A Current Snapshot of Sustainable Development in Costa Rica

In his inaugural speech in San Jose, May 8th, 2006, the recently elected President of Costa Rica, Dr. Oscar Arias Sánchez proclaimed;

I would like to think that the Presidential sash I wear today is the talisman that will make it possible for Costa Rica to arrive at the Bicentennial of its independence as a developed nation’ 1

Costa Rica’s bicentennial year is 2021, giving the country just fifteen years to reach its goal. This article will take a look the strategies Costa Rica is adopting and the challenges and dilemmas it faces in working towards development.


A Little Piece of Paradise

An article written in the Washington Times earlier this year describes Costa Rica as ‘as close to a natural paradise as can be found on our little planet’2, and certainly in many respects this can be seen to be true.

A country roughly the size of West Virginia and occupying only 0.03% of the planet's surface, it is famous for its unique biodiversity and natural resources. Serving as a narrow land bridge between North and South America, with ocean on both sides, it boasts an enormous range of ecological conditions, from steamy, humid coasts, to hot, dry lowlands up to cool, mountainous cloudforest. Its varied tropical topography, diverse soils and climate variations make it an extremely diverse place. In fact, this tiny country is home to almost 5% of global biodiversity, containing a greater concentration of plant and animal species per kilometer than any other country in the world.

As the oldest and most stable democracy in Latin America, flourishing without a military since 1948, and committed to a progressive social investment policy unparalleled anywhere in the Americas (with the exception of Cuba) it has also traditionally been seen as a showcase for human development in the region.

A report for Oneworld.net, the international network promoting human rights and poverty awareness, notes that Costa Rica has 'advanced rapidly towards the fulfillment of the Millennium Development Goals,' - an eight point plan drawn up by the United Nations member states in 2000 which commits the international community to work together to dramatically reduce poverty and inequality, combat hunger, disease and infant mortality and work towards achieving sustainable development.

Costa Rica is unique in Latin America on account of its historically high indices of social and economic development - a result of progressive social welfare policies implemented over the last century, together with the dissolution of the armed forces - and currently enjoys some of the best rankings in the region, achieving a per capita income of more than $4000, far above the regional average; rated 47th on the Human Development Index, behind only Chile and Argentina; and taking 3rd place among 103 developing countries on the Human Poverty Index, which focuses on the proportion of people living below a basic poverty level.

The country has found a way to generate a reasonably high standard of living with relatively equitable distribution, extraordinary levels of state education and health care and a peaceful civil society on a very modest economic resource base. An average life expectancy of 78.8 years, literacy at 96%, an infant mortality rate of 10.2 per thousand and an unemployment rate of only 6% are excellent indices by any standard and approach those of many high income 'developed' nations. In addition 96.7% of homes have electricity, 90% have access to a clean, potable water supply, 89% are connected to a sewage system or septic tank and 55% have landline telephones.

Costa Rica has also managed to implement one of the most advanced environmental protection systems of any country in the world through the development of a strong ecotourism industry and of progressive and innovative legislation linking conservation and reforestation to economic growth and incentives. The country now protects 27% of its land in National Parks, wildlife refuges and over 100 private reserves, and has become the first tropical country to radically reverse the process of deforestation, with forest cover increasing from just 21% in 1990 to 52% in 2005.


A Struggle in Progress

Costa Rica is, in many ways, firmly on the road to becoming a `developed´ country. However, in the pursuit of this 2021 goal, it is currently experiencing what has been described as a ´struggle in progress´3 in which recent governments and the big business sector are looking increasingly towards right-leaning economic strategies, while most of civic society, academia and social and environmental movements are being drawn together in a search for alternative models of sustainable development that integrate economic growth with social investment and the protection of cultural and natural resources.

Costa Rica's current stature in the region has been achieved primarily as the result of a series of left-leaning liberal and progressive policies dating back over more than a century, while in recent years a more 'neo-liberal', center-right approach of export-led production and free markets has been pursued as the key to growth and progress. The effects of this switch in ideology are currently dividing the country somewhat. This separation is reflected in the country's double-sided development strategy which simultaneously promotes the growth of a high-tech transnational export economy while also nurturing a domestic-oriented, socially and environmentally responsible market for ecotourism and environmental services.

Digital Development

On the side of big business and free markets the country has successfully capitalized on its human resources to become a credible force in a technology and knowledge driven global economy.

Costa Rica's lasting commitment to peace and negotiation, reflected above all in its refusal to arm, pervades the national psyche. The Costa Ricans are a peaceful people, viewing their country as an oasis of calm in a land ravaged by war and conflict and have managed to avoid most of the public security and violence issues experienced by their neighbors, thereby freeing up both financial and human resources for investment into social welfare and public infrastructure particularly in health and education.

As early as 1870 primary education was made free and compulsory and by 1900 the country had the highest rate of literacy in all of the Americas. The abolition of the military in 1948 marked a further consolidation of this program of social reform and investment that would continue until the 1980s and included the establishment of universal healthcare, a national social security system and a nationalization of the electricity, telecommunications and banking systems, which also offered training and education programs for their employees.

The results of this investment in its people are a positive social image, well-educated workforce, stable financial institutions, enduring democracy and higher standard of living. These have been instrumental in enabling Costa Rica to create a friendly investment climate, thereby achieving economic growth through a policy of attracting foreign direct investment (FDI) into export- oriented industries.

Since the 1980s this strategy has involved offering a series of incentives including reducing tariffs on imports, loosening international trade barriers and establishing free trade zones in which foreign-owned export manufacturing companies can import all of their inputs, equipment and transport needed for production, tax free and avoid paying income taxes on their revenues for eight years, paying only 50% of these for the following four years.

In recent years the country has particularly focused on the development of the high-technology manufacturing industry and on establishing regional support and service centers, capitalizing on its skilled workforce to make the transition from a largely agrarian to technology and service driven economy.

Microchips and other computer components have now supplanted bananas and coffee as Costa Rica's primary export products, with figures from 2005 showing the agriculture sector to represent only 9% of GDP as opposed 30% from the electronics sector.

The Influence of Intel

Since the mid-1990s significant investment has been attracted from some of the most important multinational firms including; Intel Corporation, Hewlett Packard, Microsoft, Conair and Protek; while medical device makers and pharmaceutical companies such as Abbott Laboratories, Baxter International and Medtech Group Inc are currently setting up shop and the nation is fast becoming a hub for call centers and back office outsourcing for Proctor and Gamble and Washington Mutual among others.

The high-tech industry now employs more than 30,000 people in over 300 companies and has been fundamental in helping the country to achieve sustained economic growth at around 5%, since 2002. According to recent reports on global outsourcing Costa Rica has achieved surprising stature in the high-tech world and now ranks third behind only India and China as the most competitive offshore destination. This is partly due to a recent trend known as 'nearsourcing' or 'right-shoring' that has large American firms establishing offshore facilities closer to home, both culturally and geographically, rather than looking only to Asia.

Costa Rica's particular advantages include understanding of US business requirements, Spanish and English language skills and enforced intellectual property laws, in addition to shared time zones and short flight times from the US.

However, securing investment from Intel was the country's biggest prize. The company chose Costa Rica as the site for its new multi-million dollar software and development plant in 1998, after a huge recruitment drive led by the Costa Rican Investment and Development Board (CINDE) and backed by then president, Jose Maria Figueres. It has since become the nation's largest employer and proved fundamental in confirming the country's comparative advantage in the region, acting as a validation that would then encourage investment from many more multinational companies.


Green Economics

On the other side of the divide, Costa Rica´s more left-leaning and traditionally egalitarian, academic, social and conservationist elements have been working together to pursue an alternative model for growth and development, capitalizing on the country’s bountiful natural resources to link environmental protection, economic growth and local development by creating innovative markets for ecotourism and environmental services. Again, its historical commitment to social welfare and infrastructure investment have been instrumental in enabling the country to promote itself as a ‘green’ destination.

Offering both tourists and scientific researchers a glimpse of a way of life very distinct from the western world while largely avoiding the realities of poverty in the Third World.

The concept of ecotourism has, to a large extent been pioneered in Costa Rica and the industry is now the country's second largest source of income and foreign exchange, after the electrical-components sector, attracting over 1.5 million visitors in 2005 and generating almost $1 billion for the economy annually.

In fact, in recent years Costa Rica has understood, perhaps more than any other country in the world, the opportunities offered by adopting creative, market-based approaches in order to achieve economic development through the conservation, as opposed to exploitation, of its environmental assets.

In recognizing the potential economic value of its extensive biodiversity, primarily through ecotourism; and in seeking to protect the resources that facilitate this market, the country has implemented a series of unique and extensive mechanisms and created a revolutionary economic incentive strategy that makes conservation good business.

The Growth of Environmentalism

A notion of value and responsibility towards the land has historically been an important part of Costa Rica’s national identity and consciousness, even the advent of coffee cultivation did not have a particularly detrimental effect, with coffee produced on mainly on small, family-owned cafeteras, the country remained 85% forested until the 1940s.

However, all that changed with the introduction of the banana industry and the United Fruit Company in the late 1800s, followed by the development of cattle- raising for export in the 20th Century, both of which entailed clearing vast areas of land for pasture and plantation. Between 1950 and the early 1980s, encouraged by the World Bank's rural lending scheme, cattle production more than doubled, designed primarily to supply the fast-food chains of the US with cheap beef, with the result that by 1990 only 21% of the country's legendary forests remained in what Costa Rican environmentalist, Andres Rodriguez-Clare describes as the 'great striptease' of Costa Rica. 4

In addition, the government had actually promoted antiquated squatter's laws which encouraged squatters to clear and plant, or 'improve', virgin land in order to protect their possession rights.

In contrast to the historical respect for the land and responsible agricultural patterns of the past, the 20th Century has been characterized by a belief that land only had value if it was 'productive' or 'improved' for agricultural purposes, hence forest came to be seen as an impediment to progress and deforestation as integral to modernization.

This is the mindset that conservation advocates, who, seeing the value and potential of these natural resources as early as the 1950s, and seeking to find ways to restore them, had to change. Challenging these beliefs involved making environmental conservation an economically viable alternative land-use and convincing the general population that protected lands could become a source of revenue for their communities. The advanced land protection mechanisms and highly developed ecotourism industry seen today are the result of the systematic efforts of this group of individuals and organizations over the past fifty years to reverse this devastating trend.


The Conservationist Movement

In 1955 the University of Costa Rica established its School of Biology which undertook early, forward-looking research into areas that needed protection and played an important role in developing conservation advocacy. This was followed by the opening of CATIE - Centro Agronómico Tropical de Investigación y Enseñanza- in 1972, in Turialba, to promote research and training in tropical agriculture and agro-forestry, an educational center that has influenced the scientific and conservationist leadership of Costa Rica ever since. More recently, in 1990, EARTH, a non-profit university dedicated to providing education in agricultural sciences and the use of natural resources, was created in Guacimo de Limón, in the Caribbean lowlands. The university has undertaken extensive research into the development of environmentally sustainable tropical agriculture methods and has provided training opportunities for students from all over tropical South and Central America.

Several independent and largely foreign run organizations have also played an active role in the development of conservation policy.

The Tropical Science Center, TSC, was established in 1962 by three eminent American biologists with a mission to 'obtain and apply knowledge that leads to harmonious and enduring relations between human-beings and the bio-physical resources of the Tropics' 5 by undertaking scientific research, providing international and local education and training, creating and managing biological reserves for protection and field-education purposes, and, most importantly, promoting a 'new vision concerning the value of natural resources; especially tropical forests.' 6The organization was responsible for founding the Monteverde Cloud Forest Reserve in 1972, which began with an initial purchase of 5000 acres of land in the Tilaran Mountain Range and has since grown to encompass over 27,000 acres of protected land, becoming one of the top 'ecotourism' destinations in the country. It has also worked with the Monteverde Conservation League, utilizing innovative land-purchase strategies, to create the ´Children's Eternal Rainforest', partially funded by schools from all over the world this is now the country's largest private reserve.

The Organization for Tropical Studies, OTS, a similar organization, was set up in 1963 by a consortium of international scientists, in partnership with Duke University, to 'provide leadership in education, research and the responsible use of natural resources. 7 The OTS currently operates three biological stations; La Selva in the Caribbean lowlands; Palo Verde, situated in the Northwestern Pacific dry forests and Las Cruces, on Costa Rica's Southern Pacific slopes, as well as the Wilson Botanical Garden in the same area. Through these facilities it has hosted thousands of local and international students and biologists and, like the TSC, has come to play a vital role in encouraging a greater appreciation of the nation's biological wealth and in making conservation credible.

It was the passing of the National Forestry Law of 1969, however, that was the real turning point in Costa Rican conservation history. Developed in response to calls for legal sanction for the State to 'ensure the protection, conservation and development of the country's forest resources', the law provided for the creation and administration of a system of National Parks and Biological Reserves to be set aside for the 'recreation and education of the public, for tourism and for scientific research', in addition to preserving the 'natural and cultural heritage of Costa Rica'. 8

This stipulation had particular importance in linking the creation of the National Parks system to a developing ecotourism industry, supporting conservationists' belief that through tourism the parks could become one of the major sources of revenue for the nation.

Although deforestation rates did not decrease immediately - in the decade between 1970 and 1980 a further 29% of forest cover was lost, mainly due to the World Bank and the IMF's insistence on increased agricultural export production for debt-servicing - the law can be seen as the initial and most important step in the conservationist response to the environmental problem. Since then huge steps have been taken so that by 2005 the country had 25 National Parks, 8 biological reserves, 58 wildlife refuges and 11 forest reserves and 32 protected zones, resulting in the protection of 27% of national territory, all administered under the National System of Conservation Areas, SINAC, part of the Ministry for Environment and Energy, MINAE.



The parks system has indeed become one of the country’s largest sources of revenue with ecotourism expanding in conjunction with the development of protected areas. Early ecotourists were mainly academic or scientific tourists and students, mostly hosted through the OTS and the TSC’s projects, however, the publicity generated by these biologist’s publications, combined with a major campaign from the Costa Rican Tourism Institution, ICT, and LACSA, the national airline, soon began to attract more casual ‘nature’ tourists keen to experience a taste of the tropics.

By 1995 the number of foreign visitors had reached over 800,000 and visitor revenues to the parks and reserves meant that these areas became not only self-maintaining but an engine for economic growth, initiating a much needed shift in public perception regarding conservation policy.

Despite coming second to the high-tech sector in terms of revenue generated, ecotourism has actually proved a far more effective and direct means of transferring foreign income into the domestic economy and generating opportunities for Costa Ricans. The industry has brought significant development into often rural and previously disadvantaged areas, in the form of both direct employment and the sale of trickle-down services such as transport, restaurants, handicrafts and locally produced goods, even the country's ailing coffee market has been give a boost through increased tourist consumption.

Ecotourism has made conservation viable, giving the protection of the forest and its biodiversity an intrinsic economic value to local communities, making it a viable land-use option for sustainable development that addresses both ecological and economic needs and acknowledges their mutual interdependence.


Payments for Environmental Services

Costa Rica has proved that linking conservation to market forces is an effective model for long-term economic growth and particularly rural development. Having realized the enormous financial potential of its forests and natural areas through ecotourism the country has now begun to introduce further innovative mechanisms and incentives to encourage preservation and generate development income.

The most prominent and ground-breaking of these has been the 'Payment for Environmental Services' (PSA) program, introduced in 1996 as part of an amendment to the forestry law.

Under this system the value of environmental services provided by forested areas is recognized and landowners are duly compensated for the benefits provided to society as a whole by the maintenance of these lands. The program identifies four resources Costa Rican's now pay to protect; the provision of fresh water for consumption and hydro-electrical purposes; the mitigation of greenhouse gases; the protection of biodiversity for research and the preservation of scenic beauty, particularly for tourism.

The program is funded primarily through a special fuel or 'eco' tax, applied to the consumption of any crude-oil derivatives. Financing also comes from contracts with hydro-electrical companies, from 'Environmental Services Certificates', issued for voluntary contributions from the private sector and from international grants offered by the World Bank and the Global Environment Facility.

The system has proved fundamental in reversing the deforestation trend and has become a force for social gain and poverty alleviation with indigenous and rural village communities becoming the main beneficiaries of the payments. Between 2000 and 2005 indigenous participation in the system rose more than 100% and female farm ownership grew from 200 to 1600 farms. In 2005 almost $60 million in PSA payments went to rural landowners. The government is now planning to expand the scheme to tax those who benefit most from protected lands - ecotourism operators.

Other revolutionary strategies through which Costa Rica has sought to support this model of economic development within a framework of biological sustainability include the implementation of a 'Certification for Sustainable Tourism' program. Through this hotels and tour operators are awarded a rating on a scale of 0-5, not unlike the familiar star system, according to the degree to which their operations comply to a model of sustainability, allowing them to differentiate themselves within the ecotourism market and also working to counteract the problem of 'greenwashing' - attaching a 'green' label to services which do not classify as eco-friendly.

In 2005 the country was party to a 'Compensation for Emissions' deal drawn up at the UN Summit on Climate Change in Montreal, calling for wealthy nations to compensate poor countries for rainforest conservation, and Costa Rica is already a major beneficiary of the Joint Implementation Mechanism created by the Climatic Change Agreement to reduce greenhouse gases, a percentage of which goes to fund PSA payments.

Finally, the most recent activity to become part of this integrated conservation-development model is research into biodiversity.

This occurs primarily through what is known as 'biodiversity prospecting' or 'bio-prospection' - using forests for research into 'new sources of chemical compounds, genes, proteins, micro-organisms and other elements that possess real or potential economic value', 9 undertaken by pharmaceutical, biotechnology, cosmetics and agro-industrial organizations.

INBIO, the National Biodiversity Institute, has been a pioneer in this field. Established in 1989, INBIO is a non-governmental, non-profit organization that aims to 'gather knowledge on the country's biodiversity and promote its sustainable use', believing that the long-term protection of natural resources depends on understanding as much as possible about what exists and 'putting that knowledge to work for the future improvement of society'. 10

To date this has included employing and training local people, through its 'Parataxonomist Program', to create a huge inventory 'identifying and cataloguing every living thing in the country' and using the information generated in decision and policy making processes at all levels. The local parataxonomists also pass on awareness of the value of biodiversity to their own communities through educational programs aimed at colleagues, neighbors and local schools, as part of the Institute's conscious drive to integrate its activities with the empowerment, development and participation of local communities. Most importantly, in economic growth terms at least, it has meant signing biodiversity research contracts with various transnational companies and foreign universities seeking to use the information for 'bio-prospection' purposes.

Through these contracts INBIO receives research funding as well as a fifty percent royalty on any patentable products or compounds developed, all of which is invested into conservation and social development projects throughout Costa Rica.

Trouble in Paradise

However, despite reassuring social development figures, increased investment in the high-tech industries, the ecotourism boom and impressive environmental record, this little piece of paradise is not without its troubles and has not entirely avoided the social, economic and political crisis experienced by its isthmus neighbors.

It seems that while the country has gone a long way to meet the Millennium Development Goals in education, health care, gender equality and environmental conservation, this is mostly the result of policies implemented before the 1980s, while under the current strategies of development social indices are actually falling and efforts to meet key targets in poverty reduction and income distribution equality have been at best 'insufficient'. 11

The 2004/5 State of the Nation Report - an annual independent report on sustainable human development in Costa Rica - describes a 'debilitated' nation, characterized by a 'significant deterioration of core aspects of national life', 12 and reveals some very uncomfortable truths. It highlights a sharp rise in poverty and decline in real income for the population, to the extent that the current minimum wage has fallen to a level similar to that of 1997 despite considerable economic growth during this period. This has been accompanied by a simultaneous decline in the social income provided by the state due to a lack of growth in tax revenue and a pressure to reduce fiscal deficit.

Current figures show that 23.5% of Costa Ricans are living in poverty with 7.1% in extreme poverty; in terms of total poverty there are more poor households today than at any time in the past fifteen years and over the past twenty five years income poverty in Costa Rica has not been reduced at all; since 1980 it has remained at around 20%. 13

Much of this rise in poverty is concentrated in urban areas, with urban poverty surpassing rural poverty for the first time in 2004. This situation is reflected in the growth of shanty towns in the greater metropolitan area of San Jose, which more than doubled in size between 1987 and 2005 and in the increasing 'contamination of urban centers' 14in terms of overcrowding, waste and air pollution, rising crime, prostitution, drug addiction, social and sexual violence.

Costa Rica's public safety record is no longer the envy of Central American countries and privately employed armed guards are now a common site, patrolling banks and businesses, shopping malls, hotels, offices and upscale neighborhoods, somewhat undermining the country's image as a safe, peace- loving nation.

In addition the report describes a seriously deteriorated transport and public infrastructure system; an inflation rate of 13%, the highest in eight years (partly a result of huge rises in oil prices); the growth of a 'voracious' consumer culture and its attendant problems; and a country once renowned for its relatively equitable income distribution, quickly becoming a nation of inequality and extremes.

In fact, although a ranking of 47th on the Human Development Index is fairly impressive for a small, developing country, figures from the World Bank reveal that between 1990 and 2005 Costa Rica actually fell from 28th to 47th place.

The Neoliberal Implant

It seems that Costa Rica, despite its impressive historical commitment to long-term state investment in the public sector, to an active welfare state and to equality and human rights, has, in the end, been unable to entirely avoid the affects of the ‘neoliberal implant’ 15 that has been laying waste to its neighbors since the 1980s.

Many of the problems outlined in the State of the Nation Report are directly attributable to a package of 'economic reform' imposed by the World Bank, the IMF and USAID in the 1980s, involving a switch from the import-substitution strategy pursued through the 1960s and 70s, in which domestic production was encouraged and protectionist measures were imposed on imports, to the export- led orientation and opening of markets seen today.

While foreign investment in the technology and tourism sectors has brought in huge inflows of revenue, expected to average over $850 million in 2006 alone, most of this remains in the private sector, benefiting big business and the already wealthy rather than creating sufficient domestic growth to improve the lives of the excluded majority. Weak links between export-oriented activities - which import the majority of their inputs - and domestic industries are producing a polarization in income distribution, in which those hardest hit by the widening wealth gap are the lowest income groups and middle classes who are experiencing rises in living costs and inflation together with the simultaneous decline in real income and deterioration of public services and general quality of life.

Structural Adjustment Policies

This trend began in the late 1970s when, following oil price rises and a decline in the coffee market, Costa Rica, like rest of Central America, entered a period of economic crisis and was forced to turn to the aforementioned institutions for assistance, and as a result, had to accept the ‘Structural Adjustment Policies’, (SAPS), that accompanied the terms of their loan agreements.

These SAPS included the switch in production strategies and emphasis on trade liberalization as well as imposing certain austerity measures to discourage social spending, reduce the role of the state and privatize state-owned industries. All this was aimed at reducing the country's deficits and generating sufficient growth to enable it to meet its debt repayments.

However, this objective has not been met. Despite the recent success of its technology industries and the huge rises in FDI, debt continues to rise, currently standing at almost 60% of GDP while trade deficits have increased due to an ever-increasing dependence on imports, both for export manufacturing and domestic consumption. The country also suffers from chronic fiscal weakness, running a persistent deficit in order to maintain its social support systems and the trade incentive policies implemented to encourage investment actually act as a drain on resources, depriving the government of much needed tax revenues and disadvantaging local companies who do not enjoy the same privileges.

Finally, and perhaps most importantly, austerity measures have severely undermined government autonomy in terms of social spending forcing huge cutbacks in the public sector and reducing the ability of the State to provide for its people - leaving the once admired health, education and transport systems starved of resources and increasingly failing to deliver, while devastating small businesses and independent farmers unable to compete with mass produced, subsidized U.S imports.

The tradition of liberal democracy and long established State-centered model of development has begun to be unraveled leaving a weakened State endlessly making new promises and approving new environmental and social legislation yet increasingly 'unable to fulfill its mandates'.

A New and Dangerous Phase

The development of ecotourism and the use of environmental services for income generation have gone someway to address this, ensuring investment in rural and disadvantaged areas by providing opportunities for local people and actively seeking to integrate regional economic growth with community development.

However it has been insufficient to counteract growing poverty, especially in urban areas, and has itself been affected by cutbacks in government spending and the innate inequity of globalized markets. The national parks, reserves and conservation systems have suffered from over centralization and lack of autonomy, in which even SINAC's regional offices are managed from a national government office, and , more importantly, budget, resulting in inadequate human and financial resources to effectively police, manage and maintain protected land systems and enforce legislation passed. Many private and independent operations are being affected by problems of 'leakage' in which tourism developments are increasingly owned by wealthy foreign investors causing revenue to 'leak' out of the country, while the majority of the opportunities generated for local people are limited to low wage support jobs or the informal street vendor economy. The State of the Nation report notes that although tourism is increasing, investment is currently moving away from ecotourism towards luxury, high-end hotels and operations which will only exacerbate problems of inequity and foreign ownership.

Most ominously of all is the fact that these failures and cutbacks have particularly grave consequences for the future competitiveness of the country and therefore the sustainability of both its high-tech export driven industry and its ecotourism sector. Both of these models depend on the advantages gained as a result of the country's social contract - its commitment to public welfare, human development and environmental protection. According to the World Bank itself, Costa Rica is already facing serious hurdles in maintaining sufficient skilled workforces and in improving its inefficient, state-operated telecommunications and transport industries and overly bureaucratic and poorly administered tax and legal systems, due to an inability to increase fiscal spending, while the poor state of its roads and deteriorating public safety record are a serious threat to tourism and all forms of foreign investment.

The State of the Nation report concludes by describing Costa Rica, perhaps somewhat dramatically, as entering a 'new and dangerous phase' in which 'profound transformations' are needed to address the 'inadequate economic and social performance' and increasing human development challenges. 16

The results of the Presidential and Congressional elections of February 2006 can perhaps be seen as evidence of this 'phase' marking a radical change in Costa Rica's political landscape revealing the impact of these tensions between proponents and critics of 'economic reform'.

The Politics of Change

In a surprising and highly disputed result, Dr. Oscar Arias of the Partido de Liberación Nacional (PLN) – former President from 1986-1990 and winner of a Nobel Peace Prize in 1987 for his part negotiating peace agreements throughout Central America – was elected President with a margin of only 18,000 votes or 1.12% over his opponent Ottón Solís of the Partido de Acción Ciudadana (PAC).

For more than fifty years Costa Rica has effectively existed under a two-party political system with administrations alternating between the traditionally Social Democratic PLN, famously responsible for the abolition of the army and establishment of the welfare state, and the more center-right Partido de Union Social Cristiana (PUSC).

However, under the recent reforms these two parties had begun to move together into a moderate neo-liberal agenda, and in the 2002 elections, a new left- leaning reformist party, the PAC - founded by former PLN Minister for Planning, Otton Solis - emerged on to the scene with the aim of challenging the 'ideological centrism' of the main parties with a 'third voice'. 17

Although the new party was soundly defeated on this occasion they did win 14 seats on the Assembly undermining then PUSC President, Abel Pacheco's legislative capabilities. The surprising success of the PAC in 2006 signifies a shift left in Costa Rican politics, pushing out the presence of the right altogether, while a record high rate of abstentions and null ballots reflects massive civic disenchantment and discontent.

The leading electoral issue appears to have been Costa Rica's accession to the US-backed DR-CAFTA, Dominican Republic and Central American Free Trade Agreement, with Arias and the PLN backing ratification and seen to represent the interests of big business and global export, in contrast to Solis and the PAC who took a populist stance, promising to 'put people before corporations' and referring to the agreement as a 'factory of poverty'. 18

Arias's support came from the powerful political and business elite, while support for Solis was drawn mainly from the public sector labor unions, the educated, urban middle classes and much of academia, diverse social and environmental groups, and perhaps surprisingly, the Catholic Church.

In short, these unexpected results reflect the aforementioned 'struggle in progress', with DR-CAFTA serving as a stark symbol of a divided nation and the PAC as an embodiment of the backlash to the failures of economic reform, drawing together diverse interests in opposition to the free trade agreement.


Negotiations towards DR-CAFTA began in 2003, as a stepping stone towards development of a Free Trade Area of the Americas (FTAA), which would encompass the entire American continent and the Caribbean. The agreement was signed in 2004 and has now been ratified by all the countries involved with the exception of Costa Rica. The country has until January 2008 to approve the treaty which would immediately remove tariffs on around 80% of all US exports, with the rest being phased out over the next decade, dismantle government monopolies, open up markets and key public services to private and foreign investment and create further incentives to attract FDI.

Proponents of the treaty claim that the freer movement of goods and services will promote economic growth and provide new sources of employment. Arias believes that approving the agreement is key to achieving his development goal, claiming that 'there is no better cure for poverty than a stronger, more globally integrated economy' and describing any return to commercial protectionism or discouragement of FDI as the surest route to 'condemn Costa Rica's youth to unemployment and the country to underdevelopment'. 19

However, more than a year after the treaty was sent to the legislative assembly and nearly fifty hearings later, the country has failed to gain congressional approval in the face of huge opposition and protest. This opposition has been manifested not only in Parliament but also on the streets in the form of marches, demonstrations, petitions and road blockades led primarily by labor union leaders calling for a referendum or renegotiation of the deal. Costa Rica, unlike many of its neighbors, has largely retained its tradition of worker's rights and public sector unions are still an influential political presence, who in recent years have successfully managed to mobilize large sectors of civic society into direct action.

Together with the challenge of the PAC and the contribution from the Academic left in analyzing and debating the CAFTA text to reveal its contradictions and perversity, this opposition has been extraordinarily effective in counteracting the propaganda spread by the government and US-financed think- tanks, so far blocking ratification altogether.

The Race to the Bottom

Opponents see DR-CAFTA as nothing more than a consolidation of the economic reform and structural adjustment policies imposed over the last two decades and fear that it will only serve to exacerbate Costa Rica’s development problems: further incapacitating the state and removing the country from existing within its own particular sovereignty and resource framework, until it becomes ‘just another cog in the wheels of the global economy… increasingly controlled by giant corporations and international financial markets’. 20

Citing the failures of NAFTA in Mexico, they claim that the agreement will undermine the Constitution, encouraging a society based on survival of the strongest in which the only sure winners are huge transnational companies and where poverty, income inequality and social exclusion are intensified.

Although oppositional forces have unified in expressing generalized dissatisfaction towards the agreement, particular objections have been extensive and diverse.

Analysts and small business owners fear that as tariffs on the imports of US manufactured goods and agricultural products are dropped, even more independent businesses and farmers will be squeezed out, unable to compete on economies of scale. Despite the Arias Administration's efforts to counteract this through micro-financing iniatives for SMEs protestors claim that these are insufficient and that the trade pact will encourage further dependency on foreign imports, depressing domestic industry, in turn raising inflation rates, trade deficits and unemployment.

It has also been suggested that although Arias has pledged to fortify links between foreign owned export industries and the local commercial fabric, provisions within the CAFTA text to attract investment will actually further weaken these links. These stipulations will prohibit the governments of Central American countries from implementing policy tools requiring that investors use local materials, labor and small businesses for example, currently used to ensure maximum benefit to local communities and promote sustainable, domestic development.

The labor unions have their own specific concerns, primarily focused around the fear that the competition from poorer countries will threaten the country's labor standards in what is often referred to as the,' race to the bottom' in terms of employment costs, rights and instability.

Members of ANEP, the National Association of Public and Private Employees and FIT, the Costa Rican Electricity Institute's union object to proposals to privatize the national telecommunications and insurance systems and open them up to competition, fearing that once privatized these institutions would respond only to the needs of the market rather than the people, resulting in reduced, deregulated services, job losses and salary cuts.

Protests from UNDECA, the workers union for Costa Rica's social security system (caja) have centered for the most part on DR-CAFTA's provision outlining 'test data exclusivity' for pharmaceutical companies. This will extend patents on new drugs enabling companies to hold an effective market monopoly, inhibiting the production of much lower cost generic drugs, including those used to treat Aids, malaria and tuberculosis, thereby reducing access to these medications and threatening the ability of the caja system to provide adequate care for its people.

Meanwhile environmental protestors have drawn attention to stipulations in the agreement's investment chapter which grant foreign corporations the power to legally challenge government legislation before private, international tribunals.

Under these new rules companies will be able to file suit against national and local laws that cut into their future profits even if these are enacted for legitimate public safety and environmental protection objectives, on the grounds that these constitute unfair barriers to trade. Protestors anticipate that this could have serious consequences for conservation, threatening the country's extensive legislation and endangering its environmental industries.

A Perverse Competition

In contrast to Arias’s belief that DR-CAFTA will revitalize Costa Rica’s stagnant economy and modernize public services and infrastructure, oppositional forces at both parliamentary and street level see ratification as imposing a perverse and unequal competition in which transnational corporations are granted special mechanisms to protect their interests while national protection measures for the people and countries involved are actually reduced and where the winners are those with the cheapest labor costs and lowest levels of human and environmental protection.

This competition could prove to be especially perverse in Costa Rica, where, on account of its higher social indices, particularly its minimum wage and workers rights, the country may lose out not only to giant US investors but also to competition from surrounding less developed countries, with their lower standards and costs.

Opposition leaders have openly stated that they do not object to expanding trade with the US per se, but that what they want is a renegotiation of the agreement or the drawing up of a 'new kind of deal - preferably bilateral', that takes into consideration Costa Rica's particular advantages with respect to its neighbors. However at this stage, with no foreseeable alternative on the table, the implications of not signing may be just as serious. Retaining tariffs will put the country at a competitive disadvantage on the global market, important companies including Sardimar - a large scale tuna producer and exporter - and Melones de Costa Rica, have already threatened to pull out if approval is not reached, and now that other countries involved have ratified Costa Rica has very little negotiating power.


Towards Sustainable Development...

At this stage, despite the opposition’s efforts, it seems more and more likely that the agreement will be ratified, and sooner rather than later. Arias has reaffirmed his determination to reach approval, putting debate over the treaty at the top of his agenda, pushing other pending matters into 2007. He has acknowledged the country’s fears and doubts, and has himself pledged to join the fight to eradicate subsidies given to producers in Europe and the US, which make global markets so unequal.

However, in his 2006 Independence Day speech, addressing both celebrations and protesters he made his views clear, stating that it was 'time for Costa Rica to change', to 'make decisions' and 'choose a path', rather than remaining 'wrapped up in old beliefs of former policies…that have stopped serving the best interests of the country' and have instead become 'heavy chains for the advancement of our society.' 21

Arias has described himself as a 'modern social democrat' of the European mold, dedicated to the principles of social welfare yet seeking to 'balance the populism of the old PLN with some of the economic philosophy of the right', accepting the forces of global capitalism as a given and choosing to work within their logic. 22 Both Arias and Solis have stated their commitment to improving living standards and to preserving and modernizing Costa Rica's social welfare systems and public service infrastructure, they are divided only over how best to achieve this.

Arias' election campaign centered around his manifesto entitled, 'Towards 2021: 8 Priority Tasks for the Country', in which he pledged to: alleviate poverty and reduce inequality; act against racial and class discrimination; strengthen public services, especially the health, education and social security systems; improve the transport infrastructure; stem the rising tide of crime and drug use; promote environmental protection as 'the central crux of Costa Rica's foreign policy', fight corruption and reduce bureaucracy and address the country's 'perennial fiscal crisis', transforming the taxation system so that 'those who have more contribute more', in order to pay for these improvements.

His problem is that his support of DR-CAFTA may prove to be contradictory to carrying out these pledges, with the text threatening to undermine social and environmental investment and weaken the role of the State. His challenge is in finding a way to produce much needed economic growth whilst retaining the social contract vital to meeting the requirements of both the country's major development tools, the high-technology and service sector and the tourism industry.

Real 'development' must be sustainable, and 'sustainable development' can only be achieved through linking economic growth and investment to social development and environmental protection.

If the country is to achieve its development goal Arias must 'choose a path' down which his divided and discontented people will follow. If ratification of DR-CAFTA is inevitable he must create a strengthened State alongside it: a State which is agile and innovative, that links foreign investment to domestic opportunity, that values community, inclusion and equality, that protects its natural resources and is able to look simultaneously at both the global and the local: in short, a State that is able to face the challenges of globalization, embrace the opportunities offered, without allowing itself to be undermined by the indiscriminating and ruthless forces of corporate capitalism.


Books/ Reports

The Green Republic: A Conservation History of Costa Rica

Sterling Evans. University of Texas Press. USA 1999.

Quantifying Sustainable Development: The Future of Tropical Economies

Ed. Charles A.S. Hall, Academic Press UK & USA, 2000.

"The State of the Nation Report." Programa Estado de la Nación website, 2004/5.

"Choose Life, Democracy and the Challenge of Peaceful Change: Oscar Arias’s Inaugural Speech" 5/8/2006. San Jose, Costa Rica. La Nacion Newspaper online.

Dr. Oscar Arias Sanchez – Independence Day Address to the Nation.

"Costa Rica News." American European. San Jose, 9/15/2006.

Articles and Papers

_Development _

Costa Rica’s Development Strategy based on Human Capital and Technology.

Andres Rodriguez-Clare. Human Development Report for UNDP, Feb 2001


The Millenium Development Goals Need A Caring State.


Central American Development: The Impact of Trade Liberalization in the 1990s.

Vincent McElhinny.

An Introduction to Costa Rican Free Trade Zones.

"Latin America: Outsourcing’s New Hotspot." CRM Buyer website, 6/22/2006.

  1. "Costa Rica Rides High-Tech Wave." Art in Soft News and Events, 2006. Art in Soft website.

_Politics _

The Country Oscar ‘the Eagle’ Arias will be flying over.

Amaru Barahona, 2006.

"Costa Rica Polarizes in a Leftward Shift." Dr. Michael Weinstein. The Power and Interest News Report, PINR website. 2006.

Costa Rica’s Politics of Change

Frank Kendrick Ph.D. Council on Hemispheric Affairs, COHA Organization website. 3/8/2006

How to Restart the Costa Rican Economy

Richard W Rahn. Director General Center For Global Economic Growth.

Washington Times, 3/28/2006.

Oscar Arias Presidency Means Victory for Development

Marianela Jimenez. March 2006. ABC News website.


"CAFTA Free Trade vs Democracy." Mark Engler, 01/29/2003. Global Policy Forum Organization website.

CAFTA and Investment: Will Investment Grow Or Just The Risks?

Oxfam America Report, 3/22/2004. Oxfam America website.

"Activists Pledge to Keep Up Fight Against US Trade Deal." Jose Eduardo Mora, Inter Press Service News Agency, Economy and Trade, 28 January 2004. IPS News website.

_Environment _

"Conservation and Development: Lessons from Costa Rica." Carlos Manuel Rodriguez, 2005. One World Organization website.

Ecotourism Impact on Independently Owned Nature Reserves in Latin America.

Jeff Langholz. Cornell University. Yale F & ES Bulletin.

"Progress and Challenges of Municipal Forest Management in Costa Rica," Lyes Ferroukhi and Alejandra Aguilar Schramm. International Development Research Centre (IDRC), IDRC website.

Paying for Environmental Services: the Costa Rican Experience

Jorge M Rodriguez Zuniga. Director FONAFIFO (National Forestry Finance Fund)

"The Pros and Cons of Ecotourism in Costa Rica." Julie Dasenbrock, an American University Ted Talk.

_Websites _

CEDARENA Land Trust, Cedarena Organization website.

(Conservation easements)

Costa Rica Economy en.wikipedia.org/wiki/Costa_Rica

"Costa Rica Facts." CIA Factbook, CIA website.

"Costa Rica National Parks," Costa Rica National Parks website.

"Costa Rica," Tropical Rainforests. Mongabay website.

Earth University. Earth University website.

FUNDECOR Forest Protection. FUNDECOR Organization website.

La Nacion Newspaper. La Nación website.

Ministerio de Abiente y Energia (MINAE). MINAE website.

"OneWorld Development Guide," One World Organization website.

Tico Times Newspaper, Tico Times website.

World Trade Organization website.

Costa Rica Report

The Best of

Costa Rica

Trustpilot 5-star rated

Find inspiration by browsing our curated vacation collections.



Your dream vacation can have a lot of moving pieces. Add destinations, activities, and hotels you're interested in to your Favorites List. Then our trip designers can turn that into your next best vacation.

Top 5 Reasons Why Travelers Love Booking Trips with Anywhere

Jan 2020
With all the online booking resources available on the internet, why book with Anywhere?
Continue reading...