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 population. More and more families are now below the poverty line, with 38 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- ever. 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 party. 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 pay. 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- tract. 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- sened. 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 interests. 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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