Costa Rica: U.S. Imposes Its Ideology

<i> Martha Honey, an American journalist based in Costa Rica, will be Distinguished Visitor in Residence at Cal State Northridge in 1989</i>

The new U.S. Agency for International Development (AID) compound is scheduled to open next month, a mammoth monument to one of the Reagan Administration’s most generous and controversial foreign-aid programs.

U.S. officials say the AID complex has been built to conform to Washington’s new worldwide security standards. Twin buildings are set 100 feet back from the road and have no windows on their lower floors. The compound is surrounded by steel-reinforced concrete walls said to be tank-proof and unscalable. According to one of the construction engineers at the site, “A grenade or mortar would barely scratch the paint.”

This is ghetto or Beirut-style architecture in a tranquil upper-class suburb--a $10-million concrete fortress laced with sophisticated security apparatus in a peaceful country that has no army, guerrillas, death squads or significant civil strife.

“I’m horrified by the thing. It’s totally inappropriate for Costa Rica,” commented one U.S. Embassy official here.


Many Costa Ricans, who proudly call theirs the most “pro-Yankee country” in Latin America, concur.

The anger of top government officials here is further fueled by the financing; the complex was paid for from funds donated to Costa Rica, but the government was never consulted about the plans. “Had we been asked, we would have requested low-cost housing instead,” snapped one government minister. In a letter sent to President Reagan and President Oscar Arias, Costa Rican Congressman Joco Miguel Corrales asked why his country, with one of the highest per capita debts in the world, should build “office quarters for the richest and most powerful nation on earth.”

This construction dispute reflects a deeper unease with the impact of Reagan Administration policies on Costa Rica. Those policies have broadly involved two major components. One has been to build, as former U.S. Ambassador Lewis Tambs testified before the Iran-Contra hearings, “the southern front": to establish Central Intelligence Agency and Contra infrastructures, remolding Costa Rican institutions to support the war against Nicaragua. The other has been to use AID funds for what Arias adviser John Biehl termed “the parallel state": a set of private institutions that duplicate--and undermine--government institutions. After Biehl, a Chilean exile and longtime Arias friend, first discussed “the parallel state” last June, he was attacked by both U.S. Administration officials and Costa Rica’s powerful right wing. In August he resigned and left the country.

The southern front has now been largely disbanded. After taking office in mid-1986, Arias closed the clandestine Contra airstrip, rejected a U.S. plan to construct an intelligence gathering facility for monitoring Nicaragua, closed Contra hospitals and offices and expelled Contra military leaders. Meanwhile, he wrote the Central American Peace Plan that won him the 1987 Nobel Peace Prize.


More damage may, in the long run, be caused by the parallel state. Like the AID building’s security standards, Washington administrators have imposed an economic ideology that ignores the underpinnings of Costa Rica’s stable and relatively egalitarian democracy.

Costa Rica is today an anomaly in war-torn and poverty-ridden Central America. The country abolished its army in 1948 and began pouring resources into building a large middle class, a mixed economy and state-run social services. It has one of the highest literacy rates--93%--in the world. Well over 80% of the households have running water, electricity and television sets.

Costa Rica is probably the best example of the type of country the U.S. professes to promote overseas. As one local economist said, “We are the only Third World country to prove that the combination of a capitalist economy and democratic political system can be successful.”

This success--political stability and a relatively high standard of living--has been built on a basic social “safety net” of public services provided by state-run institutions--education, health care, public utilities and transport. But over the last eight years AID ideologues, in alliance with wealthy Costa Rican businessmen, have worked toward privatization.

The current AID director, Carl Leonard, says that following the 1979 Sandinista victory in neighboring Nicaragua and a severe economic crisis in Costa Rica, the Reagan Administration decided, “We’re going to help in a big way.” AID assistance jumped from a mere $2 million per year in 1978 to $221 million by 1985, making it the second-largest per-capita AID program in the world (only Israel’s is larger). In just five years--1983-1987--Costa Rica received more than $1 billion dollars in AID support than in the previous three decades combined.

AID used the funds to dismantle a number of state enterprises and to spoon-feed U.S. public funds to a select crowd of private agricultural, transport, educational, research and investment entities that duplicate and weaken existing public institutions. Critics charge that this parallel network has been built without public debate, is not accountable to the government, drains resources from the public sector and undermines Costa Rica’s sovereignty.

According to Biehl, the AID parallel network has created “the fiction” that “when something is financed with Costa Rican taxpayers’ money, it’s public sector and inefficient. When the same thing is financed by U.S. taxpayers’ money, it’s private sector and efficient.”

Among the most controversial programs has been AID’s multimillion-dollar lending to a dozen handpicked banks at zero or very low interest rates. Since 1982 the percentage of financial business handled by the private sector has grown from 2% to 22%.


“This is no Mickey Mouse issue. State banking is one of the keys to our postwar stability and democracy,” said economist Otton Solis, who resigned as planning minister last month because he opposed a bill that would further weaken the nationalized banking system.

Richard McCall, an aide to Massachusetts Sen. John F. Kerry, studied the AID program here and concluded, “No thought had been given to the long-term implications of what they were advocating down here. Democracy has failed in Latin America because elected governments have been unable to accomplish what Costa Rica has accomplished through its public sector,” McCall explained.

This Gargantuan AID program has been administered in what a number of Costa Rican officials and U.S. investigators say was at best unethical and possibly illegal fashion. Funds donated to Costa Rica were deposited in a special account, wholly controlled by AID, at the Central Bank. AID officials selected, with virtually no Costa Rican government participation, projects and businessmen to be funded. An extraordinary memo attached to an AID audit report last October accused then-AID Director in Costa Rica Daniel Chaij and other officials of cronyism, favoritism and misdeeds which “closely approach criminal conduct.”

“Even the Chicago Boys would be upset with this because its not free competition. It’s interventionism, selectivity, bureaucratic discretion, paternalism,” said an irate government economist.

But there was an added twist--apparently unique to Costa Rica. The Costa Rican government was required to pay interest averaging 21% on the undispersed funds in the special AID account. Between 1983-1987, Costa Rica paid AID more than $100 million in interest. Local AID officials, in turn, also controlled how these funds were spent.

When the Arias administration took office in 1986, it found that interest payments to the AID account equalled one-third of the Central Bank’s deficit. Meanwhile, the International Monetary Fund was demanding that Costa Rica reduce its deficit. “It’s a Catch-22,” said McCall. “You demand cuts in government deficits and then institute a system that creates a deficit.”

AID officials say the charging of interest was a worldwide policy, but they are unable to name another country where interest payments were required. The memo AID officials site to justify the payments is dated October, 1987--five years after the Costa Rican mission began this procedure and, perhaps not coincidentally, just when the damaging AID audit was completed.

This year the Costa Rican government has wrenched some concessions from AID. The latest agreement for $90 million eliminates interest payments and puts the AID account, for the first time, under Costa Rican government control. Chaij, the former program director, was recalled to Washington where his future is said to be “under review.”


Yet the Reagan Administration has already succeeded in creating what McCall terms, “a broad-based private sector which concentrates wealth and basically undermines the stability of Costa Rica.”

The process now appears irreversible. According to one minister, “President Arias has decided he can’t fight on the external and internal fronts at once--the peace plan and the parallel state. We are, after all, a small, rather fragile democracy.”