by Rod Hughes

Everyone gripes about inflation in Costa Rica, but families are currently spending more proportionate income than they have in 10 years, thanks to a slowed inflation rate (partially fueled by a real estate boom that shows no sign of flagging.) The daily La Nacion reports that the retail commercial upsurge began two years ago.

The sale of imported goods, reports the paper, is currently at $1.7 billion, larger than the project foreing investment for the year. Purchases of such items as food, clothing and vehicles has shot up 29% over the same period last year. The highest increases of import sales are medicines and beauty aids, autos, machinery and home appliances, even down to microwave ovens and hair dryers.

According to Banco Central, the country’s financial regulator, the commercial sector has increased by 5.5%, a hike only exceeded by 1998 when it jumped 6.29%. The bank expects by the end of the year consumer spending will have increased 6%.

Specifically, the factors the bank sees as contributing to this happy situation, besides slowed inflation, are more jobs and higher salaries, easier loans and low interest and a robust consumer confidence that belies all the complaints about high prices. By July of this year 10% more (114,000) workers were registered with Social Security, indicating an increase in formal working situations. This is the highest in four years.

The drop in interest rates by nearly half of what they were last year has also heated the economy by making more income available to families. Optimistic retailers of all kinds are looking forward to the holiday season when the mandatory Christmas bonus fills wallets.

by Rod Hughes

President Oscar Arias returned from his diplomatic trip to mainland China with his shopping bags bulging with cash for his country. Besides talking his hosts out of $20 million in immediate aid for victims of the disastrous September flooding, he received $27 million in longer-term projects.

But the list of goodies did not end there. Besides laying the groundwork for possible trade pacts, Arias and his host, strongman Hu Jintao also inked a contract with the Chinese Petroleum Corp. to refurbish and expand this country-s Recope Refinery at Limon. The refinery is getting long in the tooth, having been bought from Allied Chemical by president Jose “Don Pepe” Figueres decades ago in a flurry of nationalizations.

One hope for this trip was that China might buy up part of Costa Rica’s national debt, but so far no official word came from it. The morning daily La nacion has quoted Foreign Trade Minister Marco Vinicio Ruiz as saying that China might begin buying debt bonds as soon as early next year but probing by the English-language weekly The Tico Times was unable to turn up any confirmation.

For the president, the trip probably serves as sweet recompense for the wave of criticism that lapped at his feet five months ago when his government severed longtime ties with Taiwan in order to establish diplomatic relations with mainland China. “Certainly now China is going to show greater interest in Costa Rica than it showed before establishing diplomatic relations…” said the president.

China is currently Costa Rica’s second largest trading partner (behind the United States) and trade is up with that country 31% already this year, something on the order of $1 billion. Coinciding with the visit, Costa Rican companies attended the huge trade fair in Canton this week and, according to the Foreign Trade Ministry, brought back $140 million in contracts for such exports as tilapia, coffee, bananas and shrimp.

Nearly all the cabinet who have anything to do with trade and foreign policy accompanied Arias. And naturally they had a day off to play tourist, visiting such sights as the Forbidden City, the imperial tomb housing hundreds of life-size terra cotta warrior statues as well as the Great Wall. It was reported that the chief executive had to beg off on the latter junket when the Achilles tendon inflamation that plagued him during the runup to the Oct. 5 CAFTA referendum flared up.

by Rod Hughes

The European Union has set the requirement that Costa Rica join a customs union with the rest of Central America before its 27 members will even start to talk with this country about favorable trade conditions. Honduras, Guatemala, El Slavador and Nicaragua signed this pact June 26 but this country held off until the results of the Oct. 5 referendum on the CAFTA free trade treaty was approved.

Once Costa Rica signs the customs agreement, the way will be open to negotiations for a free trade treaty and other commercial issues. One bone of contention will be the European Union’s tariff on banana imports, which raises the price of the fruit over the same comodity from Europe’s ex-colonies in Africa, Asia and the Caribbean. Currently the EU tax is 127 Euros per metric ton of bananas.

With all the country representatives and their aides present, the negotiations promise to be a mob scene of 500 persons. Panama will send at least one observer with an eye to joining an agreement farther down the line.

by Rod Hughes

The German tire company, Continental AG, has announced plans to build a $60 million plant at the El Coyol Tax Free Zone in Alajuela, Costa Rica’s second largest city. The company, established in 1871, is the world’s fourth largest tire producer, supplying Volkswagen, Daimler-Chrysler, Ford, BMW, General Motors, Toyota, Honda, Renault and Porsche.

According to Carlos Wong, manager of the Coyol zone, the company delayed before making the final commitment to see which way the referendum on the Central American Free Trade Agreement (CAFTA) would go. The firm’s alternative site was in Mexico. Wong said that the company’s plant would resemble the big Intel computer component operation here, beginning with the hiring of 350 staff and increasing to a thousand for the first stage.

Continental AG first produced rubber tires for horse-drawn vehcles and bicycles until 1904 when the company manufactured its first auto tire.

Direct foreign investment was up 71% last year. According to the UN’s World Investment Report, this represented nearly $1.5 billion. Of this figure, real estate has been the fastest growing at 26%, helped along by Scotiabank’s acqusition of the Interfin Bank. But still, by other standards, the country has been lagging. In the index that studies the capacity to attract foreign investment, the country has lost four places since 2000, now occupying 71st place of 141 countries.

by Rod Hughes

In a surprise move, the Citizen Action Party (PAC) has agreed to not obstruct 13 bills to implement the Central American Free Trade Agreement (CAFTA) from coming to the Legislative Assembly floor for voting. PAC leaders warned that they still would vote against the bills, since the deputies consider them damaging to the country.

The new laws are needed to bring Costa Rican legal procedures governing business into accord with CAFTA provisions. PAC is the chief congressional opposition to CAFTA with 17 members and at first the party said its delegation would use every means to block passage of the reform bills.

The PAC numbers in congress are large enough to keep the Legislative Assembly from having a forum to do business if PAC deputies were absent in a group. This is a favorite blocking tactic, much like a U.S. Senate filibuster. The effect is to paralyze the legislative branch completely. Or PAC could have buried the 13 bills under a blizzard of amendments.

Presidency Minister Rodrigo Arias entered into negotiations with the opposition immediately after the nationwide referendum Oct. 7 approved CAFTA by a narrow margin. PAC leaders may not have relished the negative reputation in the next elections of being the party that froze congress completely and prevented other important business from being enacted.

Among pending legislation are such important bills as an immigration reform and tax measures.

PAC leaders, meeting with President Oscar Arias and members of his cabinet, got agreement of the government to consider certain alterations to one of the bills the opposition considers particularly onerous.

by Rod Hughes

If President Oscar Arias is really serious about his zero carbon emission campaign, he is going to have to direct his Environment Minister’s attention to the country’s chief energy producer, ICE, a government monopoly. The president’s announced goal is to reduce petroleum consumption while increasing the carbon dioxide consuming forest areas.

ICE’s purchase of diesel and bunker oil rose a stunning 66% over the first nine months of this year comparing with the same period last year. As the English=language weekly The Tico Times has reported in past issues, although a chain of presidents have giving lip service to alternate means of producing electricity for the burgeoning energy demands in this country, ICE has been back-sliding every year.

Not only is this trend ecologically unwise, it is economically indefensible as well. the announcement was made today that, although gasoline prices well drop slightly soon, the price of diesel is going up.

According to the National Refinery, RECOPE, (another government monopoly) ICE bought 185 million liters of diesel this year, 54 million more than last year. And the power provider cannot plead low water levels in its reservoirs as it did at the end of the dry season. Fuel oil for thermic generators swallowed 7.9 million liters of fuel oil as opposed to only 4.8 million last year.

Of course, the demand for fuel has risen across the board. RECOPE reports that gasoline consumption has risen 5% so far this year. This is for moving the nation’s 531,000 cars and taxis registered with the National Insurance Institute (INS, still another government monopoly,)

The bottom line economically is this: RECOPE has bought $998 million in petroleum so far this year.

The only bright light in this tunnel of petroleum dependency is that ICE has announced that the rationing that plagued the country at the end of the last dry season will not be repeated in 2008, thanks to the wetter than average rainy season just now winding down and due to more petroleum-guzzling electrical generators in which ICE has invested.

by Rod Hughes

Negociations began the Central American Free Trade Agreement (CAFTA) and then the Legislative Assembly talked on and on and finally it went to a referendum and won a majority vote. Now, let the negociations begin…

These talks are between the government and a disgruntled Citizen Action Party (PAC in its Spanish acronym) who opposed the trade pact and whose 17-member congressional delegation have vowed to block the 13 bills that must refom Costa Rican laws to bring them into accord with CAFTA’s provisions.

But at least both sides are agreed about speaking to one another. PAC floor leader Elizabeth Fonseca and party president Otton Solis are agreed with Presidency Minister Rodrigo Arias, President Oscar Arias’s brother and chief advisor.

But one should not think that Solis has softened. He said he was going along so that he might “present some bills to mitigate the negative effects of CAFTA.” Among his proposals will be subsidies for small and meduim sized companies.

Meanwhile the tedious hand recount of the ballots is beginning in the offices of the Supreme Elections Tribunal. The work is expected to take at least two weeks.

by Rod Hughes

Prefabricated houses are supposed to go up in a hurry with less labor cost once the foundations are set. Right?

Tell that to the more than 11 families who a La Nacion report says are still waiting for their nice, new PrefaHogar of Costa Rica S.A. houses to be erected on their lots more than six months after ordering them. Nor are they all cheap homes and some families have paid up to 11 million colones (500 colones per dollar) as a down payment.

Monday some family members presented themselves in a group in the PrefaHogar offices to demand that their homes be built immediately or their downpayments refunded. In the worst cases, plans for the houses have not been delivered to their owners for approval or alterations.

At least the company has offices in which customers can complain. In the 1970s several scams resulted in customers filing legal papers only to be told that the prefab company office had mysteriously disappeared, right down to the sign out front.

In this case, at least, the company has a spokesman, general manager Carlos Maria Jimenez, who told La Nacion that the company was experiencing “organizational difficulties,” namely, that they do not have an engineer to supervise construction. The customers live in the San Jose area, Guanacaste and Puntarenas.

by Rod Hughes

The margin is thin with 95% of the votes counted, but the Central American Free Trade Agreemnt appears to have passed in yesterday’s historic referendum. The vote results now show that 51.6% voted “si” while 48.4% voted no.

Official results from a hand count that will put each ballot under a magnifying glass will not be complete for at least two weeks, but the Supreme Elections Tribunal (TSE) count announcements through yesterday evening resulted in a celebration among CAFTA proponents. So certain was the pro-CAFTA campaign leader Alfredo Volio certain that projections were accurate that he announced victory in front of a banner reading, “Thank you, Costa Rica” that had evidently been prepared long in advance.

But opponents were guarded, begrudging even a hint that they had lost the long and often bitter debate about the trade pact. Anti-CAFTA campaign chief Eugenio Trejos told a crowd at the “no” headquarters that each vote would be scrutinized for fraud and constitional violations.

Otton Solis, president of the Citizen Action Party (PAC) who has bitterly opposed CAFTA from the beginning, was even blunter, refusing to concede pending investigations of vote fraud.

No election result has ever been questioned in this country since the creation of the Supreme Elections Tribunal in the 1949 constitution, following a brief civil war touched off by allegations of ballot tampering. In fact, this country has been cited internationally as an icon of democracy and its tribunal, a body independent of all political parties, hailed as an example for the rest of the world to follow.

Solis did admit to being impressed by the turnout and the result. In recent presidential elections abstentionism has climbed, climbing toward 50% as the electorate registered their displeasure with politics as usual. The referendum brought out about 60% of the voters, in contrast, well over the 40% necessary to make the referendum binding.

CAFTA yes votes won in the vital popilous San Jose province as well as in Limon, Heredia and Cartago provinces while losing in Alajuela, Puntarenas and Guanacaste provinces. But everywhere the margin was thin. It was the overall numbers that counted and even a one-vote margin enough to decide it.

Only two incidents, neither particularly violent, broke the generally good natured, festive air of the balloting. In San Pedro, a group of CAFTA opponents ripped “si” flags and banners from passing cars while behind the Elections Tribunal headquarters, anti=CAFTA students set fire to a pro=CAFTA banner until dispersed by police. Although probably a technical violation of the Tribunal ban on campaigning on referendum day, stands selling “si” and “no” flags, T-shirts and other trappings were set up across the street from polling places.

But Costa Ricans who had hoped that the referendum would be the end of the divisive issue and that things will return to normal may be in for a disappointment, warned the English-language weekly The Tico Times last Friday.

If the yes vote holds under scrutiny (and no reason exists to doubt it will not, despite grumblings from CAFTA opponents) the task ahead for the Legislative Assembly will be to pass 13 bills vital to implementing the treaty. Each bill is a reform of current laws that conflict with certain parts of the trade pact and PAC has given notice that it will fight each one no matter how the referendum fared in the polling places.

by Rod Hughes

The opponents to the Central american Free Trade Agreement (CAFTA) with the United States gained the upper hand for the first time in the polls, the daily La Nacion reported Thursday. The Unimer pollsters found that, among those who have definitely decided, 55% will vote no and only 43% yes in the nationwide referendum Sunday.

Meanwhile, U.S. trade representative Susan C. Schwab told the press today flatly that the U.S. would not renegotiate the pact with Costa Rica if CAFTA is voted down. This is the hope that opponents to the treaty, especially the Citizen Action Party, have held out while urging a no vote on CAFTA, which has been ratified by all other Central American countries.

Moreover, Schwab again warned that the Caribbean Basin Initiative (CBI) which gives trade preferences to countries in the trgion, including Costa Rica, may not be in force in its present form forever. And European Union sources for both the English-language weekly The Tico Times and La Nacion have warned that the E.U. will not consider a free trade treaty with this country if CAFTA fails.

The last flurry of propaganda was mustered by both sides late this week. For the “yes” vote, proponents saturated much of the media with ads while the CAFTA opponents plastered the country with posters. Both sides have campaigned hard and both mounted peaceful street demonstrations in the metropolitan area last Sunday.

Although the Catholic Church here has officially remained neutral, a stance reiterated this week by Archbishop Barrantes, the daily paper La Prensa Libre reported that at least 47 priests have been active in opposition to the pact as well as the bishops and a religious radio station. The country has no constitutional separation of church and state and the Catholic Church is the official religion of the country, although all faiths are tolerated. The Church carries great influence with a large segment of the people, if not necessarily with elected officials.

Some 7,000 policemen have been mobililzed to keep the peace during voting. Although no serious violence has been reported during the runup to the referendum, feelings often have run high and threats were reported earlier this year against students at the University of Costa Rica who wished to mount a demonstration favoring CAFTA. With singular good sense, the students decided they could show their support some other day.

No campainging will be allowed Sunday.