VZCZCXYZ0026
PP RUEHWEB

DE RUEHSJ #0159/01 0582251
ZNR UUUUU ZZH
P 272251Z FEB 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 9480
INFO RUEHSN/AMEMBASSY SAN SALVADOR 5195

UNCLAS SAN JOSE 000159 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR H, WHA/CEN 
 
E.O. 12958: N/A 
TAGS: OREP PREL PGOV ETRD ECON SENV CS
SUBJECT: SCENESETTER FOR CODEL COSTELLO 
 
======= 
SUMMARY 
======= 
 
¶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. 
 
==================== 
A STUDY IN CONTRASTS 
==================== 
 
¶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. 
 
======================================= 
ARIAS: AMBITIOUS AGENDA; STRONG SUPPORT 
======================================= 
 
¶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. 
 
================= 
ECONOMIC SNAPSHOT 
================= 
 
¶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 
¶2008. 
 
======================= 
CIVIL AVIATION SNAPSHOT 
======================= 
 
¶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. 
 
============================================= = 
CAFTA: A CASE STUDY IN DYSFUNCTIONAL DEMOCRACY 
============================================= = 
 
¶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. 
 
============================================= ========= 
SECURITY:  DOING A LOT WITH A LITTLE, BUT HELP NEEDED 
============================================= ========= 
 
¶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 
territory. 
 
¶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. 
 
================= 
CONSULAR SNAPSHOT 
================= 
 
¶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 
¶2008. 
 
====================== 
ENVIRONMENTAL SNAPSHOT 
====================== 
 
¶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 
contamination. 
 
============================================= ====== 
FOREIGN POLICY: THE UN, NEW FRIENDS AND OLD RIVALS 
============================================= ====== 
 
¶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. 
 
======================= 
USG ASSISTANCE SNAPSHOT 
======================= 
 
¶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. 
 
BRENNAN