Costa Rica: Resisting Austerity

September 25, 2007

"It is the International Monetary
Fund which is governing us now,"
Oscar Arias, the secretary gen-
eral of Costa Rica's ruling social
democratic party, admitted last
July. Virtually bankrupt since 1981,
Costa Rica has in the past year
renegotiated its massive $4 billion
public debt, one of the the highest
per capita debts in the world. This
gained Costa Rica a four-year
grace period for payments of prin-
cipal and improved terms for meet-
ing its interest obligations. In re-
turn for the bail out, however, the
International Monetary Fund (IMF),
the World Bank and a consortium
of 170 major banks have demand-
ed strict austerity measures, in-
cluding cuts in social welfare
spending and public employment,
huge increases in utility rates,
higher loan costs for farmers, high-
er taxes, the sale of government-
BANDECO's newspaper advertisements blamed the union for breaking the contract.
Jan/Feb 1984
owned companies and an end to
price subsidies for basic foods.
Why did the bubble burst in
Costa Rica, a nation whose com-
parative prosperity once earned it
the sobriquet of "the Switzerland
of Central America?" Like other
developing countries, Costa Rica
has long suffered from declining
terms of trade, that is the increase
in prices of industrial imports rela-
tive to traditional exports such as
bananas and coffee. The limited
industrialization which began in
the 1960s helped little, since it
was necessary to pay more for
imported raw materials and ma-
chinery than was earned from
manufactured exports.
The situation worsened after
the post-1973 rise in oil prices.
In 1980, Mexico and Venezuela
agreed to provide petroleum on
favorable terms, but the economic
crisis ,in those countries has now
reduced the credit available for
Central America's oil needs. Fi-
nally, while the Costa Rican state
over the last three decades suc-
cessfully expanded public serv-
ices, created new employment in
state-owned enterprises and built
much-needed infrastructure, it did
so largely with borrowed money.
Little effort was made in recent
years to bring about changes in
the country's productive structure
which might have generated the
wealth to pay for the social wel-
fare programs or the conspicuous
consumption of the large middle
class. By 1981, the problems of
stagnating export agriculture, de-
pendent industry and growing
debt brought a balance of pay-
ments crisis and led the govern-
ment of then President Rodrigo
Carazo to default. Carazo resisted
the IMF's pressures, charging that
"instead of helping us to get fair
prices for our products in the in-
ternational market, the IMF has
asked us to spend less on every-
37update . update . update . update
thing without considering what
this would mean to the popula-
tion." The new administration of
Luis Alberto Monge, however,
which took office in May 1982,
quickly acceded to the demands
of what some Costa Ricans be-
gan to call "Mister Fondo."
"Investment Opportunities"
Some of the results of the aus-
terity program have, by the bank-
ers' criteria, been gratifying. Infla-
tion, which was 65% in 1981 and
100% in 1982, has been brought
down to about 20% in 1983. The
col6n, which plummeted from 8.6
to more than 62 to the dollar be-
tween late 1980 and mid-1982, is
holding steady at 44 to the dollar.
Imports have declined, thus im-
proving the trade balance. The
U.S. Department of Commerce
states that "despite its location in
Central America, Costa Rica still
offers favorable investment oppor-
tunities." Most importantly, Costa
Rica paid the banks $396 million
in debt service in 1983.
Clearly, the social costs of aus-
terity have been high. Part of the
reason why "investor confidence"
is being restored is suggested by
a recent report by the U.S. Agen-
cy for International Development,
which notes that Costa Rican in-
dustrial wages are now the lowest
in the Central American/Caribbean
region, with the exception of Haiti.
The payment to foreign banks--
an amount equivalent to one-half
the country's annual export earn-
ings-has made it difficult to ac-
quire essential inputs for agricul-
ture and industry. Economic growth
has halted. Unemployment and
underemployment continue to in-
crease and the currency devalua-
tion has severely eroded the pur-
chasing power of most of the
More and more families are
now below the poverty line, with
incomes insufficient to purchase
a "market basket" of basic utili-
ties, school materials and 14 foods
supposed to provide the calories
required for normal development.
In 1977, 24.8% of Costa Rican
families were living in poverty, ac-
cording to this definition. By 1980,
the number had climbed to 41.7%
and in 1982, 70.7% were defined
as poor. In 1983, the government
reported a marked rise in third-
degree malnutrition among chil-
dren and expressed fears that
this could reach "epidemic" pro-
portions. Infant mortality, previously
on a level comparable to devel-
oped countries, is climbing rapidly.
Costa Rican governments have
traditionally promoted reforms as
a way of avoiding the conflicts
which have plagued the country's
neighbors. Long accustomed to
this top-down reformism and the
benefits of living in a welfare state,
Costa Ricans have not formed the
kinds of broad-based popular or-
ganizations which exist elsewhere
in Central America. The recent
advent of economic crisis and
IMF-sponsored austerity is gen-
erating increased resistance, how-
New Labor Federations
In November 1980, two of the
country's strongest labor organi-
zations-the General Confedera-
tion of Workers and the National
Association of Public Employees-
joined forces with various inde-
pendent unions to form the United
Workers Federation (CUT). The
CUT includes among its 70,000
members two of the most active
sectors of the Costa Rican work-
ing class: the public employees
and the banana workers. Shortly
after the CUT was founded, the
teachers and other unions op-
posed to the CUT's radical orien-
tation created a competing labor
federation, the 25,000 member
Democratic Workers Front (FDT),
many of whose leaders have ties
to the governing social democratic
Ideological and tactical differ-
ences have largely impeded ef-
fective coordination between the
two federations. Both groups have
cooperated, however, in demand-
ing price controls for items in the
government's "basic market bas-
ket." In one joint mobilization in
1981, the Carazo Administration,
employing divide and conquer
tactics, insisted on negotiating
only with the FDT leadership. When
the government later reneged on
parts of an agreement that pro-
vided for food price freezes, pub-
lic confidence in the FDT began
to erode.
Worsening economic conditions
during the last years of the Carazo
Administration also sparked un-
rest among the militant banana
workers, who struck several times
and were faced with mass arrests,
tear gas and police gunfire that,
on one occasion, resulted in the
deaths of two workers. After dozens
of solidarity strikes by other unions
throughout the country, the gov-
ernment reassessed its tactics
and the workers won company
compliance with contracts that
had ended earlier strikes.
The labor situation did not im-
prove once social democrat Luis
Alberto Monge became president
in May 1982, in spite of his long
ties to AFL-CIO-sponsored union
organizations. Soon after taking
office, the Monge Administration
launched a massive campaign
appealing to Costa Ricans to
"tighten their belts" to help put the
country back on its feet. Public
employees were ordered to work
extra hours with no increase in
Touting the slogan "Lo nuestro
es mejor porque es nuestro"
("What's ours is better because
NACLA Reportupdate . update . update . update
it's ours"), government proclama-
tions idealized the traditional peas-
ant lifestyle and called for a "re-
turn to the land." People were
urged to live more simply by going
back to locally produced goods,
such as corn tortillas instead of
bread made from imported wheat
and wood-burning stoves instead
of modern electric ranges.
Many Costa Rican workers were
not convinced by government slo-
ganeering. Doctors in the state
health system, their privileged sta-
tus threatened by inflation, struck
Monge's government in June 1982
for a $40 per month wage increase.
The walkout, widely viewed as a
test of how labor would fare under
the new administration, ended af-
ter 42 days when the government
gave in to the physicians' demands.
"Soviet-Inspired Traitors"
Workers in other sectors achieved
lesser demands at much higher
cost. In September 1982, workers
at the Banana Development Com-
pany (BANDECO), a Del Monte
subsidiary, walked off the job de-
manding a 17% wage increase
and the rehiring of workers fired
during a 1981 strike. Almost im-
mediately the CUT-directed strike
was declared illegal. Civil Guards
Jan/Feb 1984
were brought in to attack strikers,
several of whom were shot and
wounded. Widespread BANDECO
advertising denounced the strik-
ers as Soviet-inspired traitors.
Monge echoed BANDECO, call-
ing the strikers terrorists and charg-
ing that "negative efforts to harm
Costa Rica are already under way
and [are] high-level decisions of
the Third [Communist] Internation-
al." Monge also confessed that he
was receiving strong "pressures"
from business groups and that "if
they force me. .. it will be neces-
sary to declare the Communist
Party illegal."
Lacking funds to counter this
barrage of attacks in the media,
BANDECO strikers visited unions
and popular organizations through-
out the country to explain the
reasons for their actions. Banana
workers on the Pacific coast struck
in solidarity with their Caribbean
counterparts. Numerous unions
and other groups sent food, clothes,
medicine and money to the strik-
ing workers. After 63 days, the
longest strike in Costa Rican his-
tory, the union won its principal
demands and returned to work
under the watchful eyes of a joint
labor/management committee
charged with enforcing the con-
Throughout 1983, strikes have
been on the rise, provoked in many
cases by the government's failure
to pay agreed upon cost of living
increases. When the FDT-led teach-
ers stopped work in April because
they had not received the $22 per
month raise due since January,
the government declared that it
was simply unable to pay because
it had no money. After 10 days,
the government agreed to begin
payment of back pay in three
months, but when the time came
the union caved in and signed a
contract accepting a raise of only
$11 per month.
In August, public employee
strikes multiplied, with walkouts
by air traffic controllers and em-
ployees of the state-owned oil re-
finery, banks, hospitals, utilities and
the insurance company. Across
the board wage increases of $11
per month were granted, but only
after Monge ordered Civil Guards
to occupy the oil facility and threat-
ened to meet other public employ-
ee strikes with force. The president
also suggested that he would con-
sider suspending constitutional
guarantees if the situation wor-
Popular protest has not been
limited to plantation laborers and
urban workers. In the first nine
months of 1983, there were more
than 100 disputes between land-
owners and peasant squatters.
Most of these conflicts took place
in the northern regions of Upala
and San Carlos, and on lands
owned by United Brands in south-
western Costa Rica. The massive
land invasions prompted Monge
to announce an emergency pro-
gram on agrarian problems which
will redistribute land to some 2,000
needy families each year until 1986.
The president warned, however,
that no new squatter settlements
would be tolerated.
39update . update * update . update
Massive Resistance to Rates
In May, a national protest against
electricity rate hikes was organized
throughout the country. Thousands
of families refused to pay their
electric bills, complaining that de-
spite efforts to economize they
were unable to pay rates which
had risen almost 300% in two
years. Thirty-five major roads were
blockaded by men, women and
children for two days until the gov-
ernment-run utility company agreed
to lower its prices.
More than any other struggle in
recent years, the protest against
electric rate increases galvanized
massive resistance among sectors
of the population which had previ-
ously been relatively unorganized
and passive in the face of increas-
ing poverty. For this reason, it was
viewed with particular concern by
the Monge government and the
Costa Rican upper class.
The wage increases won by
public employees, the promises
of stepped-up land redistribution
and the struggle against electricity
rate increases must be counted
as victories for the Costa Rican
people. But these victories also
highlight the difficulties of apply-
ing reformist solutions in the con-
text of IMF-imposed constraints
on public spending. Government
concessions to pressure from be-
low inevitably bring conflicts with
"Mister Fondo." Further tightening
of the purse strings reduces the
state's ability to attenuate worsen-
ing poverty and may in turn gen-
erate increased resistance.
"Many feared Costa Rica might
yield to the contagion which is
prostrating the rest of Central Amer-
ica," Monge recently declared.
"Our medicine is bitter, but we
have prevented the contagion."
The growing struggles in Costa
Rica suggest that Monge may
have been unduly optimistic about
traditional tico complacency. A
major question now is whether the
"reformist model" has run its course.
In mid-November, the legislature
imposed a 1% tax on dollar remit-
tances abroad in order to finance
infant care centers. This incurred
IMF wrath and led the United States
to cut off aid to Costa Rica. The
halt in U.S. aid is probably tempo-
rary, but if resources for reformist
measures are not forthcoming and
if opposition to austerity grows,
there could well be a narrowing of
the political space which Costa
Rican unions and popular organi-
zations have used to defend their
Marc Edeiman is the author of "Costa
Rica: Seesaw Diplomacy" in the No-
vember/December issue of the Report.
Jayne Hutchcroft, a graduate student
at the University of Florida, taught an-
thropology at the University of Costa
Rica from 1979-83.

Tags: Costa Rica, IMF, austerity, labor

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