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FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6746
INFO RHEHNSC/NSC WASHDC IMMEDIATE
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY

C O N F I D E N T I A L SAN JOSE 002685 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/CEN JASON MACK 
 
E.O. 12958: DECL: 11/28/2016 
TAGS: PREL PGOV PINR ETRD ECON CS
SUBJECT: SCENESETTER FOR PRESIDENT ARIAS VISIT 
 
 
Classified By: Ambassador Mark Langdale for reason 1.4(d) 
 
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SUMMARY 
------- 
 
¶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. 
 
--------- 
ITINERARY 
--------- 
 
¶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. 
 
--------------------------- 
SERIOUS CHALLENGES AT HOME 
--------------------------- 
 
¶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. 
 
-------------------------------------------- 
AMBITIOUS AGENDA; EARLY TESTS OF LEADERSHIP 
-------------------------------------------- 
 
¶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 
good." 
 
------------------------ 
PRINCIPLED POLICY ABROAD 
------------------------ 
 
¶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. 
 
--------------- 
U.S. OBJECTIVES 
--------------- 
 
¶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 
narcotrafficking. 
 
------------------ 
ARIAS,S OBJECTIVES 
------------------ 
¶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 
candidacy. 
 
¶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 
funds. 
 
¶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 
Venezuela. 
 
¶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. 
LANGDALE