Costa Ricans Dig Out

Bastion of democracy bucks economic headwinds after big quake. Costa Rica

A POWERFUL earthquake struck Costa Rica last April, killing dozens of people and injuring hundreds. Adding to the severe human impact was broad economic damage that sent tremors through the international banana market.Prices shot skyward when the quake cut off the world's second-largest banana exporter from its shipping center - the port city of Limon. The 18-wheel trucks belonging to Chiquita, Dole, and Del Monte still must slow to a crawl, but the corrugated steel road to Limon is passable now. The bridges are mostly fixed and the docks functioning - albeit at reduced capacity. It is unclear what long-term impact the quake will have on plantation water tables. But four months after the huge temblor, this rusting port city still awaits something more than makeshift repairs. Drinkable water is in short supply. "When it comes to Limon, the government of Costa Rica offers but doesn't give," says Jilma Nunez, an octogenarian store clerk. Known as the "Appalachia" of Costa Rica, Limon has long been last to share in the wealth of this advanced Central American nation. Even the recent boom in ecotourists flocking to the mist-wreathed rain forests has mostly bypassed Limon. The odd surfer passes through, but that trade has also suffered. The quake lifted chunks of the Atlantic coast up as much as a meter, ruining some surfing beaches. "Now that's an enduring tragedy," laments an intinerant Australian surfer. But though little can be done about the coastline, there is expectation that permanent repairs to Lims infrastructure may soon get underway. The InterAmerican Development Bank is redirecting some $20 million in loans, and in July the Costa Rican government sprung $95.6 million from an already tight budget, for infrastructure repairs and credits. Nonetheless, it is a difficult period of rebuilding for Limon and the national economy. Government finances were already in poor shape when the quake hit. Imports were up sharply and government spending was far higher than revenues when President Rafael Angel Calderon Fournier took office last May. The public-sector deficit had mushroomed to 5.2 percent of gross domestic product (GDP) and was heading for 7 percent in 1990. At the behest of foreign creditors, Mr. Calderon is adopting austerity measures. He is reducing the growth of government spending, cutting federal jobs (17 percent of the work force), boosting tax revenues and hiking telephone and electricity rates. "The emphasis this year is not economic growth, but on putting public finances in order," says Eduardo Lizano, head of Consejeros Economicos y Financeros, a San Jose economic consulting firm. Last year, the economy grew at a rate of 3.6 percent. This year, the Central Bank predicts 2.5 to 3 percent. Mr. Lizano says 1.5 to 2 percent is more likely. "This is the year of hardball measures," says a US official. Costa Rica's agreement with the International Monetary Fund is to slash the public-sector deficit from 5.1 percent of GDP in 1990 to 0.5 percent this year. Few believe this is possible, but Lizano says that because of the earthquake the IMF may allow a deficit of 1 to 1.5 percent. The belt-cinching has been hard on this long-time bastion of democracy, which has enjoyed the strongest economy and best social services in Central America. Until this year, Costa Rica's growth rate had been unmatched. Polls show the president's popularity rating plummeting. "Calderon is a lousy president," grumbles Enrique lvarez, a restaurant owner in downtown San Jose. "My costs are going through the roof." At current rates, inflation will not be much less than the 27 percent level of last year. In August, the minister of economic planning quit over policy differences, and the minister of public security left, apparently due to poor handling of a July riot by disgruntled street vendors in San Jose. But many private economists here praise Calderon. They note that the unemployment rate has climbed only to a modest 5.5 percent. In July, the government successfully renegotiated part of its $3.27 billion foreign debt. International capital reserves are up and the trade deficit is improving. These economists argue that Calderon must act forcefully now to bring government finances under control because next year may be too late. The new 13 percent sales tax drops to 12 percent next year and slips to 11 percent the year after. The 1991 surcharge on imports will be gone next year. "Calderon is making advances, but next year he'll have less to spend," Lizano says. "The political problems will be very tricky in 1992." In one respect, the April quake may have helped Calders cost cutting by redirecting the river supplying water to the state-owned Recope oil refinery near Limon, effectively shutting down the old facility. Government officials say imported products cost less than those produced at the plant. But Recope unionists have so far prevented the refinery's final closure or sale. The cost of returning it to operation strengthens the case against reopening it. No decision has been made yet on its future. Apart from discouraging a few surfers, the April quake has scarcely dented the rising tide of tourists heading for the dense jungles, soaring volcanoes, white water rivers, and balmy beaches. A world-leader in ecological preservation, Costa Rica is capitalizing on the 13 percent of its land area designated as protected. "Tourism now ranks in third or fourth place in foreign-exchange earnings," says Ligia Maria Castro, a Central Bank economist. The development debate now, she says, is whether to promote beaches or rainforests. Ecotourists are fewer, but bigger spenders - shelling out up to 10 times more than sun worshippers.