2. The corporate governance landscape

Costa Rica has been able to combine strong economic performance with rising living standards and a sustainable use of natural resources. In the past three decades, real GDP per capita has nearly doubled as the economy evolved from a rural and agriculture-based economy to one with high value-added industries linked to global value chains. Value-added is generated mainly in the service sector with 73% of total value added followed by industry and construction (21%) and the primary sector (5%).2 The process of opening up to international trade and attracting foreign direct investment that started in the early 1980s has diversified the country’s production, boosted exports and improved labour force utilisation.

Costa Rica provides virtually universal access to health care, pensions and education. It has low poverty by Latin American standards, low infant mortality and a life expectancy of 80 years, which is close to the average of the OECD. Its well-being indicators3 are comparable or even above the OECD average on several dimensions. Costa Rica is also a leader in environmental sustainability. It has built a world-renowned green trademark and a strong eco-tourism industry based on judicious management of natural resources focusing on forest protection and renewable energy sources.

There are, however, a number of significant economic challenges, including anti-competitive regulations, high labour market segmentation, and stubborn unemployment. Inequality is high with approximately 43% of workers holding informal jobs. In spite of high education spending, outcomes are poor and overly complex regulations hold back entrepreneurship and innovation. The budget deficit exceeded 5% of GDP for the past five years and, as a consequence, central government debt soared from less than 25% of GDP in 2008 to 49% in 2017. These challenges and the public deficit have factored into the downgrading of Costa Rica’s debt to below investment grade. The OECD Economic Survey 2018 concludes that, in order to ensure sustainable and inclusive growth, Costa Rica should focus on:

  1. 1. Improving macroeconomic stability (by reducing the budget deficit, streamlining public sector employment, and depoliticising the governance of the Central Bank among others);

  2. 2. Making growth more inclusive; and

  3. 3. Boosting productivity growth (by enhancing competition, reducing unnecessary bureaucracy and barriers to entrepreneurship, and innovation among others).

A key component of boosting productivity should be structural reforms that focus specifically on competition and the corporate governance of state-owned enterprises (SOEs). Though corporate governance of listed companies should not be lost from sight, SOEs play a far more significant role in the Costa Rican economy than equity listings which are both low in number and small in proportion to GDP.

A simulation undertaken for the OECD Economic Survey of the potential impact of some of the structural reforms suggests that improvements in the governance of SOEs could yield an increase of as much as 1.1% of GDP per capita. The removal of anti-trust exemptions (the enhancement of competition and the creation of a level playing field) could potentially improve GDP per capita by 0.5% and improved insolvency procedures could yield an improvement of up to 5.4%. The improvement in the employment rate is projected to be 0.3%, 0.2% and 1.1% respectively for the aforementioned reforms.4

The fragmented institutional framework for public sector institutions, highlighted in both the OECD Economic Survey (2018) and the OECD Public Governance Review of Costa Rica (2015),5 also has implications for the SOE sector. Many government institutions, as well as SOEs, have independent budgets which are not approved or vetted by the Legislative Assembly, but only reviewed by the Comptroller General and the Ministry of Finance from a legal and compliance perspective. Transfers to SOEs are automatic (earmarked) and ensured by separate legislation to avoid day-to-day political interference in the management of SOEs. An advantage of earmarking is that it protects resources for programmes or services, while a drawback is that it may contribute to budgetary rigidity and create economic distortions.6 The OECD Economic Survey (2018) concludes that the use of legally mandated spending and earmarking of government revenues in Costa Rica is excessive.

All trading of equities and bonds in Costa Rica occurs on the National Securities Exchange (Bolsa Nacional de Valores, BNV).7 Most of the issues traded on the BNV are in the form of bonds. Like many other securities exchanges, the BNV is experiencing decreasing interest in equity listings consistent with international trends and an increasing use of alternative investment vehicles. Prior to 2016, the BNV had sought to combat this trend through a 4-year initiative to promote the capital market. A strong government commitment and a willingness to list some of Costa Rica’s largest SOEs on the BNV was advocated by some stakeholders as necessary for the market to grow.

The BNV has been conscious of the role of good governance in the establishment of a successful capital market. It has actively promoted good governance practices in an effort to raise the quality of the market and make it more attractive to investors. The BNV partners with the Costa Rican Institute of Corporate Governance (ICG) to whom it provides an annual stipend to organise conferences, train companies and investors, and provide other assistance in the area of corporate governance.

A total of 41 different national issuers use the BNV for equity or bond issues. Only 10 of these use the BNV for equity financing and none of these are SOEs or SOE banks. The other 31 entities referred to above use the BNV to raise capital through bond issues.8

The overriding significance of the bond market is clear when one considers the value of the different types of issues on the BNV. The total value of national bond and share issues combined was approximately USD 71 billion as of 31 December 2019 with 99.4% of the value raised in the form of bonds and the remaining 0.6% in the form of equity. Seventy-seven percent of the total issued was denominated in Costa Rican colones with the remaining 23% denominated in US dollars.9

The most common profile of an issuer on the BNV is that of a private financial institution (21 of 41 issuers). However, in terms of value, the bond market is dominated by public institutions. The Costa Rican Ministry of Finance and the Central Bank combined make up approximately 85% of the total bond value issued on the BNV with non-financial SOEs and SOE banks representing an additional 4% of the total value issued. All other issuers combined represent only 11% of the value of national bond issues. The corporate bond market is, thus, comparatively small, with SOEs, in turn, representing only a fraction.

Most share issuers on the BNV are active in the financial sector and tend to be closely held and of modest size. Some are subsidiaries of large international groups such as Holcim, which is part of Lafarge Holcim, a global leader in cement.

Limited demand and easy access to finance have led to a decrease in the number of companies whose shares are publicly traded from a high of 31 in 1994 to 10 in 2018.10 Costa Rica’s equities market is small both in nominal terms and as a percentage of GDP, and is not generally considered an investable market by large international institutional investors. Table 2.3 below provides a comparison of the size of the equities market for other recent candidates for OECD accession as well as selected Latin American countries.

The small size of the equities market is a result of several factors. For one, Costa Rica’s economy is dominated by family-owned businesses and SMEs that have not needed to access the equities markets. In addition, alternative financing is available at competitive rates from private and state-owned banks as well as private equity investors. Table 3.5 below illustrates the availability of alternative sources of finance from Banks and Financial Intermediaries (BFIS). Securities markets are comparatively small with assets representing only 1.36% of GDP.

It is worth noting that the role of the state within the BFIS category is significant. State-owned banks, banks operating under special charters by the state, and savings and loan co-operatives provide the preponderance of lending with correspondingly less lending provided by the private sector.

A crucial question with respect to Costa Rica’s equities markets regards their ability to serve as a price discovery mechanism. OECD Principle III.G suggests that “Stock markets should provide fair and efficient price discovery as a means to help promote effective corporate governance.” Price discovery depends on a variety of factors, principally the number of buyers and sellers in a market, the number of shares for sale, and the number of transactions in a given trading period. Each of these factors is limited in Costa Rica.

A significant limitation to price discovery is the limited number of share transactions on the BNV. For most listed companies, weeks and even months may pass without any buying or selling. In 2019, one company (Corporación Davivienda Costa Rica S.A.) had no trading activity at all. Of the total trading volume of USD 40.9 million for 2019, 81% was in Florida Ice & Farm Company S.A. (FIFCO) with the next most traded company being Holcim Costa Rica) with 7.4%. Average monthly trading volume for the entire BNV was USD 3.4 million for 2019. However, the average is misleading since it mainly reflects trading in FIFCO shares. The median trading volume for individual companies is nominal during most months. Median monthly trading volume for the entire BNV was USD 2.5 million in 2019. It is important to put this figure in perspective. The Russell Europe Small and Mid-cap (SMID) 300 Index excludes all company shares below an average daily trading volume (ADTV) of EUR 2 million.11

Another limitation is that Costa Rican companies generally have limited free float. Free float refers to the number and proportion of shares easily available to buyers for investment. As a point of reference, the eligibility criterion for a stock to be considered for inclusion in the S&P 500 is that the public float needs to be at least 50% of the security. The companies with the highest free float in Costa Rica are Florida Ice & Farm Company S.A., La Nación and Grupo Financiero Improsa. In most other companies, the free float is nominal. In fact, the figures in the table below overstate the free float since investors in Costa Rican listings tend to retain their holdings for extended periods of time with the consequence that shares are not generally available to the public for purchase.

The figures in Table 2.6 above also show that ownership in traded companies is highly concentrated. Most listed firms have a dominant shareholder associated with a family and a holding company group. As a consequence, the governance challenges that Costa Rican listed enterprises face are closely associated with concentrated ownership i.e. the protection of minority shareholders. This contrasts with the governance issues that arise under dispersed ownership where the challenge of aligning the interests of managers and shareholders dominates. Anecdotal evidence suggests that many BNV issuers face governance challenges. The governance challenges that typically confront family-owned enterprises are: 1) professionalising management after the founding generation; 2) suspicion of transparency and disclosure practices; 3) non-transparent related party transactions that favour family and friends; 4) a general reticence to relinquish control by opening the share capital; and 5) conflicts with minority shareholders regarding the fair pricing of shares.

An additional limitation to the market’s capacity to act as a price discovery mechanism is the total number of buyers and sellers. In Costa Rica, in some cases, there may only be a single investor trying to buy or sell at a particular time. Though formal data is scarce, some analysts suggest that listed companies have a highly restricted number of shareholders and that the number of Costa Rican retail investors who invest in BNV equities is small. For most Costa Ricans, equities are not used as a tool for savings, investment or retirement planning. Retail investors appear to prefer the safety of government bonds and more liquid and diversified investment funds.

Minority shareholder protection is an area where there is potential for improvement. According to the 2020 World Bank Doing Business Report, Costa Rica ranks 110th among 190 economies on the strength of its laws and regulations for protecting minority investors, lower than Latvia and Lithuania, two recent OECD accession candidates who have become members, ranked 45th and 37th respectively. Overall, the data show that Costa Rica tends to approximate the regional average while falling somewhat short of the OECD high income average.

Costa Rica has aligned its governance regulations with the OECD/G20 Principles of Corporate Governance through the development of its new Corporate Governance Regulation (Reglamento de Gobierno Corporativo), promulgated by the National Council of Supervision of the Financial System (Consejo Nacional de Supervisión del Sistema Financiero—CONASSIF). The CONASSIF Governance Regulation came into force on 7 June 2017.

The CONASSIF Corporate Governance Regulation was designed to include all of the essential elements of the G20/OECD Principles and much of its language has been directly transcribed from them. The Governance Regulation is wide ranging and covers all entities operating in the financial markets including banks, listed companies, state-owned banks, state-owned enterprises making bond offerings, pension funds, insurance, institutional investors and market operators.

Costa Rica has been implementing the Governance Regulation using a risk-based supervisory approach. Globally, RBS is a regulatory approach used mainly to regulate banks and other financial institutions. It is a comprehensive, formal, and structured process that assesses risks and focuses on the resolution of those risks. RBS is closely associated with the concept of proportionality. Proportionality is an approach whereby supervisors’ expectations are adjusted as a function of the characteristics of each supervised entity. RBS is often contrasted with rules-based regulation (or “merit-based” or “compliance-based” supervision), which is a method of regulation that focuses on checking and enforcing compliance with rules, legislation, regulations and policies. While securities exchange regulators may employ some risk-based approaches, they traditionally rely more heavily on ensuring rules compliance and disclosure.

Costa Rica’s Self-Assessment recognises that RBS is not generally used by exchange regulators and that banking, pension and insurance supervisors can have interests that differ from securities market supervisors. During the initial stages of the Costa Rica accession review, it was not clear how RBS would be applied in practice. Listed companies had expressed concerns regarding, in particular, the potential for an arbitrary application of rules. Yet, as of mid-2019, there was growing evidence that both regulators and companies had worked in good faith to develop common sense solutions and that the implementation of governance practices through RBS was having a positive impact.

Despite this important advance, Costa Rica will need to be attentive in coming years to how to make RBS work in practice for equity listings. The continuing concern expressed by companies is the potential for an arbitrary application of rules and the absence of clarity that they had become accustomed to under compliance-based regulation. Companies are particularly concerned that the application of rules, which appears to have been measured and reasonable to date, could change with a change in the leadership of the securities supervisor or in the political administration. From a supervisory perspective, there are questions regarding how elements of the new Governance Regulation will be enforced and when and how to eventually apply sanctions and/or fines.

Costa Rica has an extensive set of laws, decrees and regulations that provide the framework for the governance of both private and public sector enterprises amongst which are the Constitution, the Code of Commerce, voluntary codes of corporate governance and CONASSIF regulations.12

The Constitution of Costa Rica was approved on 7 November 1949, after the civil war of 1948. The Constitution defines key parameters of SOE governance on the broadest level.

Regarding the powers of the Presidency, Title X establishes the executive branch and the powers of the President of the Republic and the Council of Ministers. The Council of Ministers is composed of the President and the Ministers. Title XIII regulates the approval and execution of budgets and the functions of the Comptroller General and the Ministry of Finance.

Several titles and articles deal specifically with the corporate governance of state-owned enterprises. Title XIV regulates autonomous institutions (instituciones autónomas), which enjoy independence from the state in their governance and administration. This is the main form that SOEs take in Costa Rica. They include state banks, state insurance companies and any new bodies established by the Legislative Assembly by a two-thirds vote.

The Constitution also regulates some aspects of potential conflicts of interest within SOEs. For example, under Article 112 legislators cannot have direct or indirect economic relations with the state or act as board members or managers in companies that contract with the state or any of its institutions.

Competition issues and the establishment of state monopolies are addressed under Article 46, which prohibits any act that threatens or restricts the freedom of trade. It establishes the public interest in preventing monopolistic practices and requires that any company acting as a monopoly be established under and subject to specific legislation. The establishment of any new monopoly requires the approval of two-thirds of the Legislative Assembly.

The Constitution also protects stakeholder rights. Consumers are entitled to the protection of their health, the environment, their safety and economic interests. They are entitled to receive adequate and accurate information, have the freedom of choice, and receive equitable treatment.

Costa Rica’s Code of Commerce was passed in 1964 and was based on the Mexican code of commerce at the time. The Code of Commerce regulates a multitude of commercial issues ranging from the types of enterprises that can legally be established (their registration, the establishment of financial accounts and accounting, general shareholders meetings, etc.) to bankruptcy and insolvency issues.

The Code of Commerce was assessed by a number of market participants during the accession review as being both outdated and poorly adapted to the needs of contemporary enterprises and economies. Companies have been able to accommodate their needs and address gaps in their corporate governance practices by changing their individual by-laws. However, this approach has limits and some changes to company law may be required, in particular with respect to the issue of the information rights of shareholders and minority shareholder protection, to accommodate modern corporate governance practices both with respect to private companies and SOEs.

Costa Rica developed its first governance code in 2007. This voluntary code was developed by the National Securities Exchange (BNV) and the Chamber of Securities Issuers (CCETV) with the aim of encouraging better governance practices. The code was used in 2009 by CONASSIF to develop its Regulation on Corporate Governance (Reglamento de Gobierno Corporativo) that was applied on a mandatory basis to financial entities supervised by the four financial Superintendencies under the supervision of CONASSIF: the General Superintendency of Financial Entities (SUGEF), the General Superintendency of Securities (SUGEVAL), the General Superintendency of Insurance (SUGESE) and the Superintendency of Pensions (SUPEN). Non-financial companies registered in the National Registry of Securities and Intermediaries (Registro Nacional de Valores e Intermediarios) administered by SUGEVAL were given a choice to either comply with the Regulation on Corporate Governance or to report against the recommendations of the Costa Rican voluntary code on a comply or explain basis.

The authority to further develop the voluntary code was given to the Costa Rican Institute of Corporate Governance (ICG) in 2011, whereupon the Board of Directors of the ICG decided that it would expand the applicability of the voluntary code to all companies in Costa Rica and not just those with issues on the BNV. The 2011 edition was replaced by a second code in 2014 that expanded its scope to include guidance for family-owned businesses and shareholders. For listed companies, CONASSIF has eliminated the alternative of subscribing to the voluntary code through its issuance of the CONASSIF Governance Regulation of 2016 that is mandatory for all financial and non-financial entities supervised by the four Superintendencies (SUGEF, SUGEVAL, SUGESE and SUPEN).

The CONASSIF Governance Regulation was passed in late 2016 and came into force in June of 2017. The regulation draws upon leading international benchmarks for corporate governance, including the instruments of the Bank for International Settlements (BIS), the International Association of Insurance Supervisors, the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the OECD/G20 Principles of Corporate Governance. Given that the regulation was modelled on the key international reference points, the result is a regulation that corresponds well with current best practices in corporate governance.

The CONASSIF Governance Regulation applies to virtually all organisations under the supervision of the four financial superintendencies including the securities market regulator SUGEVAL. It covers a wide spectrum of organisations involved in the financial markets including: 1) issuers; 2) banks; 3) market intermediaries; 4) insurance companies and 5) pension funds. It also covers a comprehensive set of governance issues including: 1) board member duties; 2) board responsibilities; 3) board composition; 4) board member profiles; 5) nominations processes, 6) documentation; 7) board evaluations; 8) conflicts of interest; 9) committees; 10) risk management; 11) audit; 12) remuneration; 13) transparency; 14) subsidiary governance; 15) shareholder rights and so on.

For companies that have equity or bond listings, SUGEVAL is responsible for reviewing and enforcing the implementation of the Corporate Governance Regulation for non-financial companies, while SUGEF handles enforcement with respect to financial entities. Financial companies issuing preferred shares are subject to enforcement by SUGEVAL in collaboration with SUGEF.

Unlike past corporate governance codes that were voluntary and were implemented through the “comply or explain” principle, the CONASSIF Governance Regulation: 1) tracks best practice more closely; 2) is more detailed; and 3) is intended to be more prescriptive. Though the regulation is mandatory, Costa Rica has been implementing the regulation using risk-based supervision that allows “proportionality” (i.e. different degrees of implementation by companies based on their specific characteristics).

In practice, the main way in which SUGEVAL is implementing the Governance Regulation is by requiring non-financial listed companies to produce and publicly disclose their codes of governance. The objective is to encourage companies to introduce best practices found in the Governance Regulation into their by-laws and other internal norms. By May of 2018, SUGEVAL had received all of the new company codes, reviewed them and provided initial feedback.

Only five equity listings fall under the regulatory authority of SUGEVAL in questions of corporate governance (FIFCO, La Nación, ILG, Holcim and Ad Astra). A further five companies with equity listings on the BNV are financial firms that fall under the regulatory authority of the SUGEF who takes the lead in the application of the Governance Regulation for financial companies (Lafise, Promerica, Cathay, Corporacion Davivienda and Grupo Improsa). SUGEF and SUGEVAL’s supervisory emphases differ though they co-ordinate their supervision of corporate governance practices.

Even taking into account SUGEVAL’s additional supervisory responsibilities for issuers of bonds, the limited number of companies permits SUGEVAL to meet with each market participant individually, discuss regulatory expectations, develop in-depth insights into company practices, and establish a working relationship with the regulated entities. The supervisor’s task in Costa Rica, thus, differs significantly from many other OECD countries where there may be hundreds or even thousands of listings that would make a one-on-one contact impossible.

According to SUGEVAL, the introduction of the Governance Regulation has had two important high-level benefits: 1) greater awareness of the proper role of boards and board members; and 2) greater sensitivity to risk. On a more practical level, non-financial listed companies now have a clearer understanding of corporate governance standards and are beginning to implement more robust governance structures. Some of the changes implemented during the accession review period were: 1) the establishment of direct channels of communication between internal auditors and boards; 2) an expanded role for and an increase in the number of meetings of audit committees; 3) improvements in by-laws; 4) greater awareness of and better management of risks; and 5) the enhancement of ethics codes among others.

Another positive impact was to encourage better organisation and clarity of governance disclosure on company websites. Previously, most companies disclosed information on their governance practices but their disclosure was often incomplete and/or disorganised. The requirement for companies to disclose their governance practices under the Governance Regulation led to an examination of disclosure practices and, eventually, a better organisation and greater user-friendliness of web pages.

The new Governance Regulation is also having an impact on the governance practices of companies with bond offerings including SOEs. One of the SOEs that is now required to comply with the Governance Regulation is the Costa Rican Petroleum Refinery (RECOPE),13 which now finds itself having to comply with a higher standard of corporate governance than before. RECOPE has reported positive changes implementing its new expanded code of ethics, but also points out that there are challenges in dealing with the conflicting requirements of the Governance Regulation and existing laws with respect to board nominations and remuneration policies. These are still set by the laws establishing RECOPE and other legislation pertaining to the public sector and supersede the Governance Regulation. Full compliance with the Governance Regulation will require a rewriting of the laws constituting certain statutory SOEs.

Despite these advances, the implementation of the Governance Regulation and the practical application of the proportionality principle raise some difficult questions. The root question was how to apply practices that were originally developed for large companies in developed securities markets to small companies in a nascent one.

An example of a more specific question was whether all the board committees typically recommended under best practice are necessary in small companies. As a result of the dialogue between SUGEVAL and the companies, it was ultimately decided that it would be difficult to constitute truly independent nominations committees in small companies controlled by family shareholders and that they would only lead to superficial compliance. The recommendation for a board risk committee also elicited significant debate amongst companies, which is illustrated in the FIFCO case in Box 2.2 below.

Questions also arose regarding show-of-hands voting and other general GSM practices. Show-of-hands voting is a method to quickly decide the outcomes of resolutions. The practice has disadvantages including: 1) show of hands requires the physical presence of voters or a physical proxy; 2) the total number of votes held by a voter is not apparent and the proportion of shareholdings cannot be taken into account; and 3) voters are unable to express their opinion in anonymity.

In addition to show-of-hands voting, concerns arose regarding meeting notices, the provision of information both before and after GSMs and other rules. Further questions arose regarding disclosure including: 1) whether companies should produce an annual corporate governance report in addition to disclosing a corporate governance code; 2) whether such a report should be part of the company’s annual report or whether it should be published separately; and 3) whether corporate governance reports should also describe issues of corporate social responsibility.

SUGEVAL has communicated to companies that many procedures, erstwhile permissible under the Code of Commerce, were no longer considered good practice. The introduction of the Governance Regulation has, thus, had the effect of encouraging a broader review of norms and practices under the Code of Commerce. Though the feedback of both companies and SUGEVAL on the introduction and implementation of the Governance Regulation is generally positive, the Chamber of Securities Issuers and Costa Rica’s Institute of Corporate Governance (ICG) take a more cautious view. The ICG had originally lobbied in favour of a completely voluntary code of governance and argued against the Governance Regulation, which it saw as overly detailed and prescriptive. Nevertheless, both the Chamber and the ICG acknowledge that the interactions between companies and SUGEVAL have been constructive and that doubts regarding implementation are being answered gradually as all parties gain experience through the implementation process.

The ICG had also expressed concern that the Governance Regulation would dissuade smaller issuers and create incentives for companies to list in more permissive jurisdictions such as Panama. Despite these concerns, no companies de-listed in the wake of the Governance Regulation. In fact, SUGEVAL reported a new bond listing that it attributed to a resurgent interest in the securities markets. This new interest was ascribed to an extended period of deregulation of the securities markets and the effect of stricter bank regulation (resulting from the implementation of Basel III), which has made securities listing comparatively more attractive.

Overall, the initial assessment of the implementation of the Corporate Governance Regulation is positive tempered with some caution. Specifically, monitoring is required of how the provisions of the Governance Regulation will be enforced, and how and when companies will be subject to sanctions if they do not implement provisions. During the initial stage of implementation, sanctions were not being applied. Rather, SUGEVAL had sought to persuade companies to develop their own responses adapted to company needs though it has not precluded the use of sanctions in the future. Progress in implementation and actual outcomes will need to be monitored for some time to come.

CONASSIF developed complementary regulations on: 1) the profiles and aptness of board members and executives; and 2) operational risk management. The first is entitled Regulation on the Suitability of Members of the Management Body and Senior Management of Financial Entities (Reglamento sobre Idoneidad de los Miembros del Órgano de Dirección y de la Alta Gerencia de las Entidades Financieras), which entered into force on May 4, 2018. This regulation is narrower in scope than the CONASSIF Governance Regulation in that it applies only to organisations under the supervision of SUGEF, including state-owned and private banks. It focuses principally on defining the needed profiles of board members and executives of banking organisations. The regulation focuses on: 1) board member honesty, integrity, reputation and experience; 2) the fit of the board member profile with the needs of the bank; 3) the maintenance of information on the profiles of board members; 4) self-evaluations by boards; and 5) external evaluations of boards by SUGEF. The regulation does not permit the regulator to reject or remove a board member of a state-owned bank nominated by the Council of Ministers.

In addition, the Law on Consolidated Supervision of 2019 (Law 9768), widens the authorities of financial supervisors and establishes their power to recommend the removal of board members under certain circumstances. The law establishes the power for bank regulators to recommend the removal of board members when omissions or actions contrary to laws and regulations that threaten the security, stability and solvency of the entity, as well as when breaches of eligibility requirements occur and are duly substantiated. Similar powers are found in the regulation of some OECD member countries where the circumstances under which board members can be removed are carefully defined and circumscribed to prevent potential abuse.

The second set of rules is entitled Regulation on Operational Risk Management (Reglamento Sobre Gestión del Riesgo Operativo). It applies only to organisations under the supervision of SUGEF and entered into force on August 9, 2016. It requires: 1) that systems for risk management be in place; 2) the development of a risk strategy; 3) board responsibility for risk management policies and implementation; 4) identification and management of a variety of risks; 5) public disclosure; and 6) reporting to SUGEF among others.

CONASSIF is the entity that regulates and supervises the Costa Rican financial system. CONASSIF’s task is to foster the conditions to strengthen the liquidity, solvency and sound operation of the financial sector, and provide the prudential supervision of regulated entities.

CONASSIF has authority over four superintendencies each responsible for a sector of the financial system:

  1. 1. The General Superintendency of Financial Entities (Superintendencia General de Entidades Financieras): SUGEF was created by Act 7558 of 3 November 1995. It is the state body responsible for the regulation and prudential supervision of banking and non-banking financial intermediaries in the financial system (state-owned banks, private banks, savings and credit co-operatives, and non-banking financial corporations).

  2. 2. The General Superintendency of Securities (Superintendencia General de Valores): SUGEVAL was created by the Regulatory Law of the Securities Market of 1997 (Ley Reguladora del Mercado de Valores—LRMV) hereafter the Securities Markets Law. It is the body responsible for the regulation and prudential supervision of entities involved in the securities market, including bond and share issuers, stock exchanges, brokerage houses, investment funds, management companies and risk rating agencies.

  3. 3. The Superintendency of Pensions (Superintendencia de Pensiones): SUPEN was created by Act 7523 of 7 July 1995. It is the state body responsible for the authorisation, regulation and supervision of complementary pension systems and plans, and individual investment plans, and of the entities responsible for managing them. It supervises the regimes administered by the Costa Rican Social Security Fund (Caja Costarricense del Seguro Social—CCSS) and by private agents.

  4. 4. General Superintendency of Insurance (Superintendencia General de Seguros): SUGESE was created by Act 8653 of 22 July 2008. It is the state body responsible for the authorisation, regulation and supervision of the persons and corporations involved in insurance and reinsurance activities, except for the compulsory social security regimes administered by the institution in charge of providing public health services (Caja Costarricense del Seguro Social—CCSS). It also supervises public offerings and the execution of insurance businesses.

The CONASSIF board has seven members who are: 1) the Minister of Finance (or the vice-minister in their absence); 2) the President of the Central Bank (or its general manager); and 3) five members designated by the Board of Directors of the Central Bank (who are not civil servants). Together, these board members deal with all issues related to SUGEF, SUGEVAL and SUGESE. On the other hand, for issues related to SUPEN, the board is composed of the Minister of Labour (or their representative) instead of the Minister of Finance, and an additional member designated by the Board of Directors of the Central Bank, chosen from among three candidates proposed by the Labour Assembly of the Banco Popular y de Desarrollo Comunal.

Some of the most important functions of CONASSIF are to:

  1. 1. Approve the norms to be enforced by the superintendencies regarding authorisation, regulation, supervision and surveillance.

  2. 2. Suspend or revoke the authorisation given by the superintendencies to regulated parties or to make public offerings under specific circumstances.

  3. 3. Order the suspension of or intervention in entities regulated by the superintendencies.

  4. 4. Approve the norms applicable to proceedings, requirements and time frame for mergers or transformation of financial entities.

  5. 5. Approve the norms regarding the constitution, sale, registration and functioning of financial groups.

  6. 6. Resolve appeals against resolutions of the superintendencies. CONASSIF’s resolutions will exhaust administrative remedies.

  7. 7. Approve regulations that establish which person or corporation, owner or manager of the supervised subjects, will be considered part of the same economic group of interest, in order to secure adequate portfolio diversification and to resolve and prevent conflicts of interests.

  8. 8. Approve provisions regarding standards for accounting and audit of supervised subjects, as well as the frequency and disclosure of statutory audits.

  9. 9. Approve regulations regarding the periodicity, scope, proceedings and publication of external audit reports of supervised entities, with the objective of fostering confidence in of the external audit.

  10. 10. Approve the regulations applicable to internal audits of entities supervised by the superintendencies.

  11. 11. Designate and remove the Superintendent and Intendent of the superintendencies, and the Internal Auditor of CONASSIF.

SUGEVAL is the superintendency in charge of the supervision and regulation of the stock market. SUGEVAL’s objectives and functions are regulated by the Securities Markets Law. Its primary objective is to provide the conditions and regulations needed for the proper functioning of a securities market such as transparency, price formation, investor protection and disclosure. SUGEVAL also provides the markets with information through the National Registry of Securities and Intermediaries. Among the entities supervised by SUGEVAL are bond and share issuers, stock exchanges, brokerage houses, investment funds, management companies and risk rating agencies.

The Central Bank plays a role in ensuring an enabling macroeconomic environment and in promoting a stable, efficient and competitive system of financial intermediation. It is responsible for the stability of the payments system, liquidity assistance to markets and solvent institutions, and systemic stability. The Central Bank is an autonomous institution and it is not subject to the regulations of the SUGEF.

The National Securities Exchange (Bolsa Nacional de Valores) is a private company created to facilitate the trading of securities. The Costa Rican securities market trades almost exclusively in bonds.14 The Central Bank and the Ministry of Finance are the main issuers on the BNV and represent 85% of the total value of issues. By the end of 2019, the BNV had a total of 41 national issuers of which 10 had equity listings.

The BNV was created in 1970 by a group of businessmen through the National Chamber of Finance, Investment and Credit (Cámara Nacional de Finanzas, Inversiones y Crédito—CANAFIC). In 1974, the shares were acuired by the Costa Rican Development Corporation (Corporación Costarricense de Desarrollo—CODESA). CODESA operationalised the nascent exchange. The first board was established, and the BNV was officially inaugurated in 1976. In 1977, CODESA sold 60% of its stake to private investors, leaving the capital distributed as follows: CODESA (40%), brokerage houses (7%), stockbrokers (6%), employees (1%) and other natural and legal persons from the private sector (46%). In 1993, the remaining shares held by CODESA were sold to private investors. With the entry into force of the current Securities Markets Law, the BNV was mutualised and now belongs exclusively to brokerage houses.

The general shareholders meeting of the BNV is held annually or as needed in the case of extraordinary meetings. The seven-member board is named by the GSM. The board has responsibilities ranging from receiving applications to issue securities, to the disclosure of information to the markets. The BNV is represented legally by a chair and a general manager whose positions can be either separated or combined.

The principal role of the BNV is to: 1) provide the conditions for brokers to conduct their operations; 2) ensure that brokerage operations are carried out in compliance with established legal norms, and governed according to high standards of professional ethics; and 3) ensure proper disclosure of financial reports and other relevant information on listed institutions.

With respect to its role in promoting good corporate governance practices, the BNV does not develop listing rules and is essentially required to accept any company to the market that meets basic regulatory requirements. The BNV had no enforcement powers in relation to the Voluntary Code of Best Corporate Governance Practices of 2011, which was enforced using the “comply or explain” principle. The BNV’s role in promoting good corporate governance has since diminished with the issuance of the new CONASSIF Corporate Governance Regulation, which is enforced by SUGEVAL for non-financial listed companies and SUGEF for listed financial.

One of the fundamental rights of shareholders is the secure registration of their shares. This right is described in Principle II.A of the G20/OECD Principles. In most OECD countries, the registration of listed company shares is typically fulfilled by a share registrar, often a bank or trust company, responsible for keeping records of bondholders and shareholders when an issuer sells securities to the public.

In Costa Rica, companies maintain their own share registers as required by the Code of Commerce. The BNV runs a parallel register that it uses to inform companies whenever a transaction occurs so that the company can, in turn, change its records, which remain the official register.

The question of share registration was addressed by Law 9416, “Law to Enhance the Combat against Tax Fraud” (Ley para Mejorar la Lucha Contra el Fraude Fiscal), which entered into force in December 2016. The new register centralises the registration process at the Central Bank in order to avoid timing differences in registration and potential discrepancies between registries. However, listed companies were addressed in a law amending the Securities Market Law (Law 9746 of 2019). 

The Costa Rican Institute of Corporate Governance (Instituto de Gobierno Corporativo de Costa Rica) is a non-profit association founded in 2009 whose mission is to promote good corporate governance in Costa Rica. It receives part of its funding from members and the BNV. ICG seeks to promote international best practice by making reference in its work to both the G20/OECD Principles and the SOE Guidelines. It participates actively in the OECD Latin America Corporate Governance Roundtable and has worked with the International Finance Corporation (IFC), a member of the World Bank Group, on various projects to raise awareness of good governance practices.

The ICG had supported the development of the Voluntary Code of Best Corporate Governance Practices of 2011. But, with the emergence of the CONASSIF Governance Regulation, the role of the ICG and the Voluntary Code have changed. ICG now promotes the use of the Voluntary Code mainly amongst non-regulated SMEs and are pursuing other activities to promote good governance more widely. In September 2018, the ICG reached an agreement with the government to help conduct a new training programme for SOE board members, executives and government officials that began in early 2019.

The Concept Paper guiding corporate governance accession reviews calls for the corporate governance landscape section to make an assessment against key recommendations in Chapter 1 of the G20/OECD Principles. This section therefore builds on the previous introduction of Costa Rica’s corporate governance framework and assesses its implementation according to G20/OECD Principles 1.A to 1.F. The discussion of Costa Rica’s corporate governance framework for listed companies is distinct from its corporate governance framework for state-owned enterprises, which is described in the following section.

The over-arching recommendation of Chapter 1 of the G20/OECD Principles is that “The corporate governance framework should promote transparent and fair markets, and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement.”

Principle 1.A further specifies that the corporate governance framework should be developed with a view to its impact on overall economic performance, market integrity and the incentives it creates for market participants and the promotion of transparent and well-functioning markets.

The corporate governance framework in Costa Rica has sought to emulate best international regulatory practices. The CONASSIF Governance Regulation was designed with a view towards consistency with guidelines issued by international organisations, such as the OECD and the Basel Committee, and enforcement practices were developed in consultation and with the assistance of international financial institutions such as the World Bank with expertise in international guidelines and good practices. Costa Rica’s regulatory framework, thus, adheres closely to OECD recommendations and, overall, the implementation of Costa Rica’s corporate governance framework appears consistent with the rule of law and supportive of effective supervision and enforcement.

On the other hand, the small size of the Costa Rican equities market makes it difficult for it to be considered a well-functioning market or as having any significant impact on overall economic performance as recommended under Principle I.A. The capital market is too small and too illiquid to be effective in providing: 1) investment opportunities for investors; or 2) a source of capital for companies. Trading is so thin that the equity markets do not effectively fulfil a price discovery function. The World Economic Forum’s Global Competitiveness Report of 2017-2018 ranks Costa Rica as 117 out of 137 countries for it capacity to provide financing through the local equity market. In the end, Costa Rica’s governance framework is, arguably, far in advance of the development of the market itself. Some commentators have described it as “an undeveloped market with developed country rules”.

Principle I.B states that “The legal and regulatory requirements that affect corporate governance practices should be consistent with the rule of law, transparent and enforceable.”

Costa Rica has a legal and regulatory framework fully consistent with the rule of law. Costa Rica enforces the principle of hierarchy of laws through its General Law on Public Administration (Ley General de la Administración Pública—Ley N° 6227), by virtue of which the administrative legal system is first subject to the Political Constitution, international treaties, laws and regulations. All shareholders have the right to have their rights respected as specified under the Political Constitution, the Code of Commerce and other laws.

Furthermore, the legal and regulatory requirements that affect corporate governance practices are fully transparent. Laws and regulations are published on the Costa Rican System on Juridical Information (Sistema Costarricense de Información Jurídica—SCIJ).15 The system provides access to documents through any commonly available web browser and is being constantly updated as new laws, decrees and regulations emerge. The system was used extensively in the preparation of this review and has been shown to be effective in providing up-to-date access to virtually all extant legislation. At present, documents are provided only in Spanish.

Costa Rica also has a well-developed judicial system that permits the enforcement of rights. According to the US Department of State Bureau of Economic and Business Affairs Investment Climate Statement for 2019, Costa Rica’s judicial system generally upholds contracts. On the other hand, the Investment Climate Statement advises caution when making investments in sectors protected by the Constitution and specifically with public entities. The Investment Climate Statement reports that investments in state-protected sectors can be complex and may be subject to frequent legal challenges and that Costa Rica’s many autonomous government agencies, including municipal governments, may contradict the decisions of other independent agencies, thus causing significant project delays.16

In addition, litigation in Costa Rica can be long and costly. The legal system is significantly backlogged and civil suits may take five years or longer from beginning to final sentence. Some cases have been reported to exceed 10 years. And, when cases are finally resolved, the penalties and damages may be insufficient to dissuade potential offenders. This assessment is echoed in the Investment Climate Statement which reports that the most frequently heard complaints from U.S. companies are long and costly litigation and the unpredictability of outcomes.

The OECD Public Governance Committee has reviewed Costa Rica’s judicial system as part of its review of the effectiveness of public governance in the context of the accession process. Their review cites international studies pointing to timeliness issues especially in civil justice. According to these studies, only 48% of Costa Rican nationals perceive that their judiciary is functioning well, with 65% of their complaints related to court delays. Trust in Costa Rica’s judiciary was reported as declining, although it is high in some areas (e.g. high trust in constitutional justice).

In brief, effective redress, as contemplated by the G20/OECD Principles, appears to be constrained by the lack of timeliness. This has been attributed by legal experts to a number of potential factors including: 1) excessive caseloads; 2) a lack of institutional capacity; 3) excessively complex laws and procedures; 4) outdated laws; and 5) excessive opportunities to contest decisions on technical and even trivial grounds.

Costa Rica’s government has long been aware of the issue and has undertaken initiatives to streamline and speed judicial processes and simplify laws and regulation dating back to the 1990s. Though progress has been grudging, the Public Governance Committee cites positive steps, including the development of alternative dispute resolution mechanisms, performance appraisals for officers of the judiciary, the implementation of quality standards and new information technologies.

Alternative dispute resolution (ADR) and commercial arbitration have become increasingly common. Arbitration is possible under the civil and commercial codes. In addition, the law on Alternative Dispute Resolution and Promotion of Social Justice, Law N°7727 of December 1997, seeks to encourage arbitration and simplify arbitration procedures. Fourteen private ADR centres operate across the country and offer mediation and arbitration services, as well as 16 Justice Houses, which were established in the year 2000 to decongest the courts and provide more effective remedies to citizens. ADR is reported to deliver decisions in as little as six months under the best of circumstances and as much as 20 months when issues are contested.

Focusing more specifically on the securities market, the legislative framework establishes that any breach of a CONASSIF regulation can result in sanctions to the offending institution. Sanctions may also be applied to employees and directors under Articles 161 to 163 of the Securities Market Law. In addition, the Securities Market Law establishes specific sanctions related to non-compliance with certain corporate governance practices such as the duty of diligence, abuse of privileged and confidential information, market manipulation, insider trading and the lack of disclosure.

With respect to sanctions, data from SUGEVAL show that sanctioning of listed companies is rare. Over the past five years, some 20 cases were brought against brokers, fund managers, credit rating agencies, auditors and others though none resulted in sanctions. One case before 2013 did, however, the case regarded an investment fund administrator and not a listed company.

In the initial stages, the implementation of the new CONASSIF Governance Regulation has downplayed the role of sanctions. For the moment, supervisors appear to be reluctant to issue detailed guidance because they do not want the implementation of the Governance Regulation to become a “box-ticking exercise”. Supervisors have chosen to encourage companies to adopt prudential measures through a process of interaction and feedback, more specifically, by helping non-financial listed companies develop corporate governance codes. But as the transition to RBS and the implementation of regulation proceeds, having timely, transparent and full explanations of regulatory (enforcement) interventions will be important.

In summary, despite initial positive experience and growing clarity regarding supervisors’ expectations, there is still some uncertainty surrounding how the CONASSIF Governance Regulation will be enforced. Some of these questions are expected to be addressed as the implementation of the Governance Regulation proceeds.17

Principle I.C states that “The division of the responsibilities among different authorities should be clearly articulated and designed to serve the public interest.”

The division of responsibilities amongst different regulatory authorities is clear. The supervision and regulation of the Costa Rican financial system has been assigned to five bodies, each with functions clearly defined by law. The law defines the competences and functions of each superintendency and regulator: Article 131 paragraph 10) of the Structural Law of Costa Rica´s Central Bank (Act 7558); Article 38, paragraph 11) of the Private Complementary Pension Regime Law (Act 7523); Article 28 of the Insurance Market Regulatory Law (Act 8653), and Article 8, paragraph 6) of the Securities Market Law (Act 7732). These laws frame the entire legal system that determines the authorities of the supervisors and regulators, as well as the spheres of action developed by participants in the financial system.

In the past, there was one area where there was some duplication of functions between SUGEVAL and the BNV, in the area of the regulation and supervision of stock brokers and stock dealers. This was addressed, initially, through a verbal agreement and then in the Rules on Securities Exchanges (Acuerdo SUGEVAL-50-10 Reglamento de Bolsas de Valores), which establishes that the BNV should supervise the execution of trades and SUGEVAL the relations between brokerage firms and clients amongst other things.

This amendment established a joint supervisory regime between the BNV and SUGEVAL, which aims to reduce duplicative functions, and to promote more efficient supervision. Specifically, the Supervision Unit of the BNV will monitor the execution of exchange operations to detect possible irregularities in execution or market practices and to carry out the corresponding preliminary investigations. It will also detect conduct that undermines the transparent formation of prices. SUGEVAL is in charge of the supervision and control of all market participants, especially the compliance with the rules of conduct contained in the Securities Market Law.

Principle 1.D recommends that “Stock market regulation should support effective corporate governance.”

The CONASSIF Governance Regulation provides requirements for governance that are in line with international guidelines such as the G20/OECD Principles and those of the Basel Committee. The new regulation is designed to support effective governance as recommended by the G20/OECD Principles, but it is too early to tell how effective it will be, given its generality and questions regarding its implementation using RBS. Furthermore, and as described above, the BNV plays a limited role in market supervision focused on monitoring the execution of exchange operations to detect possible irregularities, and carrying out preliminary investigations before they are referred to SUGEVAL.

Principle I.E calls for supervisory, regulatory and enforcement authorities to “have the authority, integrity and resources to fulfil their duties in a professional and objective manner. Moreover, their rulings should be timely, transparent, and fully explained.”

Costa Rica’s supervisory, regulatory and enforcement structures comprise established institutions with long histories of operation. They are respected both within government and among the public. Though there are inevitable differences in views regarding the optimal approaches to financial system regulation, the regulatory structures have, on the whole, demonstrated their authority and integrity.

Supervisory, regulatory and enforcement authorities appear to have adequate resources. Each superintendency develops a budget proposal that must follow the guidelines established by the Central Bank and CONASSIF, the Comptroller General of the Republic and the provisions that have been established by the Technical Secretariat of the Budgetary Authority (STAP) of the Ministry of Finance. Neither the government nor the Legislative Assembly intervenes in the budget process.

SUGEVAL’s budget proposal for 2019 was approximately USD 10.4 million. The number of staffing positions available to SUGEVAL as of December 2019 was 87, of which 73 were occupied and 14 were unfilled. Figure 2.6. above shows the evolution of proposed and actual budget expenditures for the period from 2010 to 2019. According to the Self-Assessment, SUGEVAL has the capacity to carry out additional work associated with its functions without modifying its budget.

Principle I.F calls for cross-border co-operation to be enhanced, including through bilateral and multilateral arrangements for exchange of information.

Costa Rica has made efforts to enhance cross-border co-operation and information exchange through both bilateral and multilateral arrangements. SUGEVAL has signed bilateral technical co-operation agreements with the securities exchange regulators of Chile, the Dominican Republic, Spain, the United States and other countries and regional bodies. These generally contain agreements for collaboration and information exchange, as well as training in the investigation and prosecution of entities responsible for violating stock exchange rules. Most of the agreements pertain to technical assistance rather than information exchange. In practice, these agreements are not often used.

The amendment to the Securities Market Lawnecessary to provide SUGEVAL access to information on beneficial ownership of securities was adopted on 17 September 2019. This constitutes an important step towards enabling Costa Rica to become a signatory to IOSCO’s Multilateral Memorandum of Understanding Concerning Consultation and Co-operation and the Exchange of Information (MMoU).

SOEs play an important role in the Costa Rican economy. Costa Rica has 28 SOEs at the central government level of which 16 are subsidiaries (See Annexes for detailed list and figures). SOE employment is 1.9% of total employment, which is roughly proportionate to the OECD average of 2.5%.18 SOEs also fill an important developmental role by providing broad access to electricity, water, transport, banking and insurance services for the population, and reflect Costa Rica’s historical commitment to social equality and also the country’s statist tradition. Irrespective of the pros and cons of public versus private approaches, Costa Rica’s SOEs have helped the country achieve results on a number of important social indicators, which has led to a broad, popular consensus on the value of SOEs in the economy. Still, at the same time, better governance practices are needed to promote fiscal sustainability for Costa Rica and the conditions for SOEs to thrive and perform and, indeed, survive in a competitive global economy. According to the 2018 OECD Economic Survey of Costa Rica, SOE governance remains a top reform priority.

It should also be noted that the importance of promoting better governance practices extends far beyond the abovementioned group of 28 SOEs. Costa Rica has a number of institutions that were excluded from the later phases of this review because they were not legally under the direct control of the central government or did not otherwise formally fit the definition of SOE per the SOE Guidelines. Nevertheless, many have similar governance structures as SOEs and suffer from the same governance dysfunctions visible in what can formally be classified as SOEs. While a number of institutions were removed from the list of SOEs covered by the review, the Costa Rican authorities have acknowledged the desirability of applying good governance practices to the regional and municipal enterprises and other autonomous bodies originally considered to be SOEs in 2015, and have held some initial discussions with these institutions with this objective in mind.

State-owned enterprises play a dominant role in key sectors of the economy such as electricity, telecoms, transportation, banking, insurance and petroleum products. Ten of Costa Rica’s SOEs are statutory corporations established under their own specific legislation, with their subsidiaries typically being established as public limited companies

Most of Costa Rica’s SOEs are active in the financial sector, and the banking sector itself is dominated by SOE banks. In November 2019, the two SOE banks (and subsidiaries) plus Banco Popular19 accounted for 59% of the total banking system assets and 59% of total banking system loans. Foreign-owned banks accounted for the lion’s share of private banking activity, representing more than 92% of privately-held assets. Local banks play a nominal role in the banking market.20 According to the IMF, Costa Rica has the largest presence of state-owned financial institutions in Latin America.21

State-owned banks are managed to achieve public policy objectives including lending to support public policy goals such as affordable housing, agriculture and infrastructure, and SME development. The dominant position in the market of SOE banks results in weak competition whereby the SOE banks set the interest rates and private banks follow suit.22 Inefficiencies and lack of competition in public banks contribute to high interest rate spreads between loans and deposits in local currency23 and hamper credit provision.24

Improving the governance and management of SOE banks should help to improve their accountability and efficiency. In addition, levelling the playing field between private and SOE banks should spur competition in the banking sector and contribute to increased monetary policy effectiveness.25

Energy is the second largest sector in terms of number of SOEs (although if subsidiaries are counted as separate SOEs, insurance would be considered the second largest state-owned sector). However, energy is the largest in terms of employment. The electricity sector is dominated by the Costa Rican Institute for Electricity (Instituto Costarricense de Electricidad—ICE), a holding company, which is both a generator and a distributor through its subsidiary the National Energy and Light Company (Compañía Nacional de Fuerza y Luz—CNFL). Imports, refinery and distribution of wholesale petroleum and its derivatives occur under a legal monopoly granted to the Costa Rican Petroleum Refinery (Refinadora Costarricense de Petróleo—RECOPE).

In transportation, there are two SOE ports. The Costa Rican Institute for Pacific Ports (Instituto Costarricense de Puertos del Pacífico—INCOP) and the Port Board of the Caribbean Coast (Junta de Administración Portuaria de la Vertiente del Caribe—JAPDEVA) dominate maritime transport through the exclusive rights to manage all ports on the Atlantic and Pacific coasts respectively. Both have the double role of port authorities and port operators. In the case of JAPDEVA, in 2011, the government signed a concession contract with APM Terminals for the reform and operation of the port. The Costa Rican Railways Institute (Instituto Costarricense de Ferrocarriles—INCOFER) is the sole provider of rail services throughout the country.

Telecommunications are provided by the Costa Rican Institute for Electricity and two subsidiaries of the ICE Group, Costa Rican Radiographic (Radiográfica Costarricense—RACSA), which focuses on internet services, and Cablevisión, which provides cable television and internet services. In December 2018, ICE Group assumed all of the rights and obligations of Cablevisión S.A., which it absorbed into its operations. As of then, the functions of Cablevision were fulfilled by ICE’s Directorate for Corporate Telecommunications.

Telecommunications is the SOE sector that has evolved most in recent years due to greater competition and independent regulation. This evolution was encouraged by the ratification of the Central American Free Trade Agreement (CAFTA), which was preceded by the country’s first referendum in 2007. CAFTA includes a set of laws that call for competition within the telecommunication and insurance sectors. The telecommunications state monopoly was consequently opened in 2009 to competition in internet and other related services.

The first public auction for cellular frequencies was held at the end of 2010, with two private companies (Claro and Telefónica) entering the market. Within a few months of launching their networks, these new companies had secured around 500 000 customers between them. As a result, Costa Rica has experienced lower prices, and a large expansion of the sector and use of telecommunication services, which helped to close the gap with peer countries. Competition within the insurance sector started in 2010 with medical policies and was extended in 2011 to include vehicle and liability insurance. These developments serve to illustrate the potential improvements that could be achieved in other SOE sectors.

The 2018 OECD Economic Survey highlighted the need to restore fiscal sustainability for Costa Rica. Since the start of the 2009 global crisis, the public deficit and debt had risen from a surplus of 1% of GDP in 2008 to a running deficit of approximately 5% of GDP for the five years up until 2018. During Costa Rica’s fiscal reforms, ratings agencies downgraded Costa Rica’s debt to below-investment grade.

According to the OECD Economic Survey, recent efforts to increase tax collection have not reduced the budget deficit due to the extensive use of earmarking, public sector fragmentation into autonomous agencies that are difficult to control centrally, and spending mandates. As a result, central government debt rose from less than 25% of GDP in 2008 to 49% in 2017. In 2018, a number of executive orders and presidential decrees were issued and the Law on the Strengthening of Public Finances (Ley de Fortalecimiento de las Finanzas Públicas) was adopted to contain public spending and increase tax revenues.

SOEs do not present a significant drain on the state budget. Historical data describes only modest net transfers of funds to SOEs from the state budget. Data from 2018 shows the amount of net current transfers to SOEs of a total of approximately USD 88 thousand and net capital transfers from SOEs to the state of approximately USD 92.8 million.

Disaggregated data show that cash inflows and outflows impact individual SOEs distinctly. In the financial sector, the National Bank of Costa Rica (Banco Nacional de Costa Rica—BNCR) was the greatest revenue source for the state during 2018. The Bank of Costa Rica (Banco de Costa Rica—BCR) received 100% of the capital inflow for financial SOEs in 2018 due to its absorption of the insolvent Bancrédito. Disaggregated data for non-financial SOEs show that the Costa Rican Railways Institute was the largest recipient of capital transfers, followed by the Institute of Aqueducts and Sewers (Instituto Costarricense Acueductos y Alcantarillado—AyA) both of which are undergoing significant investment programmes.

Costa Rica contrasts with many other countries where SOEs are associated with high state investment, subsidies, and/or chronic arrears problems. The generally good liquidity of SOEs in Costa Rica may be linked, in part, to the efforts of ARESEP to support full cost recovery through tariff setting. In addition, some Costa Rican SOEs are protected from competition and are thus able to exercise considerable market power and demand higher prices from consumers.

Despite the low direct cost of SOEs to the state budget, this analysis does not reflect contingent liability risks created by the state’s guarantee of SOE banks that remains relevant despite the adoption of a deposit guarantee and a bank resolution scheme in 2020. Nor does it consider the expected return on investment the state might expect to receive if it were to use the investments made in SOEs for other purposes or the cost to the state of forgoing dividends. This issue is discussed in greater detail with respect to Guideline III.F.3.

Five SOEs, including most of Costa Rica’s largest SOEs, have made bond issues. Together they represent approximately 4% of the total value of issues on the BNV. No Costa Rican SOEs have equity listings. Most of the corporate bond offerings in terms of size are by financial firms.

Bond issues require SOEs to comply with the CONASSIF, SUGEVAL and BNV rules. This has consequences for their financial reporting and governance. Previously, all SOE issuers had been required to provide a statement of compliance with the Voluntary Code of Best Corporate Governance Practices of 2011. As of 2017, all bond issuers have to comply with the new CONASSIF Governance Regulation.

Labour is able to exercise considerable influence in Costa Rica and relations with SOEs may be strained when SOEs or the government try to achieve flexibility or reduce costs.

SOE board members are considered part of the public administration and are subject to public sector employment rules and rules of conduct. SOE employees, on the other hand, are subject to different rules depending on the legal status of the SOE. SOEs constituted as PLCs (Sociedades Anónimas) are generally entitled to enter into private law employment relationships with their employees just as any other company in the private sector. SOEs that are not PLCs are expected to follow the rules of the public administration. Increasingly such enterprises pursue new forms of contractual relations that allow them to achieve flexibility and reduce costs. One example is INCOFER, which contracts with employment agencies (Sociedades Anónimas Laborales—SALES) in order to avoid what are perceived as excessively rigid employment conditions.

Many SOEs are considered to have excessively high salaries and numbers of employees compared to the private sector, and the government has taken action to re-negotiate clauses on collective labour agreements.27 Attempts to reduce employment and labour costs tend to spark public protest and have been legally contested. Another business practice that was contested was the plan of ICE to reduce expense travel reimbursements for workers. In that case, the decision went from the Labour Court (Juzgado de Trabajo) to the Labour Tribunal and subsequently to the Court of Cassation (Casación) where the case was finally decided in favour of ICE.

The country has a decentralised public administration composed of autonomous and semi-autonomous institutions and state-owned enterprises.28 State-owned enterprises respond directly to the Presidency of the Republic and to the Council of Ministers (Consejo de Gobierno) with formal supervision of financial, legal and performance issues by the Comptroller General. The boards of directors of SOEs are in most cases appointed by the Council of Ministers.

Costa Rica’s SOEs operate under a complex mix of governance practices. SOEs are constituted under a variety of legal forms and operate under different sectoral laws. Consequently, the legal treatment and the governance and management of SOEs is highly heterogeneous. In practice, SOEs have different degrees of freedom in: 1) their governance and decision-making; 2) board nominations processes; 3) requirements regarding board composition; 4) obligations to the state and other stakeholders; 5) tax obligations; 6) capacity to take on credit, and so on.

The result is that developing and implementing considered and uniform governance policies for the SOE sector is difficult with changes in SOE governance practices often necessitating time-consuming legislation and a complex adaptation of a number of different laws. Overall, the legal form of SOEs is overly complex and prevents the implementation of best governance practices, in particular with respect to the composition of SOE boards. A simplification of the legal forms of SOEs could bring significant benefits.

The most common types of legal forms are those of the public limited company (PLC) (Sociedad Anónima) and Autonomous Institutions (Instituciones Autónomas). The Autonomous Institutions can be further subdivided into autonomous and semi-autonomous. Semi-autonomous institutions are those created by the Legislative Assembly with a simple majority vote. Fully autonomous institutions are created by the Legislative Assembly by a two-thirds vote. Some autonomous institutions have their own subsidiary bodies.

In all cases, SOEs are governed by two governance structures: 1) a board that directs management and sets the direction of the SOE (policies, directives, and guidelines); and 2) an executive function responsible for operations based on the policies, directives and guidelines set by the board. The differences between the legal forms are the degree of autonomy they have from the state with PLCs having the most and semi-autonomous entities being more closely integrated into the state.

In general, board members are appointed by the Council of Ministers. Board composition is, in turn, determined by the constituting law of each individual SOE. The following table summarises the most common options for board nominations:

The governance of a subset of SOEs has been altered by Law No. 5507 entitled Reform of Boards of Autonomous Institutions Creating Executive Presidencies, (Reforma Juntas Directivas de Autónomas Creando Presidencias Ejecutivas). The law, which was passed in 1974, permits the Council of Ministers to nominate a combined Chair/CEO (Presidente Ejecutivo). SOEs with a Chair/CEO also have a general manager (Gerente General). The result is two top-level executive positions, one of which is subject to appointment and removal by the Council of Ministers (the Chair/CEO) and the other, which is not (the general manager). The law applies to a heterogeneous group of public institutions. Law 5507 results in a combination of the roles of Chairman and CEO, which is contrary to the recommendations of the SOE Guidelines.

In Costa Rica, executive powers are vested in the President of the Republic who is supported by the Ministry of the Presidency (Ministerio de la Presidencia) and the Council of Ministers.

Oversight of SOEs is exercised mainly by the Council of Ministers. The Council of Ministers is a collegial body consisting of the President of the Republic and Ministers (or Vice Ministers acting on their behalf) under Article 147 of the Political Constitution and Article 22, paragraph 1) of the General Law on Public Administration (Ley General de la Administración Pública).

Line ministers exercise sectoral co-ordination and have some steering capacity related to national strategies or priorities, but no direct hierarchical relation to the SOEs in their sector. The Council of Ministers has the power to appoint, reappoint and dismiss the board members of autonomous institutions (with one exception for Correos de Costa Rica where a line minister also has appointment authority). Grounds for dismissal of board members are established under the Law on Internal Control (Ley de Control Interno), the Law Against Corruption and Illicit Enrichment in the Public Service (Ley Contra la Corrupción y el Enriquecimiento Ilícito), the General Law on Public Administration and/or SOE statutory laws.

In making appointments, the Council of Ministers must consider the laws that establish each individual SOE. These laws specify the profiles of individuals who may serve as board members, and contain requirements regarding eligibility such as for education and sectoral experience. At times these laws can be restrictive and make it difficult to develop a board composition that complies with best practice and that meets the needs of the SOE. Historically, the Council of Ministers did not use public tenders, search firms or other mechanisms to make appointments. This provided for a significant degree of discretion in making appointments as long as they complied with the statutes that established the individual SOE.

As part of the accession review process, Costa Rica established an ownership entity in 2018 (referred to as the Presidential Advisory Unit) under decree 40696-MP entitled Creation of the Advisory Unit for Management and Co-ordination of State Shareholdings and the Management of Autonomous Institutions (Creación de la Unidad Asesora para la Dirección y Coordinación de la Propiedad Accionaria del Estado y la Gestión de las Instituciones Autónomas). The decree, passed on 20 October 2017, gives the Presidential Advisory Unit the mandate, among other things, to formalise and professionalise the appointment process of SOE board members and make it more transparent. The Presidential Advisory Unit officially began operation in September 2018 headed by the Secretary of the Council of Ministers who divided their time between the Council of Ministers and the Presidential Advisory Unit. By 2019, the Presidential Advisory Unit had three full-time technical support staff in substantive roles with plans for an additional two.

The staffing of the Secretariat to the Council of Ministers (which includes the President, two Vice-Presidents and 21 ministries) was nine people in 2019, with three staff members dedicated to support activities and six staff members in substantive roles. The Office of the Presidency has an annual budget of approximately USD 100 000, which includes both the Presidential Advisory Unit for SOEs and the Council of Ministers.

The Ministry of National Planning and Economic Policy (Ministerio de Planificación Nacional y Política Económica) is the body responsible for formulating the development strategies of the government. MIDEPLAN was established under the Law of National Planning (Ley de Planificación Nacional) of 1974 as the successor to a planning function established 10 years earlier. MIDEPLAN’s main functions are to:

  • Prepare the National Development Plan (NDP), which was combined in 2018 with the National Public Investment Plan to form the new National Development and Public Investment Plan (NDPIP);

  • Define the country’s development strategy and establish targets;

  • Monitor and evaluate outcomes;

  • Evaluate the services provided by the public administration; and

  • Co-ordinate the allocation of resources (budget, public investment and international co-operation) in support of government priorities.

The defining output of MIDEPLAN was the NDP until the introduction of the NDPIP (its replacement) in 2018. In the past, each new government developed its own four-year NDP, which it used to guide its development strategies and assess outcomes. The overall direction was set by the President while line ministries and other relevant sectoral institutions collaborated in setting supporting goals. The policy directions set down in the NDP focused mainly on the achievement of social goals for entire industrial sectors. These sectoral goals were, in turn, supported by the implementation plans of individual SOEs, which were developed and approved by SOE boards.

The development of the NDP provided for significant stakeholder involvement and took into account a variety of stakeholder perspectives. The NDP was circulated for commentary among different stakeholders, including SOEs, public institutions, local governments and civil society organisations. MIDEPLAN also co-ordinated its planning with the Central Bank, which considered the economic impact of the NDP and its ramifications for international agreements. The plan was reviewed by the Legislative Assembly and finally disclosed on the MIDEPLAN website.

MIDEPLAN had no power to enforce the NDP and there were no formal performance contracts or performance agreements between MIDEPLAN and individual SOEs. However, observers suggest that there was a sense of personal obligation amongst boards and executives to comply with the NDP’s directions. Though the NDP only served to orientate SOEs, both MIDEPLAN and the Comptroller General monitored achievement against its goals. For example, a goal for AyA, Costa Rica’s water and sanitation SOE, was the provision of services to a target percentage of the population. Similar performance indicators were established for other SOEs in other sectors.

MIDEPLAN had the duty to evaluate the implementation of the NDP in accordance with the National Planning Act, the Law for Financial Management and Public Budgets (Ley de la Administración Financiera de la República y Presupuestos Públicos) and the National Evaluation System (Sistema Nacional de Evaluación—SINE). Performance against the plan was monitored on a quarterly, semi-annual and annual basis and the results of evaluations were presented to the Council of Ministers.

A significant concern with respect to the NDP performance monitoring process was that it focused mainly on the achievement of social outcomes. There was no systematised tracking or analysis of key financial indicators that would provide the government with information on the financial health of the SOE sector or that might alert the government to risks in an individual SOE. Performance monitoring did not track financial indicators (such as return on equity or assets, working and operating ratios, free cash flow, debt equity ratios) or non-financial indicators (such as asset or labour utilisation or customer satisfaction) that are used by state-of-the-art ownership entities in some OECD countries.

Overall, the NDP planning process had been characterised as being resistant to innovation and in need of reform. A number of improvements were considered in 2017 and implemented in 2018. First, the NDP and the National Public Investment Plan were unified as a single instrument to form the National Development and Public Investment Plan (NDPIP). The NDPIP for 2019-2022 was published on 11 December 2018.29 Several inter-sectoral goals were included in order to guide institutions towards a more coherent public sector policy as well as more efficient public spending. Second, NDPIPs after January 2019 include online reporting thus allowing for easier public access. Under the NDPIP system, public investment, including by SOES, is monitored every trimester by the National Public Investment System, and every semester as part of NDPIP monitoring reports. The Council of Ministers also plans to introduce “expectation letters” in 2020 that establish high-level performance expectations for SOEs that take account of national development strategies. As of late 2019, it was unclear whether the new NDPIP would monitor the financial health of SOEs. This type of financial analysis was conducted for the first time by the Presidential Advisory Unit in October 2019.

SOEs in Costa Rica are subject to the control and oversight of the Comptroller General (Contraloría General de la República), the government’s supreme audit institution, which performs audits on behalf of the Legislative Assembly. Typically, the Comptroller General conducts a variety of risk-based audits sometimes in response to the allegations of reporting persons. Audits of individual SOEs do not necessarily occur on an annual or regular basis. Rather, the Comptroller General aims to audit all of its subjects over an eight-year period with audits occurring with more or less frequency depending upon an assessment of need or risk. The Comptroller General tends to focus on budgetary and compliance risks and not on the financial performance of SOEs or key performance indicators such as those noted in the section immediately above. Partly as a result of the accession process, the Comptroller General has become more attuned to issues of governance in SOEs and in 2019 issued a report entitled Follow-up Report on the Corporate Governance of the Boards of Costa Rican Public Entities (Informe de Seguimiento de la Gestión del Órgano de Dirección en el Gobierno Corporativo de las Entidades Públicas Costarricenses) that provides a critical analysis of SOE governance.

The Comptroller General’s powers and responsibilities are established in the Political Constitution, in the Organic Law of the Comptroller General of the Republic and in the General Law of Internal Control, in addition to a series of laws that establish specific functions, such as the Law of Administrative Contracting. The Comptroller General examines the use of public funds by SOEs and has the mandate to review, approve or reject SOE budgets and supervise their execution (such reviews are reported to focus on compliance with procedures and plans). The Comptroller General also generates reports on the fiscal, financial and management practices of SOEs, which it submits to the Commission of Public Income and Expenditure Control of the Legislative Assembly.

The Law for Financial Management of the Republic and Public Budgets (Ley de la Administración Financiera de la República y Presupuestos Públicos) requires SOEs to submit periodic reports regarding budget execution, as well as reports on their performance. These reports should be in compliance with requirements that the Ministry of Finance, MIDEPLAN and the Comptroller General establish to evaluate the public sector. Reports are presented by MIDEPLAN and the Ministry of Finance30 to the Comptroller General who, in turn, issues an opinion and submits them to the Legislative Assembly. The Legislative Assembly may establish an investigative committee to study the compliance and performance of institutions if they deem it necessary.

Article 20 of the Law on Internal Control (Ley de Control Interno) stipulates that all SOEs must establish an internal audit unit. The objective of an internal audit unit is to independently and objectively validate and improve the entity’s operations. The entities themselves are responsible for implementing the internal control systems established under law. Internal auditors are appointed by boards of directors. If circumstances require that an internal auditor be removed by the board, the decision must be approved by the Comptroller General.

The Comptroller General has the right to supervise the internal audits of SOEs to ensure that they comply with the provisions of the legal framework. In principle, this arrangement would seem to support strong external oversight by establishing external accountability of the internal audit unit. However, it also risks shifting one of the key responsibilities of SOE boards (to ensure that systems for control and risk management are in place and functioning properly) to the Comptroller General.

Conversations with Costa Rican SOE board members suggests that, at least in some cases, SOE boards do not recognise that ensuring a proper control environment is one of their key responsibilities. The “Cementazo” case and the weakness of internal controls at the Banco de Costa Rica would appear to bear out this conclusion (See Box 4.1. The Big Cement scandal or the “Cementazo”.) The Presidential directive entitled General Guideline for the Review of the Functions of Management Bodies and the awareness-raising efforts of the Presidential Advisory Unit were designed to address this gap. In addition, the new SOE board induction and training programmes being implemented under by the Presidential Advisory Unit aims to remedy this concern.

Structures are in place to support the independence of the internal audit function in SOEs. Beyond the selection of the internal auditor by the board, under the General Law for Internal Control, both the internal auditor and the assistant internal auditor are selected by public tender. A shortlist of three candidates is established by the SOE’s human resource department and is submitted to the board for final decision. However, before the final appointment is made, the shortlist must be sent to the Comptroller General who considers whether the proper process was followed. The Comptroller General limits their review of the process to ensuring that it complies with rules but does not review the qualifications of the internal auditor selected through the process. This would appear to ensure the professionalism of the internal audit function and their independence. Though the Comptroller General disagrees, some critics have voiced concern that the outcomes of the selection process may be influenced, and not yield the quality of internal auditor or the independence desired.

With respect to the Comptroller General’s involvement in monitoring the governance of SOEs, as of January 2019, the Comptroller General reported increased awareness of the importance of good governance amongst Costa Rican SOEs and their internal audit departments. Internal auditors that follow COSO internal audit standards are now required to consider the corporate governance of their subjects, meaning that corporate governance audits by internal audit departments should become more common in Costa Rica. Furthermore, in 2019, the Comptroller General completed their first audit of SOE boards.

Tariffs for SOEs exercising monopoly power are set by the Regulatory Authority for Public Services (Autoridad Reguladora de los Servicios Públicos). The Law of the Public Service Regulating Authority (Ley de la Autoridad Reguladora de los Servicios Públicos) establishes ARESEP as an autonomous multi-sectoral regulator. According to the law, the board of directors is named by the Council of Ministers subject to approval by the Legislative Assembly. ARESEP is financed by charging regulated entities. Charges are set annually and are subject to the approval of the Comptroller General.

ARESEP sets the tariffs for:

  • Drinking water

  • Electricity

  • Bus transport

  • Gasoline

  • Ports

  • Taxi services

  • Other services such as airports, toll roads and sanitation

Tariffs for the telecommunication sector are set by the Telecommunications Supervisor (Superintendencia de Telecomunicaciones). SUTEL is a fully independent body created by the law entitled Strengthening and Modernisation Law of Public Sector Telecommunications Entities (Fortalecimiento y Modernización de las Entidades Públicas del Sector Telecomunicaciones). Telecommunications is a competitive sector whose regulation was separated out from the multi-sectoral regulator as a result of the adoption of the Dominican Republic–Central America Free Trade Agreement with the United States (CAFTA-DR), which entered into force in 2009 and resulted in a significant liberalisation of trade in goods and services in the region. SUTEL is responsible for regulating the telecommunications sector and ensuring efficiency, equality, continuity, quality, better and broader coverage as well as innovation in the provision of telecommunications services. SUTEL has the mission of an independent telecommunications regulator while the National Telecommunications Fund (Fondo Nacional de Telecomunicaciones—FONATEL) and ARESEP have the mission of ensuring telecommunications services for the part of the population that has access to limited resources.

Subsidiary governance is an important issue in Costa Rica. Twelve of Costa Rica’s 28 SOEs are owned directly by the state. However, four of these, in turn, own a total of 16 subsidiaries (See 0. State-owned enterprises and subsidiaries 2018). Subsidiary governance practices in Costa Rican SOEs vary considerably from those of SOEs that are directly owned by the state, especially as they relate to the nomination of board members. For example, unlike the board members of parent companies who are appointed by the Council of Ministers, board members of a subsidiary are nominated by their parent.

Subsidiary nominations practices have led to problems in the past. In the case of the Bank of Costa Rica (BCR), two members of the parent board were also board members in BCR’s four subsidiaries. This had the positive effect of providing parent board members direct insight into subsidiary operations. On the other hand, the rules also prevented BCR executives from sitting on subsidiary boards. Good practice in the banking sector would have suggested that parent executives be permitted to be members of the board of a closely-integrated subsidiary.31

This situation persisted in part because board members were able to increase their income by collecting fees from multiple company boards. As a consequence, in February of 2018, the directive entitled General Guideline for the Review of the Functions of Management Bodies and Strengthening of their Strategic Role in State-Owned Enterprises and Autonomous Institutions (Directriz General Para la Revisión de las Funciones de Órganos de Dirección y Fortalecimiento de su Rol Estratégico en las Empresas Propiedad del Estado e Instituciones Autónomas) limited the number of subsidiary boards on which parent board members could sit to two in addition to the parent board.

Furthermore, the new directive requires subsidiary board member nominations to follow the same rules as the parents themselves and to report on how subsidiaries are governed, thus bringing parent and subsidiary governance practices more into line. With respect to the specific case of BCR, BCR’s 2018 revision of its corporate governance code establishes that “any person external to BCR’s financial conglomerate, any BCR employee and any member of BCR’s board may sit on its subsidiary boards” thus resolving the issue of not being able to place parent executives on subsidiary boards.

The company with the most significant subsidiaries in Costa Rica is the ICE Group. In January 2019, it was reported that the group had made changes to the composition of its subsidiary boards. RACSA received an independent chair whereas the previous one had been an executive of the parent. The new structure also permitted greater autonomy. On the other hand, the Cablevisión subsidiary of ICE Group was merged into ICE’s Directorate for Corporate Telecommunications. The ICE Group example shows how subsidiary governance practices can vary and how they need to be adapted to the specific circumstances of the parent, the subsidiary and to market conditions.

Privatisation has been negligible in Costa Rica. Anecdotal feedback suggests that some political parties and much of the public are not supportive of privatisation, and the issue is politically sensitive. In 2018, Costa Rica had no plans to pursue a privatisation programme. Even simple and useful reforms, such as providing SOEs with a uniform limited liability legal structure, are viewed with suspicion because corporatisation is viewed by some as a precursor to privatisation. As an alternative to privatisation, the state has focused on administrative reforms to improve the efficiency of SOEs. It has also introduced competition, particularly in the telecommunications and insurance markets.


BNV (2019), BNV Web site, https://www.bolsacr.com/.

Castro Arias, A. and A. Serrano López (2013), Margen de Intermediación Financiera y Poder de Mercado: el Caso de Costa Rica, Documento de Investigación DI-04-2013, Banco Central de Costa Rica,


Costa Rican System on Juridical Information (2019), Sistema Costarricense de Información Jurídica—SCIJ, https://www.pgrweb.go.cr/scij/ayuda/nrm_ayuda_simple.aspx.

Costa Rica’s National Institute of Statistics and Censuses (INEC) (2019).

Costa Rica’s National Electoral Tribunal (TSE) (2019).

El Financiero (2015), “Sector bursátil pierde importancia relativa en la economía”, Sergio Morales Chavarría, 9 October, https://www.elfinancierocr.com/finanzas/sector-bursatil-pierde-importancia-relativa-en-la-economia/X7HMJBCHLVB27JWIENHRSLEB2M/story/.

Estado de la Nación, 2016, https://estadonacion.or.cr/.

FTSE Russell, Russell Europe SMID 300 Index, Construction and Methodology v. 2.0, https://research.ftserussell.com/products/downloads/Russell-europe-smid-300-eurozone-smid-150-index.pdf?33

Gallup (2015), Gallup World Poll Database, www.gallup.com.

IFC (2019), Challenges in Group Governance: The Governance of Cross-Border Bank Subsidiaries, https://goo.gl/dsz3U3.

IMF(2018), Costa Rica Financial Sector Stability Review, https://www.imf.org/en/Publications/CR/Issues/2018/04/02/Costa-Rica-Technical-Assistance-Report-Financial-Sector-Stability-Review-45729

Office of the United States Trade Representative (2019), Page on Costa Rica, https://ustr.gov/countries-regions/western-hemisphere/costa-rica.

OECD (2020), Accession Review of Costa Rica conducted by the OECD Committee on Financial Markets, forthcoming.

OECD (2019), Guidelines on Anti-corruption and Integrity in State-Owned Enterprises, www.oecd.org/corporate/Anti-Corruption-Integrity-Guidelines-for-SOEs.htm

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OECD (2018), OECD Economic Surveys: Costa Rica 2018, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-cri-2018-en.

OECD (2016), OECD Economic Surveys: Costa Rica 2016: Economic Assessment, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-cri-2016-en.

OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris, https://doi.org/10.1787/9789264236882-en.

OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris, https://doi.org/10.1787/9789264244160-en.

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← 1. This section draws upon OECD Economic Surveys: Costa Rica 2018. It reuses figures and parts of the text with additional updated information where available.

← 2. Figures do not add to 100% because of rounding.

← 3. As measured by Costa Rica’s National Institute of Statistics and Censuses (INEC); National Electoral Tribunal (TSE); and Gallup (2015), and Gallup World Poll Database. For OECD comparison: OECD Better Life Index Database.

← 4. OECD Economic Surveys: Costa Rica 2018, p 63.

← 5. OECD (2015), Costa Rica: Good Governance, from Process to Results, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264246997-en.

← 6. World Health Organization, Arguments for and against earmarking, http://www.who.int/health_financing/topics/public-health-taxes/for-against-sin-tax/en/

← 7. For more complete and up-to-date information on the BNV and trading, see the BNV website at: https://www.bolsacr.com/.

← 8. In addition, there are 27 exchange traded funds that raise capital through the BNV by issuing certificates of participation. However, the Accession Review limits itself to an assessment of the corporate governance framework for listed companies against the G20/OECD Principles of Corporate Governance.

← 9. SUGEVAL data and exchange rates as of 11/05/2018.

← 10. Source: World Bank Data Catalogue drawing upon World Federation of Exchanges Database: https://data.worldbank.org/indicator/CM.MKT.LDOM.NO.

← 11. FTSE Russell, Russell Europe SMID 300 Index, Construction and Methodology v. 2.0.

← 12. Costa Rica provides access to its laws via the Costa Rican System on Juridical Information (Sistema Costarricense de Información Jurídica—SCIJ): https://www.pgrweb.go.cr/scij/ayuda/nrm_ayuda_simple.aspx

← 13. RECOPE has not refined petroleum since 2011 and acts as a reseller of imported refined petroleum products. A draft law proposes changing the name of RECOPE to Costa Rican Company of Fuels and Alternative Energies, Public Limited Company PLC (ECOENA) to better reflect its mission. 

← 14. El Financiero, “Sector bursátil pierde importancia relativa en la economía”, Sergio Morales Chavarría, 9 October 2015.

← 15. Costa Rican System on Juridical Information (Sistema Costarricense de Información Jurídica—SCIJ) See: https://www.pgrweb.go.cr/scij/ayuda/nrm_ayuda_simple.aspx

← 16. The discussion on the judicial system draws upon conclusions published in the US Department of State, Bureau of Economic and Business Affairs, Investment Climate Statement for Costa Rica, 2018.

← 17. Additional details on the transition to risk-based supervision can be found in the Accession Review of Costa Rica conducted by the OECD Committee on Financial Markets.

← 18. Costa Rican data is from the Costa Rican authorities for 2018, while the OECD average is based on 2012 data published in OECD (2014), The Size and Sectoral Distribution of SOEs in OECD and Partner Countries, OECD Paris.

← 19. The situation of Banco Popular is unusual. It does not fit any of these categories perfectly. It is not formally an SOE bank according to its founding law and does not appear on the list of SOEs in the accession review. It is, nevertheless considered a public institution by Fitch Ratings, is significantly under state influence, is a systemically important financial institution and has an impact on the state’s budget though it is not technically guaranteed by the state. It is fully owned by Costa Rica’s workers who maintain deposits at the bank and in whose interest and on whose behalf it operates. The state has the right to nominate three out of its seven board members with the remaining four being nominated by the GSM, which is composed of workers’ representatives. Its employees are paid according to public sector guidelines. In 2018, the Presidency instructed the bank’s board to promote the reduction of executive salaries, with the goal of addressing concerns regarding public sector spending.

← 20. OECD Economic Surveys: Costa Rica 2018.

← 21. IMF, Costa Rica Financial Sector Stability Review, April 2018.

← 22. Estado de la Nación, 2016

← 23. Castro Arias and Serrano López, 2013

← 24. OECD Economic Surveys: Costa Rica 2016.

← 25. This paragraph draws upon OECD Economic Surveys: Costa Rica 2018.

← 26. This section largely repeats the text and recommendations of the OECD Economic Surveys: Costa Rica 2018 Economic Assessment

← 27. OECD Economic Surveys: Costa Rica 2016.

← 28. OECD Public Governance Reviews Costa Rica 2015 citing MIDEPLAN classification of the institutionally decentralised public sector.

← 29. For information on MIDEPLAN and copies of NDPs and NDPIPs see: https://sites.google.com/expedientesmideplan.go.cr/pndip-2019-2022/documentos

← 30. Although the Ministry of Finance tracks inflows and outflows of funds received by the government from SOEs and from the government to SOEs, they do not generally have approval authority over budgets for SOEs as autonomous and semi-autonomous institutions.

← 31. IFC, Challenges in Group Governance: The Governance of Cross-Border Bank Subsidiaries, https://goo.gl/dsz3U3.

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