VZCZCXYZ0079
PP RUEHWEB

DE RUEHSJ #2004/01 2542201
ZNR UUUUU ZZH
P 112201Z SEP 06
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 6052
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

UNCLAS SAN JOSE 002004 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CEN JASON MACK 
 
E.O. 12958: N/A 
TAGS: ECON PGOV CS
SUBJECT: COSTA RICA'S INCREASING ECONOMIC INEQUALITY 
 
 
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SUMMARY 
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¶1.  The World Bank's recent report on poverty in Costa Rica 
stressed the widening gap in incomes between skilled and 
unskilled workers.  The report cited external as well as 
internal factors as the cause. The World Bank recommended 
increasing the quality of secondary education; a wiser, more 
targeted use of Costa Rica's limited fiscal resources; and 
more open trade policies.  Two Costa Rican cabinet ministers 
echoed these recommendations.  Costa Rican officials appear 
fully aware of the negative consequences this widening income 
gap could bring, but it remains to be seen if the current 
government can deliver the needed changes.  End Summary. 
 
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INCOME GAP IS WIDENING 
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¶2.  On August 31, a World Bank delegation, headed by Director 
for Central America Jane Armitage, presented a report about 
Costa Rican poverty titled "Recovering the Momentum in the 
Fight Against Poverty" to representatives from the GOCR, 
various non-governmental organizations, and members of the 
local diplomatic community.  Highlighting the list of 
speakers at the conference were Finance Minister Guillermo 
Zuniga and Housing Minister Fernando Zumbado. 
 
¶3. The report notes that although Costa Rica stands out 
amongst its Central America peers in almost every 
socioeconomic indicator, Costa Rica,s fight against poverty 
stalled after 1994. From 1989 to 1994 Costa Rican poverty 
rates dropped from 32% to 23%.  However, during the following 
ten years, despite modest economic growth that averaged 2.4% 
of GDP per year, Costa Rican poverty began inching up to the 
current level of 24%. As the fight against poverty stalled, 
increased income inequality developed between educated, 
skilled professionals and unskilled laborers. 
 
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WHY IS COSTA RICA BACKSLIDING? 
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¶4. According to the World Bank report, changes in the world 
economy as well as conditions within Costa Rica explain much 
of what ails the Costa Rican poor.  Externally, the world 
economy is demanding fewer unskilled workers from 
middle-income countries such as Costa Rica.  At the same 
time, Costa Rica has been producing increasing numbers of 
these workers.  The World Bank faults deficiencies in the 
Costa Rican educational system, especially at the secondary 
level, for much of the increase in unskilled workers.  These 
deficiencies are both in the funding of the school system and 
the quality of education offered.  Costa Rican spending on 
education is more highly skewed toward primary education than 
secondary education, in comparison with its neighbors. 
Compared to other Latin American countries that spend a 
similar percentage of GDP on education, about 5%, Costa Rica 
only graduates about 53% of its youths from high school as 
opposed to 64% in the other countries.  A recent report by 
the Costa Rican Ministry of Education indicated that even 
with a high school diploma, a Costa Rican worker could expect 
to earn less than half the salary of a college-educated 
professional. 
 
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WORLD BANK RECOMMENDATIONS 
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¶5. The report made several recommendations.  Obviously, 
increasing the quality of secondary education was considered 
crucial.  Also, the government should provide job skills 
training for older workers.  The government should strive to 
lower the number of people who fall through the social safety 
net Costa Rica tries to provide to its poorest citizens. 
Recognizing the fiscal bind Costa Rica is in, the report 
suggests streamlining the social service system, making it 
more efficient by avoiding duplication of service. 
 
¶6. The World Bank report also suggests greater investment in 
infrastructure, strengthening the financial sector, and 
opening of markets (without specifically mentioning CAFTA) as 
ways to fight poverty.  However, during a related interview, 
a World Bank representative did stress the necessity of CAFTA 
for Costa Rica's poor as well as fiscal reform to fund 
poverty eradication projects. 
 
¶7. The Costa Rican cabinet ministers both called for fiscal 
reform to help fund poverty-eradicating projects.  Housing 
Minister Zumbado called for a return to the commitment to 
economic equality Costa Rica once possessed, listing several 
social programs that he believed served the Costa Rican poor 
in times past. 
 
¶8. COMMENT:  Costa Rica has always taken pride in its 
relative economic equality in comparison to its regional and 
hemispheric neighbors.  However, the benefits of this more 
egalitarian society are starting to erode.  Costa Ricans in 
general are uneasy about this growing income disparity and 
how it could deteriorate security and general livability. 
Costa Rican contacts in recent weeks have also acknowledged 
to us the weaknesses in the educational system, an historic 
strength and source of Tico pride.  Recognizing these 
problems is only the first step, however.  The Arias 
government will need to take action if Costa Rica is to help 
the increasing number of poor being left behind.  END COMMENT. 
 
LANGDALE