentation, it was necessary to negotiate multiparty Boards since no party on its own had the 29 votes necessary to form it. In 2005 the most important development was the sundering of the PUSC-ML partnership on the Legislative Board, after three years of collaboration16 (Zúñiga, 2006).

One of the core competencies of a legislature is to reach agreement. Between 1 March 2005 and 20 April 2006, the Legislative Assembly issued a total of 104 legislative agreements, through its three organs for deliberation and for approving laws.17 The most relevant of these was the inclusion of article 208.a in its rules of procedure, approved on 8 March 2005, which limited the remedies available to representatives to block certain legal initiatives. Aside from this, it can be said that the legislature did not amend its internal rules. Almost all the agreements of the plenary dealt with administrative issues (Table 5).

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Table 5Legislative agreements, by decision-making body. March 2005 to April of 2006a/

Category Plenary Board PresidentRegulatory reform b/ 1Creation and membership of commissions 6 1 3Permits for docking, overflight, etc. 23Appointment of magistratesc/ 8Other appointmentsd/ 6Declarations of legislative periods 8 Recognition of distinguished individuals 1Replacements and exchanges 3Travel authorizations 36Administrative rulese/ 8Subtotals 53 45 6Grand total 104Percentage of total 51 43 6

a/ As of 8 March 2005.

b/ Inclusion of article 208.a in the rules of procedure.

c/ Two regular, three alternates, three reelections.

d/ Comptroller, Ombudsperson, Deputy Ombudsperson and three Executive Branch ratifications.

e/ Four regulations were drafted (on alcoholic beverages, computer equipment, visitors, overtime).

Source: Prepared by the author, with data from the Legislative Information System.

The reform of the regulations (article 208.a18) sought to expedite the procedures followed to process complex bills of law. The intention was to cut through the regulatory morass that had made the legislative process inflexible, since it had been designed for a bipartisan system and no longer worked with the new multi-party make-up of the legislature. However, this was not achieved the first time it was applied. Article 208.a was “launched” with the Bill on the Fiscal Pact and Fiscal Structural Reform (file nº 15,516). After being approved in first debate the bill was declared unconstitutional by the Constitutional Court, which ruled that procedural irregularities occurred in the application of article 208.a, including: the prevalence of the special majority required for approval, having skipped certain mandatory consultations with autonomous institutions, the disproportionate amount of time allowed for the Special Commission of the Fiscal Pact to render its opinion, and the rulings of the President of the Commission.

Another subject meriting discussion is the negotiation that was necessary to achieve political agreement in the Legislative Assembly with regard to its system of appointments. During the 2005-2006 legislative session, this affected the appointment of regular and alternate judges, ratification of appointments by the Executive Branch and, most importantly, the appointment of the Comptroller General and the Ombudsperson. The latter two produced the most disputed decision-making processes, both in commission and in plenary. Appointment of the new Comptroller took 87 days, of the Ombudsperson 98, and of the Deputy Ombudsperson 30 (Zúñiga, 2006).

During the 2002-2006 administration, 234 laws were approved, with 28.6% being submitted by the Executive Branch and 71.4% by the Legislative Assembly.

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Nonetheless, it should be noted that many government bills were processed through legislators of the ruling party, who, in the period under analysis, proposed 30.8% of the laws approved.19 According to data from the Department of Legislative Services, during the 2004-2005 legislative period, in the fourth and last year (2005-2006), the number of laws passed more than doubled those of the previous period (67 as compared to 30). With respect to bills, during the constitutional period under consideration, the Assembly received 1,489 files,20 a very high figure that contrasts with the 234 laws actually approved. In other words, for every 100 bills submitted, 15.7 laws were enacted. During the last legislative period, 800 files were processed for opinions and reports on motions (under article 137); this means that for every 100 initiatives proposed, 54 received opinions.

An examination of the relevant laws confirms that the country is being legislated by consent of the Constitutional Court. During the fourth legislative session, an average 53% of the substantive bills approved required an opinion from the Constitutional Court (Zúñiga, 2006). Here a number of substantive issues are at play, including the use of this procedure to intentionally delay enactment of a law and the resolution of strictly political disagreements in a non-legislative (judicial) setting. If this trend continues, we may be witnessing a profound redefinition of the Costa Rican political system.

With regard to the recognition of rights and the allocation of funding to implement regulations approved by the Legislative Assembly, it is noteworthy that 41 of the 68 laws enacted granted some kind of right, expanded existing rights, or generated new obligations for the State. However, the funding source (fresh or redirected existing funds) was specified for only 15 of them (about one third) (Table 6).

Table 6Laws approveda/, by type of right and funding. May 2005 to April 2006

Type of right Number Percentage Grants new rights 12 18 Expands existing rights 27 40 Creates obligations 2 3 Donations and transfers of public real estate 27 40 Total 68 100

Type of funding Number Percentage Creates fresh sources 3 4 Allocates existing resources 9 13 Redirects existing resources 3 4 Does not create funding sources 12 18 Directly generates revenues (taxes) 1 1 Donations and transfers of public real estate 27 40 Not applicable b/ 13 19 Total 68 100

a/ This categorization differs in two ways from the information provided by the Statistics Department of the Legislative Assembly: a) transfers of rights and resources were categorized separately, in order to distinguish them from other types of legislation, b) international instruments, such as treaties and agreements, were regrouped into the category “grants new rights.” Two of the three instruments approved were included in the category "does not create funding sources”; the third (Free Trade Agreement with the Caribbean) was included with “creates fresh sources” since trade duties facilitate trade.

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b/ Laws that, by their nature, are not associated with the creation or use of funding sources.

Source: Prepared by the authors with information from the Statistics Department of the Legislative Assembly.

Foreign policy: inconsistent advocacy of peace and human rights

The study of foreign policy in the chapter “Strengthening democracy” is based on the assumption that a demilitarized democracy such as Costa Rica’s is under the obligation to advocate peace and human rights on the international agenda. For the Twelfth Report, Costa Rica’s voting records at the United Nations General Assembly21

and the Human Rights Commission were again examined.

In the General Assembly, most resolutions (around 70%) are adopted by unanimous vote. For the remaining 30%, in 2005 Costa Rica generally joined with the majority (the bandwagoning principle). It voted affirmatively on 88% of the resolutions, abstained from voting on 10% of them , was absent for one vote, and voted against one resolution. On the resolutions referring to the conflicts in the Middle East, and specifically those referring to the Israeli-Palestinian dispute, Costa Rica voted against the majority, taking a minority position that drew it away from its traditional partners: the Latin American and European countries and western democracies. It only cast one negative vote, which was during the discussion of a resolution on the city of Jerusalem, the site of the Costa Rican embassy at that time, in opposition to several Security Council resolutions.22 Costa Rica does not break consensuses as it never calls for a vote on a resolution that has majority support.

Consistent with performance in 2004 (State of the Nation Program, 2005), in the year under analysis it was determined that the “United States vote” variable is not a determining factor in Costa Rica’s voting record in the United Nations General Assembly. While Costa Rica voted positively on 88% of the resolutions, the United States tended to vote negatively (74%) and only in 16% of the cases did it cast a positive vote. Both nations showed a similar pattern of abstentions: 8% in case of the United States and 10% in that of Costa Rica.

In terms of Costa Rica’s advocacy of values on the global agenda, the balance sheet for 2005 showed both positive actions, and actions where it distanced itself from the aspirations proposed in the State of the Nation Report. The country maintained a very proactive approach in presenting initiatives on human rights and the environment. It held important positions in international forums that strengthened its visibility, advocacy and voice, such as the UN Economic and Social Council (ECOSOC), and it served as chair of the Assembly of States Parties to the International Criminal Court, and as chair of the Group of Latin American and Caribbean Countries (GRULAC) at the UN-Geneva. At the same time, however, its voting record on a resolution on prisoners at the United States Guantánamo military base was inconsistent, and it did not act with sufficient diligence to monitor the request to have Costa Rica’s name removed from the coalition that engaged in military operations in Iraq, pursuant to a 2004 mandate of the Constitutional Court. With regard to the conflict in the Middle East, Costa Rica continues

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to maintain a voting pattern in the UN that is not in line with this agency’s official position on the matter (White et al., 2006).

Two trends were noted in relation to the advocacy and defense of national interests. First, foreign policy focused more on strengthening Costa Rica’s position vis-à-vis two of its traditional partners, the United States and Taiwan, than on establishing broader strategic balances. Second, its international action tended to be “regionalized,” that is, its relation to key players on the world geopolitical scene was developed more through the Central American Integration System (SICA) than through the pursuit of national objectives in bilateral relations.23 In the same vein, the country finally submitted its dispute with Nicaragua over navigation rights on the San Juan River to the International Court of Justice. This decision was taken because, despite a three-year “freeze” on the dispute agreed to during the Pacheco Administration, it was impossible to work out a negotiated arrangement either bilaterally or with the support of mediators.

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Special topic: Current status of road infrastructure

This section briefly describes the current status of road infrastructure in the country, with a focus on three key aspects: the current state of the road network, the value of that asset and the magnitude of its deterioration, and the institutional characteristics of road infrastructure management.

The main conclusion of the analysis is that Costa Rica’s assets in road infrastructure, which represent a sizeable proportion of GDP, are in a seriously deteriorated condition and require a substantial and sustained increase in investment in the short term to restore it. Institutional management, however, is inadequate and characterized by a lack of planning and limited technical and financial capabilities that seriously hinder the possibility of addressing this need. The institutional reform of the sector undertaken in the mid-1990s can be described as a failed attempt at modernization.

The “bottlenecks” of institutional management are examined from the viewpoint of the abovementioned shortcomings and the urgent need to boost investment in road infrastructure. The approach is comparative and proactive, in the sense of suggesting courses of action. The full account is found in the section entitled “Discussion for development” in the Twelfth Report (Box 4).

Box 4

Moving toward a modern and efficient road network in Costa Rica: options and practical challenges

Modern, extensive and efficient road infrastructure is a powerful tool for the promotion of human development. Although infrastructure is not itself a cause, it fosters denser interactions which, in turn, facilitate greater access to job and business opportunities, social services, and participation in matters of public interest. Thus, investment cutbacks that impede the modernization, extension, or efficiency of road infrastructure compromise the future of a country. Costa Rica is one of the Latin American countries where infrastructure has had the greatest impact on economic growth. During the 1980s and 1990s, the widening infrastructure gap between Costa Rica and the so-called “Asian Tigers” accounted for almost 40% of the lag between Costa Rican GDP and the GDP of those countries. In other words, the setback in national infrastructure development during that period expanded by almost 40% the difference between Costa Rica’s output and that of those East Asian countries. Investment in infrastructure is a strategic task for a Costa Rica that aspires to launch a new period of economic and social progress.

The principal question this study seeks to answer is: what have other countries done to overcome obstacles similar to those currently facing Costa Rica in the management of its road infrastructure? The examination of international experiences, mainly in Spain and Chile, uncovered valuable criteria for defining actions that can contribute to having a modern and efficient road network. The aim is to offer inputs that will stimulate public discussion of matters that have a practical bearing on the effective and efficient management of road infrastructure, and that could lead to possible legal, institutional and management reforms in this area. The “bottlenecks” addressed are: inadequate maintenance of national and county roads, mistakes in the contracting of road works with State resources, weak accountability, employee hiring

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constraints, difficulties to take strategic decisions, and weak organizational development of the National Highway Administration Council (CONAVI).

In comparison with other countries, Costa Rica has moved in the right direction by creating a road fund and by recently deciding to furnish this fund with all the resources assigned to it under Law 7798 Creation of CONAVI. The good practices of other nations suggest that the possibility of successfully addressing the nationwide deterioration of road infrastructure requires a combination of actions in at least three areas: institutional, legal and management. A full discussion of the findings and suggested public policy options for Costa Rica stemming from this analysis can be found in Chapter 6 of the Twelfth State of the Nation Report.

Source: Prepared by the authors.

Current extension and condition of the road network

In 2003, the extension of Costa Rica’s entire road network was 32,075 kilometers, of which 7,434 (23%) represented the so-called national network and 24,641 (77%) the county or municipal network. The two networks are articulated and linked in such a way as to make it almost impossible for users to distinguish between the two. Between 2003 and 2005 another 3,760 kilometers were added to the county road network (from 24,641 km to 28,401 km). The geographical density of Costa Rica’s road network is between four and six times higher than in Mexico and the other Central American countries .

This infrastructure is in poor condition and it has not improved in recent years. The results of the most recent assessment of the international road evenness index (IRI)24

(2006) indicate that nearly two thirds of the national road network is in poor or fair condition, which means that over the past six years only 32.4% has been in good condition. In addition, rather than showing improvements, measurement of deflectometry parameters (FWD)25 (2006) showed stagnation of the overall condition of the road network at a low level of quality: nearly 65% is in deficient or very deficient structural condition,26 and between 2004 and 2006 there was a 1% decline in the percentage of roads in good condition.

Less than 10% of the roads in the provinces of Guanacaste, Alajuela, and Cartago are in good structural condition. The results for Heredia and Limón are slightly higher than that (11%), and in San José province, 18% of the roads are in good condition. The roads in Puntarenas province rank the highest, with 27% being in good condition, which is still less than one third. In Guanacaste, one of the country’s major motors of tourism development and a hub of important economic accumulation, more than 90% of the national road network that passes through the province and links it to others is in poor condition, from the point of view of pavement capacity or resistance. This contributes little or nothing to strengthening or expanding tourism activity and production linkages. The worst road conditions are found in the Huetar Norte region, and the least deteriorated are in the Central Pacific region.

Much less information exists on the state of the county road network, which comprises most of the country’s highways and roads, as no studies have been carried out using internationally comparable parameters such as IRI, FWD or others.

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Nonetheless, the data available suggest a situation even worse than that of the national network. The MOPT reports that in 2005 less than 10% of the county network had good surface conditions and more than 80% were still gravel. Most of these roads are in poor or very poor condition .

Comparatively, the national or federal road networks of countries such as Mexico and Colombia show significantly lower levels of deterioration. In Colombia, 8% of the network was in poor condition in 2005. For its part, Mexico made substantial improvements in its indices over a ten-year period, during which it moved from having 43% of its network in good condition in 1994 to 79% in 2005, and by reducing the portions in poor condition from 57% to 21%.

Estimated value of the road asset and depreciation of that capital

The assets of Costa Rica’s national roads (if they were in good condition), measured in terms of pavement alone, would have an economic value of US$1.903 billion,27 around 10% of GDP. This reveals the magnitude of the capital accrued by Costa Rican society in this area through decades of investment. However, given its current poor condition, its real value –or “book value”– is substantially less: US$903 million in 2006. In percentage terms, inadequate pavement management has reduced the value of the investments by 52.5%. Because of a lack of maintenance or reconstruction works, the value of road assets has fallen by US$999 million, which is equivalent to nearly 5% of GDP and to economic growth in a good year. This is the direct cost of poor management (LANAMME-UCR, 2006).

The estimates of the National Laboratory of Structural Materials and Models of the University of Costa Rica (LANAMME-UCR) regarding the depreciation of the value of the national road asset (US$999 million) is similar in magnitude to the estimate arrived at by the Association of Highways and Roads of Costa Rica (ACCCR) of investments needed (US$858 million), in the short term, to bring the paved national road network to a condition of high structural capacity . Since the country has neither the resources nor the operating capacity to bring the national network into good condition in a short period of time, a much larger amount of resources will be needed over a fifteen-year period for this purpose. According to LANAMME-UCR (2006), in that scenario the required investment would be approximately US$2.587 billion while according to ACCCR (2006), it would take no less than US$1.700 billion.

Management of road infrastructure

Weaknesses in road infrastructure management are a critical barrier that impedes the country from having a modern, quality and equitable road system. Despite legal and institutional reforms implemented in the last decade, several serious shortcomings have combined to produce inefficient and ineffective public management that has been unable to improve the poor condition of the infrastructure or to propose and execute a concrete plan to remedy that situation.

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In Costa Rica, public funds are practically the only source of funding for road infrastructure. Until 1998, investments for road infrastructure were allocated as part of the regular budget of the Ministry of Public Works and Transportation (MOPT). Through the 1998 Law 7798 establishing CONAVI, the fuel tax was defined as a permanent and earmarked source of investment funds, in line with recommendations from multilateral agencies.

In spite of this legal reform, for over two decades investments in the road network amounted to less than 1% of GDP. More recently, stronger constraints were imposed as a result of measures to contain government spending: while in 2001 the investment represented 0.96% of GDP, in 2005 it had fallen to 0.72%. This has been considered to be manifestly insufficient for coping with the progressive deterioration of the road network and for establishing the modern technical management systems required for efficient administration . Compounding this situation, the budget was under-executed by a large amount each year, ranging from 14% to 32% of total budget. In other words, less funds are received and there is limited capacity to spend, a clear sign of serious weaknesses in public management (Figure 11).

Figure 11Public investment and under-execution of the road infrastructure budget. 2001-2005

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

1,2%

2001 2002 2003 2004 20050,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

% of GDP % underexecuted

Source: LANAMME-UCR, with data from the Office of the Comptroller General of the Republic.

With regard to the county road network, although on several occasions the Constitutional Court ordered the Executive Branch to deliver to the municipalities the full amount of resources allocated under Law 8114, which establishes the earmarked fuel tax, that mandate has not been complied with. Although the amount of funds allocated for this purpose has increased markedly as compared to before the law went into effect (transfers rose from 3.409 billion colons in 2002 to 9.585 billion in 2005), they have still not reached the levels prescribed by law. The funds received by the municipalities in 2005 constitute 74% of what is provided by the law (CGR, 2006).

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Incomplete institutional reform; disappointing results

In the last decade significant changes were made in the public institutional framework responsible for road infrastructure. In 1993, two such agencies were in existence: the MOPT, which was founded in 1860 but now comes under Law 3155 of 1963, and the Road Safety Council (COSEVI), created in 1979. Four more agencies were created: in 1998, CONAVI and the National Council of Concessions (CNC); in 1999, the National Council of Public Transportation (1999); and in 2001, the county road boards. CONAVI is the most important of these agencies, since it is responsible for the planning, programming, execution, financing, and control of all works on the national road network. In addition, for the first time in the public sector, mechanisms were established to provide for the technical evaluation of investments in infrastructure, with this task being given to LANAMME-UCR. This means that, to a certain degree, the management model by which the MOPT built or repaired highways and roads, either directly or by contract, was replaced by a model where the MOPT functions as the head of an institutional conglomerate whose components have responsibilities related to investment management .

During this period, cutbacks were made in the size of the State public works sector. The MOPT’s staff was reduced by around 30% between 1993 and 2003 (approximately 50% in fifteen years). Some of these jobs were moved to other agencies including the Road Safety Council (whose staff roster almost tripled in that decade), CONAVI and CNC, the latter being small but with very complex responsibilities. Nonetheless, as a whole, employment in the institutions responsible for road infrastructure, as a proportion of total public jobs, slid from 5.2% in 1988, to 4% in 1993, to 2.7% in 2003 .

In spite of the reforms, serious weaknesses still undermine the management of the agencies responsible for public administration, and the outcome of institutional modernization was generally disappointing. Compared with ten years ago, there has been, at the most, a marginal improvement in the state of road infrastructure, but certainly none in the last four years. In addition, as described above, road infrastructure is still in poor condition despite the fact that hundreds of millions of dollars have been invested in maintenance and reconstruction.

Weak sectoral planning capabilities

In the case of road infrastructure, where public action is particularly costly and often requires a multi-year implementation period and a sustained effort over time, planning is indispensable for optimizing the use of resources to meet objectives. Nevertheless, weak sectoral planning capabilities make this one of the principal flaws of public management .

In the transportation sector, the functions of planning, monitoring, and evaluating plans, programs, and projects are assigned by law to the highest decision-making level: the General Directorate of Sectoral Planning in the Ministry of Public Works and Transportation (MOPT). Its responsibilities include drawing up the National Road Plan, for which the Minister, as the highest-ranking authority of the sector, provides the

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guidelines for investments in road infrastructure. Thus, that plan is the key reference for institutional management processes in this area.

It should be noted that weak planning capabilities are by no means limited to the area of road management; they are a reflection of a general trend observed during the past two decades. Because it has not been possible to substantially increase the tax burden and given the growing trend to curtail operating expenses in order to service the public debt, national authorities have emphasized discipline in public spending. Thus, fiscal priorities have undermined public action, and one effect has been a severe erosion of the scope and competencies of sector planning throughout the public sector. The negative consequences of weakened sector institutions is aggravated by the fact that, from the constitutional and legal standpoints, sector institutions must respond to the continuous expansion of the rights of the population and, especially, to the expansion of the public sector’s obligations to the population.

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Acronyms

ACCCR Asociación de Carreteras y Caminos de Costa Rica (Costa Rican Association of Highways and Roads)

BCCR Banco Central de Costa Rica (Central Bank of Costa Rica)CCP Centro Centroamericano de Población (Central American Population Center)CCSS Caja Costarricense de Seguro Social (Costa Rican Social Security Institute)CENAT Centro Nacional de Alta Tecnología (National Center for High Technology)CGR Contraloría General de la República (Office of the Comptroller General of the

Republic)CINDE Coalición Costarricense de Iniciativas de Desarrollo (Costa Rican Investment

Promotion Agency)CNE Comisión Nacional de Emergencias (National Emergency Commission)CNFL Compañía Nacional de Fuerza y Luz (National Power and Light Company)CONAVI Consejo Nacional de Vialidad (National Highway Administration Council) COREC II Comisión Bipartidista de Reforma del Estado Costarricense (Bipartite

Commission for State Reform in Costa Rica)COSEVI Consejo de Seguridad Vial (Road Safety Council) EBAIS Equipos Básicos de Atención Integral de Salud (Basic Comprehensive Health

Care Teams)EHPM Encuesta de Hogares de Propósitos Múltiples (Multipurpose Household

Survey)ENIG Encuesta Nacional de Ingresos y Gastos (National Income and Spending

Survey) FODESAF Fondo de Desarrollo Social y Asignaciones Familiares (Social Development

and Family Allotment Fund)GTZ German Cooperation AgencyICAA Instituto Costarricense de Acueductos y Alcantarillados (Costa Rican Institute

of Water and Sewage Systems)ICE Instituto Costarricense de Electricidad (Costa Rican Electricity Institute)IFAM Instituto de Fomento y Asesoría Municipal (Municipal Development and

Advisory Services Institute) INCOFER Instituto Costarricense de Ferrocarriles (Costa Rican Railroad Institute)INEC Instituto Nacional de Estadística y Censos (National Statistics and Census

Institute) INFOCOOP Instituto Nacional de Fomento Cooperativo (National Institute for the

Development of Cooperatives)INS Instituto Nacional de Seguros (National Insurance Institute)IVM Régimen de Invalidez, Vejez y Muerte (Disability, Old Age and Death System)LANAMME Laboratorio Nacional de Materiales y Modelos Estructurales (National

Materials and Structural Models Laboratory)MEP Ministerio de Educación Pública (Ministry of Public Education)MINAE Ministerio de Ambiente y Energía (Ministry of Environment and Energy)MIVAH Ministerio de Viviendas y Asentamientos Humanos (Ministry of Housing and

Human Settlements)ML Movimiento Libertario (Libertarian Movement)MOPT Ministerio de Obras Públicas y Transporte (Ministry of Public Works and

Transportation)PAC Partido Acción Ciudadana (Citizen Action Party)PAHO Pan American Health OrganizationPLN Partido Liberación Nacional (National Liberation Party)PRIAS Programa Nacional de Investigaciones y Sensores Remotos (National

Program on Remote Sensing and Research)PUSC Partido Unidad Social Cristiana (United Social Christian Party)

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RECOPE Refinadora Costarricense de Petróleo (Costa Rican Petroleum Refinery)SICA Sistema de Integración Centroamericana (Costa Rican Integration System)SINAC Sistema Nacional de Áreas de Conservación (National System of

Conservation Areas)STAP Secretaría Técnica de la Autoridad Presupuestaria (Technical Secretariat of

the Budget Authority)TSE Tribunal Superior de Elecciones (Supreme Electoral Tribunal)UCR Universidad de Costa Rica (University of Costa Rica)UNA Universidad Nacional Autónoma (National Autonomous University) UNDP United Nations Development ProgrammeUSEPA United States Environmental Protection Program WHO World Health Organization

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11 The ENIG is better for capturing different sources of income and houshold distibution by income level relative to the acquisition of goods and services, and is therefore a more accurante source for measuring income. The 2004 ENIG was a nationwide sampling survey for which all private households in the country had a known probability of being selected and, therefore, the selected households constitute a representative sample of all the households in the country. The survey sampled 5,220 households and was conducted over a 13-month period (April 2004-Abril 2005) (INEC, 2006).

22 Gini coefficient of the distribution of family income, calculated by deciles of per capita income.

33 The growth noted in the number of employed is partly due to improved collection of information, especially on women, as opposed to the case in 2004.

44 Percent of the labor force (employed and unemployed) vis-à-vis the working age population (12 years and older).

55 The CCSS Board of Directors, in session 7950 (21 April 2005), approved extending coverage to self-employed workers and agreed that mandatory membership would be implemented in four stages: i) active physical employers, ii) liberal professionals, iii) self-employed workers with other business activities, and iv) enrollment in the pension insurance program of self-employed workers holding group insurance for small and medium-scale farmers (CCSS, 2006b). Later, in session 8019 (15 December 2005), the Board approved a strategy to extend contributory coverage through inspections (PRECIN); the aim is to incorporate employers and self-employed workers who are not presently contributing to the social security system. PRECIN works on the basis of geographical areas and will concentrate on economic activities where there is a greater likelihood of evasion of coverage (CCSS, 2006b).

6 Between 2000 and 2005, 16% of students that originally enrolled in primary and secondary school failed the year or dropped out.

77 The exercise is useful not only because it sheds light on aspects that may be relevant for improving the quality of education, but also because it suggests indicators that can begin to be developed to more comprehensively address the issue of quality and success in secondary education. To that end, eight in-depth interviews were conducted, six with directors or deputy directors of schools that, according to the information examined (high proportion of graduating students, high overall marks on national high school exams, and a dropout rate of less than 10%) rank first in their categories, and two with education specialists, in order to obtain a fuller understanding of success factors in secondary education.

88 The real ANI showed a decline in absolute terms only in 1996 and 1999.

9 The ANI can be obtained from the GDP by subtracting the net balance of primary income and current transfers paid abroad, from the revenues generated by the production process (remuneration of wage-earning employees, gross operating surplus and net taxes of subsidies), which equal GDP. The result is the gross available national income. The net balance of primary income and current transfers paid abroad reflects the difference between remuneration of wage-earning employees, income from property (interest, profits, etc.) and current transfers received by the country from other nations, as well as the payments Costa Rica to external factors, for the same items. Payments received by these means form part of the available national income since they were generated by the country’s factors of production (workers or companies operating in Costa Rica but who temporarily offer their services abroad). Similarly, the payments Costa Rica makes for these same items are not included in the gross available national income because they constitute revenues from external and not domestic factors.

10 This situation is changing for some private banks that have been taken over by international operators.

11 References preceded by the letter “I” correspond to interviews carried out as part of the process to prepare the Report. The particulars of each can be found in the “Interviews” section of the Bibliography.

12 An attempt was made to define a quantifiable risk that would allow for reasonable comparisons. The product of two factors, threat and vulnerability, was calculated as the measure of risk. Threat was defined as the average concentration of pollution in each district; thus the higher the average concentration, the greater the threat and, accordingly, the greater the risk. Vulnerability was defined as the number of inhabitants exposed in each district. Thus, the more individuals exposed, the greater the vulnerability and, consequently, the greater the risk. As can be seen, these two measurable values make comparisons possible (Rojas, 2006).

13 The legality of this levy was contested in 2005 in the Constitutional Court, which ruled in 2006 to invalidate only article 11 of Executive Decree 311756-MINAE, which refers to how the funds obtained in that manner will be managed.

14 Projections were made on the basis of the cost per hectare of land acquired in 2005, without updating the appraisals of the properties still owed.

15 In 1966, the candidate of the National Unification Party (opposition) defeated the candidate of the National Liberation Party (ruling party) by 4,219 votes, or 0.93% of valid cast votes. Considering that there were 3,015 authorized polling stations that year, the difference between the two competitors was, on average, a little more than one vote per station.

16 In the first legislative session (2002-2003) the ruling party negotiated with the Libertarian Movement (ML) and distributed the six posts equally among them. In the second session, they negotiated the same terms but included the other representative of the Costa Rican Renewal Party (PRC). In the 2004-2005 legislative session, the Patriotic Bloc was added. Finally, in the 2005-2006 legislative session, the ML was excluded and two independent representatives were added. In short, multiparty activity became increasingly evident on the Legislative Board and ideological and practical conflicts broke up the three-year partnership between the PUSC and the Libertarians. In the last legislative session, there was a frustrated attempt by women representatives to take control of the Legislative Board with a multi-party coalition.

17 That date, instead of 1 May (formal beginning of the fourth legislative session), was taken as the point of departure because it was in May that the amendment to article 208.a of the rules of procedure of the Legislative Assembly was approved, a central topic of this analysis. In this way, eight agreements of the Board and nine of the plenary were reached between 1 March and 30 April 2005.

18 According to the amendment: “Through a motion of order approved by a two-thirds majority vote, the Legislative Assembly may establish special procedures to reform its rules of procedure and to approve bills of law that require an absolute majority; this excludes approval of administrative contracts, contracts related to the sale of State assets or the opening of State monopolies, and international treaties and international agreements, regardless of the voting requirements for approval. All special procedures must respect democratic principles, and safeguard the right to amendment.” (Legislative Assembly, 2005)

19 This stands in sharp contrast to the capacity of other parties to approve legislation: the PLN submitted 6.8% of the regulations approved, while the remaining parties were unable to exceed the 2.6% achieved by the PAC. Finally, 25% of the initiatives were submitted jointly by several parties.

20 Information provided by the Statistics Information Center of the Legislative Assembly library was used for the quantitative analysis of the bills.

21 The deliberations of the United Nations focus on five key areas: international law, human rights, economic and social development, peace, and security, which are the basis for the General Assembly agenda, organized under eight subjects. Of these, security issues have the greatest weight on the agenda and account fro 40% of the resolutions; this is followed by issues related to human rights, and economic growth and sustainable development, each of which accounts for 20% of the resolutions.

22 In August 2006 the Arias Sánchez Administration announced the transfer of Costa Rica’s diplomatic offices in Israel from Jerusalem to Tel Aviv.

23 During the past four years, all of Costa Rica’s strategic actions were developed within the framework of Central American regional action through SICA. This includes negotiation of the free trade agreement with the United States, support for the war in Iraq, preparations for an association agreement with the European Union, and actions in address the increases in international oil prices (so-called “energy diplomacy”). The countries of the region have included common external action as one of SICA’s objectives, and have established forums for dialogue and cooperation with the European Union, Japan, Korea, Mexico, and Taiwan (all the countries of the area maintain diplomatic relations with Taiwan but not with China). Three more forums for political dialogue and cooperation have been in the making since 2004, with India, Russia, and Brazil; declarations or agreements have been signed to give them diplomatic substance and form (Ministry of External Relations, 2006).

24 The IRI is related to the comfort users feel in driving on the road; it indicates the road’s service level and has a significant impact on the cost of operating the vehicle fleet. Road quality does not depend solely on

surface regularity but also on the capacity of all its adjacent layers to withstand the weight of vehicles traveling on it. Current standards allow the use of mixtures that are inadequate for eliminating current conditions caused by the high volume of traffic. Suitable design and appropriate specifications prevent deterioration, problems of slippage, and deformation.

25 The study of impact by deflectometry evaluates the structural capacity of the pavement to bear the weight of vehicles. It evaluates what causes pavement to sink or “deflect” when it is subjected to weight; if the pavement shows high “deflections,” it has little ability to resist vehicular traffic and, thus, the road will break down in a short period of time (cracks, holes). This means that immediate and preventive intervention would be needed to “strengthen” the pavement. On the other extreme, if “deflections” are low, the pavement has good capacity to resist vehicular traffic without suffering major damage (deterioration is notably slower); this means the road is in good condition.

26 For a complete analysis of the degree of deterioration, an assessment also needs to be made of the volume of traffic, as well as of climatic and drainage conditions.

27 According to LANAMME-UCR, 2006, this is the estimated cost of rebuilding the road network today (4,478.4 kilometers of road network multiplied by the cost of rebuilding one kilometer of road: US$425,000 dollars).

summary12

Documents

summarytwelfth state

general assessment of

average income

social integration

social investment falls

income inequality

average household incomes

high growth