Envío Digital
Central American University - UCA  
  Number 105 | Mayo 1990


Costa Rica

Showcase for Democracy and Economic Reformism?

Envío team

Despite other, more earth-shaking events in the world in 1989, Costa Ricans' attention was on the country's election campaign during most of the year. The Supreme Electoral Tribunal had hoped to restrict the campaign period to three months, but for all practical purposes it began in mid-1989, when the two largest parties—the National Liberals (PLN) and the Social Christians (PUSC)—selected their candidates. The elections for four-year terms in the executive, legislative and municipal branches were held the first Sunday in February 1990.

The Liberals, who were looking for a third consecutive win, headed their slate with Carlos Manuel Castillo, an experienced economist with regional institutes such as the UN Economic Commission on Latin America; in his 61 years, Castillo had also been a legislator, Cabinet minister and first Vice President. His opponent was the Social Christians' three-time candidate Rafael Angel Calderón, a 41-year-old lawyer who had also been both legislator and Cabinet minister. The other parties, including those of the Costa Rican Left, played only a marginal role in the electoral process.

Months before election day, Calderón had only an insignificant edge over Castillo in the opinion polls, indicating that the PLN is still a strong party despite an erosion of its strength from years in power. Castillo's difficulties sprang from the impact of corruption and drug-trafficking scandals that plagued the PLN, implicating party leaders as high up as former Presidents Oduber and Monge.

Paradoxically, while Castillo failed to win the elections, Oscar Arias' Liberal government still enjoyed great popularity. According to a mid-1989 opinion poll, 61% of those surveyed gave his government positive marks, forgetting the previous year's 25.3% inflation rate, the highest since 1982. But while Arias' last year appeared one of relative economic and social stability, just under the surface phenomena were taking place whose social effects are only beginning to be felt.

The "Neolib" fad

The Arias government, in office since May 1986, had honored the previous administration's social and economic policies, only smoothing their incoherent edges. Arias adopted the “Structural Adjustment Program” (PAE), based on a 1985 accord with the World Bank, as his program of government. In the words of Central Bank president Eduardo Lizano, the PAE is a "combination of measures and public decisions whose principal purpose is to eliminate or substantially reduce the obstructions that impede the adequate use of production factors.”

According to Lizano, these obstructions include protectionist customs policies and other obstacles to international commerce; taxes and other burdens that artificially increase the price of labor; subsidized interest rates and the financing of public sector debt with credit from the national banking system; inflation: an exchange rate policy that overvalues the colon; and artificially low pricing of goods and services produced by public institutions. These distortions, according to Lizano, modify and alter a) the price of both locally produced and imported goods, services, intermediate products and raw materials; b) the price of the various production factors; and, c) the size of the market in which national products should compete. To deal with these problems, the PAE's key goal is a thoroughgoing liberalization of the economy.

By implementing the PAE, the government was able to take better advantage of both international and domestic conditions to increase exports, renegotiate its foreign debt and maintain a relatively high flow of foreign aid. But this in no way solved the economy’s underlying problems.

For example, recent years have seen an important increase in “new” export products; they accounted for 52% of the $1.2 billion Costa Rica exported in 1988. Fully half of these nontraditional exports are textiles, a booming industry whose government benefits and relative opening in the US market have attracted a number of maquila textile factories, many with Asian capital. Maquila factories, similar to those seen along Mexico's border with the United States, simply assemble products—usually of imported materials—for re-export at prices undercutting those in the target country.

Their immediate effect has been to reduce unemployment, but since the net capital flow is out of the country, they raise serious questions about the medium and long-term benefits to the country. In any case, the “success" of this new industry will be not likely be long-term, as the international market will probably be saturated soon.

Socioeconomic indices drop

Traditional producers are demanding more attention to the PAE's negative effects, particularly evident in agriculture. The push given to nontraditional exports (flowers, macadamia nuts, vegetables and fruits) tends to strangle small producers of basic grains and other domestic market products. With no credits or technical assistance and unable to adjust to the new productive tendencies, these producers could well cease to exist a: a social sector. Costa Rica's total area planted has already diminished, forcing the country to import significant quantities of rice, corn and beans—at prices over the national average.

As a planning ministry report shows, the country's socioeconomic situation is deteriorating. On the average, the basic food basket cost about 89% of the minimum salary in 1986, leaving very little for other key needs such as transportation and housing; the minimum salary dropped again in 1987. The report also admits that health indicators, while still among the best in Latin America, have stagnated. The quality of health service delivery has deteriorated and the incidence of certain diseases—including measles, malaria, infectious diarrhea and respiratory tract infections—has risen dramatically.

The report indicates increasing social inequality based on income distribution. Between 1971 and 1986, the 10% of the population with the highest income increased its share of the country's wealth from 34.4% to 36.2%, while the poorest 10% saw its drop from 2.1% to 1.2%. Already in 1971, the top 10% made 16.5 times more than the bottom 10%; by 1986, that figure had risen to 29.6 times.

Another factor that must be added to the overall picture is the severe burden of the foreign debt, now just over $4 billion. Costa Rica has been making only partial payments since 1986, and hopes that its inclusion in the US-sponsored Brady Plan will decrease the pressure from its creditors.

The foreign factor

The PAE, in sum, is not merely a package of economic measures, but implies significant social restructuring as well. It is typical of the programs being promoted in the region today by the multilateral lending agencies. Costa Rica's political situation has limited this restructuring in order to avoid rising social conflict. While this has resulted in a sort of hybrid between an orthodox economic vision and the reformism prevalent in the previous period, the government has taken far-reaching steps to liberalize the economy.

Increased foreign aid since 1982, most of it from the United States, has played an important role. As might be expected, however, there are strings attached. One condition was that the Monge government (1982-86) fall in line with the Reagan Administration's Central American policy—particularly allowing the contra forces to use Costa Rican territory. Monge's November 1983 neutrality proclamation aimed at limiting the extent of that use.

Taking advantage of the Iran-contra scandal, Arias was able to maneuver for a negotiated solution to the regional crisis. This new position helped block US military escalation and favored regional dialogue. Even though Arias never pursued an openly confrontational stance with the Reagan Administration, his position had economic costs for the country; US aid began to decline in 1987,

The presidential campaign

The country’s underlying social and economic situation was not subject to real debate in the campaign; neither candidate expressed any serious disagreement with the current government's social and economic policies. The hot issue was corruption and accusations that drug trafficking had penetrated into the highest levels of the country’s political life. During the year, top officials of both the Oduber and Monge governments were legally charged with misuse of public funds; a drug trafficking investigation revealed shady relations between PLN leaders and suspected drug figures. The accusations caused real turmoil inside the PLN, which Castillo was largely unable to control. Attempts to besmirch the PUSC as well, including declarations by former Panamanian consul general José Blandón, Panama's that General Noriega had made financial contributions to that party, had relatively little impact on public opinion.

Avoiding the substantive issues, the campaign centered on creating saleable images of the leading candidates—a US-style exercise to market personalities, not their political programs. The campaign headquarters of both key candidates were filled with image advisers and US consultants orchestrating sound bites, polls, image adjustments.

The fundamentally domestic role of Costa Rica's elections—reinforcing beliefs and values as well as choosing a new set of governors—took on a new function: it aimed at becoming the standard for others in the region, particularly Nicaragua's, which lagged Costa Rica by only three weeks.

The surprising results: A profile

Official statistics for 1989 showed a country in excellent economic and social shape. Inflation did not exceed the predicted 10%; unemployment was held to under 4%; the economy grew 5.5%; export earnings were $1,4 billion ($ 729 million of it in nontraditional exports); negotiations on the foreign debt were well underway; and, finally, a housing program had scored considerable successes. With such good news, the announcement that US AID funding would be reduced by $3 million barely caused anyone to blink. Everything looked so positive that President Arias himself said his government's achievements would be difficult to surpass.

Nonetheless, while the PLN trailed close with 46%, the PUSC won 50.2% of the vote on February 4. The PUSC won 29 of the 57 assembly seats up for election; the PLN took 25, and one seat went to each of three smaller parties, including the leftwing Pueblo Unido coalition. The PUSC won every province, though not by large margins. In San José, the difference was minimal; the PUSC got its highest vote margin in the southeast belt of the capital, with its medium and low-income population. Abstentions ran at a national average of 18.2%.

A comparison of Februarys results with those of the last three elections suggests that about two-thirds of the votes for the PUSC represent a strong base-much of it the 1940's legacy of “Calderónismo,” a Costa Rican variant of Latin American populism. PUSC was bolstered by those sectors of the population that have maintained an anti-Liberal position since the early 1950's.

Economic reforms: The invisible determinant

A number of people were surprised by the results, even though polls had consistently shown Calderón with a tiny lead. How could the PLN have lost with such good economic indicators and so many people giving Arias' PLN government such high marks?

It is significant that the PLN lost even in provinces with the greatest urban concentrations, and that the widest vote spread was in areas with serious economic and social problems. Lulled by the official statistics, PLN leaders forgot that poverty had actually increased over the last 10 years. The PUSC was able to reach the population hardest hit by the structural adjustment program—salary freezes, a decrease in social services and economic policies that particularly affected small and medium agricultural producers. After eight years of Liberal governments, these sectors voted for a change. The February 4 vote can be interpreted in part as a punishment to the PLN for emphasizing the PAE without taking into account its social costs.

In general, the electoral data indicate a certain regrouping of the country's social forces, at least for this round. If the new government's policies don't satisfy people's expectations, the situation could change radically within four years.

A new balancing act

The elections were barely over when considerably darker news began to circulate about the country's economic situation, leading to a series of new economic measures. The first piece of news was that the fiscal deficit had surpassed 12 billion colons in 1989 and could more than double this year. The second was that, because the deficit had not been held down, the IMF was suspending payments of some $55 million from a contingency agreement and $40 million earmarked for the foreign debt.

Finally, the victory of the rightwing UNO coalition in Nicaragua was bad economic news for the Costa Rican government. As the US is pressed to make good on its support for UNO, Costa Rica will cease being the United States' prime regional showcase for democracy with structural adjustments. The long friendship between the PUSC leaders and US Republicans may protect Costa Rica to a degree, but increased aid is almost certainly out of the question.

This relatively bleak economic panorama has forced Calderón to emphasize measures aimed at avoiding serious economic imbalances. The President-elect warned that prices would have to increase for gasoline, electricity, telephone service and other areas. These increases should have been implemented last year, but the Arias administration held off in an attempt to keep inflation down. While Calderón, who takes office on May 8, was able to force Arias' outgoing government to make the necessary price hikes, their real impact on the population will not be felt until the last half of 1989. He has also announced significant cuts in public spending and a freeze on wage increases. A new period of austerity, with all its corresponding social costs, is on the immediate horizon. The new government's two most serious problems are the fiscal deficit and the international drop in coffee prices.

The new Cabinet is made up of ministers who, on the average, are older than those of the Arias administration. Their social background is also different; they tend to be directly connected to productive activities at the managerial level, and from a more conservative bent than the businessmen close to the Arias government.

The naming of Rodolfo Jiménez as economic adviser and Oscar Alvarez as political adviser seems to have consolidated the influence of the La Nación group and the most conservative sectors of the country over the new government. The powerful economic team appears to be following the path laid out by the two previous administrations, but structural adjustment could be accelerated. The new Central Bank president criticizes the process as too gradual, complicating economic liberalization.

What will happen to the campaign promises to the popular sectors? Some international organizations, shocked by the reactions to austerity programs everywhere they have been applied, may be willing to finance at least minimal programs oriented towards social compensation. Some promises are not contradictory to structural adjustment, particularly those that do not require additional public spending. The promises that raised most expectations among the popular sectors, for example, are linked to “economic democratization,” including profit-sharing among workers and democratic reforms to the Labor Code. This requires negotiations more than substantial money outlay; Calderón will be forced to demonstrate his commitment to the ideas expressed during the campaign.

The PUSC's future depends on whether or not these promises are kept. The new government will have to strike a balance between two kinds of pressure: from the banks to deepen the structural adjustment pro and from the popular sectors hard hit by this pr during the 1980's.

Back to a low profile

Both Castillo and Calderón maintained close ties to the Bush Administration during the campaign—not surprising given that both sought to maintain some level of US assistance. This raised questions about Costa Rica's future role in the regional Esquipulas peace negotiations. Both candidates expressed agreement with the positions taken by Arias, but neither seemed particularly interested in continuing his key role, even though they realize it brought international prestige to Costa Rica that will make it difficult to slip back into anonymity.

Calderón knows it will be impossible Arias in the foreign policy arena. With the elections now over, he has indicated that he will emphasize domestic politics, leaving international and regional questions to the Foreign Ministry. Given close ties between the President-elect and the new foreign minister, however, there will probably be close consultation between the two. The likelihood of a regional foreign aid package in 1990 makes it a poor moment for the executive to distance himself from foreign policy. Calderón's profile in the negotiation process may be lower, but it will be no less important since he is an able negotiator. His position is expected to be much closer to that of the Bush Administration. Is there space for any other position these days?
This analysis by Costa Rican sociologist Manuel Rojas Bolaños, director of the Center of Studies for Social Action (CEPAS) was first published in Nueva Sociedad and later expanded for this edition of envío.

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On the Verge of Peace, or Civil War?

Whither Central America? Coopted Negotiation or Participatory Democracy?

The Monroe Doctrine and the End of Torrijismo

Costa Rica
Showcase for Democracy and Economic Reformism?

Low Intensity War and Revolutionary Maneuvering

El Salvador
Forcing Negotiation

Neoliberalism Unopposed

Challenges to the Military Model

Final Reflections
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