SCENESETTER FOR THE VICE PRESIDENT'S VISIT TO

UNCLAS SAN JOSE 000217

SENSITIVE
SIPDIS

WH FOR OVP; DEPT FOR WHA/CEN, WHA/PPC, WHA/EPSC, OES, AND INL/LP

E.O. 12958: N/A
TAGS: CS ECON ETRD OTRA OVIP PREL PGOV SNAR SOCI
SUBJECT: SCENESETTER FOR THE VICE PRESIDENT'S VISIT TO
COSTA RICA

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SUMMARY:
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1. (SBU) Embassy San Jose warmly welcomes Vice President and Dr.
Biden and their delegation, and provides this broad overview as
requested by the OVP. The Arias administration has made progress on
key elements of its 2006-2010 agenda, most notably entering the
U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA)
into force on January 1. The GOCR should now be freer to address
other priorities, such as rising domestic security problems;
decrepit national infrastructure, including the education and health
care systems; and the global financial crisis. The protracted fight
to complete CAFTA has taken its political toll, however, and with
pre-campaigning already under way for the 2010 national elections,
President Arias and his team still face many challenges.



2. (SBU) On foreign relations, the GOCR (like Costa Ricans in
general) hopes the new U.S. administration will bring more
understanding, positive attention and perhaps assistance to Latin
America. The GOCR welcomes Merida Initiative security assistance,
but worries that USG focus on Mexico and Colombia will push
traffickers into Central America. True to form, Arias has remained
active on the global stage, pursuing disarmament, environmental and
reform initiatives in the UNSC, recognizing China and most recently,
upgrading relations with Cuba. END SUMMARY.

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HOPES FOR THE NEW U.S. ADMINISTRATION,
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3. (SBU) Despite differences on some issues (e.g., Iraq and
Guantanamo),Costa Rican-U.S. relations remain very good. Costa
Ricans like Americans and America, but they believe recent
administrations have given short shrift to relations with Latin
America. They hope to see a shift in policy in the Obama
administration, including more understanding, more (positive)
attention and perhaps more assistance from the U.S. government.
However, there may be inflated public (and perhaps governmental)
expectations about the speed and depth of the "change" the U.S.
administration will bring to policy in this region.


4. (U) President Arias and his administration are thrilled to be
hosting your visit. Arias wants the region, and especially Costa
Rica, to be "taken seriously" by the United States, as he noted in a
February speech to the Brookings Institute. In the same remarks, he
called for a "nuanced (U.S.) engagement" with Latin America, as the
core of a new "good friend" policy in the hemisphere, focused on
"mutual benefit, mutual understanding and mutual respect." Arias
described the nations of the hemisphere as "sisters" that "have not
yet learned how to be neighbors." In the words of OAS
Secretary-General Jose Miguel Insulza, the Arias government hopes
for a new USG commitment to develop policy WITH the region and not
just FOR the region.

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INCLUDING ON CLIMATE CHANGE
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5. (SBU) Enthused by the Obama Administration's early signals on
climate change, Central American leaders, including Arias, hope the
U.S. will agree to launch a regional environmental initiative
focused on climate change, possibly including the Caribbean
countries. At the behest of his environment minister and the
chairwoman of the Costa Rican national legislature's Environment
Committee, President Arias reportedly hopes to include this as an
agenda item for the Vice President's March 30 encounter with
regional leaders. (COMMENT: Central Americans are increasingly
anxious for stronger U.S engagement in the region on climate change,
particularly on adaptation. In their view, a meaningful USG
response could help counter growing European efforts to shape the
region's outlook in the run-up to the December 2009 climate change
negotiations in Copenhagen. END COMMENT.)

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ARIAS ADMINISTRATION: CHALLENGES MET; CHALLENGES AHEAD
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6. (U) CAFTA has been the Arias administration's toughest political
challenge (and biggest victory) to date, pushing aside most of
Arias' other initiatives during its protracted and difficult
approval process. In October 2007, CAFTA was narrowly ratified in
the country's first-ever national referendum (52% yes, 49% no). The
national legislature then wrestled for over a year to enact 13
implementing bills, with the 14th to be approved in 2009. After two
extensions granted by its CAFTA partners, Costa Rica entered into

force on January 1, 2009. The major political opposition leader and
anti-CAFTA advocate has not given up, however. He is leading a
regional campaign to "renegotiate" CAFTA, and has contacted
like-minded Members of Congress to enlist support.


7. (SBU) With CAFTA in force, the Arias administration is turning
to other priorities such as improving domestic security and law
enforcement, rebuilding national infrastructure, repairing the
broken education and health care systems, and improving the business
climate. With 15 months years remaining in his administration;
considerable political capital expended in the bruising CAFTA fight;
controversies lingering about the use of Taiwanese aid, the terms of
a subsequent bond deal with China and other issues; three cabinet
ministers resigning over different controversies and maneuvering
underway for the 2010 elections, Arias may find it increasingly
difficult to complete the rest of his agenda.


8. (U) Arias' public support remains strong, however. The January
2009 CID-Gallup poll showed 52% of those surveyed rating his
performance as good or very good, a high water mark for governments
this deep into its term. Analysts attribute this primarily to his
highly-visible efforts to respond quickly to the damage cause by the
January 8 6.2 magnitude Cinchona earthquake near San Jose, which
killed 25, injured 100 and left hundreds homeless.

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COSTA RICA: STUDY IN CONTRASTS
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9. (U) The Arias administration's policy goals have remained
consistent with the four pillars of USG policy in the hemisphere:
prosperity, security, opportunity and democracy. The link between
stable democracy and economic opportunity for the average citizen
continues to make Costa Rica an example for the region. However,
the country remains a study in contrasts.


10. (U) Costa Rica's historical investment in education and health
care rather than in national defense, coupled with economic policies
that have generally favored free enterprise and globalization, have
helped create a lower level of poverty (approximately 18% in 2007)
than the norm for Latin America. Costa Rica still has the most
prosperous economy in Central America, with a 2008 gross domestic
product per capita of $7000 (compared to $3300 for the region),but
Panama is almost at the same level and regional leaders Chile and
Mexico are some distance ahead.


11. (U) On the other hand, the World Bank's 2009 "Doing Business"
index ranks Costa Rica 117th out of 181 countries overall (down from
99th in 2006),and 24th out of 31 in the region. Costa Rica ranks
123rd for ease of starting a business, 164th for protecting
investors, and 152nd for paying taxes. In general, Costa Rica's
cumbersome and hyper-legalistic bureaucracy impedes business
development and investment.


12. (U) The average pupil tenure in the public system is only 7.3
years. Highway accidents on the nation's decrepit road system are a
leading cause of violent death (only 24 percent of the national road
system is classified as in "good" condition). Costa Rica is indeed
green, but it is not entirely clean. Managing waste stream issues
is increasingly a challenge as tourism sites and communities develop
and expand. On a national basis in 2007, less than four percent of
the country's sewage output was treated under operator control.


13. (U) Costa Rica may not be highly dangerous, but it is no longer
safe. Crime has been steadily increasing in recent years, becoming
a major concern (along with the state of the economy) as measured in
opinion polls. Crime rates are lower in Costa Rica (homicide of
10/100,000) than elsewhere in the region (36/100,000),but higher
than in the United States, and rising at double-digit rates.


14. (U) The judicial system is broken. In 1995, the national
conviction rate for robbery cases was 25 percent. By 2007, there
were six times as many robberies, but only a two percent conviction
rate. On average from 1997-2007, only 10 percent of all court cases
were resolved at all. Over the last three years, Embassy San Jose
has annually replaced more stolen passports than any other U.S.
diplomatic mission around the world. This is an indication of the
rising theft problem, especially in tourist areas and the
well-populated central valley around San Jose.

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THE ECONOMY: GOOD BASICS, BUT 2009 MAY BE TOUGH
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15. (U) Economic growth has slowed due to the world fuel price and
financial crises. Real GDP growth for 2008 will be approximately

4.0 percent, less than half of the 8.8 percent rate in 2007.
Unemployment has inched upwards to 6.0 percent in 2009, but
inflation reached 13.9 percent at the end of 2008, well above the
9.4 percent rate in 2006. Exports continue to push growth, with
traditional agricultural products (coffee, pineapple, sugar cane and
bananas) doing fairly well. Value added goods and services are also
doing well, including microchips from Intel (which generates 20
percent of Costa Rica's export earnings alone),and regional
back-office operations by Western Union, Proctor and Gamble and HP.
Costa Rica attracted the second largest amount of FDI in the
Caribbean basin region in 2007, after Mexico: $1.8 million (per UN
statistics). The U.S. is Costa Rica's largest trading partner;
two-way trade totaled $8.5 billion in 2007.


16. (U) However, the government and private sector worry about the
impact of the U.S. and global financial crisis, especially on the
tourism sector (still a major earnings generator and job creator),
the real estate industry (which depends heavily on U.S. and Canadian
investors and retirees),and the related construction industry. All
three are turning down. Increased trade ties (eventually) may help
Costa Rica ride out the crisis. In addition to CAFTA, the Arias
administration is has comleted six of seven negotiation rounds for
the Cntral American regional trade/association negotiatons with
the EU, has started trade negotiations wth China and Singapore in
early 2009, and is a mmber of the regional Pathways to Prosperity
grou established during the UN General Assembly in Sepember 2008.


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SECURITY: DOING A LOT WITH A LITTLE
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17. (U) Despite limite security resources, Costa Rica continues to
be reliable partner against transnational drug traffcking,
seizing nearly 22 metric tons of cocaine,4.8 tons of processed
marijuana and significant qantities of other drugs, as well as
millions in eized assets in 2008. Under a bilateral maritimeagreement signed in 1999 (the first in the region)U.S.-Costa Rican
joint narcotics operations seizd most of the total cocaine
interdicted in.

18 (SBU) Unfortunately, these record seizures reflec the
tremendous narcotics flow through the regio. The USG estimates
that approximately 60-75 pecent of the drug flow from South America
to Mexio and the United States runs through Costa Rican teritory
or national waters. At any one time, mosly Mexican and Colombian
traffickers may stockpie as much as 15-20 metric tons of cocaine in
Cosa Rica, using the country as an "intermodal hub" fr onward drug
shipments north. Illegal migrants,especially from China, are also
smuggled via lan or sea through Costa Rican territory.

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BUT MORE ASSISTANCE IS NEEDD
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19. (U) Althogh Costa Rica is economically-developed enough to hve
"graduated" from most forms of USG assistance it still needs help.
From 2004 to 2007, overallUSG assistance, including regional
programs suchas CAFTA trade capacity building and a large
deb-for-nature swap under the Tropical Forest Conservation Act,
fluctuated annually from $27 million (FY 2004) to $5.9 million (FY
2007).


20. (SBU) U.S. security assistance is vital to strengthen Costa
Rica's ability to fight domestic and regional threats, especially as
the nexus between drug trafficking and domestic crime becomes
clearer. The Costa Rican coast guard told us that a four-ton
maritime seizure of cocaine in July 2008 would not have been
possible without new, USG-provided radios and navigation aids.
Marking a significant departure from his past attitude, President
Arias himself asked the Embassy for help in early 2008, but security
funding (until the Merida Initiative) has been problematic. With
the right assistance and training, Costa Rica can serve as a
regional model for combating drug trafficking, money laundering and
violent domestic crime without a military.

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THE MERIDA INITIATIVE IS IMPORTANT
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21. (SBU) Under the multi-year Merida Initiative, Costa Rica will
receive $4.3 million in security- and law enforcement-related
funding in FY08 funds, plus a share of $14.9 million in regional
programs. In FY 2009, Costa Rica should receive another $9.4
million in bilateral assistance. The majority of the FY 2008 Merida
package for Costa Rica will help modernize and refurbish the coast


guard, with healthy amounts of assistance also going for the
national police, improved border inspection equipment and training,
a regional fingerprint system, a regional center for drug crime
intelligence, firearms destruction and improved prison management.
The Arias administration says it needs still more U.S. and
international help, however, and worries that the U.S. focus on
Mexico in the north and Colombia in the south will increasingly
squeeze traffickers into Central America.

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NEW OPENNESS TO MILITARY ASSISTANCE
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22. (U) The Merida assistance will complement FY 2008-2010 DOD- and
SOUTHCOM-funded programs providing training to, and constructing
facilities for, Costa Rican police and security personnel. In fact,
the Arias administration has shown a new (and welcome) receptiveness
to U.S. military assistance overall. Since December 2007, U.S.
personnel deploying from Joint Task Force Bravo (JTF-B) in Honduras
have worked with Costa Rican civilian counterparts to provide
significant medical and construction help to isolated indigenous
communities in the Talamanca area in December 2007 and near the
Panama border in September 2008, as well as major disaster relief
after heavy flooding near Limon in November 2008. Over 1600
patients were treated in two Medical Readiness Training Exercises.
Additionally, JTF-B helicopters deployed to Costa Rica to help it
recover from its localized but devastating January 8 earthquake.



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FOREIGN POLICY: THE UN, NEW FRIENDS AND OLD RIVALS
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23. (SBU) Costa Rica is serving its third term (2008-2009) as a
non-permanent member of the UN Security Council (UNSC). The Arias
administration is using this position to further its primary
international goals, including conventional disarmament,
environmental protection, foreign aid reform (with more assistance
directed to "responsible" middle income countries like Costa Rica),
and improved UN operations. Aiming for better ties with around the
Pacific Rim, Costa Rica was the first government in Central America
to recognize China (in June 2007). President Hu came to Costa Rica
in October 2008, making first-ever visit by a Chinese president to
Central America.


24. (SBU) President Arias had been one of the very few Latin
American leaders to speak out for self determination in Cuba and to
openly worry about loss of democratic institutions in Venezuela.
His tone softened in 2008, however, as he called more frequently for
the U.S. to close Guantanamo and to ease the embargo. Arias
believes these steps will help open the island politically and
economically, and he hopes the new U.S. administration will consider
his advice seriously. Going one step further, Arias re-established
full diplomatic relations with Cuba in March 2009, citing the need
for a "direct and open" dialogue with the regime.


25. (SBU) With Venezuela, the Arias administration asked to join
Petrocaribe in 2008, in a move it defended at the time as "economic
pragmatism" given high fuel prices and Venezuela's role as Costa
Rica's major supplier (87 percent) of crude oil. Given the much
lower oil and energy costs since, and some Costa Rican concerns
about the potential "political price" associated with joining, this
initiative has languished.


26. (SBU) Closer to home, Costa Rica-Nicaragua relations remain
delicate. The government has been reluctant to criticize President
Ortega openly or directly for the highly-suspect results of the
November 2008 municipal elections, preferring instead to express
concerns in multilateral fora such as the UN and the OAS. In
contrast, Costa Rica sees more "affinities" with Panama, and has
quietly improved relations with its southern neighbor. Relations
with Colombia, which Costa Rica views as a mentor and ally,
especially on law enforcement and security issues, are also close
and improving. The Colombian Air Force dispatched one helicopter to
assist with the January 2009 earthquake recovery, for example.

CIANCHETTE