"COSTA RICA CONSENSUS:" OSCAR ARIAS'S

UNCLAS SAN JOSE 000204

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL ECON EAID CS
SUBJECT: "COSTA RICA CONSENSUS:" OSCAR ARIAS'S
DEBT-FORGIVENESS INITIATIVE

REF: A. SAN JOSE 159


B. SAN JOSE 193


1. (SBU) Summary: Oscar Arias, the likely next president of
Costa Rica, appears poised to call for a "Costa Rica
Consensus," a debt-relief initiative that would be a
centerpiece of a promised "active and progressive" foreign
policy. He plans to convene an international summit in San
Jose to persuade wealthy creditor nations that they have a
moral and practical interest in forgiving the debt of
well-behaved poor and middle-income countries so that these
countries will spend less on arms and more on education,
health, and housing. Arias likely will seek U.S. support for
this initiative. End summary.


2. (SBU) If the polls are correct, Oscar Arias will be
elected president of Costa Rica on February 5 and take office
on May 8 (reftel B). It is becoming increasingly clear that
his administration will seek to obtain the agreement of the
G-8, European Union, and OECD to forgive the debt of not only
the poorest countries of the world (a la HIPC),but of
developing countries like Costa Rica that invest in
education, health, and housing, and not in arms, i.e.
apparently incorporating Millennium Challenge Account
(MCA)-like conditionality. Arias told us on January 17
(reftel A) that he plans to host an international summit on
the issue. He said that newly middle-income countries should
not be "punished" (by which he apparently meant having to pay
their foreign debt) for their "relative success" (in
achieving middle-income status).


3. (SBU) On the campaign trail, Arias and his candidate for
first vice president Laura Chinchilla have referred to this
plan as the "Costa Rica Consensus" or, sometimes, the "San
Jose Consensus." In the National Liberation Party (PLN)
Program of Government 2006-2010, one of the "principles" of
Arias's "active and progressive" foreign policy is expressed
as "the struggle to overcome the enormous asymmetries between
rich countries and developing nations." The program states:
"The future administration of Dr. Oscar Arias, winner of the
Nobel Prize for Peace, aspires to convert Costa Rica into a
moral power, able to convoke the world in support of the best
causes." Arias sees his initiative as a natural follow-on to
the September 2000 Millennium Summit whose goals was to
reduce world poverty by half by 2015.


4. (U) Arias sometimes refers to his plan as a debt swap,
the idea being that to qualify a developing country would
have to demonstrate that the amount of debt forgiven was used
for beneficial "social investment" and that at the same time
military spending was reduced. The increase in social
spending and concomitant reduction of arms and soldiers is
the "spirit of the Costa Rica Consensus." The PLN program
states: "The arms race in the developing world is a crime
against peoples, in the same way that the international arms
trade is an evil that must be fought vigorously as a threat
to humanity. Ironically, about 80 percent of all transfers
of conventional arms originate with the five permanent
members of the UN Security Council.


5. (SBU) Comment: Creating incentives for developing
countries to spend more on education and less on their
militaries is a worthwhile goal. But proposing the creation
of a HIPC-like program for middle-income countries, with no
apparent link to debt sustainability, reflects a surprisingly
unsophisticated view of the workings and importance of
financial markets to Costa Rica and other middle-income
counties. Instead, Arias has told us that it is both a moral
imperative for the USG and in our own interest to increase
our foreign assistance. In Arias's view, morality would
appear to trump practicality.


6. (SBU) Arias's brother, Rodrigo, will be traveling to
Washington February 13-16. We anticipate that he will be
making an appeal to USG interlocutors, including Millennium
Challenge Corporation Chairman John Danilovich (former U.S.
Ambassador to Costa Rica) for assistance. Arias will argue
that by providing generous but conditioned aid (whether in
the form of grants, debt forgiveness, or swaps),the "rich
countries" can stimulate transparent and honest government,
sustainable development, and peace in the developing world.
LANGDALE