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Costa Rica Costa Rica Prioritizes Public Health Cartago Province, Costa Rica. Care teams are assigned to rural communities across the country. (Credit: alexeys/iStock by Getty Images) By Analisa Bala   Editor’s note: This article first appeared in the most recent issue of Finance & Development. Pura vida, the “pure life.” It’s an expression you’ll often hear in Costa Rica. One that represents the laid-back lifestyle the country is known for and gives a sense of why Costa Ricans are as happy as they are.  “If you are healthy, have work, and are able to spend time with friends and family, you are pura vida,” says Luis Alberto Vásquez Castro, a former congressman for Costa Rica’s Limón province.  The 2021 World Happiness Report ranks Costa Rica the 16th happiest place on earth. Aside from the Czech Republic it is the only emerging market economy listed in the top 20. For a middle-income country, that’s a lot of happiness per GDP dollar.  Professor Mariano Rojas, a Costa Rican economist attributes the country’s high well-being to strong social relationships and a sense of community. “People are warm; the pace of life is slower. It’s not a competitive society where everyone is trying to climb the career ladder.”  The country also has a strong welfare system. Costa Ricans have access to free education and a guaranteed state pension. It is the only country in Central America where 100 percent of the population has access to electricity and a source of drinking water.  It is also one of the few countries in the region that offers universal health coverage.  Read the full article RELATED LINKS   Staff Report Costa Rica and the IMF

Dear maria, We just published a new blog—please find the full text below.  Tight Jobs Market Is a Boon for Workers But Could Add To Inflation Risks (PHOTO: ABLOKHIN/ISTOCK BY GETTY IMAGES) By Romain Duval, Myrto Oikonomou and Marina M. Tavares By late 2021, there were 50 percent to 80 percent more unfilled jobs in Australia, Canada, the United Kingdom and the United States than there were prior to the pandemic. Open vacancies were at or above their 2019 levels in other advanced economies too, and have risen steadily across all sectors, including those that are more contact-intensive, such as hospitality and transportation. Increases in vacancies have been largest for low-skilled jobs. The sharp rise in unfilled vacancies partly reflects how strong the economic recovery in advanced economies had been until the start of the Ukraine crisis, with firms recruiting en masse to cope with booming demand. But, as a new IMF Study shows, this is just one part of the story. Why aren’t vacancies being filled? Vacancies have been hard to fill for several reasons, some of which were outlined in a previous blog. One is health concerns related to the pandemic. Because of these, some older and lower-skilled workers previously employed in contact-intensive industries remain outside of the labor force, shrinking the pool of available job seekers. In the median advanced country, low-skilled workers account for over two-thirds of the gap between aggregate employment and its pre-pandemic trend. Older workers, as a group, contribute about one-third of this employment gap. In some countries, such as Canada and the United Kingdom, the decline in immigration also seems to have amplified labor shortages among low-skill jobs. Another reason why vacant jobs have been hard to fill is that COVID-19 may well have changed workers’ job preferences. In the United States, resignations have risen beyond what their historical relationship with vacancies would imply, suggesting that workers are not just seizing opportunities in a hot labor market but also searching for better working conditions. In the United Kingdom, resignations have risen the most for low-wage jobs that are contact-intensive, physically strenuous or offer little flexibility, such as in transport and storage, wholesale and retail trade, or hotels and restaurants. Impact on wage growth and inflation Labor market tightness (as measured by the ratio of vacancies to the number of unemployed workers) has pushed up wage growth across the board. But the impact on wage growth in low-wage sectors has been over twice as large, at least in the United States and United Kingdom. This is because wages are over twice as responsive to tightness in low-pay industries, which have also seen larger increases in tightness than other industries. We estimate that the annual growth rate of nominal wages in low-pay industries increased by 4 to 6 percentage points between mid-2020 and late 2021 because of rising labor market tightness, helping reduce wage inequality in some countries. However, on average, these pay gains have not yet resulted in additional spending power due to higher price inflation. The overall impact of increased tightness on wage inflation has been more moderate so far, at least 1.5 percentage points in both countries. This is partly because of the small overall share of low-pay industries (and jobs) in total labor costs. Insofar as labor market tightness persists, it is likely to keep overall nominal wage growth strong going forward. The impact on inflation is expected to be manageable unless workers start to demand higher compensation in response to recent price hikes and/or inflation expectations rise. Central banks should continue to signal their strong commitment to avoid any such price-wage spirals. Policies can help bring workers back Curbing COVID-19 outbreaks would enable older and low-wage workers to reenter the labor force, thereby easing labor market pressures and inflation risks. Keeping schools and daycares open will also be important for women with young children to fully get back to work. Well-designed active labor market policies could also speed up job matching, including through short-term training programs that help workers build the skills required for new fast-growing digital-intensive occupations, such as technology and e-commerce, or more traditional jobs that have experienced acute shortages, such as truck drivers or care workers. To accommodate shifting worker’s preferences, labor laws and regulations also need to facilitate telework. And where the decline in immigration amplifies labor shortages, its resumption could further “grease the wheels” of the labor market. Tighter labor markets in several advanced economies have been good news so far. They have increased pay, especially for low-wage workers, with a manageable impact on price inflation (the surge has predominantly been driven by other factors). But some workers who left during the pandemic have yet to return, while others have lingering concerns about their current jobs and new expectations, restricting labor supply. By doing more to help these workers, governments can make the labor market recovery more inclusive while curbing inflation risks.                                                         Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org

Dear maria, We just published a new blog—please find the full text below.  Why the IMF is Updating its View on Capital Flows (PHOTO: THAWEESAK SAENGNGOEN/ISTOCK BY GETTY IMAGES) By Tobias Adrian, Gita Gopinath, Pierre-Olivier Gourinchas, Ceyla Pazarbasioglu, and Rhoda Weeks-Brown Capital flows can help countries to grow and to share risks. But economies with large external debts can be vulnerable to financial crises and deep recessions when capital flows out. External liabilities are riskiest when they generate currency mismatches—when external debt is in foreign currency and is not offset by foreign currency assets or hedges. The dramatic capital outflows witnessed at the start of the global pandemic and recent turbulence in capital flows to some emerging markets following the war in Ukraine are stark reminders of how volatile capital flows can be—and the impact this can have on economies. Since the beginning of the pandemic many countries have spent to support the recovery, which has led to a build-up of their external debt. In some cases, the increase in debt in foreign currency was not offset by foreign currency assets or hedges. This creates new vulnerabilities in the event of a sudden loss of appetite for emerging market debt that could lead to severe financial distress in some markets. In a review of its Institutional View on capital flows released today, the IMF said that countries should have more flexibility to introduce measures that fall within the intersection of two categories of tools: capital flow management measures (CFMs) and macroprudential measures (MPMs). Today’s review said that these measures, known as CFM/MPMs, can help countries to reduce capital inflows and thus mitigate risks to financial stability—not only when capital inflows surge, but at other times too. A major milestone The IMF first adopted the Institutional View in 2012 at a time when many emerging markets were contending with large and volatile capital flows. Shaped by the financial crises of the 1990s and the global financial crisis of 2008-09, it sought a balanced and consistent approach to issues of capital account liberalization and capital flow management. In particular, the Institutional View recognized as a core principle that capital flows are desirable because they can bring substantial benefits to recipient countries, but they can also result in macroeconomic challenges and financial stability risks. The Institutional View also noted the role of source countries in mitigating the multilateral risks associated with capital flows and the importance of international cooperation on capital flow policies. Capital flow management The Institutional View incorporated CFMs and CFM/MPMs into the policy toolkit in a limited manner. It set out the circumstances in which they might be useful but stressed that they should not be a substitute for necessary macroeconomic adjustments. CFMs to restrict inflows might be appropriate for a limited period, the Institutional View said, when a surge in capital inflows constrains the policy space to address currency overvaluation and economic overheating. It said CFMs to restrict outflows might be useful when disruptive outflows risk causing a crisis. In turn, CFM/MPMs on inflows were considered useful only during surges of capital inflows, assuming that financial stability risks from inflows would arise mainly in that context. At the time of its adoption, the IMF recognized that the Institutional View would evolve based on research and experience. Today’s review updates the Institutional View while maintaining the core principles that underpin it. It also preserves the existing advice on liberalization, the use of CFMs and CFM/MPMs during inflow surges, and CFMs during periods of disruptive outflows. Pre-emptive measures The main update is the addition of CFM/MPMs that can be applied pre-emptively, even when there is no surge in capital inflows, to the policy toolkit. This change builds on the Integrated Policy Framework (IPF), a research effort by the IMF to build a systematic framework to analyze policy options and tradeoffs in response to shocks, given country-specific characteristics. The IPF and other research related to external crises delivered new insights on managing financial stability risks stemming from capital flows. They highlighted that risks to financial stability can arise from a gradual buildup of external debt denominated in foreign currency, even without an inflow surge. In narrow and exceptional cases, they also highlighted risks arising from external debt denominated in local currency. Further, these risks may be challenging to address given the evolving nature of global financial intermediation beyond the banking system. MPMs alone may not always be able to contain risks such as those stemming from foreign currency borrowing of non-financial corporates and shadow banks. Pre-emptive CFM/MPMs to restrict inflows can mitigate risks from external debt. Yet they should not be used in a manner that leads to excessive distortions. Nor should they substitute for necessary macroeconomic and structural policies or be used to keep currencies excessively weak. Other updates to the Institutional View Another important update to the Institutional View is to give special treatment to some categories of CFMs. These measures would not be guided by the policy advice outlined in the Institutional View because they are governed by separate international frameworks for global policy coordination or are introduced for specific non-economic considerations. The categories of CFMs given special treatment include certain macroprudential measures imposed in line with the Basel framework, tax measures based on certain international cooperation standards against the avoidance or evasion of taxes, measures implemented in line with international standards to combat money laundering and financing of terrorism, and measures introduced for national or international security reasons. In addition, the review explains how to use the IPF to inform key judgments required under the Institutional View, such as relating the nature of shocks and relevant market imperfections to the necessary macroeconomic adjustments. It also provides practical guidance for policy advice related to CFMs, including how to identify capital inflow surges, how to decide whether it is premature to liberalize capital flows, and which CFMs are significant enough to highlight in surveillance. A living framework The IMF strives to learn and adapt continually to best serve its member countries. Like other IMF policies, the Institutional View will continue to be informed by advances in research as well as by developments in the global economy and experiences of its membership. The review has expanded the policy toolkit for policymakers, particularly in emerging and developing countries, while maintaining the core principles of the original Institutional View. Our goal is that countries can make use of this updated toolkit to preserve macroeconomic and financial stability while at the same time reaping the benefits that capital flows can provide

Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org