High social charges, excessive regulations for businesses and the high price of labor are factors that prevent Costa Rica's economy from reaching its growth potential.
In Costa Rica, establishing a personally owned company without employees is up to three times more expensive than what it can cost in a country that belongs to the Organization for Economic Cooperation and Development (OECD).
Due to weak competition in the local market, the prices of goods and services in the basic basket are significantly higher in Costa Rica than in nearby countries.
A report by the Organization for Economic Cooperation and Development (OECD), called the "Economic Study on Costa Rica", concludes that consumers in the country pay higher prices for milk, rice, vehicles and Internet services.
Costa Rican businessmen warn that the government's decision to standardize wages in 2020 will lead to more unemployment, affect workers with less education and reduce competitiveness even further.
For the business sector is imprudent to approve and implement the wage standardization in 2020, since it will have a strong impact on productive sectors such as agriculture, trade, transport, tourism and construction, explains a statement from the UCCAEP.
In the 2019 Global Competitiveness Index, Costa Rica, Panama, Guatemala, El Salvador, and Nicaragua fell back in the ranking, while Honduras registered no changes and the Dominican Republic was the only country that improved.
According to the report by the World Economic Forum, during 2019 Costa Rica ranked 62 out of 141 countries. It was followed by Panama at box 66, the Dominican Republic at 78, Guatemala at 98, Honduras at 101, El Salvador at 103 and Nicaragua at 109.
In a competitive scenario for lower costs and higher productivity, devaluation against the Lempira Dollar in Honduras and the Cordoba Dollar in Nicaragua is a factor that could help these economies stay competitive.
In the last five years, the exchange rate in Honduras increased by 17%, from 21.06 Lempiras per U.S. dollar in June 2014 to 24.67 in the same month in 2019.
According to the IMF, the Central American country has been the most dynamic economy in Latin America in the last three decades, reaching one of the highest per capita incomes in the region.
A report published by the International Monetary Fund (IMF), and signed by Alejandro Santos, Panama's mission chief, and Metodij Hadzi-Vaskov, chief economist in the Western Hemisphere Department, explains that the country's growth is important, since the economy has grown at around 6% per year for a quarter of a century, well above other countries with traditionally strong growth such as Chile, the Dominican Republic and Peru, as well as twice the growth rate of Latin America as a whole.
For the business sector, it is urgent for the Costa Rican government to start setting deadlines in the economic reactivation agenda, and in the changes that will be made to overcome competitiveness deficiencies.
According to the II Quarterly Business Survey, there are multiple deficiencies in the topic of competitiveness. For example, businessmen were asked if they considered that there were advances in simplifying procedures and 72% of those consulted said no, while only 24% considered that positive changes are perceived.
Facing a second round of elections scheduled for April 1, private sector unions are calling on the two candidates to present their economic proposals for reducing the uncertainty that currently weighs heavily on the business climate.
A solution to the fiscal problem, and options for reducing the cost of energy and other production costs that are affecting the country's competitiveness is what Costa Rican businessmen are asking of the candidates who will face a second round of elections on April 1.
Fusades' most recent report points to the loss of 33,000 formal jobs between November 2016 and March this year, the second biggest drop in the last 25 years.
From the report by Fusades:
At the end of 2016 and early in 2017 there is clear deterioration in the country's economic conditions, which was reflected in the loss of 33,110 formal jobs between November 2016 and March 2017 and in the default of public debt in April 2017.
Although the export sector continues to denounce the loss of competitiveness because of appreciation of the quetzal against the dollar, the Central Bank insists that the exchange rate will remain dependent on market factors.
A year ago the complaint was the same.Exporters asked the Central Bank for a review of the exchange scheme to induce a devaluation that would allow them to recover some of the competitiveness lost abroad because of the exchange rate.The situation today has not changed, and exporting companies have asked for the Ministry of Agriculture to intervene in this matter.
Despite constant complaints from the export sector, the Central Bank has been clear that devaluing the Colon against the dollar would mean a reversal of the exchange rate policy.
The insistence with which exporters and tourism entrepreneurs have raised theneed to depreciate the Costa Rican currencyto recover some of the lost competitiveness in the external field was not enough to change the opinion of the monetary authority.
The Central Bank is not ruling out intervening in the exchange market when it considers that the movement of the dollar against the Colon could jeopardize keeping inflation under control.
At a time when exporting companies insist on giving more flexibility to the exchange rate in order to favor a devaluation to improve their competitiveness abroad, the central bank is standing firm in its position to intervene in the exchange rate when necessary to maintain stable inflation.
The Morales administration intends to raise the GDP growth rate from 3.8% in 2016 to 5.1% in 2021 and increase the rate of annual investment from 3.9% to 7.4% in the public sector and 4, 5% to 7.5% in the private sector.
From a statement issued by the Government of Guatemala:
The Minister of Economy, Ruben Morales explained that there are two main economic challenges in the country: addressing local challenges (poverty, young people who neither study nor work -so called "Ninis" from the Spanish "Neither-Nor" -, needs in territories, environmental degradation) and seizing global opportunities (global market, global value chains, digital world).
Exporters resent the strength of the local currency against the dollar, which reduces competitiveness at a time when export volumes are falling.
Since the beginning of the year until mid-August, the price of the Quetzal against the dollar has gone from Q7,63 per dollar to Q7,50, a difference of 13 cents resulting in a decrease of competitiveness for exporters and sectors that generate revenue in the US currency.
Strong growth of remittances and savings in the oil bill are two of the factors responsible for an increase in the supply of dollars which is putting downward pressure on its price against the quetzal.
Appreciation of the Guatemalan currency against the US currency is also due to lower demand for dollars in the local market, according to statements made by the president of the Bank of Guatemala to S21.gt.