VZCZCXYZ0002
OO RUEHWEB

DE RUEHSJ #0934/01 1240008
ZNR UUUUU ZZH
O 040008Z MAY 06
FM AMEMBASSY SAN JOSE
TO SECSTATE WASHDC IMMEDIATE 4891

UNCLAS SAN JOSE 000934 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR H JOHN REDDY AND PATRICIA BIGGS 
 
E.O. 12958: N/A 
TAGS: OREP AMGT AFIN CS
SUBJECT: SCENESETTER FOR CODEL BURTON 
 
REF: STATE 55783 
 
Country Overview 
---------------- 
¶1.  Costa Rica is a developing country with a per capita 
income of about U.S. $4,700 and an unemployment rate of about 
6.5 percent.  Tourism, manufactured exports, and service 
industries now far surpass traditional agricultural exports 
(coffee and bananas) as sources of employment and foreign 
exchange.  With over 700,000 U.S. tourists annually and 
almost as many from other countries, the tourism industry is 
flourishing.  Relative prosperity has created a larger middle 
class in Costa Rica than is found in most Latin American 
countries. 
 
¶2.  Costa Rica has serious economic problems, however, 
including an unsustainable fiscal deficit, a growing debt 
burden, high inflation rates, and high domestic interest 
rates that restrict local business growth.  The country,s 
highway system, education, and health care systems have 
deteriorated over time.  The state telecommunications 
monopoly limits competition.  The current administration of 
Abel Pacheco negotiated and signed the Central American Free 
Trade Agreement (CAFTA), but President Pacheco remained 
ambivalent about the agreement and failed to press vigorously 
for ratification.  As a result, Costa Rica is the only CAFTA 
country that has not yet ratified the agreement. 
 
¶3.  Costa Rica,s traditional two-party political system 
began to erode in 2002 with the emergence of strong third and 
fourth parties.  Unprecedented corruption scandals in 2004 
leading to the arrests of two former presidents and the poor 
performance of outgoing President Abel Pacheco caused the 
ruling party to fall to fourth place in the 2006 elections. 
Former President and Nobel Peace Prize laurate Oscar Arias 
won the election by just one percent, defeating the populist 
Otton Solis. 
 
Peaceful Transitions 
-------------------- 
¶4.  Costa Rica has enjoyed peaceful transitions of executive 
leadership via free elections for more than 100 years, with 
two exceptions: from 1917 to 1919 when Federico Tinoco 
overthrew and elected government, and from 1948 to 1949, when 
Jose Figueres Ferrer headed an unelected government junta 
following a brief civil war.  Figueres was subsequently 
elected in free and fair elections and founded the National 
Liberation Party, the party of Oscar Arias. 
 
¶5.  The Presidential Inauguration will be held at the 
National Stadium in western San Jos.  Arias will walk to the 
ceremony from his home six blocks away.  The concrete 
stadium, which seats about 20,000, was built in 1924, rebuilt 
in 1940, and last refurbished in 1972.  Its main use is for 
amateur soccer. It has also been used for other large 
open-air events, such as a mass attended by Pope John Paul 
II, a concert by Luciano Pavarotti, and, since the 1970s, 
presidential inaugurations.  The stadium is located in a 
large park called La Sabana, which also contains the Museum 
of Costa Rican Art and the National Gymnasium.  La Sabana was 
an airport until 1955. President Kennedy landed there in a 
helicopter during his visit in 1963. 
 
Arias's First Term as President 
------------------------------- 
¶6.  Oscar Arias took office in 1986 at age 44, the youngest 
President in Costa Rica,s history.  A year later he won the 
Nobel Peace Prize for his contributions to the Central 
American peace process.  During the 1980s, Arias publicly 
undercut U.S. policy toward the Sandinista regime, while at 
the same time working to bring all parties to the negotiating 
table.  The Peace Prize greatly enhanced Arias's popularity 
at home and burnished his credentials as an international 
statesman.  However, Arias,s aloofness limited his ability 
to work effectively with the Legislative Assembly, and few 
important laws were approved during his first administration. 
 
¶7.  Arias,s domestic policy focused on achieving economic 
stability through reducing inflation, renegotiating debt, and 
attracting foreign investment.  Arias succeeded in slowing 
inflation, obtained more favorable terms for $1.6 billion in 
debt, and provided some low-income housing (though far short 
of his campaign promise of 80,000 new homes).  Unemployment 
continued to grow, however, and the national debt ballooned 
to $4.6 billion.  In 1988 Arias declared a year of austerity 
and pledged no new taxes during his term. 
 
¶8.  Sensitive to charges he spent too much effort on 
international affairs, Arias often claimed that he spent 13 
of the 16 hours he worked each day on domestic problems. 
When critics pointed out that he had accomplished little for 
such an effort, Arias countered that "the solution to all 
internal problems is to keep the violence in the rest of the 
region from crossing our borders." 
 
Arias Today 
----------- 
¶9.  Arias will make CAFTA ratification and implementation a 
high priority for his government.  He also wants to increase 
spending on education and infrastructure.  Internationally, 
Arias will be an advocate for human rights, multilateralism, 
and disarmament.  Although he considers himself a good friend 
of the United States and tough critic of Fidel Castro and 
Hugo Chavez, he should be expected to criticize the U.S. on 
issues such as Iraq, the International Criminal Court, and 
international aid levels. 
 
¶10.  President-elect Arias faces domestic opposition, 
particularly from public sector unions and university 
students.  Unwillingness to confront this opposition 
paralyzed Arias,s predecessor, Abel Pacheco.  Arias's party 
is the largest block in the incoming Assembly and roughly 2/3 
of its 57 members have already stated they support the 
agreement.  Even with this level of support, committee 
hearings are expected to last through the summer.  If the 
Assembly moves quickly, Costa Rica could ratify CAFTA by 
December 2006. 
LANGDALE