Cablegate: Scenesetter for President Arias Visit


DE RUEHSJ #2685/01 3322314
O 282314Z NOV 06

C O N F I D E N T I A L SAN JOSE 002685




E.O. 12958: DECL: 11/28/2016

Classified By: Ambassador Mark Langdale for reason 1.4(d)


1. (C) President Arias and his administration are making
progress on the ambitious agenda outlined in his inaugural
address. In October, long-planned, union-led national
anti-CAFTA protests fizzled, a costly dockworkers, strike in
a major port was resolved, and the legislature set a date
certain (December 12) to move CAFTA-DR out of committee and
to the full assembly for action. CID-Gallup polls show a 60
percent personal approval rating for Arias, with 50 percent
describing his presidential performance as "good or very
good." Serious challenges remain, however. Costa Ricans
have less confidence in their governing institutions, and
increasingly suffer the effects of underinvestment in the
nation,s infrastructure, domestic security apparatus and
education system. While a slim majority of the population
(and a solid majority in the legislature) favors CAFTA-DR,
the ratification and implementation process is
hyper-legalistic and torturously slow.

2. (C) Against this backdrop, Arias comes to Washington to
seek USG understanding of Costa Rica,s "unique" political
tradition which places a premium on consensus (thus mandating
his deliberate approach to ratifying CAFTA-DR). On
international issues, Arias will seek recognition of Costa
Rica,s "responsible" foreign policy, centered on initiatives
such as the Costa Rica Consensus and the GOCR,s 2008-2010
UNSC candidacy. While differing on approaches to the Costa
Rica Consensus and the UN Arms Transfer Treaty, the U.S and
Costa Rica continue to be partners on consolidating democracy
and encouraging prosperity in the region, fighting
transnational threats such as drug trafficking and
trafficking in persons, and protecting the environment. The
USG should urge Arias to continue moving forward on the
ambitious agenda laid out at his inaugural address, which is
consistent with the four pillars of USG policy in the
hemisphere. With focused and determined leadership,
President Arias can position Costa Rica to achieve developed
country status by its bicentennial in 2021. END SUMMARY.


3. (SBU) This is Arias,s first visit to Washington this term
as president. He visited as a presidential candidate in June
2005. In September 2006, he visited Florida for the Miami
Herald,s Conference of the Americas and Colorado for a Nobel
laureates, "PeaceJam" en route to the UNGA. In addition to
meeting with the President, Commerce Secretary Gutierrez and
members of Congress, we understand that Arias,s December 3-6
schedule includes meetings with officials from the IMF, IBRD,
IBD and MCC. He will also participate in events hosted by
the Carnegie Endowment, Council of the Americas, and U.S.
Chamber of Commerce, and address the OAS Permanent Council.


4. (C) Returning to office in May after a 16-year hiatus,
President Oscar Arias faces a number of serious challenges.
Costa Rica,s well-developed democracy, history of stability
and relative prosperity (per capita income is approximately
USD 4,700) continue to be strengths, but portions of the
foundation of their past success are crumbling. With the
previous administration accomplishing very little and three
former presidents facing corruption allegations, Costa Ricans
have less confidence in their governing institutions. They
also suffer the effects of the nation,s creaky
infrastructure and increased crime. Only 35 percent of
students entering the public school system graduate from high
school. The judicial system is broken. For example, of
37,000 robbery cases opened in 2005, only three percent ended
with a conviction. In World Bank rankings, Costa Rica places
157th out of 175 in countries measured for protecting
investors, and 114th in enforcing contracts. On other key
measures of international competitiveness, Costa Rica is also
slipping. The country dropped from 99th to 105th overall on
the World Bank,s 175-country "Doing Business Index" for
2006, and in the key measure of paying taxes, ranked 160th
out of 175.


5. (SBU) In his inaugural address, Arias laid out an agenda
that went right to the heart of these problems, based on the
twin pillars of fiscal reform (overhauling the tax system)
and a more open and competitive economy (enacting CAFTA-DR
reforming the telecom and energy sectors, creating jobs).
These reforms should provide Costa Rica the resources to
modernize infrastructure, increase spending on education,
modernize its institutions and invest in a more robust
domestic security apparatus. Along with conducting a
principled foreign policy (see below) Arias,s inaugural
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. (C) His administration, although talented, got off to a
slow start. The president was criticized for traveling too
much out of the country and for having a detached leadership
style. Most newly appointed cabinet members expressed
surprise and dismay at the abysmal state of the agencies they
inherited. Minister of the Presidency Rodrigo Arias (the
president's younger brother) was especially hampered by the
make-up of the new legislative assembly. The diffused
results of the 2006 elections significantly changed the
political landscape, electing eight parties to the 57-member
legislative assembly and forcing the Arias administration to
learn how to combine with other parties to form a working
majority. (Arias,s National Liberation Party holds only 25
of the 57 seats.)

7. (U) By October, the picture had brightened. Long-planned,
union-led national anti-CAFTA protests fizzled, a costly
dockworkers, strike in the major Caribbean port of Limon was
resolved, and the legislative assembly set a date certain
(December 12) for the committee vote which would move CAFTA
to the full assembly for action. CID-Gallup polls show a 60
percent personal approval rating for Arias, with 50 percent
describing his presidential performance as "good or very


8. (C) President Arias still views Costa Rica as an exemplar
for Central America and a leader on principled global issues
such as disarmament, social development, environmental
protection and international law. Under Arias, Costa Rica
continues to think of itself as in Central America, but not
of it, and is thus reluctant to engage deeply in regional
cooperation efforts, especially on defense and security
issues. Earlier in his administration, Arias was one of the
most vocal (and eloquent) critics of the Castro regime. Over
the last month, he has begun to take a lower profile. For
example, he initially committed to the Ambassador to raise
Cuba publicly during the November Ibero-American Summit in
Uruguay, but did not do so. According to FM Bruno Stagno,
this was a) because Arias was feeling "alone" on the issue,
as other Latin leaders are reluctant to speak out, and b) so
as not to invite criticism which might jeopardize Costa
Rica,s prospects to be elected to the UN Security Council
(UNSC) for the 2008-2010 term.

9. (C) Stagno has described the Arias Administration,s
foreign policy priorities (in sequence) as 1) obtaining UN
support for an international treaty on conventional arms
transfers, 2) being elected in 2007 to the 2008-2010 GRULAC
seat on the UNSC, 3) obtaining international (and USG)
support for the San Jose Consensus (enhanced economic
assistance and debt relief to "responsible" middle-income
developing countries), and 4) building a new, international
"rain forest" coalition, including countries such as Papua
New Guinea and the Congo. The GOCR views a UNSC seat as a
key prerequisite to achieving the other three objectives.
Costa Rican foreign policy seems to be geared increasingly
towards "going with the flow" in the UN, to avoid frictions
and maximize election prospects. The UNSC election is
coloring much of Costa Rica,s foreign policy calculus.


10. (C) GENERAL: The USG should encourage President Arias
to pursue his goal of positioning Costa Rica to become a
developed country by its bicentennial in 2021. With focused
and determined leadership, the Arias administration can
achieve the president,s inaugural policy objectives by
making the reforms necessary to strengthen Costa Rica,s
position as a political and economic leader in Central
America. The USG shares this vision. We want Costa Rica to
succeed and be the best example of prosperity for the region.
Because it is smaller, Costa Rica can "turn faster," but it
must wean itself from a mindset that still looks first to
traditional foreign assistance for development. Costa Rica
will successfully move up to developed country status by
completing needed domestic reform that will stimulate private
investment and enhance support from IFI,s.

11. (C) CAFTA-DR: The Arias administration has made this a
top priority, and should be encouraged to keep moving. The
government has the votes for ratification, which should be
completed by April 2007. Full implementation will take
longer. Thirteen legal reforms must be enacted to make Costa
Rican laws CAFTA-DR-compliant by the March 1, 2008
implementation deadline. Arias should be reminded of this
deadline. If raised, the USG is facilitating (via Colombia)
anti-riot training for Costa Rican security force personnel,
in advance of the next round of anti-CAFTA protests, expected
to coincide with the first legislative assembly vote between
mid-January and mid-February.

12. (C) FISCAL REFORM: This is another essential element in
Arias,s domestic agenda. In the 2006 World Bank "Doing
Business Index," Costa Rica fell to 160 (out of 175) in
paying taxes. Creating and enforcing a sustainable tax
structure will enable the GOCR to modernize its
infrastructure while supporting social initiatives. The USG
has provided Treasury Department experts to advise the
Ministry of Finance in tax administration and, more recently,
budgeting, and has helped bring third-country experts (such
as former Estonian PM Mart Laar) to Costa Rica.

13. (C) COMPETITIVENESS: In his inaugural agenda, Arias
vowed to "promote policies for sustained improvements in
competitiveness." The USG should encourage these reforms.
Some key pieces are already in place. The GOCR's current
concessions law is based upon the successful Chilean model
and amendments currently proposed will improve it. The
recent concessions granted to run facilities at Costa Rican
Pacific port of Caldera are a success story and a model for
the GOCR. But, the government's mishandling of the San Jose
Airport concession with Alterra over the past five years is
of serious concern. Focusing on reforms that improve Costa
Rica's competitiveness rankings with the World Bank are
essential to attracting greater foreign investment and
creating a more dynamic economic environment.

14. (C) CUBA: This is not the time to say less. The Cuban
people need continued statements from credible regional
leaders like Arias on the need for democratic change and
support for human rights in Cuba. Such statements are fully
consistent with Costa Rica,s well-deserved reputation as a
strong advocate for democracy and human rights around the
globe, and are in keeping with the principled foreign policy
outlined in Arias,s inaugural address. Arias should be
encouraged to advocate such statements within the appropriate
multilateral organizations.

15. (C) NICARAGUA: Arias has taken a careful wait-and-see
approach following Daniel Ortega,s election as president.
With more than 300,000 Nicaraguans estimated to be in Costa
Rica, and relying heavily on Nicaraguan labor to harvest
coffee and perform other manual labor, the GOCR believes that
bilateral relations with its neighbor must be handled very
carefully. Even so, the USG should urge Costa Rica to work
quietly with other democracies to help keep Ortega in line

16. (C) REGIONAL SECURITY: Arias should be commended for
excellent bilateral counternarcotics cooperation. Over 25
tons of cocaine have been seized in Costa Rican territory in
2006, mostly at sea. Costa Rican authorities are honest and
reliable partners in combating transnational crime with very
limited resources. At the same time, the GOCR continues to
harbor strong reluctance to participate in anything that
suggests a "militarization" of Costa Rica. The USG should
stress that regional cooperation with security forces is not
"militarization," but is the only realistic way to confront
regional security threats, including transnational crimes.
USG-supplied military equipment and training has been
essential to improving Costa Rica,s security forces. The
USG seeks a healthy regional dialogue, via the Central
American Integration System (SICA in Spanish), on security
issues of mutual concern such as organized crime, gangs and

17. (SBU) GENERAL: On domestic issues, Arias will seek USG
understanding of Costa Rica,s "unique" political tradition
which places a premium on consensus and protecting the social
welfare system. This has mandated his careful, deliberate
approach to ratifying CAFTA (see above). On international
issues, Arias will seek recognition of Costa Rica,s
"responsible" foreign policy, centered on initiatives such as
the Costa Rica Consensus and the GOCR,s 2008-2010 UNSC

18. (SBU) COSTA RICA CONSENSUS: This initiative is based
on the premise that Costa Rica and other middle-income
developing countries have been "unfairly" cut off from the
large foreign assistance flows of the past. Arias proposes
more aid and debt relief for countries that invest more for
social programs and less for armaments. As donor countries
increase development assistance to the 0.7 percent of GDP
target set in the UN,s Millennium Declaration, countries on
the proper development path should be rewarded. According to
FM Stagno, the GOCR seeks to build global support for the
initiative in time for a summit in 2008 or 2009. Related to
this, Arias may also urge that some portion of the Millennium
Challenge Corporation (MCC) funds for Nicaragua be made
available for Costa Rica, in light of the large population of
Nicaraguan residents "south of their border," or that MCC per
capita income limitations (which exclude Costa Rica) be
relaxed. Costa Rica is not eligible for MCC funds
designated for Nicaragua, however, since these resources are
targeted for infrastructure, environmental, business
development and legal projects within Nicaragua.

19. (C) USG and GOCR perspectives clearly differ on foreign
aid issues. Relying on international assistance is "old
think" from the 1980,s, and will not generate anywhere near
thebenefits possible from diect foreign investment. Arias
may need to be reminded that as a "sustainig partner," we
perceive Costa Rica to be well-plced to attract the foreign
investment needed to odernize the country, fuel continued
development and support Arias,s agenda. For Costa Rca,
the future is based on trade, not aid. The USG will continue
to offer technical assistance on regional security issues and
on the implementation of further economic reforms.

20. (SBU) USG ASSISTANCE: Arias should be aware that USG
assistance has not been cut off completely. The October 2006
waiver of ASPA restrictions on International Military
Education and Training (IMET) is permanent, and will mean
additional (although small-scale) funding to assist GOCR
security forces in the future. Tropical Forest Conservation
Act (TFCA) eligibility, being considered by Treasury, may
lead to some targeted debt forgiveness for Costa Rica. As a
CAFTA-DR signatory, the GOCR is also eligible for a share of
nearly USD 40 million in regional trade capacity building

21. (SBU) UN ARMS TRANSFER TREATY (ATT): Arias may seek to
persuade the USG to modify its direct opposition to this
initiative. On this issue, the USG and GOCR may have to
agree to disagree . As a world leader in reducing the sales
of illicit arms, the USG continues to believe that to be
universal, and to include all major arms producers including
Russia and China, an ATT would be a
"lowest-common-denominator" agreement, and therefore not
effective. If Costa Rica is concerned about arms transfers,
however, the GOCR should be encouraged to speak out against
the destabilizing and disproportionate arms build up in

22. (C) UNSC ELECTION FOR 2008-2010: Arias may ask for USG
support, concerned that Venezuela will again run, and that
having a Central American nation on the Council now (Panama)
could jeopardize Costa Rican prospects for 2008. The GOCR
should be encouraged not to mute its principled support for
human rights as the 2008 UNSC election campaign continues.
The USG seeks Costa Rican help to focus attention on human
rights violations in countries such as Iran and Belarus, in
addition to Cuba.

23. (SBU) U.S. CONGRESSIONAL ELECTIONS: Arias may point to
the election results as suggesting a change in USG policy,
e.g., more attention (and resources) for Latin America and
more flexibility on trade agreements and immigration issues.
Based on early indications, however, the effect may be just
the opposite, especially on trade issues. This underscores
the need for Costa Rica to ratify and implement CAFTA-DR as
soon as possible.

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