Costa Rica: The Non-Market Roots of Market Success
Oviedo, Rodolfo Monge & Edelman, Marc
FROM 1980 TO 1982, COSTA RICA WAS BAT- tered by its worst economic crisis since the great depression. Inflation soared, and the normally complacent citizens of Central America's most prosperous...
...Even the initial post-crisis rise likely reflects increased upward skewing of the income distribution...
...T HE ABSORPTION OF OPPOsition has been part of a state and lending-agency strategy to blunt the negative social impact of structural-adjustment policies...
...Commercial banks were initially reluctant to negotiate at all with Costa Rica for fear of establishing precedents that might influence talks with Mexico and Brazil.12 Yet sandwiched between Sandinista Nicaragua and Noriega's Panama, Costa Rica combined small size with a pivotal position in Washington's geopolitical strategy for the region...
...The entrepreneurial energy embodied in "microenterprises" has been an article of faith for neoliberal theorists at least since the publication in 1986 of Peruvian economist Hernando de Soto's influential treatise The OtherPath...
...The only exceptions were monies for the new Export Finance Fund (FOPEX) and Industrial Development Fund (FODEIN...
...In 1991, the current administration of Rafael Angel Calder6n Fournier trimmed budgets at the four public universities and tried to shift much of the cost of higher education to students...
...4 Costa Rica's "agriculture of change"-based on the export of macadamia nuts, pineapple, citrus concentrates, coconut oil, and other tropical products-is part of a radical turn to free-market economics that has endeared the country not only to a handful of favored Bolivian peasants like Claros, but to U.S...
...In a striking departure from monetarist orthodoxy, the IMF allowed National Banking System interest rates to remain below inflation and permitted the Central Bank to maintain a monopoly of foreign-exchange transactions...
...Inflation soared, and the normally complacent citizens of Central America's most prosperous nation were shocked by unprecedented scenes of children sing- ing for coins on buses, beggars going door to door, and homeless families huddled under bridges...
...Faced with slackening growth rates and an ongoing balance-of-payments deficit-themselves signs of the model's limits-the Calder6n government has contracted or sought almost $2 billion in new obligations since the 1990 Brady Plan canceled most of Costa Rica' s outstanding commercial bank debt...
...VOLUME XXVI, NUMBER 4 (FEBRUARY 1993) missals of public employees, declining real wages, and cutbacks in state services...
...In an effort to limit the strength of the traditional upper class, the junta nationalized the banks...
...Much of Costa Rica's recent economic "success" has hinged on its strategic geopolitical position, on the legacy of the socialdemocratic and statist model that preceded the free-market "revolution," and on the redefinition of key indicators and statistics...
...perience notes that between 1980 d h in assembly industries or agroindustrial-export enter- prises...
...After a decade of stabilization and adjustment, per capita GDP, a key indicator of living standards, had not regained its 1980, pre-crisis level...
...By building houses for the poor, the I some of the anti-neoliberal discontent...
...These accounting shifts tend to "consolidate" certain kinds of public spending, an effect consonant with IMF and World Bank objectives, so that funds sent by one ministry to another would not count twice as income...
...Neoliberal reform workers in the form of poorly paid, low-skill jobs in assemt Each of the last three administrations has faced major protest movements that forced modifications in particularly draconian policies...
...National Banking System loans at below-inflation rates encouraged speculation and consumption instead of investment...
...996, August 20, 1992...
...But it set the required level rather low, and was costly...
...Producers of non-traditional exports to non-Central American markets receive tax-credit cerVOLUME XXVI, NUMBER 4 (FEBRUARY 1993)25 I `" " "'""""'" """ 25 VOLUME XXVI, NUMBER 4 (FEBRUARY 1993)A Market Solution...
...As the heavily indebted country went into a tailspin, it appeared that Central America's model democracy might slide into chaos or authoritarianism...
...Yet these "independent workers" are hardly something for neoliberals to crow about-53.5% were below the poverty line in 1991, in contrast to 39.8% of workers who were wage earners...
...a mere 26 companies received over half the CAT subsidies...
...It also called for improving cold-storage facilities, containerized ports, and transport and irrigation infrastructure-all necessary concomitants of the "agriculture of change...
...Figueres' junta, while persecuting its vanquished social Christian and Communist foes, also took measures that deepened the reforms the latter had initiated in the period 1942-48...
...CEPAS, Costa Rica en el umbral de los aitos noventa, p. 58...
...Average real wages recovered to pre-crisis levels in 1987, though the gain largely evaporated by 1991...
...New !IMF accords in 1991 and 1992 kept the free-market juggernaut on track, committing the Costa Rican government to a complete liberation of exchange and interest rates...
...In 1987 methods were modified for recording some transfers of funds and services between public-sector agencies...
...The expansion of public post- secondary education had been a major accomplishment of the social-democratic development model...
...In 1985, Costa Rica signed a new IMF stand-by accord, new agreements with the commercial banks and the creditor nations in the Paris Club, and its first structuraladjustment loan (SAL) with the World Bank...
...In 1984, for example, U.S.AID said it was holding up disbursement of desperately needed funds until the legislature-sequestered during an exhausting 20-hour debate-approved banking and currency reforms that permitted loans in dollars and that allowed private financial institutions to receive credit from the Central Bank...
...Indeed, the traditional neoliberal tools-lowered tariffs on imports, interest-rate liberalization, privatization, and cuts in public spending-have been less important in fueling the growth of new exports than the huge subsidies given exporters, the expansion of U.S...
...See Marc Edelman, The Logic of the Latifundio: The Large Estates of Northwestern Costa Rica since the Late Nineteenth Century (Stanford: Stanford University Press, 1992), pp...
...Lower tariffs would force local industries to be "competitive" and would facilitate the technology imports necessary for modernizing manufacturing...
...SAL I-an $80-million long-term loan from the World Bank-sought to redirect Costa Rican industrial development from domestic and Central American markets to new international ones...
...2 2 Since the crisis broke in the early 1980s, diverse social groups have opposed free-market stabilization and adjust- ment policies...
...CEPAS, Costa Rica en el umbral de los aios noventa, p. 18...
...Although it was soon restored, it is set to expire within the next two years...
...Thenationalizedbanks, which previously budgeted credits to meet the needs of specific economic sectors and social groups, were told to make loans only according to profitability-not social development-criteria.' 7 Finally, the World Bank sought to reduce the growth of the foreign debt, to restrict new loans to those with favorable, "concessionary" terms, and to assure that "fresh" loans A f- w~l...
...CEPAS, Costa Rica en el umbral de los afios noventa, pp...
...Established in 1972 during the heyday of the social-democratic model, CATs cost the government $150,000 to $200,000 for each $1 million worth of exports...
...assistance in Latin America, after war-torn El Salvador, and the second highest per capita recipient in the world, after Israel...
...2 3 By early 1983, Monge's government had to contend with demonstrations and highway blockades by outraged consumers, many of whom publicly burned their electricity bills and announced their inability to pay the increases...
...Together with CATs and other subsidies, the availability of a literate, disciplined workforce and a large corps of highly trained managers and technicians-the product of the social democrats' 30-year-long public investment in "human capital"-constituted one of Costa Rica's main attractions for the export-oriented investors that flooded in after 1982...
...Yet this expansion hardly resulted from giving free play to market forces...
...For the text of the plan, see "Programa de ajuste estructural," in Victor Hugo C6spedes, Alberto Di Mare and Ronulfo Jim6nez, Costa Rica: recuperacion sin reactivacirn (San Jos6: Academia de Centroamdrica, 1985), pp...
...In the 1960s, the Central American Common Market spurred industrialization, as local and transnational corporations sought to supply expanding regional demand for consumer goods while safely ensconced behind high tariff walls...
...The crowning irony of Costa Rica's experience with neoliberalism is that it has not brought more than a momentary reduction of total debt...
...In agriculture, the World Bank program required the reduction and eventual elimination of crop price supports, subsidized production credit, restrictions on food, input and machinery imports, and subsidized consumer prices for maize, rice and beans...
...I N 1980-81, TWO IMF ACCORDS WITH PRESIdent Rodrigo Carazo's government broke down in the face of public opposition...
...Tico Times (San Jos6), July 24, 1992...
...These processes also raise questions about how closely structural adjustment actually conforms to neoliberal concepts and how effective it has been in meeting its professed goals...
...and a single transnational-PINDECO, the pineapple subsidiary of Del Monte, received almost 10% of the certificates...
...The labor movement-riven by doctrinal disputes, debilitated by poorly planned strikes in the early and mid-1980s, and facing growing competition from employer-worker solidarista associations-has lost much support and largely ceased to be an effective defender of workers' standard of living...
...9 1 -92...
...Economic Commission for Latin America and the Caribbean...
...2 7 And, to make matters worse, employers increasingly flout wage legislation, knowing that the state's enforcement capacity has been weakened by budget cuts and dismissals of public employees...
...26,43...
...2. Tico Times (San Jos6), May 25, 1990, p. 1. 3. Antonio Alvarez Desanti, Agricultura de Cambio (San Jos6: Imprenta Nacional, 1988), p. 9; Eduardo Lizano, "Los principales problemas de la political de ajuste estructural," Actualidad Econdmica (San Jos6) Vol...
...Inforpress Centroamericana No...
...By the late 1980s, almost half of Costa Rica's foreign exchange came from "non-traditional" exports-those other than the estab- lished mainstays of coffee, bananas and sugar...
...development...
...Even the United Nations' International Labor Organization (ILO), hardly a bastion of right-wing zealots, points to Costa Rica, together with Chile and Mexico, as a Latin American success story that demonstrates how free-market economics may actually improve the situation of workers...
...He sought support from the country's progressive archbishop, and from the Communist Party, which had gained strength during the 1930s depression...
...As the decade progressed, this partiality was also reflected in the policies of U.S.-dominated multilateral lenders, especially the IMF and the World Bank...
...As early as 1983, U.S.AID, European governments, and Catholic Charities helped the Monge government to begin indexing public-sector salaries to inflation and to institute a food-distribution program that benefited 42,000 of the poorest families...
...Costa Rica's early "success" with non-traditional exports also paradoxically threatened its edge over neighboring countries in attracting new investment...
...Today, however, just a decade later, President Rafael Angel Calder6n Fournier can trumpet the "stability" of Costa Rica's "transformed" economy and boast that "the World Bank, the Inter-American Development Bank and the International Monetary Fund...describe us as a human and economic miracle...
...Vargas Peralta, pp...
...5 Advocates of neoliberal policies point to the country' s moderate inflation, healthy growth rates, and booming non-traditional export sector as evidence that stabilization and adjustment programs can work wonders in dependent, heavily indebted Latin American economies...
...Rodolfo Monge Oviedo is a Costa Rican economist currently living in New York...
...Given the severity of the economic crisis, it had to move fast...
...In the 1970s, when rapidly rising oil prices slowed expansion, the state increasingly made direct investments in manufacturing and agroindustrial enterprises...
...Unification of the overvalued official exchange rate with the free-marketone was to occurgradually, ratherthan through sudden, disruptive "shocks...
...Foreign Minister Bernd Niehaus now claims that Costa Rica is becoming a "locomotive pulling the other economies of Central America toward...
...16 (January-April 1992), p. 20...
...8. ECLAC data cited in Ennio Rodriguez, "Costa Rica: en busca de la supervivencia," in Stephany Griffith-Jones, ed., Deuda externa, renegociaci6n y ajuste en la America Latina (Mexico: Fondo de Cultura Econ6mica, 1988), p. 219...
...The institution nonetheless increasingly suffers from severe shortages of equipment, medicines and personnel, as the central government delays disbursement of promised funds in an effort to hold down its deficit...
...Industrialists who produced goods for the domestic and Central American markets, large and small grain farmers, the urban poor, government employees, and students, faculty and workers at the public universities have all been on the losing end, as the radical restructuring of Costa Rican society assigned resources to other sectors...
...Joan M. Nelson, "The Politics of Adjustment in Small Democracies: Costa Rica, the Dominican Republic, Jamaica," in Joan M. Nelson, ed., Economic Crisis and Policy Choice: The Politics ofAdjustment in the Third World (Princeton: Princeton University Press, 1990), p. 183...
...Rather than intervening directly in the economy, as in the 1970s, the state was REPORT ON THE AMERICAS 24to divest itself of unprofitable enterprises, slash its deficit, improve the efficiency of its administrative activities, and limit itself as much as possible to guaranteeing social stability and facilitating the activities of the private sector...
...3 " Moreover, the boom shows signs of slowing-nontraditional export growth was only 3.8% in 1991, dramatically less than the 7.4% of 1990 or the 27.7% of 1989...
...22trees soon began growing across Bolivia's Chapare rain forest...
...3 7 The greatest "success" of economic structural adjustment in Costa Rica has been the boom in non-traditional exports...
...Washington was setting out to build a democratic, prosperous and stable "showcase" next to Sandinista Nicaragua...
...Privatization, however, often meant giveaways to the already well-off...
...To free up resources for paying the foreign debt, the IMF required Costa Rica to slash public-sector spending and investment, and to raise taxes, interest rates and utility rates...
...3 4 Microenterprises have become a cornerstone of neoliberal strategies for economic recovery and growth...
...protectionism and by the candidate's promises that taxpayers' money will not be used to modernize companies abroad which are potential competitors of U.S.-based industries...
...9. Adridn Rodrfiguez V., "La deuda ptiblica external de Costa Rica: crecimiento, moratoria y renegociaci6n," in Jos6 Roberto L6pez and Eugenio Rivera, eds., Deuda externa y political de estabilizacirn y ajuste estructural en Centroamerica y Panamd (San Jos6: Secretaria General del CSUCA, 1990), p. 257...
...Housing movements, which in the early 1980s led land invasions in the cities, weakened after the Arias Administration An underwear ver promised to build 80,000 new homes, the informal econ giving priority to the most militant squatter settlements...
...When publicly owned cotton gins and sugar mills were put on the auction block, they were sold for only a tiny fraction of their assessed value...
...4. New York Times, May 20, 1990, p. 12...
...During the 1950s and 1960s, Costa Rica' s economic growth rates were the highest in Latin America, and even during the 1970s they were still among the continent's four highest.' The Costa Rican model, though, had growing costs...
...Ironically, this "statist" subsidy has been crucial to the "success" of the new, supposedly free-market strategy...
...Peasant organizations, whose militant actions contributed to the resignation of two of Arias' three ministers of agriculture, nonetheless signed agreements with the Arias Administration to secure social-security health coverage for their members...
...The Costa Rican trip convinced us that this can work," he told a New York Times reporter upon his return to the Andes...
...In 1990, the Calder6n government introduced a "food bond" for needy families which, despite its good intentions, reached fewer than half of those in the "extreme poverty" category...
...Inforpress Centroamericana (Guatemala) No...
...2 0 Their distributional effect has also been highly regressive...
...Costa Rica's first "letter of intent" to the IMF, in late 1982, specified that the state utility company would boost electricity rates 90%, a measure intended to raise revenue for debt service and to eliminate wasteful "distortions" caused by artificially cheap energy...
...This slowdown is linked to the world recession, but it also arises from a number of other factors...
...In 1985, U.S.AID created the Transitory Investments Fund (FINTRA), a trust that was to support the buy-out of state-sector companies...
...2 4 Between 1986 and 1988, after SAL I slashed resources for grain producers, peasant organizations, allied at times with wealthy rice farmers, staged marches, road blockades and building occupations to call for the restoration of price supports and credit and extension programs...
...Suddenly, a critical incentive for non-traditional exporters evaporated...
...Meanwhile, the IMF, alarmed that Costa Rica was not fully complying with promises to slash public spending, conditioned continued support on the signing of a structural-adjustment agreement with the World Bank...
...This would be over 60% of 1992 GDP and would require almost one-third of export earnings to service...
...2 1 In recent surveys, a majority of exporters indicate that if CATs were eliminated, they would reduce or cease their activities...
...Costa Rica was, nonetheless, the first country in the 1980s to negotiate a multi-year repayment schedule with the private banks...
...In Costa Rica, interest in charting this new sector led to changes in 1987 in the surveys used to measure employment, income and living standards...
...The main beneficiaries of the rush to the free market have been the export and private-banking sectors and foreign investors, especially those who have come to dominate key parts of the "agriculture of change" and the flourishing maquila assembly industry...
...In February, 1991, Costa Rica's Constitutional Court halted the CATs program, arguing that the subsidies violated "the principle of equality in public taxation...
...economic aid was equivalent to a staggering 35.7% of the Costa Rican government's budget, onefifth of export earnings, and about 10% of GDP...
...7 In subsequent decades, even though the social democrats in the National Liberation Party (PLN) usually alternated in power with the conservative opposition, the nationalized banks channeled massive flows of subsidized credit to regions of the country and sectors of the economy where loans had previously been scarce...
...ers that, IMF notwithstanding, rescinded many of the rate hikes and provided generous payment terms for those consumers who had fallen into arrears...
...Many categories of social spending fell sharply in the mid-1980s, although some have since recuperated...
...3 5 Changes in definitions of other indicators have also affected understanding of the impact of adjustment...
...The adjustment phase initiated with SAL I meant a continuation of measures adopted in the 198385 stabilization period...
...The budget of the social-security system, for example-responsible for public clinics and hospitals as well as old-age and disability pensions-recovered its pre-crisis share of GDP by 1987 and retained it through 1991...
...up its balance of payments...
...more tax breaks would encourage retooling and investment...
...5 3 - 5 4 . 22...
...While the state's expenditures rose from 15% of GDP in 1970 to 22% in 1980, its income remained constant at roughly 13% of GDP...
...Economic adjustment in Costa Rica has had a "trickle down" effect, but largely in the form of low-paying jobs 27A Market Solution...
...1, 22...
...This makes it difficult to tell to what extent the apparent recuperation of some kinds of social spending is real, and to what degree it simply reflects accounting changes.36 I N SOME CASES TOO, APPARENT FISCAL health obscures disquieting realities...
...By 1985, Costa Rica was the second highest recipient of U.S...
...5, No...
...IMF actions in Costa Rica, however, suggested uncharacteristic sensitivity to the importance of political stability in the economic-stabilization process...
...976, March 26,1992...
...Inforpress Centroamericana No...
...In an 18-month period in 1988-89, 27% of the approximately $72 million in CAT subsidies went to only eight firms...
...When the Bush Administration attempted to convince Bolivian peasants to stop growing coca, for example, it arranged to have a few farmers sent to Costa Rica to learn how to grow and export macadamia nuts...
...citieswhich provided funds for non-traditional export projects, training, private-sector "educational" activities, and opening new markets abroad...
...After holding virtually constant between 1980 and 1986 at around 17%, the "self-employed" category was broadened to include more kinds of informal-sector workers and, not surprisingly, leaped 3.6% in 1987 to 22.9% of the labor force, and climbed to 24.8% by 1991...
...4 ' Proponents of the new loans argue that most are low-interest, medium- and long-term multilateral credits, with generous grace periods...
...The fragility of the new strategy is highlighted by the exporters' anxiety after Bill Clinton's election about increased U.S...
...6 (November/ December 1985), p. 42...
...Although economic policymakers championed freemarket ideology, in practice their attainments owed much to Costa Rica's social-democratic legacy...
...Even before the country emerged from the severe economic crisis of 1980-82, it started to receive favored treatment from U.S.AID, which began to provide large amounts of "economic support funds" intended to shore VOLUME XXVI, NUMBER 4 (FEBRUARY 1993) 23R"44 ort o4 Anoacs A Market Solution...
...CINDE and U.S.AID in turn played key roles in establishing and staffing a new Ministry of Exports...
...68-69...
...Rend Vermeer, El cambio en la agricultura: el caso de los granos bdsicos durante la Administracirn Arias (San Jos6: Centro Nacional de Acci6n Pastoral, 1990), pp...
...Lezak Shallat, "AID and the Secret Parallel State," in Edelman and Kenan, eds., Costa Rica Reader, pp...
...It also called for a reorientation of investment and research away from food crops for domestic consumption and toward "non-traditional" exports like those that had so impressed the Bolivian coca growers who had toured Costa Rica at U.S...
...COSTA RICA'S 1980'S CRISIS HAD ROOTS both in the downturn of the world economy and in a 30-year reformist experiment that gave the country the highest living standards in Central America, and health and literacy indices approaching those of developed, industrialized countries...
...World Bank data cited in Haydde Mendiola, "Expansi6n de la educaci6n superior costarricense en los 1970's: Impacto en la estratificaci6n social y en el mercado de trabajo," Revista de Ciencias Sociales 42 (1988), p. 82...
...Nonetheless, all the tax breaks, financial backing, new industrial parks and free-trade zones, and support for foreign marketing and promotion have not brought high-value-added industries or vertical integration of production (linkages between suppliers, producers and distributors) to Costa Rica...
...A U.S.AID-funded radio microenterprise...
...Public-sector services were to be transferred to the private sector when they were "not indispensable for the functioning of the government...
...995, August 13, 1992, p. 6; CEPAS, Costa Rica en el umbralde los atlos noventa, pp.4647...
...1 6 According to World Bank officials, this shift would allow Costa Rica to sustain the recovery initiated in 1983...
...a particularly large number of complaints come from women employed in new gar- ment assembly plants...
...He was NA CLA 's research directorfrom 1985 to 1987...
...9 Within two years of SAL II, Costa Rica, Japan and the World Bank began discussions for a third structural- adjustment loan linked to further economic liberalization...
...Statistics don't fully show the growth of omy because the government redefined labor categories...
...But the recent economic history of Costa Rica contains lessons that are a good deal more ambiguous...
...Costa Rica: The Non-Market Roots of Market Success 1. Advertisement, New York Times, October 5, 1992, p. A12...
...was a $200-million loan agreement with the World Bank and Japan that contained an extensive list of measures designed to continue the "reassignment" of resources to the private sector and export activities, and the "reordering" and slimming down of the state that began under SAL I.18 The accord committed the Costa Rican government to bring domestic prices for grains, sugar, milk and other basic foods into line with lower international ones, thus encouraging "efficiency" but also opening the market to a flood of imports and undermining many peasant producers...
...Carta de Intenciones al FMI," La Nacirn, December 1,1982...
...Eduardo Lizano, "Programa de ajuste estructural," in Luis Paulino Vargas Solis, ed., Crisis econ6mica y ajuste estructural (San Jos6: Editorial Universidad Estatal a Distancia, 1990), p. 46...
...The World Bank also prescribed a fundamental transformation of the Costa Rican state...
...Instead of fostering comparative advantages based on human-capital investment and the constant technical innovation necessary to survive and prosper in the global economy, Costa Rica has become-at great cost to its people- a tragically passive player in an increasingly integrated and competitive world...
...Jorge RoviraMas, Costa Rica en los aios '80(San Josd: Editorial Porvenir, 1987), pp...
...But it also portended a series of more profound, long-term changes in Costa Rican society...
...But by 1990, with the export fever generated by structural adjustment, CATs ate up 10% of the government budget and contributed significantly to continuing deficits...
...But as other Central American countries follow Costa Rica's lead, they compete to develop the same comparative advantages and to supply foreign markets with the same kinds of products...
...Marc Edelman, "Back from the Brink: How Washington Bailed Out Costa Rica," Report on the Americas Vol.19, No...
...5. Latin America Weekly Report (London), October 29, 1992...
...205-6...
...1 0 Costa Rica declared a moratorium on debt payments in July, 1981, over a year before Mexico caused world consternation with its announcement that it could not meet its interest obligations...
...The Costa Rican Electrical Institute, the public-sector agency charged with carrying out this scheme and only a few years ago a target of privatizers, is now praised for having little debt and for operating in the black...
...In June, mhe government Is have "trickled down" to caved in and signed an ,ly industries, rrl.lt h m~t tificates called CATs if their output contained 35% national value-added in the form of local raw materials, labor or energy...
...market...
...Thanks in part to the huge flow of U.S...
...4 1 ,49...
...assistance, the economy had stabilized since the debacle of 1980-82: inflation had dropped below 20%, growth had been positive for two years in a row, and the public-sector deficit stood at about 6% of GDP-short of the IMF target, but less than half the 1982 level...
...Foreign aid agencies, NGOs, and even the multilateral lenders began to provide "social-compensation" funds to ease the crisis caused by large-scale disidor in San Jos6...
...Hilario Claros, one of those farmers, made the switch after his Costa Rican tour...
...But some key kinds of social spending, such as the Family Aid program, which involved disbursements to numerous other publicsector organizations, continued to be counted with the old methods...
...In late 1990, the IMF and theWorld Bank, which had long been dissatisfied with CATs, pressured Costa Rica to reform the system, so that tax credits would be based on a percentage of the local value-added rather than the total value of the exports...
...But with debt at record levels, many macroeconomic targets unfulfilled, a majority with diminished access to social services, rising poverty, and slackening growth after a decade of stabilization and adjustment, Costa Rica is hardly good material for a free-market success story...
...Although Costa Rica had one of the highest per capita debts in the world ($2,021 in 1980), as a "small debtor" its problems attracted little attention or sympathy in the international financial community...
...by 1980, a remarkable 27% of the population of university-student age was enrolled in institutions of higher learning...
...These data are from the U.N...
...Costa Rican macadamia REPORT ON THE AMERICAS Marc Edelman is associate professor of anthropology at Yale University...
...A Market Solution...
...6. See Marc Edelman and Joanne Kenen, eds., The Costa Rica Reader (New York: Grove Weidenfeld, 1989), chs...
...The social democrats under Jos6 Figueres, who controlled the weapons of the winning side, ruled by decree for 18 months...
...The continued capacity of the Costa Rican state to absorb discontent and the worsening divisions within opposition forces have also been crucial to the "success" of the model...
...Latin America Weekly Report (London), October 29, 1992...
...2 (July-August 1990), p. 44...
...policymakers and champions of neoliberalism throughout the hemisphere...
...2 6 Soon after, the European Economic Community launched a major aid effort directed at the poorest sectors of the population throughout Central America...
...9 In the 1970s, commercial banks were recycling petrodollars, and Latin American governments eagerly sought short-term credits to cover budget shortfalls...
...For the text of SAL II, see "Programa de ajuste estructural," La Nacidn (San Josd), May 5, 1987...
...money also went towards founding a new Coalition for Development Initiatives (CINDE)-staffed by Costa Ricans and North Americans, with offices in San Jos6 and several U.S...
...ebrates Costa Ricas adjustment exhigher education...
...But by late 1982, as inflation neared 100%, the newly-elected PLN government of Luis Alberto Monge had little alternative but to sign a $100million IMF stand-by accord, committing itself to a package of measures intended to reduce inflation, cut the public-sector deficit, and bring order to the foreign-exchange market...
...In order to encourage new exports-agricultural as well as industrial-producers were urged to take advantage of Washington's Caribbean Basin Initiative (CBI), which provided greater access to the U.S...
...Humberto Jim6nez Sandoval, "La deuda p6iblica externa: teoria y prictica [III," Banca, Bolsa & Seguros (San Jos6) No...
...During his four-year term, two of his three ministers of agriculture quit, squeezed from both sides by pro-free-market policymakers and agriculturalists' organizations...
...and continued "mini-devaluations" of the col6n would boost exports, dampen consumption and keep trade deficits in check...
...quotas for key products under the CBI, and the constant currency devaluations demanded by the international lending institutions and pro-export lobbies in Costa Rica...
...Per capita debt from Centro de Estudios Para la Acci6n Social (CEPAS), Costa Rica en el umbralde los aiios noventa: deterioroy auge de lo social en el marco del ajuste (San Jos6: CEPAS, 1992), p. 18...
...In 1948, however, an alliance of social democrats and upper-class conservatives, angered by official corruption and suspicious of electoral fraud and Communist influence in the government, launched an armed insurrection that toppled Calder6n's successor, Teodoro Picado...
...This is most evident in data on social spending...
...6 In 1942, social Christian President Rafael Angel Calder6n Guardia, father of the current chief executive, alienated his elite backers by implementing a labor code and a broad social-reform program...
...MIDEPLAN data cited in Esta Semana (San Jos6), May 2430,1991, p. 5. 29...
...U.S.AID's creation of an endowment for CINDE, intended to shield it from the budget appropriation process, is another indication of concern about the political vulnerability of the "free-market" strategy...
...By 1991, an estimated 37% of workers were paid less than the legal minimum.28 In agriculture, industry and construction, the percentage second-sharpest reduction of public-sector employment in the hemisphere (after Chile...
...299, 321-22...
...CEPAS, Costa Rica en el umbral de los alhos noventa, p. 73...
...These policies spawned a burgeoning, affluent class of professionals, small-scale entrepreneurs, and state functionaries, as well as a large number of peasant and artisan cooperatives...
...Measured as a percentage of GDP, the budgets of the ministries most critical to basic well being-among them, health and education-remain considerably below 1980 levels...
...3 0 Real private consumption per head, often a better indicator than real wages of the burden of adjustment, has not recovered from the 1980-82 downturn and has fallen nearly one-quarter from its pre-crisis level...
...The key tax break did aim at generating more value- added, a necessity for a more dynamic and autonomous accumulation process...
...expense...
...The recent ILO report that cel- l University students protest in 1991 against budget cuts for The uproar caused the government to retreat...
...TicoTimes, February 8, 1991, pp...
...CEPAS, Costa Rica en el umbral de los alhos noventa, p. 73...
...E. Rodriguez, "La supervivencia," p. 221...
...President Oscar Arias, though he won the 1987 Nobel Peace Prize for brokering the Central American peace accords, found the political problems generated by structural adjustment in agriculture an impossible challenge...
...7. Although security-related expenditures grew significantly in the early to mid-1980s, Costa Rica still had one of the lowest ratios of military to social welfare spending of any country in the world...
...Between 1983 and 1985, the $592 million in U.S...
...2 Calder6n's budget cuts prompted a wave of student protest that caused the government to retreat and the Treasury Minister-who had advocated a hard line against "pressure groups"-to resign...
...3 Indeed, Costa Rica has become something of a showcase of market-oriented economic development, and is now a regular stop on the U.S.-sponsored neoliberal tour of the Americas...
...By the mid1980s, NGOs and foreign aid organizations proliferated in Costa Rica, incorporating personnel dismissed from the public sector and attempting, albeit with mixed results, to mitigate the social hardships brought on by the rush to the free market...
...If Costa Rica, in addition to its new $300million SAL III, receives all of its $1-billion Inter-American Development Bank energy loan and the other credits contemplated by Calder6n, its foreign obligations will reach an all-time high of $5.67 billion...
...Industry relied on imported inputs and technology, exacerbating a chronic trade imbalance...
...I T HAS NOT BEEN EASY TO ACHIEVE CONsensus about the adjustment process-as the lengthy discussions over SAL III suggest...
...Washington also pushed for and received reductions in Central American extra-regional tariffs and generous incentives for producers of non-traditional exports...
...But it has declined every year since, with the exception of 1985 and 1989, both pre-election years, when governments in Costa Rica typically expand spending to garner votes and good will (knowing too, that their successors will have to pick up the tab...
...1 3 To stem "non-productive" social-welfare spending and losses from oversized publicly owned enterprises, U.S.AID insisted on sweeping changes in the country's economy: an expanded role for private banks, the auctioning off of state companies and the creation of new non-public organizations-from agricultural schools to export promotion offices-that intentionally duplicated functions of public-sector institutions...
...CEPAS, Costa Rica en el umbral de los aihos noventa, pp...
...3 ' The percentage of the population below the poverty line has also climbed over the last five years, from 18.6% in 1987 to 24.4% in 1991.32 The rise, however, is not simply quantitative...
...Isabel Romin, "Efectos del ajuste estructural en el agro costarricense," Polimica (San Jos6) No...
...Ministerio de Planificaci6n Nacional y Politica Econ6mica, Costa Rica: indicadores sociodemogrdficos periodo 1975-1989 (San Jos6: MIDEPLAN, 1990), p. 14...
...Costa Rica was caught in the debt trap: its terms of trade fell by onethird and its debt service quadrupled between 1977 and 1981...
...It also abolished the army in order to forestall a conservative restoration and to free up resources for social programs...
...Measures to "privatize," "correct distortions," and "improve the allocation of production factors" have created new winners and losers and forced virtually every group in society to redefine its strategies for survival...
...Subsidized prices for food staples combined with high farm-support prices fueled the public-sector deficit...
...2 Echoing Oscar Arias-President from 1986 to 1990-and Eduardo Lizano-Central Bank director between 1984 and 1990-Niehaus maintains that this small Central American republic of fewer than three million people could soon be the first developed country in Latin America...
...199-225...
...3 (November 1988), p. 48...
...221-27...
...All this weakened the state and accelerated Costa Rica's embrace of neoliberalism.14 Washington put intense pressure on Costa Rica to comply with these demands...
...The report lauds the large increase-from 14% to 22% of the urban workforce-in employment in "small private enterprises...
...33 These conclusions highlight one way in which changing, politically influenced definitions of key indicators have been used to cast a favorable light on troubling economic processes...
...Under Calder6n, the peasant movement, boosted by significant aid flows from foreign governments and non-governmental organizations (NGOs), has shifted from challenging free-market policies to attempting to carve out "economic space" for its members within the new system...
...of the workforce receiving belowminimum wages has risen well above 1980 pre-crisis levels...
...The state invested in energy, transport and communications infrastructure, housing, education, health and nutrition services, and generous pension and savings programs for public- and private-sector employees...
...Onehalf of the proposed loans is for balance-of-payments support and much of the rest is intended for ambitious hydroelectric and geothermal energy projects that could eventually permit Costa Rica to sell electricity to Mexico, and Central and South America.40 But the World Bank generally recommends that a country's debt not exceed 50% of its GDP or 150% of its annual exports, and that its debt service not go beyond 15% of exports...
...CEPAS, Costa Rica en elumbralde los atlos noventa, pp...
...The country's new insertion in international markets is based on abundant cheap labor and fertile soil, as well as on an institutional context that hinders labor organization, provides guarantees for capital, and fails to regulate the intensive agrochemical use that accompanies the "agriculture of change...
...living in poverty is increasingly precarious in today's Costa Rica, with the unravelling of the social-safety net...
...But the loans often had variable interest rates that unexpectedly skyrocketed when oil prices soared again in 1979...
...By mid-1980, dollar reserves covered only one week's imports and the col6n began a rapid downward spiral that in 18 months resulted in a 500% devaluation...
...CEPAS, La lucha en contra del alza de las tarifas eldctricas: junio de 1983 (San Jos&: CEPAS, 1985...
...The real minimum wage (i.e., adjusted for inflation), an important gauge of the living standards of the poor, jumped in 1983 as the country recovered from the devastating devaluation-in- flation of 1981-82...
...In late 1992, Costa Rica and the World Bank finally hammered out the details of SAL III, a continuation of the free-market restructuring initiated in the mid-1980s...
...Even industrialists, once adamant defenders of protectionism and overvalued exchange rates, have been lured into backing the free-market model by generous subsidies forplant reconversion and export promotion and by the possibility of buying discounted CATs from producers of nontraditional exports...
...Key policymakers, such as Central Bank head Lizano, argued that state enterprises had to be privatized even when, as with the telephone company and the oil refinery, they were running "healthy" surpluses...
...Hernando de Soto, The Other Path: The Invisible Revolution in the Third World (New York: Harper & Row, 1989...
...In contrast to the rest of Latin America, it claims, the expansion of the informal sector-street vendors, sidewalk food and shoe repair stands, and so on-has been negligible...
...rvrua~u vr~ayll State-funded housing con( debt srvice.government has absorbed struction in San Jos6...
Vol. 26 • February 1993 • No. 4
