Envío Digital
Central American University - UCA  
  Number 169 | Agosto 1995


Costa Rica

Figueres Succumbs to Neoliberal Orthodoxy

Lacking an organized mass base on which to support himself, as well as the boldness to develop one, and desperate to gain new credit, Figueres has finally shelved his anti-neoliberal program and accepted one by one the neoliberal projects that he criticized so much before becoming president. How did he arrive at this point and why?

Amaru Barahona

Those who study Costa Rica's political system have an objective foundation. This country's model of liberal bourgeois democracy is the least limited or most advanced of the third world. It is also less limited than many first world democracies, including the United States.

The model is characterized by a political class that exercises power with a puffed up sense of domination, but also with virtues uncommon in our societies: a high level of respect for norms; an awareness of the limits to its exercise of power and a frequent search for compromise and consensus; a culture of dissent and the clarity to forecast and thus avoid social conflict.

The Armed Forces: Not a Pressure Group

The other truly exceptional feature is the absence of a military caste able to pressure civil power. Costa Rica is surely the only bourgeois democracy in the world where the armed forces do not constitute a powerful pressure group. This does not make the official line that Costa Rica has no army true, however. Abolishing the name Army and calling the armed forces the Civil Guard does not alter the essential fact that Costa Rica has armed forces, numerically greater than in Nicaragua, that fulfill functions common to armies in all states: domination within and aggression/defense without.

To confirm this, it is enough to recall the violent repressions almost always with deaths suffered by banana workers for decades, most recently in 1994. Or the recurring beatings of street sellers in San José. Or, in another sphere, the Civil Guard's open complicity in the Reagan war against Nicaragua, during Luis Alberto Monge's administration.

Costa Rica's model suffers from restrictions common to all bourgeois democracies. Smaller parties cannot come to power because they cannot finance the costly electoral campaigns. People are induced to vote for propaganda images more than for programs or principles. And once they have voted with unquestionable technical correctness their influence over powerful decisions is almost nil. The fundamental decisions come out of an elitist system made up of the powerful media, the business chambers, pressure from the United States and the economic tutelage of the international financial organizations.

Dangers to Governability

Corruption is spreading throughout both political and civil society like an oil slick. "I've never seen such looting," commented the auditor of Costa Rica's oldest bank, the state owned Anglo Costa Rican Bank, when a recent financial scandal leading to its closure became public. The state lost the equivalent of some $200 million. The bank manager, its board and a group of private businessmen all with links to the two major governing parties were found to be involved. More and more evidence is emerging that links members of the business sector to drug trafficking in addition to the pillage of public goods. Some judges think these links extend to sectors of the political class.

Civil society, which was strong in the 1960s and 70s, has now been weakened. Formerly influential leftwing parties have disappeared, as have farmworkers' unions. Union repression in private enterprise has reached the point that, in 1993, US unions demanded that their government suspend aid to Costa Rica due to lack of union freedom.

Through the "Solidarismo" model of workplace organizing, Costa Rica's bourgeoisie has achieved a success unequalled in Latin America. It has promoted a bosses' paternalism that undercuts any autonomous workers' organization. Trade unionism's last significant redoubt is in the public sector enterprises, but it is being divided by political clientelism, and is on the defensive against advances of neoliberal orthodoxy.

In the past, the National Liberation Party (PLN) defended reformist bourgeois and middle class interests against those of the traditional oligarchy. Today the PLN's discourse still has heterodox nuances while the Social Christian Unity Party (PUSC) espouses a more neoliberal orthodoxy, but both are huge apparatuses which, in practice, increasingly coincide with the hegemonic interests of the "globalizing" bourgeoisie subordinated to transnational capital in tourism, nontraditional exports, finance, bananas and major import companies.
Costa Rican democracy's high level of governability thus depends on two phenomena whose continuance appears to be increasingly under threat in the second half of the 1990s the political class' social responsibility and economic growth.

A Very Special Country

After coming out of a deep four year economic crisis in 1983, Costa Rica sustained a modest 1.6% per capita growth in the Gross Domestic Product for the next 11 years, though the period was also marked by persistent financial imbalances. This growth resulted from a vigorous increase in exports in 1994 they brought in over $2.23 billion, of which nontraditional exports made up over half ($1.28 billion) together with a stunning development of tourist activity. In a period of eight years, Costa Rica has built a tourist industry that generated $685.5 million by 1994.

This growth reveals the stupendous business that the US war against Nicaragua in the 1980s meant for Costa Rica. As the only country in the isthmus with a presentable reality, the "low intensity conflict" strategy assigned it the "showcase" role to counter the Sandinista project. This meant that Costa Rica received extraordinarily flexible treatment from international financial organizations, massive economic aid from the United States it reached $1.43 billion, and differed from El Salvador and Honduras in that military aid was insignificant and the concentration of almost all foreign investment coming into the region. Costa Rican society also had comparative advantages with respect to the other Central American countries: political stability, a more skilled labor force and better infrastructure development.

In contrast to the Latin American models promoted by the IMF and the World Bank (Chile, Mexico before its disaster and now Argentina), Costa Rica's growth has been characterized so far by minimal impoverishment and limited deterioration of the social welfare structure developed in the 1960s and 1970s: education, health, social security, collective transport, housing and telecommunications.

Poverty rose in the early 1980s, but has experienced a modest reduction since 1985 that takes on relevance in the Latin American context: in 1994 poverty ranged from 17.4% (official data) to 25% (unofficial data). Together with Uruguay and Barbados, this makes Costa Rica one of the three countries with the lowest poverty levels in Latin America.

A Heterodox Model

Two reasons explain this singularity. First: dynamic growth in the 1960s and 70s, with an annual cumulative GDP of 6%, accompanied by a social policy unparalleled in Latin America with the exception of Cuba. Second: in the difficult years of the 1980s and 1990s Costa Rica has had one of the least neoliberal capitalisms in Latin America. The neoliberal "recipes" have been imposed with a large dose of heterodoxy, in which the state has retained its power of economic intervention and social protection.

Despite growing pressures from the international financial institutions, the political class has so far not opted to privatize the state banks or public services such as electricity, telecommunications, water and sewage, petroleum, etc. Nor has it accepted privatizing education, health or social security systems. Per capita public social spending has dropped from 1970s levels, but remains one of the highest in Latin America. Systematic state intervention in conserving and promoting ecological reserves, which dates from the 1970s, has been a key factor in successfully expanding the tourist industry.

Heterodoxy has also predominated in macroeconomic management. State subsidies and incentives to producers, especially for nontraditional exports, have predominated over devaluations as a mechanism to achieve export profitability. Trade openings have come through cautious and selective procedures. This explains why Costa Rica has not committed the folly of happily joining the "group of four" and has chosen, only after the North signed NAFTA, to negotiate and sign an asymmetrical trade agreement with Mexico before its crisis. Price controls persist for certain basic products as well as some inputs. Special credit programs, with lower rates for small producers, are miles ahead of the other Central American countries.

Figueres Arrives

José María Figueres Olsen took office in 1994 with an anti neoliberal discourse that defended a state capable of strategic design and intervention in the face of an indefatigable market. The state "reform" program was not, he claimed, a problem of size, but rather of how to convert it into a strategic, agile and participatory apparatus. Faced with arguments of blind globalism, he proposed "intelligent" insertion in the world market. He insisted that "to compete commercially in the foreign market, Costa Ricans must be healthy and well educated," adding that these attributes of quality of life should be restored and improved since they had dropped in recent years.

Figueres assigned the most influential posts in his government team to young politicians from the old academic political left group known as ATD, who had been designing a package of alternative policies to the neoliberal recipes. Once in power, the economic situation appeared to feed his optimism: growth rates of 6.4% in 1993 and 4.5% in 1994.

Crisis Reveals Fragility

With the elections over and the new government in place, the accumulation of financial imbalances that have accompanied Costa Rican growth since 1983 abruptly flourished, illustrating the fundamental fragility of that growth:
* In 1994, the fiscal deficit hit 8.1% of the GDP. Some 1.4% of this is explained by the losses engendered by closing the Anglo Costa Rican Bank, but the rest is essentially due to three, more serious causes. First, nontraditional production, which is dominated by foreign and fundamentally North American capital, has largely grown thanks to important state subsidies that have influenced up to 40% of the fiscal deficit, according to estimates made at the end of the 1980s. Second, tourism also dominated by foreign capital and nontraditional production, the two most dynamic areas of the economy, have been tax exempt. And third, there is a high level of evasion of direct taxes, especially by the business class.

* The trade deficit is growing it reached $854.7 million in 1994 and is not being covered by income from tourism. This is explained by the strong dependence on imported components for the growth model and by a consumerist culture that oversteps the economy's real capacity. At the same time, the trade deficit has been influencing the increase in the balance of payments deficit, which reached $515 million in 1994.

* Inflationary tendencies have gathered force, and inflation reached 19.9% in 1994, with expectations of a greater increase in 1995.

* Costa Rica is suffering the typical vicious cycle of periphery economies: foreign debt to resolve financial problems greater debt greater financial imbalances. Although its foreign debt has not reached Nicaragua's magnitudes, to cite the most startling Latin American example, it was estimated at $3.2 billion in 1993, and is expected to reach $4.3 billion in 1996. The country is currently overdue on its payments, and cannot seek new resources until these are paid.

Costa Rica is no longer the country chosen by the United States as the "showcase" of its Central American policy. Thus, the financial institutions are ever more implacable in demanding that economic policy be reoriented toward neoliberal orthodoxy.

Bananas and Tourism

Some analysts think the financial crisis coincides with a stagnation in the growth dynamic, which, albeit modest, has been exceptional in Latin America. The driving forces of this dynamic bananas, nontraditional products and tourism show signs of having reached their growth limits.

The banana market is limited by quotas established by the European Union. Although some concessions are expected, the European protectionist policy will not change substantially.
Nontraditional products have lost their original growth rhythm as they become part of a generalized recipe for the entire third world. More and more countries are competing with the same products for the same "market niche."
Tourism is also losing its competitive edge due to the disappearance of some of the country's comparative advantages. Costa Rica has no pre Colombian heritage or monuments or colonial cities, nor an indigenous artisanry tradition. Its tourist attractions are beaches and mountains and were based on good services infrastructure, an image of peaceful and friendly people and, above all, low prices compared to other alternatives in Central America and the Caribbean (Mexico, Guatemala, Colombia, the Antilles). But the voracity of large business and the absence of a regulatory framework have made much of Costa Rican tourism now among the most expensive in the region. In recent years, crime and the spread of drugs has also deteriorated the country's image as a country with security guarantees.

The magnitude of the financial crisis has shown where power truly lies in the political system. An alliance not necessarily orchestrated of business chambers dominated by the "globalizing" bourgeoisie, the most powerful media, US pressures, the inflexibility of the IMF and the World Bank and the PUSC parliamentary opposition, has been demanding a solution to the crisis according to the norms of neoliberal orthodoxy.

Figueres Gives In

The anti neoliberal sector of the executive branch the ATD group with Figueres at the head has no organized grassroots base and lacks the audacity to risk promoting it. Isolated and desperate to win the release of new credits, this sector has finally ditched its own program and accepted, one by one, the opposition party projects that it had so fiercely criticized during the electoral campaign.

First, it ratified the free trade agreement with Mexico that it had earlier censured because of the disadvantages it would bring Costa Rica, which are now even more evident given the Mexican crisis. Then it did something even more significant. Figueres had harshly criticized the structural adjustment measures (PAE III) that the previous government had negotiated. "The PAE III disturbs me," he had emphatically declared, "because it does not respond to Costa Rica's interests." Nonetheless, he finally approved it without modifications, in the hope that the World Bank would release a credit of only $100 million.

His approval implies, among other commitments, laying the basis for initiating the privatization of public service enterprises including insurance, telecommunications and petroleum processing; eliminating remaining restrictions on private banking; closing "subsidized" credit to small producers; and firing 25,000 public employees over a four year period. Despite these concessions, the World Bank rejected the release of the programmed funds and told the government to negotiate an accord with the IMF.

With the administration's acceptance, the IMF added conditions to PAE III and established, among other measures, temporary goals in reducing the fiscal deficit that make its management impossible without applying strong recessive measures. The deficit must drop to 3.5% of the GDP in 1995, and to 0.5% in 1996. The IMF has also demanded the immediate lay off of 8,000 public employees, salary freezes, increasing the pension age to 60 years, and approval of a heavy tax package.

The measures autonomously adopted by the Figueres administration also bear the mark of the Monetary Fund "recipe": increased public service rates; taxes, primarily indirect; increased interest rates and credit restrictions; and limits on the public investment program. Some heterodox measures, such as a tax on capital intensive business assets and a so called basic products tax that exempts popular consumption products from taxes, were being questioned by the pressure groups, and it was unclear that they would be approved and put into practice.

The Executive never mentioned the possibility, even temporary, of taxing tourism and nontraditional products, or of resisting the IMF's goals for reducing the deficit.

It is possible that, following the deeply rooted tradition of Costa Rican policy, there will be attempts along the way to stop this massive move toward orthodoxy. Perhaps defending the health and education budgets, perhaps saving something of the public investment program, or perhaps putting some obstructions to privatization so it will be less brutal than that practiced in other countries.

End of a Dream

With more or less delay and with "Costa Rican" resistance, the process is now being presented as irreversible. It leans toward increased impoverishment, unemployment and social marginality. In addition, a great question has been raised about the continuation of economic growth. It is significant that 1995 forecasts estimate zero or negative per capita GDP growth.

Figueres' discourse, which emphasized nationally centered economic direction and a capability for strategic design and social responsibility, has fallen by the wayside. Only the memory of a truncated dream or demagogy remains. More than ever before, the economy is being run from IMF and World Bank offices, with the wellbeing of Costa Ricans subordinated to transnational capital.


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Figueres Succumbs to Neoliberal Orthodoxy

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