Costa Rica Implements Economic Shield Program
In order to address the global economic crisis which has begun affecting Costa Rica the President, Oscar Arias has implemented an Economic Shield Program (Plan Escudo). The main components of the plan are as follows:
1. Provide priority financing to micro, small and medium size companies so that they can hold and create additional employment.
2. Approval of additional funding to the National Food Plan which would stimulate agricultural production.
3. Lobby the Costa Rican legislature to approve an extension of the Free Trade Zone law to extend the program. Under current law the program would expire by 2011 removing all tax incentives from companies located in Costa Rican Free Trade Zones.
4. Increase by 15% the Social Security Pensions .
5. Open the food for children program on weekends. The program currently feeds poor children during the School week. This would expand the program to 7 days a week.
6. Flexibility in the Labor Law so that employers are not forced to lay off workers but are able to legally reduce work hours to save costs.
7. Provide additional capitalization of $117.5 million to the National Banking system. In Costa Rica the two largest banks are Government owned banks (they have been government run since 1948).
8. The National Bank has implemented the following: (a) reduced by 2% points all mortgage loans on loans of $100,000 or less. Lowered by 2% all business development loans made to micro and medium size companies. The bank estimates this will assist more than 100,000 of its customers. (b) Provide new capital to the production center of the economy i.e. business that produce or manufacture. (c) Loan Consolidation. All customers with good credit rating of the national banks may consolidate all their debt obligations into one single mortgage loan with one single payment. (d) Low income housing bonds. Provide a line of credit to the Housing Development Agency to issue social housing bonds. These are designed to provide low income housing to the poor. (e) Syndicated loans for mega projects in the export, tourism or construction fields to assist in reactivating the economy. (f) Financing Public Works projects to reactivate the construction sector.
In a full page ad published on February 6th, 2009 the Banco Nacional de Costa Rica the largest bank in Costa Rica acknowledged that during its 95 year history it always envisioned banking as a “social activity that must be developed in combination with a rigorous financial administration of the funds of the depositors” with its social responsibility of promoting small and medium industries and provide economic opportunity for the population.
It appears that the core of the Costa Rican economic program is to shore up the middle core of the economy i.e. the middle class and the manufacturing and productive sectors of the local economy.