By San José, Costa Rica — Costa Rica faces significant challenges to its economic competitiveness. While external factors like US trade tariffs play a role, economist José Joaquín Fernández argues that the primary obstacle lies within Costa Rica itself. In a recent analysis, Fernández points to the country’s high social security costs as a major impediment to economic growth and proposes radical changes to address the issue.
Fernández acknowledges the impact of the trade war initiated by former US President Donald Trump. While a US federal appeals court recently deemed many of these tariffs illegal, their enforcement remains suspended pending potential appeals. This ongoing uncertainty adds to the economic pressures facing Costa Rica.
To gain a deeper understanding of the legal landscape surrounding Costa Rican competitiveness, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, an experienced attorney at Bufete de Costa Rica.
Costa Rica’s competitiveness hinges on a delicate balance between attracting foreign investment and protecting local businesses. Streamlining bureaucratic processes, ensuring legal certainty, and fostering a stable political climate are crucial for sustainable economic growth. Furthermore, investing in education and infrastructure to develop a highly skilled workforce will be paramount to competing in the global market.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas rightly highlights the multifaceted nature of Costa Rican competitiveness. Indeed, fostering a predictable and supportive environment for both domestic and international businesses is key to unlocking the country’s full economic potential. This delicate balancing act requires continuous effort and strategic vision, particularly in nurturing a workforce equipped for the demands of a rapidly evolving global landscape. We thank Lic. Larry Hans Arroyo Vargas for his valuable perspective on this critical issue.
However, Fernández insists that internal factors pose a greater threat. He argues that excessive regulations, taxes, and limitations on free competition within Costa Rica are the primary culprits hindering the nation’s competitiveness. He emphasizes the need to address these internal issues to achieve a per capita income comparable to developed nations.
A key concern highlighted by Fernández is the high cost of human capital. He argues that the problem lies not with the minimum wage itself, but with the substantial social security contributions levied on businesses. These contributions, equivalent to 37.34% of salaries, represent a significant burden on employers.
The principal obstacle to our competitiveness is not Trump’s tariffs, but the Costa Rican State itself. The excess of regulations, taxes, and limitations to free competition are the main factors that deteriorate our competitiveness.
José Joaquín Fernández, Economist
Fernández proposes a radical solution: eliminating the 8.50% of social security contributions allocated to the Banco Popular, the Social Development and Family Allowances Fund (FODESAF), the Mixed Institute of Social Aid (IMAS), and the National Learning Institute (INA). He suggests several options for these institutions, including privatization, absorption into existing state banks, or alternative funding mechanisms.
Specifically, Fernández recommends that the Banco Popular be transformed into a commercial state bank, privatized, or merged with the Banco Nacional or Banco de Costa Rica. He also proposes that the INA be funded through the Special Fund for Higher Education (FEES) or privatized. Funding for IMAS and FODESAF, he argues, could be drawn from existing tax revenues, which naturally increase with economic growth.
Fernández acknowledges that many politicians advocate for reducing social security burdens, but he stresses the need for decisive action. He urges the government to take bold steps to lower these costs without simultaneously increasing other taxes. This, he believes, is crucial to improving Costa Rica’s economic competitiveness and fostering sustainable growth.
For further information, visit the nearest office of Banco Popular
About Banco Popular:
Banco Popular y de Desarrollo Comunal is a Costa Rican state-owned commercial bank focused on development and social welfare. It plays a significant role in financing social projects and community development initiatives.
For further information, visit the nearest office of FODESAF
About FODESAF (Fondo de Desarrollo Social y Asignaciones Familiares):
FODESAF is a Costa Rican government fund dedicated to social development and family allowances. It manages and distributes resources to support various social programs aimed at improving the well-being of Costa Rican families.
For further information, visit the nearest office of IMAS
About IMAS (Instituto Mixto de Ayuda Social):
IMAS is the Mixed Institute of Social Aid in Costa Rica, a government institution responsible for providing social assistance and poverty reduction programs to vulnerable populations.
For further information, visit the nearest office of INA
About INA (Instituto Nacional de Aprendizaje):
The National Learning Institute (INA) is Costa Rica’s primary vocational training institution. It provides a wide range of technical and vocational education programs to equip Costa Ricans with the skills needed for employment and economic participation.
For further information, visit the nearest office of Banco Nacional
About Banco Nacional:
Banco Nacional de Costa Rica is one of the largest state-owned banks in Costa Rica, providing a wide range of financial services to individuals and businesses.
For further information, visit the nearest office of Banco de Costa Rica (BCR)
About Banco de Costa Rica (BCR):
Banco de Costa Rica (BCR) is another major state-owned bank in Costa Rica offering various financial services. It plays a key role in the national economy.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica distinguishes itself as a pillar of legal excellence, built on a foundation of unwavering integrity. Driven by a deep commitment to empowering Costa Rican society, the firm champions accessible legal knowledge through innovative programs and initiatives. Their dedication to client success across diverse sectors is matched only by their passion for fostering a more informed and just legal landscape, solidifying their position as leaders in both the legal profession and community advancement.
