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Reagan's Imprint on FOREIGN AID. From coffee to cucumbers: Costa Rica uses US aid to diversify its exports

By George D. Moffett III / May 23, 1985



Thanks in part to US foreign aid, Costa Rica has recently become an exporter of cucumbers. Other export industries -- such as melons, macadamia nuts, and flowers -- are also flourishing there, helping farmers in that Central American nation. ``A lot of it is due to our aid programs,'' says Marvin Schwartz, Costa Rica desk officer for the US Agency for International Development (AID).

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The United States now sends $200 million in foreign aid directly to Costa Rica. As a result, AID officials say, US foreign-policy interests have been advanced by helping to stabilize a key ally in a politically volatile region of the world.

For three decades after World War II, this Central American nation was stable and progressive, with high literacy rates, strong economic growth, and low unemployment. But, like many developing countries, Costa Rica was hit hard during the late 1970s, first by a sharp drop in the world price of its chief export, coffee, and then by a sharp increase in oil prices. In addition, the Sandinista revolution in neighboring Nicaragua in 1979 caused many foreign investors to take their money out of Central America.

The effect in Costa Rica was severe: Trade deficits burgeoned; unemployment increased dramatically; interest rates soared; and Costa Rica acquired the highest per capita foreign debt in the world. At the US State Department, officials worried about Costa Rica's political stability.

Helping Costa Rica through the crisis was a job for US foreign aid, officials here decided.

With money and advice directly from the US, as well as from multilateral lending institutions like the International Monetary Fund, Costa Rica has begun to stabilize its economy. The development of new export industries, such as cucumbers, was a major step, Mr. Schwartz says. But to provide money for start-up costs, new financial institutions had to be created to distribute the aid.

For example, the Private Investment Corporation in San Jos'e was set up about six months ago to provide resources for export expansion. AID has contributed $21 million to the initiative. Although it's too soon to tell how effective the corporation will be, Schwartz says it could generate $300 million in investment in Costa Rica over 10 years.

Some of the $200 million from the US helps Costa Rica maintain employment and finance US imports, freeing domestic resources to manage Costa Rica's huge foreign debt.

Although Costa Rica's overall standard of living is lower now than before, budget deficits and inflation have been reduced, AID says. Further, the country's tax revenues are up and -- most important -- its unemployment is down.

Some critics say the administration's excessive concern with Nicaragua has worked to retard economic reform in Costa Rica. They say so long as the Sandinistas rule 100 miles away, Costa Rica can count on US aid, reform or not.

US officials agree there's more to be done. But they insist US aid is addressing the real problem. ``At a time of general crisis throughout the region, Costa Rica has maintained a high degree of political stability,'' Schwartz says. ``We need that example to illustrate how a democratic system can function. Without US support, who knows what would have happened in Costa Rica?''