Costa Rica Presidential Race Tied as Scandals Hurt Party

Costa Rica’s presidential race is in a statistical tie with a third of voters undecided after corruption scandals and historically high unemployment undermined President Laura Chinchilla.

Johnny Araya of the ruling National Liberation Party has 17.4 percent support in the Feb. 2 election among likely voters with Jose Maria Villalta of the Broad Front party at 14.4 percent, according to a poll by the University of Costa Rica published yesterday. About 33 percent of the 802 people surveyed were undecided. The margin of error was 3.46 percentage points.

Unemployment averaging 10 percent the past two years and a series of resignations tied to accusations of corruption pushed Chinchilla’s approval rating to 9 percent, the lowest among 17 Latin American leaders, according to a 2013 survey by Mexico City-based pollster Consulta Mitofsky. With a candidate needing 40 percent of the votes to win outright, Araya may become the first ruling party candidate to face a runoff since 2002.

“There is a widespread perception among the voting population that there’s a lot of corruption and they want to throw the bums out,” said Jefferson Finch, an analyst with the Eurasia Group, a political risk consultancy.

Finance Minister Fernando Herrero resigned in 2012 after newspaper La Nacion said he avoided paying property taxes, a charge he denied. The transportation minister also resigned that year over alleged corruption on a road project. Last May, the communications minister resigned and Chinchilla fired her anti-narcotics chief and a deputy minister after questions arose about her use of a private jet to fly to Peru.

Political Family

Araya, the 56-year-old former mayor of San Jose, can still count on his party’s organization to overcome frustration with Chinchilla, Finch said. Araya’s uncle, Luis Alberto Monge, was Costa Rica’s president from 1982-1986 and his brother Rolando lost a bid for the presidency in 2002.

Chinchilla, who isn’t eligible to run for re-election, oversaw a $45 billion economy that registered record-low inflation and is projected to grow 4 percent annually the next two years from 3.5 percent in 2013, according to Fitch Ratings.

That record isn’t enough to boost Araya, who has proposed scrapping the country’s 13 percent sales tax and replacing it with a higher value-added tax to increase revenue after the budget deficit rose to an average 4.4 percent of gross domestic product in the 2009-2013 period, up from about 1 percent in the previous four years.

Bond Returns

Press officials in Araya’s campaign declined to comment when called by Bloomberg News. Chinchilla’s spokesmen didn’t respond to e-mailed messages sent while the president was attending a summit in Havana.

Villalta, a 36-year-old lawmaker, said in a Jan. 14 interview that he would reduce tax deductions for companies and boost salaries for some public workers, calling concern about the fiscal deficit “alarmist.” He also said he would re-negotiate parts of the country’s free-trade agreement with the rest of Central America and the U.S.

A second-round vote, if needed, would take place April 6.

Costa Rica’s dollar bonds have returned 5.7 percent since Chinchilla came to office in May 2010, compared with a 28 percent return for Central American and Caribbean debt over the same period, according to JPMorgan Chase & Co.’s CACI index. The notes are down 2.3 percent this year. Moody’s rates the country Baa3, the lowest investment-grade level, putting it in the same category as Indonesia and Spain.

“The market is seeing a second round in which there is no clarity,” said Miguel Gandolfo, an emerging markets analyst at F&C Asset Management Plc in London.

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