Cablegate: Scenesetter for Codel Costello


DE RUEHSJ #0159/01 0582251
P 272251Z FEB 08





E.O. 12958: N/A


1. Embassy San Jose warmly welcomes CODEL Costello. Costa
Rica has a history of political stability, social progress
and commitment to peace and human rights which has been
undermined in recent years by ineffective government
institutions, growing domestic security problems,
corruption scandals and dilapidated national
infrastructure. The continuing increase in domestic crime,
as well as water and sanitation issues, have tarnished
Costa Rica's image as an environmental leader and tourist
paradise. The administration of President Oscar Arias is
slowly making progress to address these problems. A
healthy economy and confidence in Arias's leadership (64
percent approval rating in January) give most Costa Ricans
an optimistic outlook for 2008. Ratification and
implementation of CAFTA is a central component of Arias's
development agenda, but has proven to be a tough political
challenge. Costa Rica will be the last CAFTA signatory to
join the agreement, sometime in 2008. Costa Rica continues
to be a reliable partner against transnational drug
trafficking, but U.S. security assistance is vital.
Targeted USG assistance in other areas can also help Costa
Rica fuel its own development.

2. Costa Rica depends heavily on civil aviation, an issue
of interest to CODEL Costello. Since a bilateral Open
Skies Agreement was completed in 1997, passenger traffic
has more than doubled, handled by nine U.S. carriers. In
2006, nearly 3.8 million passengers used Costa Rica's two
major international airports. END SUMMARY.


3. On the one hand, Costa Rica stands out in Latin America
as a country with a long democratic tradition and a history
of political stability, social progress and commitment to
peace and human rights. Costa Rica historically has
invested in education and health care rather than national
defense, and in general has followed economic policies that
favor free enterprise and globalization. This has helped
create a lower level of poverty (approximately 16% in 2007)
than the norm for Latin America, and the most prosperous
economy in Central America (gross national income per
capita is $6,980, above the Latin America average and on
par with Chile and Mexico). The link between stable
democracy and economic opportunity for the average citizen
makes Costa Rica a potential example for the region.

4. On the other hand, Costa Rica's good name and self-
image have suffered in recent years from ineffective
government institutions, growing domestic security
problems, corruption scandals and dilapidated national
infrastructure. As measured by the World Bank's 2008
index, Costa Rica's ease of doing business ranks 115th out
of 178 countries in the world (down from 99th in 2006).
Only 35% of students that begin school in the public system
graduate from high school. Crime has been increasing by 15-
20% per year, and has become the public's primary concern
as measured in opinion polls. The judicial system is
broken; of 37,000 robbery cases opened in 2005, for
example, only three percent ended with a conviction.


5. Despite these challenges, President Oscar Arias's
ambitious goal for his 2006-2010 term is to prepare Costa
Rica to be the first fully-developed country in Latin
America by 2021. To accomplish this, his administration
must implement the U.S.-Central America-Dominican Republic
Free Trade Agreement (CAFTA); improve the business climate;
enact meaningful fiscal reform; and begin to rebuild
national infrastructure, improve domestic security and law
enforcement, and repair the broken education and health
care systems. These reforms are essential for Costa Rica's
democracy to continue to deliver the promise of prosperity
to its people. Arias's administration has already made
some progress in these areas. His goals are fully
consistent with the four pillars of USG policy in the
hemisphere: consolidate democracy, promote prosperity,
invest in people and protect the democratic state.

6. Approaching the half-way point of his administration,
President Arias continues to receive high marks. The
January 2008 CID-Gallup poll gave him a 64 percent approval
rating, with the highest net positives of any Costa Rican
administration at the same point in its term over the last
30 years. Based on the CID-Gallup data, a healthy economy
and confidence in Arias's leadership are giving most Costa
Ricans an optimistic outlook for 2008.


7. The country's GDP grew at over eight percent in 2006, a
15-year high, and neared seven percent in 2007. Foreign
Direct Investment increased from $861 million in 2005 to
$1.4 billion in 2006. Inflation has declined slightly from
14.4 percent in 2005 to 8.8 percent in 2007. The tourism
industry remains the largest employer and earner of foreign
exchange. Integrated circuits (produced at Intel's plant
outside of San Jose), medical equipment, bananas,
pineapples and coffee are Costa Rica's leading exports.
Raw materials, consumer goods, capital equipment and
petroleum are the major imports. The U.S. is Costa Rica's
largest trading partner, with two-way trade totaling $7.9
billion in 2006. Costa Ricans, like other Central
Americans, are watching the U.S. economy closely, concerned
about the regional repercussions from a serious downturn or
recession. In fact, GDP growth is expected to slow in


8. As a burgeoning tourist market, Costa Rica depends
heavily on civil aviation, an issue of interest to CODEL
Costello. Air travel has grown significantly since a
bilateral Open Skies Agreement was completed in 1997. From
1996 to 2006, non-stop passenger service expanded coverage
from four to thirteen U.S. cities; the number of U.S.
airlines serving Costa Rica increased from three to nine;
and passenger traffic more than doubled. In 2006, 3.4
million passengers used Juan Santamaria airport (in
Alajuela, outside of San Jose) while 365,000 passengers
used Costa Rica's other major international airport, Daniel
Obuder, in the northern city of Liberia.

9. At Juan Santamaria, American Airlines served 572,000
passengers in 2006, leading all U.S. carriers. Other major
carriers serving the San Jose market include Continental,
Delta, US Airways and Frontier. Continental led U.S.
carriers at Daniel Obuder in 2006 with 118,000 passengers
followed by Delta, American, US Airways and United
Airlines. Juan Santamaria is also the nexus of the air
cargo business, shipping 18,900 tons of goods in 2006 via
carriers including UPS, DHL, and American Airlines. Three
companies -- COOPESA, ADS, and AeroJet -- provide light
aircraft maintenance of which COOPESA controls 80 percent
of the market. Two companies -- COOPESA and Aeroman --
provide heavy maintenance with COOPESA specializing in
Boeing repair and Aeroman specializing in Airbus repair.

============================================= =
============================================= =

10. Ratification and implementation of CAFTA is a central
component of Arias's development agenda, (and one of the
USG's top foreign policy objectives in Costa Rica). It has
proven to be his administration's toughest political
challenge for three reasons:

-- First, the previous government took little action beyond
signing the agreement in August 2004 and submitting it to
the legislature in October 2005.

-- Second, the country has been divided on the issue, as
reflected in the close results (52 percent yes, 49 percent
no) of the October 2007 national referendum which ratified
the agreement (and largely silenced the CAFTA opposition).

-- Third, the diffuse political structure of the 57-seat
national legislature (which includes seven parties and two
independents), plus complex, arcane rules and procedures
which favor obstructionism (and which often require
constitutional review of legislation) have delayed the
process throughout. Opposition legislators, for example,
at times buried legislation under thousands of motions, or
challenged legislative rules of order in the Supreme Court.

11. Using its 38-seat (two-thirds majority) pro-CAFTA
coalition, the Arias administration made more progress on
CAFTA over the last three months that the previous
administration did in four years. However, Costa Rica will
still be the last CAFTA signatory to join the agreement,
probably well after the March 1, 2008 entry-in-force
deadline stipulated in the agreement. (The other parties
have agreed to Costa Rica's delayed entry.) As of late
February 2008, only two of 12 items of CAFTA implementation
legislation had been signed into law, with the other bills
in work in the legislature or under review by the
Constitutional Chamber of the Supreme Court.

============================================= =========
============================================= =========

12. Despite limited security resources, Costa Rica
continues to be a reliable partner against transnational
drug trafficking. Under a bilateral maritime agreement
signed in 1999 (the first in the region) U.S.-Costa Rican
joint narcotics operations have seized more than 55 tons of
illicit narcotics since the Arias administration took
office, including over 30 tons of cocaine and 4.5 tons of
marijuana in 2007 alone. Unfortunately, these record
seizures also reflect the tremendous narcotics flow through
the region. Illegal migrants, especially from China, are
also smuggled via land or sea through Costa Rican

13. U.S. security assistance is vital to strengthen Costa
Rica's ability to fight domestic and regional threats,
especially as the nexus between drug trafficking and crime
becomes clearer. Marking a significant departure from his
past attitude, President Arias himself asked the Embassy
for help, but funding has been problematic. Primarily due
to heavy budgetary demands elsewhere, the State Department
counter-narcotics program in Costa Rica received only
$31,000 in funding between FY 2007-2009. This makes the
security and counter-narcotics assistance in the pending
Merida Initiative all the more important. With the right
assistance and training, Costa Rica can serve as a regional
model for combating drug trafficking, money laundering and
violent domestic crime.


14. The continuing increase in domestic crime has
tarnished Costa Rica's image as a tourist paradise. Rising
crime has also increased the workload of the Consular
Section in U.S. Embassy San Jose, which replaces more
stolen passports annually than any other in the world.
Two-thirds of tourists visiting Costa Rica annually are
American citizens. (More than 700,000 Americans vacationed
in Costa Rica in 2006, and between 30,000 and 50,000
resided there.) The number of Americans traveling to or
residing in Costa Rica rose in 2007-2008 and is expected to
increase again in 2009. The Consular Section is also on
track to process 600,000 non-immigrant visa applications in


15. Costa Rica has a well-founded reputation for
environmental protection, with nearly 25 percent of the
country preserved in national parks, a commitment to
sustain the country's extraordinary biological diversity,
model environmental legislation, a well-developed eco-
tourism industry and an activist international agenda.
However, the country's success with "green" issues has not
been matched on "brown" issues, especially urban water
supplies, sanitation and solid waste disposal. An
antiquated infrastructure system and a lack of resources
dedicated to law enforcement, control and monitoring, for
example, means that less than three percent of the
country's sewage is treated. Other major environmental
challenges include an increased dependence on fossil fuels
for energy generation, overdevelopment in marine and
coastal zones, unorganized urban development, and air

============================================= ======
============================================= ======

16. Costa Rica was elected as a non-permanent member of
the UN Security Council (UNSC) for the 2008-2009 term. The
Arias administration sees this as a prerequisite to
furthering its primary international goals, which include
conventional disarmament, environmental protection, foreign
aid reform (with more assistance directed to middle income
countries like Costa Rica), and improved UN operations.
Costa Rica was the first government in Central America to
recognize China (in June 2007), and the "state" of
Palestine (in February 2008).

17. Arias has been one of the very few Latin American
leaders to speak out for self determination in Cuba and to
openly worry about loss of democratic institutions in
Venezuela. This has drawn fire from both countries and
from Nicaragua. Costa Rican-Nicaraguan relations have been
prickly at times, in particular since Daniel Ortega
returned to power in 2007. The Arias Administration is
handling relations carefully, given that 300,000-500,000
Nicaraguans are estimated to be in Costa Rica. This work
force harvests coffee and performs other manual labor
largely shunned by Costa Ricans.


18. As a "sustaining partner" according to the State
Department's foreign assistance scale, Costa Rica should be
able to fuel much of its own development. Targeted USG
assistance is intended to help, however. As a CAFTA
signatory, Costa Rica is eligible for a share of $60
million in regional trade, environmental and labor capacity
building funding from FY 2005-2009. Under the Tropical
Forest Conservation Act (TFCA) agreement concluded in
October 2007, Costa Rica will be eligible for targeted debt
forgiveness that, by 2024, will generate $26 million to
protect fragile forest areas. The Merida Initiative, if
approved, would give Costa Rica a share of $150 million in
regional security assistance from FY 2008-2010. USG
assistance from all sources totaled approximately $6.3
million in FY 2006.


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