Five things multinationals should know about Costa Rica’s elections

Costa Rica has spent much of its independent history unique to many of its Central American peers. It has been renowned for its democratic institutions, has featured a relative lack of political uncertainty, and has posted consistent economic growth.

While the first of these key characteristics is in robust health, the second (lack of political uncertainty), is mounting ahead of the presidential elections that will take place on February 4, as voter apathy is at an unprecedented level and anti-establishment candidates are leading in the polls with no clear front-runner. Finally, the third major characteristic (consistent economic growth), could be threatened depending on the outcome of the presidential election, which will go a long-way to determining how and if Costa Rica will be able to confront its mounting fiscal crisis.

With this context in mind, here are five key things that MNCs should understand about the upcoming elections in Costa Rica:

  • There will most likely be a second-round election on April 1: One clear trend in the presidential polls is that it is a very crowded field of candidates. No single candidate has garnered more than 20% of voter support since October, according to the University of Costa Rica’s CIEP-ECP poll. The two leading candidates in January’s poll, Fabricio Alvarado and Juan Diego Castro, captured only 17% and 16% of voter support, respectively. A presidential candidate would need to win 40% of the first-round vote to avoid a second round. Thus, it is very unlikely one of the candidates will reach this threshold.

Source: Frontier Strategy Group Analyst

  • The Cementazo scandal is playing a major role in voters’ support for different candidates: The Cementazo scandal (in which Costa Rican officials allowed imports of cost-free cement from China without the official approval of the legislature) has engulfed all three branches of the government in an abuse of power investigation with echoes of Brazil’s Odebrecht scandal. Costa Rican voters have thus called corruption one of the country’s biggest problems. This has helped propel anti-establishment candidates such as Juan Diego Castro and Fabricio Alvarado to the top of the polls
  • Juan Diego Castro could prove a disruptive candidate if elected: Much of the Costa Rica media has likened Castro to Donald Trump because of his general distaste towards traditional politicians and his perceived failures of the Costa Rican state. However, what might become concerning is Castro’s overt criticism of Costa Rica’s separation of powers, premature cries of fraud by the country’s Supreme Elections Tribunal, and threats of censuring major media outlets (including the leading newspaper, La Nación). According to current polling numbers, Juan Diego Castro is likely to reach the second-round of the elections. However, most of the political and civil establishment will probably rally against Castro in the second-round. He also lacks a strong enough power base to be a truly radical head of state
  • Costa Rica’s economy will continue to outperform the regional average in 2018 in almost all electoral scenarios: FSG does not expect a major deviation from our forecast of 3.7% growth in 2018. External factors – namely the strength of the United States’ economy – are playing a larger role in economic performance in the short-term than domestic policy. However, the election will be critically important for the country’s medium- and long-term outlook
  • Fiscal consolidation strategies vary by candidate: Each major presidential candidate admits that Costa Rica’s fiscal deficit (6.1% of GDP in 2017) is a problem that needs to be fully addressed. MNCs should take note of each candidate’s strategy in the table that is outlined below

Actions to take

Taking these factors into account, MNCs should consider these two actions:

  • Pursue a financial hedging strategy to protect against currency volatility if Juan Diego Castro outperforms polls. Even though the Costa Rican colón is a moderately stable currency, there could be some volatility in the event that Castro strongly outperforms the most recent polls. In addition, a second-round runoff between the two anti-establishment candidates – Castro and Fabricio Alvarado – could result in medium-term currency depreciation
  • Stay the course in 2018 as risk to the country’s shortterm growth prospects is minimal: Factors independent of this year’s presidential election will have a much bigger impact on economic growth than the election itself. More crucial signposts to watch are: United States growth, Costa Rican coffee production, sovereign bond yields (as a proxy for when market sentiment on Costa Rica turns negative), and tourism revenue

FSG will continue to monitor the developments leading up to and following the election on February 4.


For our latest updates and insights, FSG clients can visit the client portal or contact their Client Services Director for more in-depth briefings. Not a client? Please contact us to learn more.

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