5. Conclusions and recommendations

This review provides an assessment of Costa Rica’s corporate governance framework for listed companies and state-owned enterprises with respect to the “core corporate governance principles” set out in the Roadmap for the Accession of Costa Rica to the OECD Convention, which draws upon the G20/OECD Principles of Corporate Governance (G20/OECD Principles) and the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines). Second, it provides a set of additional recommendations by which Costa Rica may further align its framework with the G20/OECD Principles and the SOE Guidelines.

The OECD Corporate Governance Committee and Working Party on State Ownership and Privatisation Practices welcomed the progress made by Costa Rica as a result of the recommendations made during the course of the accession review. While challenges remain, particularly with respect to implementation, Costa Rica has responded to most concerns raised over the course of the review process, via new and/or pending legislation and other reforms. The strengths and weaknesses of Costa Rica’s corporate governance framework, including the potential impact of recent and pending reforms, are summarised as follows.

Costa Rica’s capital market, with only 10 listed companies issuing equity, lacks sufficient size and liquidity to attract active trading by foreign institutional investors. The market is small both in nominal terms and as a percentage of GDP. Trading is concentrated mainly in a single company and, in most years, some companies had no trading activity at all.

All trading of equities and bonds in Costa Rica occurs on the National Securities Exchange (BNV). Most of the issues traded are in the form of bonds. The total value of bond and equity issues was approximately USD 71 billion in 2019 with 99.4% of the value in bonds and the remaining 0.6% in equity. The Costa Rican Ministry of Finance and the Central Bank combined make up approximately 85% of the total bond market. The corporate bond market is comparatively small, with SOEs, in turn, representing only a small fraction.

Banks and financial intermediaries play a far more important role in the financial system. The assets of banking and financial intermediaries represent 89.2% of GDP while the securities markets represent only 1.4% of GDP. The role of the state within banks and financial intermediaries is significant. State-owned banks and savings and loan co-operatives make up the preponderance of lending activity with correspondingly less lending provided by the private sector.

Most listed firms have a dominant shareholder associated with a family and a holding company group. As a consequence, the governance challenges of listed enterprises are those typically associated with concentrated ownership where the protection of minority shareholders is the main concern. Issuers face governance challenges more commonly found in family-owned enterprises than those of normal equities listings.

Despite Costa Rica’s small equities market, its market supervisors—the National Council of Supervision of the Financial System (CONASSIF), the Supervisor for Financial Entities (SUGEF) and securities market regulator (SUGEVAL) have devoted considerable efforts during the accession process to ensure that Costa Rica’s corporate governance laws, structures and protections are consistent with the recommendations of the G20/OECD Principles. In this regard, a key initiative has been the development of its Corporate Governance Regulation promulgated by CONASSIF in 2016, which came into force in June of 2017.

Costa Rica has been implementing its new governance framework using a risk-based supervisory approach (RBS). Globally, RBS tends to be a regulatory approach used mainly to regulate banks and other financial institutions. While securities exchange regulators may employ some risk-based approaches, they traditionally rely more heavily on ensuring rules compliance and disclosure. However, by the end of 2019, there was growing evidence that both the supervisor and companies had worked in good faith to develop common sense solutions and that the implementation of good governance practices through RBS was having a positive impact.

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 including: 1) the Constitution; 2) the Code of Commerce; 3) the new Corporate Governance Regulation issued by the markets regulator in 2016 and; 4) a framework for combatting corruption.

Costa Rica has 28 SOEs at the central government level of which 16 are subsidiaries. SOE employment is 1.9% of total employment, which is roughly proportionate to the OECD average at 2.5%. SOEs have traditionally fulfilled an important development function and have helped ensure broad public access to electricity, water, transport, banking and insurance services for the population. In this context, the focus of SOEs has been more on achieving public policy and public service objectives than on financial performance. Most of Costa Rica’s SOEs are active in the financial sector and the banking sector itself is dominated by SOE banks. According to the IMF, Costa Rica has the largest presence of state-owned financial institutions in Latin America. Energy is the next largest sector in terms of number of SOEs and is the largest in terms of employment. The electricity sector is dominated by the Costa Rican Institute for Electricity (ICE Group), a holding company, which is both a generator and a distributor of electricity but also a provider of telecommunications services. Import and distribution of wholesale petroleum and its derivatives occur under a legal monopoly granted to the Costa Rican Petroleum Refinery— RECOPE.

Since the start of the 2009 global crisis, Costa Rica’s public deficit and debt rose 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. This being said, SOEs do not present a significant drain on the state budget. During the accession review process, outflows changed from modest net transfers to SOEs to modest inflows to the state budget in 2017. On the other hand, greater attention to the financial performance of SOEs would have the potential to achieve efficiency gains that could yield additional gains either for the state budget or in the form of lower prices for consumers. An additional concern relates to contingent liability risks, particularly given the full state guarantee of deposits held in SOE banks. Furthermore, disaggregated data show that cash inflows and outflows impact individual SOEs distinctly. The financial sector is the greatest revenue source for the State, while the SOE water company and rail services are the largest recipients of funds.

Costa Rica’s 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 quite heterogeneous. The result is that developing and implementing uniform governance policies for SOEs is difficult, with changes in policies and practices often necessitating time-consuming legislation and a complex adaptation of different laws.

The country has a decentralised public administration and SOEs have a considerable level of autonomy. SOEs respond directly to the Presidency of the Republic through the Council of Ministers with formal supervision of financial, legal and performance issues by the Comptroller General. Boards of directors of SOEs are in most cases appointed by the Council of Ministers. The Ministry of National Planning and Economic Policy (MIDEPLAN) is the body responsible for formulating the development strategies of the government. MIDEPLAN has no power to enforce strategy and there are no formal performance contracts or performance agreements with SOEs. However, MIDEPLAN has established monitoring processes that include regular reporting involving SOEs and other public entities, and “expectation letters” setting down high-level goals for SOEs are envisioned for 2020 that will take account of national development strategies. Tariffs for SOEs operating under monopoly conditions are set by the Regulatory Authority for Public Services (ARESEP), which is an autonomous multi-sectoral regulator. Tariffs for telecommunications services are set by the Telecommunications Supervisor (SUTEL), which is a fully independent body.

Non-financial SOEs have experienced considerable challenges in implementing IFRS and, in some cases, have not published audited annual financial reports. Since 2015, all financial SOEs produced financial reports under supervisory accounting standards that were developed based on a 2011 version of IFRS. During the accession process, various government institutions and SOEs began to recognise the importance of IFRS and new initiatives to implement international standards have been developed, although full implementation is still expected to take more time.

Costa Rican SOEs are subject to the same laws and regulations applicable to private companies, including those on competition. However, the legal framework for statutory SOEs results in significant differences in their corporate governance practices. SOE boards have operational independence and the number of board members with overt political affiliations has decreased during the accession process. Only two SOEs had ministers on their boards. This situation is being addressed as a result of recommendations made by the Working Party during the course of the accession review, with legislation adopted in one case and legislation that is pending to address the other.1 All board members are technically independent with the exception of some cases where the posts of Chair and CEO are combined. Improvements in the composition of boards and board member training as a result of the Working Party’s recommendations are expected to strengthen the independence and objectivity of boards.

In summary, the Working Party’s recommendations to Costa Rica focused on measures in four areas, namely to: 1) strengthen SOE boards, in particular, through the removal of ministers from RECOPE and FANAL, and by encouraging boards to perform their duties professionally and competently in line with good practice including through board nominations and better board composition; 2) strengthen the state ownership function including through the establishment of a co-ordinating body for SOEs and development of an ownership policy and aggregate reporting; 3) ensure that SOEs are subject to high quality accounting standards and that clear rules for confidential information be established; and 4) work towards a more level the playing field, particularly in the banking sector, and through consideration of other measures including with regard to public procurement.

The following section assesses the corporate governance framework for listed and state-owned enterprises in Costa Rica with respect to the five core principles set out in the Roadmap.

Costa Rica has legal requirements in place to ensure enforcement of shareholder rights and equitable treatment with respect to most of the relevant recommendations of the G20/OECD Principles. Shareholders have the opportunity to participate effectively and vote in general shareholder meetings (GSM) and are informed of the rules, including voting procedures that govern general shareholder meetings. Procedures do not make it unduly difficult or expensive to cast votes. Shareholders are able to ask questions to the board and place items on the agenda of the GSM and participate in key corporate governance decisions. They are able to vote in person or in absentia, and there are no undue impediments to cross-border voting. Shareholders, including institutional shareholders, are allowed to consult with each other on issues concerning their rights, and shareholders of the same series of a class are treated equally under law.

Rules and procedures regarding markets for corporate control are clearly articulated and allow the market to function in an efficient and transparent manner. To date, there have been no control transactions due to the limited size of the market and no use of anti-takeover devices, though anti-takeover devices are not explicitly prohibited by law. The framework for the supervision of related party transactions is in place. The Code of Commerce requires the general manager, board members, and related parties to report conflicts of interests in transactions to the board and provide all relevant information on the interests of the parties in the transaction.

Shareholder protection for private sector enterprises and listed firms is an area that has been recognised as a weakness in Costa Rica. This includes difficulties in identifying conflicts of interest and who may be involved in a related party transaction based on publicly available information. The fundamental impediments to transparency are the Data Protection Law and privacy rights embedded in the Political Constitution restricting disclosure of beneficial ownership. However, the legal framework for private sector enterprises has been improved, notably through the adoption of a new law in September 2019, requiring disclosure of beneficial ownership to the regulator for purposes of enforcement. This reform is expected to enable Costa Rica to become a signatory to the IOSCO Multilateral Memorandum of Understanding on the exchange of information.

There are norms to regulate conflicts of interest between stock market participants, including the prohibition of operations between companies belonging to the same group, and to prevent operations or the transfer of information that may harm the investing public. Institutional investors acting as trustees should disclose their general corporate governance and voting policies in relation to their investments, including the procedures foreseen to decide on their use of the right to vote. In addition, they should disclose the way in which they manage conflicts of interest. Both insider trading and market manipulation are prohibited by the Securities Market Law. Insider trading and price manipulation are regulated by the criminal court.

All Costa Rican SOEs are wholly-owned by the state with one exception with insignificant outside ownership. Consequently, issues of the protection of minority shareholders for SOEs do not arise, though they may in future if the country decides to open the share capital of SOEs to outside investors. If this should occur, Costa Rica has the basic legal requirements in place and the institutional structures to ensure enforcement of shareholder rights and equitable treatment for non-state shareholders though these are untested in practice.

Costa Rica is largely aligned with this core principle. CONASSIF is responsible for setting financial reporting standards for regulated entities, i.e. listed companies and financial sector entities. While all companies accessing the capital markets through the BNV must report according to International Financial Reporting Standards, the accounting standards that apply to financial institutions and SOEs have been evolving.

Disclosure of beneficial owners of listed companies and, by extension, control arrangements, has been a contentious issue in Costa Rica. The reticence to disclose information on beneficial owners can make it difficult to gain a full appreciation of capital structures, control arrangements, and related-party transactions. However, as noted above, legislation to allow market supervisors to obtain access to beneficial ownership information for the purposes of exchanging information on enforcement was adopted in September 2019 as a step in the direction of addressing these concerns.

Costa Rica has experienced considerable delays in implementing IFRS in SOEs since prior to the accession process. Further to recommendations made to this effect by the Working Party during the course of the accession process, an executive decree was issued in February 2018, providing non-financial SOEs with a 1 January 2020 deadline to fully comply with IFRS. However, there are indications that a significant number of SOEs will take longer. A 2018 CONASSIF regulation calls for financial institutions including SOE banks to implement current IFRS standards by 2020, with six remaining transitional provisions to be gradually phased in by 2024. The most recent information on reporting practices shows that three non-financial SOEs were in full compliance with IFRS. The state of disclosure amongst SOEs and SOE banks suggests that the implementation of IFRS will require more time and effort. During the most recent reporting cycle, a significant number of SOEs received qualified (negative) opinions from auditors and five did not produce audited financial statements, although this is required by regulation and the Presidential Advisory Unit (Costa Rica’s co-ordinating body for SOEs) is following up with the SOEs concerned. Both the Ministry of Finance and the Presidential Advisory Unit have indicated an intent to follow up to promote full implementation of IFRS, as well as publication of audited financial statements by all SOEs, as soon as possible.

Concerning disclosure of the state on its stewardship of SOEs, Costa Rica has responded to the Working Party’s recommendation by publicly issuing an aggregate report on SOEs. Overall, the report represents a strong first attempt at aggregate reporting that compares favourably to similar efforts by ownership entities in OECD countries. It contains summary descriptions of SOEs, their missions, and basic financial performance indicators for both 2017 and 2018, which are accompanied by some discussion and analysis. The length and layout of the document make it easy to read and user-friendly. To support preparation of the aggregate report in response to the Working Party’s recommendations, the Ministry of the Presidency issued Directive 102-MP, General Policy on Transparency and Disclosure of Financial and Non-Financial Information for SOEs, their Subsidiaries and Autonomous Institutions in April 2018. The directive is wide-ranging in scope and establishes a disclosure policy for both financial and non-financial information for SOEs. The aggregate report shows that SOEs still have significant gaps to address to fully implement the directive’s requirements for financial and non-financial reporting. However, the aggregate report establishes a benchmark against which the Presidential Advisory Unit can encourage and track progress in the future. The Costa Rican government’s plans to ensure that SOEs fully implement IFRS and to develop and track financial and non-financial performance indicators are expected to further enhance the information to be presented in future aggregate reports, which the Presidential Advisory Unit plans to issue annually.

The laws establishing SOEs give them the explicit objective of providing public goods and the systems for planning, monitoring, and control coincide in aiming at achieving policy goals. There is no clear separation between commercial and policy objectives within SOEs, where policy objectives often have primacy over commercial objectives. In some cases, Costa Rica has arrangements to support independent regulatory oversight of certain SOEs. The separation of regulation and policy is clearer, for example, in the banking sector and with respect to tariff setting in certain monopoly sectors.

Costa Rican SOEs have a high degree of autonomy. However, that autonomy is mainly with respect to the actions that SOEs can take to achieve public policy goals. SOE boards do not play an active role in strategy-setting, and focus on implementing government directions, such as those established in the National Development and Public Investment Plan, and on compliance and checking implementation.

At the beginning of the accession review process, Costa Rica did not have a centralised institution to fulfil the functions of an ownership entity. The Presidential Advisory Unit was established as a result of recommendations by the Working Party, and became operational in the summer of 2018, with its establishment being formally announced in January of 2019. The Council of Minister’s Secretary became the head of the Presidential Advisory Unit and the unit received three additional analysts, with an intent to add two additional staff in the coming period. The Presidential Advisory Unit issued an ownership policy entitled Protocol of Understanding of the Relations between the State and the Enterprises under its Property (the ownership Protocol), on 13 October 2019. The ownership Protocol expresses Costa Rica’s commitment to improving the direction of SOEs governed by the Executive Branch and seeks to implement the principles and guidelines of good corporate governance adopted by the international community with particular reference to the G20 and the OECD.

The ownership Protocol also contains a discussion of the rationale for state ownership. The definition of an ownership rationale is a large step in Costa Rica where the role of the state in enterprises has largely been an unquestioned article of faith. A regular examination of the rationale for state ownership in SOEs could encourage a closer examination of whether the state’s policy objectives are being achieved by SOEs and if SOEs are the best vehicle for achieving the state’s objectives.

Concerning the legal form of SOEs, the set of laws that provide the framework for the governance and operation of SOEs remains complex. Most SOEs have been established through statutory laws with varying requirements, while some of their subsidiaries have a different, corporatised legal form. The result is that some SOEs have different social obligations, are required to have different board compositions, may or may not combine the roles of the Chair and CEO, enjoy exemptions from procurement rules, and benefit from certain fiscal exemptions and advantages amongst others. Reforms to streamline this complex set of laws should remain an objective for Costa Rica in the longer term. In future, the rollout of uniform governance policies for SOEs will be complicated by this diverse legislation, and simplifying and harmonising the legal form of SOEs should remain a medium to longer term goal. The government acknowledges the importance of the recommendations of the Working Party to this effect and has indicated that it will continue to work on streamlining its SOE governance framework and practices.

Costa Rican SOEs are not formally exempt from the application of general laws, tax codes and regulations. However, in practice, differences in the operational conditions between SOEs and private enterprises create distortions in the competitive landscape. These include: 1) the granting of legal monopoly rights or the carving out of certain markets; 2) the rights to provide licenses and collect fees; 3) the obligation to provide public services; and 4) the absence of rate-of-return requirements. The degree to which a level playing field exists depends upon the sector. The main sectors where SOEs compete with private sector companies are banking, insurance, and telecommunications.

The banking sector is where level-playing field concerns are the greatest and where there are a number of significant differences between private and public entities that lead to distortions in competition and inefficiencies in the economy. On the one hand, deposits in state-owned banks are legally guaranteed by the government, while private sector banks do not have this protection. Government institutions are also required to use SOE banks for their deposits. On the other hand, SOE banks are subject to a range of charges and restrictive regulations on procurement and human resource management that their private sector counterparts do not have. Although there are many differences in treatment between SOE banks and private banks, legislation on deposit insurance was enacted in February 2020, representing a significant step towards levelling the playing field.

Regarding procurement, at the beginning of the accession process, cumbersome procurement practices were identified as a cost imposed upon SOEs that hindered them from competing with the private sector. Later in the process, opposing concerns were raised that exceptions written into procurement laws that allowed for direct contracting, were being used by to prevent the private sector from competing on a fair footing with SOEs for public procurement.

A comprehensive draft legislative proposal (Bill No. 21.546) that envisages a full reform of the Procurement Law to achieve greater efficiency and competition in all public procurement procedures, including for SOEs, was under discussion within a special commission of the Legislative Assembly as of March 2020. A second, more narrowly focused draft legislative proposal has also been submitted to the Legislative Assembly to address the specific concerns raised with respect to exemptions allowing SOEs to engage in or benefit from direct contracting. These legislative proposals are being preceded on the operational level by the introduction of an electronic platform for public procurement designed to rationalise procedures, reduce the potential for discretionary decision-making and corruption, and help the state take advantage of purchasing economies of scale. Its enhanced transparency is also expected to improve the government’s capacity to consolidate and analyse information related to its public procurement practices.

Costa Rica has legislation and regulations that establish the rights of corporate stakeholders through labour, insolvency, shareholder protection, consumer, environmental protection, banking and other laws and stakeholders may seek redress through the courts. Although Costa Rica has a well-developed judicial system, a significant weakness is its slowness. This problem is known and a number of government programmes have been undertaken to make the judicial system more responsive. Numerous avenues exist to communicate concerns regarding illegal or unethical practices. Formal channels are internal auditors, the police and public prosecutors. Reporting persons (also referred to as whistleblowers) who choose to pursue legal channels to report illegal practices are protected.

According to the World Bank Doing Business Report 2019, resolving insolvency was the area where Costa Rica’s performance was weakest among the 10 business topics covered. Legislation was proposed to the Legislative Assembly in May 2019 to modernise and update the insolvency framework, and interviews with insolvency specialists suggest that the implementation of the proposed reforms could lead to important gains in the efficiency and effectiveness of the framework and the economy.

Regarding the duties and rights of boards, the CONASSIF Governance Regulation that applies to financial entities establishes board members’ duties of diligence and loyalty and their obligation to act in the best interests of the company, taking into account the interests of its stakeholders. The CONASSIF Governance Regulation provides for clear, formal and rigorous nominations processes, and requires transparency and disclosure of information on board members.

The laws that establish SOEs and other laws and directives also establish board duties of loyalty and care, and the protection of stakeholder rights. Mutual agreements between any interested party and an SOE are considered enforceable and, provided they do not breach the legal framework, must be respected by all parties. SOE stakeholder reporting tends to be to the government and not directly to stakeholders of the SOE though some SOEs publish annual stakeholder reports on their websites.

The OECD conducted interviews of the board members, managers and stakeholders of most large SOEs in the context of the accession review to form a picture of SOE board effectiveness. These interviews suggested that board performance was variable, and that legal requirements for some SOE board compositions constrained the scope to appoint people with business backgrounds. Anecdotal evidence also suggests that SOE boards may not rigorously monitor systems of control and that many board members may not have sufficient knowledge of control systems to evaluate their efficacy.

SOE boards are increasingly aware of the need for better governance practices. SOE scandals and the 2018 fiscal reforms generated greater awareness of the importance of corporate governance, which resulted in an increase in the government’s commitment to strengthening SOE boards. Since then, and as a response to the Working Party’s recommendations, the government has undertaken numerous initiatives to strengthen SOE board composition and practices. A Presidential Decree was passed to better define board member profiles and the roles and responsibilities of board members. In addition, public tenders for board members have been initiated for board appointments in 2019, and are expected to improve the skills available on boards. The government also initiated a comprehensive training programme for existing and prospective board members, key executives and certain government officials with the goal of developing a better shared understanding of their roles and their decision-making authorities. Such training is expected to be an important contributor to professionalising boards and cultivating a more professional governance culture in SOEs.

Tracking board performance has also become part of the government’s priorities for SOE reform and has been formalised as one of the board’s responsibilities under the Strategic SOE Board Directive, which requires the implementation of “an objective and structured annual performance evaluation programme”. In addition, a regulation was passed in May of 2018 that applies to all financial companies including SOE banks that requires fit and proper testing, and an examination of experience and potential conflicts of interest. Most SOEs have language in their statutes that permits the board to exercise its duties with full independence within the rules established by law, applicable regulations and the principles of procedure. However, feedback from interviews suggest that as the government continues to promote the implementation of the above measures, it remains an important goal to underscore the need for objective and independent thinking amongst board members and the duty of board members to act in the company’s interests.

At the beginning of Costa Rica’s accession process, a general evaluation of anti-corruption practices was conducted by the WPSOPP and those findings were described in Costa Rica’s accession review. Following the adoption of the ACI Guidelines by the OECD Council in May 2019, and as required in relation to new legal instruments pursuant to the Roadmap, the government of Costa Rica submitted its position on the instrument. In its position, Costa Rica reported that its policy framework is not only aligned with the principles and recommendations of the ACI Guidelines, but that it is committed to improving integrity and ethical standards in its SOEs and in the exercise of the public service at large, and that this is reflected at the highest political level.

Overall, Costa Rica has a legal and regulatory framework fully consistent with the rule of law, and SOEs are subject to the general rule of law, contributing to a general environment of transparency and integrity in the public sector. Costa Rica’s position underlines a continuing commitment to preventing corruption and promoting integrity in SOEs. However, Costa Rica should continue to work to strengthen implementation, particularly at the level of SOEs and their boards to ensure effective oversight of internal controls and corruption risks. This will require mutually-reinforcing approaches, which emanate not only from the state and SOEs, but from the regulatory, judicial and supreme audit institutions to foster an effective cultural change towards better integrity and anti-corruption practices.

The Corporate Governance Committee and the Working Party on State Ownership and Privatisation Practices recognise that Costa Rica has made considerable progress in its implementation of the G20/OECD Principles and SOE Guidelines compared with its situation at the start of the accession review.

Regarding Costa Rica’s implementation of the G20/OECD Principles, Costa Rica’s greatest challenge relates to the development of a more active capital market with a larger number of actively traded companies. However, it is beyond the scope of this review to develop specific recommendations in this respect. Regarding the more specific focus on Costa Rica’s corporate governance framework, the Corporate Governance Committee finds that the government has taken positive steps to address the recommendations made during the accession review process. Notably, this has included issuance and implementation of a comprehensive corporate governance regulation; steps to ensure full implementation of IFRS and international audit standards by listed companies; to strengthen supervisory authority with respect to oversight of the audit profession; and to strengthen disclosure of beneficial ownership for the purpose of strengthening shareholder rights.

While Costa Rica has also made substantial progress in implementing recommendations of the OECD Guidelines on Corporate Governance of State-Owned Enterprises, considerable challenges remain to further align practices with the SOE Guidelines’ recommendations. The following priority recommendations are therefore addressed to Costa Rica:

  • Fully implement IFRS. Costa Rica has defined IFRS as the reporting standard for SOEs. Governance scandals, fiscal reforms, pressure from lenders and international organisations have encouraged a greater commitment to IFRS. It is recommended that Costa Rica’s government ensure full implementation and compliance with IFRS without further delays to current legal and regulatory requirements.

  • Develop and implement a system for establishing and monitoring the achievement of financial and non-financial performance objectives. Costa Rica’s ownership policy envisages that performance targets will be set via a “note of expectations” sent from the Government Executive to SOEs, which will establish goals and indicators for what the state deems important to achieve. The implementation of this system for setting performance objectives should allow for far better monitoring of SOEs. Achieving this will require sufficient resources and a continued strengthening of the Presidential Advisory Unit’s capacity.

  • Develop a consistently applied policy regarding information confidentiality. Presidential decrees have been adopted that call for greater transparency amongst SOEs that circumscribe the right to withhold confidential information. However, these decrees do not define in detail what information is confidential and what is not, which has led to differing interpretations. Costa Rica allows SOEs to develop their own confidentiality policies, thus opening the door for a heterogeneity of approaches. It is recommended that a clarification occur at central level followed by active monitoring and enforcement to ensure consistent application of confidentiality policies in line with best practices.

  • Enact legislation to remove the Minister of Agriculture from the board overseeing FANAL. The government has introduced a draft bill to the Legislative Assembly that would remove the Minister of Agriculture from the board of directors of the National Production Council, the parent body whose board currently takes decisions on behalf of its subsidiary SOE, the national liquor production company FANAL. The government has also announced its intention to re-structure and/or privatise these entities. In the event that the government decides to retain FANAL as an SOE, it should ultimately establish a separate board of directors for FANAL.

  • Pursue public procurement reforms to monitor and limit the use of exceptions for direct public procurement between public entities including SOEs. Costa Rica plans to enact a comprehensive reform of the Procurement Law and aims to achieve greater efficiency and competition in all public procurement procedures. The draft laws would reduce the number of exceptions to ordinary procurement procedures and introduce new requirements for their use.

  • Make further progress on implementing initiatives to strengthen the functioning of boards, including the implementation of board evaluations, and effective risk management and control systems. SOE boards continue to need board members with greater private sector, financial, international and business expertise and knowledge of best practices in SOE governance. An important step in developing stronger boards is to conduct board self-evaluations mandated by law, analyse them at central level and develop remedial action plans. Further, boards need to act on their responsibility under best practice to ensure an effective control environment including one that monitors and manages risks associated with conflicts of interest and corruption. The establishment of audit committees may assist in this regard.

  • Review SOE board remuneration and develop recommendations to support competitive remuneration and incentives that are aligned with good board practices. A research study was being conducted on remuneration practices in the public sector in co-operation with the Inter-American Development Bank and MIDEPLAN. That study has the objective of establishing a fee scale for SOE boards using labour market data from the public and private sector as reference. The study was expected to be completed by July 2020.

The Committee and Working Party also address the following additional recommendations to Costa Rica concerning implementation of the SOE Guidelines:

  • Corporatisation and other streamlining of SOE legal and corporate forms. Costa Rican SOEs are established and operate under a complex web of laws. These laws should be simplified and made more uniform. One of the principal recommendations in the accession review was to use the legal structure of a public limited company (Plc) for SOEs, which would simplify adaptation of SOE governance to best practice.

  • Consider further reforms to strengthen boards, including staggering of board appointments and separation of the role of Chair and CEO. At present, the law requires that a significant portion of board members be appointed virtually immediately after an administration comes to power, making the process rushed and possibly working to the detriment of finding the best available board talent. A change in law that would allow existing board members to stay on until a proper process can be completed would be desirable. Further, Costa Rica should work towards removing the possibility for a board Chair to simultaneously exercise the powers of CEO.

  • Continue to work towards a more level playing field, particularly in the banking sector through enactment of deposit insurance reform. At the time of the Corporate Governance Committee’s final review of Costa Rica in October, 2019, the government had submitted a draft bill to the Legislative Assembly to create a deposit insurance and bank resolution scheme applying to both state-owned and private sector banks. The legislation has subsequently been enacted in February, 2020.

  • Defining, reporting and assessing the costs of public service objectives for each SOE. The financial statements and internal budgets of Costa Rican SOEs do not generally break out the portion of revenues and costs that are associated with the provision of public services and feedback from SOEs suggests that the costs of policy commitments are not fully recognised. Efforts should be put into better defining public service costs and ensuring that they are fully compensated.


Republic of Costa Rica (2019), Aggregate Report on SOEs 2019, https://www.hacienda.go.cr/docs/5dd69dd20f54e_Reporte%20agregado%20empresas%20del%20Estado%202019%20v8Nov2019.pdf

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.

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


← 1. In the case of the Costa Rican petroleum refinery company, RECOPE, the new law required the Minister of Energy and Environment to leave the board by 1 January 2020, whereas for the second SOE, the National Liquor Factory FANAL, the legislative proposal would remove the Minister of Agriculture as chair of the board of the National Production Council, FANAL’s parent body, by 31 December 2020, to be replaced by an independent board member. FANAL does not have its own board and the National Production Council board takes decisions on its behalf.

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

© OECD 2020

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at http://www.oecd.org/termsandconditions.