Scandals, inequality loom large as Costa Rica votes for new leader

Sun Feb 2, 2014 1:30am EST

By Alexandra Alper and Zach Dyer

SAN JOSE Feb 2 (Reuters) - Costa Rica's centrist ruling party front-runner seeks to fend off a leftist surge fueled by voter resentment over government corruption scandals and rising inequality as voters in Central America's second-largest economy head to the polls on Sunday.

Centrist former San Jose Mayor Johnny Araya is leading on promises to reduce poverty, while distancing himself from President Laura Chinchilla's scandal-plagued government and painting rivals as radicals.

But voter anger over government corruption has buoyed a challenge from leftist lawmaker Jose Maria Villalta, who also promises to tackle inequality in the coffee-producing nation.

If none of the thirteen candidates wins more than 40 percent of votes, as expected, there will be an run-off in April for only the second time in Costa Rican history.

A winner will have to tackle growing debt that totals more than half of gross domestic product, as generous salaries and mandatory education spending weigh on a weak tax take.

"If they don't do something, then this somewhat negative trend on the debt could continue and that could have an impact on the credit rating," said Joydeep Mukherji, a sovereign credit analyst with Standard & Poor's, which rates Costa Rica at BB with a stable outlook.

Moody's Investor Service, which rates Costa Rica just a notch above speculative grade, cut the country's outlook to negative from stable in September over fiscal concerns.

Villalta told Reuters on Saturday he would seek to address the problem by combating waste, tax evasion, and lightening a heavy burden on the middle class if he wins.

"What we want is a progressive reform with greater tax fairness where those who have more pay more," he said.

A lawyer by training, Villalta, 36, cut his teeth organizing against the Central American Free Trade Agreement.

He is the only member of his Broad Front party, formed in 2004, to serve in Congress during the 2010-14 term. But he proposed more than 100 bills, including one to strip high-level officials of immunity while in office.

That resonated with voters, after Chinchilla sparked outrage by accepting flights on a private jet, despite laws barring public officials from accepting sizeable gifts.

Araya, 56, has also promised to tackle the deficit by limiting public sector bonuses, creating a capital gains tax and shifting to a value added tax.

The National Liberation Party frontrunner won praise for public art projects during his 22 years as mayor, but he has faced criticism for an autocratic style.

Gaffes, like underestimating the price of milk in an interview, have distanced Araya from equality-conscious voters, while the national prosecutor's probe of allegations of abuse of authority and embezzlement have also dampened his appeal.

"(Araya) has done nothing as mayor. He is not qualified to run a country," said Cesar Diaz Badilla, 33, a call center worker.

But some centrist voters prefer Araya to unknown figures like Villalta, dubbed by critics as Costa Rica's version of Venezuela's late socialist leader, Hugo Chavez.

"I'm not for Liberation, but with them we more or less know what we are getting," said Rafael Vargas, who drives a cab in Costa Rica's second city of Alajuela. "With Villalta ... another Venezuela could be waiting for us."

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