Costa Rica rehabilitating its reputation.

On May 9, 2006, Costa Rica's newly elected (by the narrowest of margins) president took office. Many observers feel that he was elected by virtue of his reputation-as a winner of the Nobel Peace Prize (1987). He won the prize on the strength of his efforts at mediating the end of several civil wars in the Latin American region.

He will need all of his skill as a negotiator to extricate Costa Rica from the mire of ongoing corruption scandals that have blackened Costa Rica's international reputation and undermined foreign investor confidence-not to mention consumer confidence in Costa Rica itself.

The main problems for consumers are inflation and the potential loss of job creation for a lack of investor enthusiasm. The reason that consumers have been so negatively impacted by the scandals is succinctly described in a May 2005 report on Costa Rica by the respected Rabobank (Utrecht). "The corruption scandal has eroded public confidence in the government, which reduced public support for fiscal reform."

The "fiscal reform" mentioned by the Rabobank involves the country's central bank and its policies on managing inflation. The end result of this complicated set of circumstances is that Costa Rica's consumers are literally short-changed on inflation.

And it shows.

Costa Rica has a history of inept management of inflation. Using International Monetary Fund (IMF) statistics, and including IMF estimates for 2006 and 2007, the average annual growth in the rate of inflation for the past 10 years is 11.2 percent-and increasing. Two of the biggest increases in the last 10 years were in 2005 when the rate of inflation surged 13.5 percent, and in 2006 when inflation is estimated to grow 13.6 percent.

The average rate of inflation for the past five years 11.7 percent.

Compare the 11.2 percent decade average increase in the rate of inflation with the same period's increase in the growth of per capita income, 4.1 percent, and the plight of Costa Rica's consumers becomes starkly evident.

Costa Rica's new president derives his mandate from his well-deserved international reputation. The Council on Hemispheric Affairs, a liberal leaning and highly respected Washington think tank (respected for its objective analyses) reminds that the three former presidents are accused of taking bribes from foreign cell phone companies.

The Council says that the new president has "ties to Mexico's telecommunications mogul." And for this reason the Council augers a watchful stance.

The Rabobank is not as worried saying that while economic policy making may be more difficult, "We believe the corruption scandals are temporary and do not have a substantial and structural impact on Costa Rica's fundamentals." And it forecasts only a "moderation of economic growth."

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