Costa Rica’s Elections: Not the Cleanest Game Around

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• Sunday’s election will underscore the fact that smug Costa Rica, once called the “Switzerland of Latin America,” is now almost indistinguishable from its disreputable Central American neighbors.
• Voters hope to punish those whose venality gave their country a bad name, but the near certain return of former President Oscar Arias hardly achieves that goal.

• Arias’ ties to Mexico’s telecommunications mogul, Carlos Slim, have disturbing echoes, as several of the country’s recent presidents have been linked to bribery scandals involving European cell phone companies.

Stung by a string of political scandals, after revelations that the country’s three most recent presidents have been on the take from European cell phone providers, Costa Ricans have reflexively recoiled from politics. Thus when the country selects its next president on February 5, many will be hoping to erase these memories, and voters may resurrect a figure from the country’s glory days as “the Switzerland of Latin America.” But that epoch is long gone, and the moniker was ill-deserved in the first place, as the smug little Central American nation was always more form than substance. In this sense, the election is a desperate attempt to reclaim past rectitude, as former president Oscar Arias (1986-1990), the country’s most prominent statesman, will likely coast to victory after leading the race wire to wire.

But beneath the veneer of gravitas, Arias’ candidacy floats on troubled waters, and he may fall far short of restoring the country’s lost luster. Specifically, Arias’ vehemently pro-free trade stance, which has included vocal support for the yet to be ratified CAFTA-DR agreement (Costa Rica is the only signatory which has not done so), raises significant questions. Linked to Arias’ passionate support for CAFTA-DR is his involvement in highly controversial proposals to open the nation’s telecommunications sector, leading to a new generation of allegations of ties between the candidate and Latin American cell phone mogul Carlos Slim. While the taint has not weakened Arias’ chances on Sunday, once in office he could find himself sucked into a messy battle over the management of state enterprises which might threaten his reputation and shatter the country’s hopes of a return to idyllic yesteryears.

A Parade of Rogues
The 2006 election campaign has taken place against a backdrop of distrust and skepticism, as Costa Ricans have been unable to staunch the spreading stain of political corruption, which has spread over the country’s once vaunted democracy. The scandals began to break in 2004, when three former presidents were linked to bribe and kickback schemes. Rafael Ángel Calderón (1990-1994) was charged with receiving funds as part of his government’s administration of a Finnish governmental loan to the Costa Rican Social Security Agency. Calderón’s successor, José María Figueres Olsen (1994-1998) was linked to a high-profile scandal involving contracts with the French telecommunications firm Alcatel, and was charged with accepting a $900,000 bribe (Figueres has not returned to Costa Rica since and is currently residing in Switzerland). Near the end of 2004, Miguel Ángel Rodríguez (1998-2002), who followed Figueres in office, was also implicated in an Alcatel bribery case, and furthermore was connected to illicit Taiwanese campaign donations. The fact that current president Abel Pacheco has been similarly embroiled by accusations of malfeasance regarding Alcatel and Taiwan has led many Costa Ricans to fear that their country is now fully in the coils of the region’s endemic rot of venality.

The common thread connecting these incidents is the relationship between Costa Rican presidents, foreign investment, and state monopolies – principally the Instituto Costarricense de Electricidad (Costa Rican Electric Institute, ICE). The ICE was established in 1949 as the sole provider of electric and telecommunications service in the country, and was responsible for creating an unparalleled national infrastructure. Costa Rica has the best telephone coverage rate for Central America with 95% of the population having access to services, and is second in Latin America only to Chile in terms of internet penetration.

Yet recently the ICE has stumbled in modernization efforts, particularly in the realm of cell phones, as it had to cancel a contract with Ericsson to install 600,000 new GSM lines. A component of the ICE’s struggles comes from the fierce international competition for government contracts, which has helped to make the institution, and its governmental administrators, particularly susceptible to bribery. As the presidential campaign draws to a close, the future of the ICE has become the biggest hot-button issue in a largely low-key election, and current runaway poll leader, and likely president, Oscar Arias is far from bleach white on the subject.

A Low Intensity Campaign
Arias’ candidacy was facilitated by the Costa Rican Constitutional Court’s 2003 annulment of a 1969 law which barred presidential reelection, a controversial decision which allowed the popular former president to stand in the 2006 race as he had been out of office for the requisite period of two terms. Arias has run a successful campaign centered around his own personal standing – his greatest political asset – rather than an issue-oriented platform. He has even been able to roundly reject his opponents’ calls for a televised debate, noting that, “It wouldn’t interest me even if the Holy Father asked me himself,” and seems quite secure, as well as content, with his current lead, which is around 10 points, according to a poll published yesterday by La Nación which put him at 42.6%.

The program that Arias has put forward centers around further opening the country to foreign investment, as he sees unrestrained free trade as an unstoppable and positive path forward. This encompasses not just pushing hard for the CAFTA-DR ratification, but also furthering international integration as a means for creating “quality” jobs. Arias also favors trimming the state, ending state monopolies, and allowing competition, while encouraging private investment in those sectors, seeing such liberalization as a way of increasing efficiency.

While there are 13 other presidential candidates besides Arias, the only real challenge has come from Ottón Solís, founder and two-time presidential candidate for the Citizen’s Action Party (PAC), which was founded in 2000 as an alternative to the two traditional parties – Arias’ National Liberation Party (PLN) and Pacheco’s Christian Social Unity Party (PUSC). In the 2002 election Solís was able to parlay his outsider status into a fairly impressive 26% showing, and has managed to somewhat build on that platform, as he is currently polling at 31.5%.

Part of the reason for Solís’ relatively weak showing could be that he has not catalyzed the country behind a program that is radically different than Arias’. Solís has not vociferously opposed CAFTA-DR – which Arias ardently supports – instead only favoring its renegotiation, claiming that the existing agreement is one-sided and will harm Costa Rican farmers and industry. But his rejection is far from wholesale, as he still maintains a belief in the benefits of free trade if agreements are balanced, and their premises are tweaked a bit. While this mushy stance might be part of Solís problem, there has not been widespread discontent over the agreement, suggesting that if he had run an aggressive anti-CAFTA campaign, he could still have been trumped by the political veteran.

The fallout from the campaign’s lack of zest has added to the already existing national apathy about politics. A July 2005 poll gave President Pacheco a 19% approval rating, and in that survey 57% of respondents evaluated the Legislative Assembly as “useless.” This disaffection, compounded by the corruption scandals, has led some to fear for the country’s democratic virtue, as the abstention rate could possibly reach as high as 35%. The sad truth is that today, Costa Rica represents more the Golgotha, than the Switzerland, of Latin American politics.

CAFTA as Campaign Issue: Free Trade and Managing the ICE
Despite the CAFTA-DR agreement’s highly controversial nature, it has failed to play much of a role in recent Central American elections, as both Honduran candidates backed the accord, and the stances of the two Costa Rican candidates are only slightly differentiated on the matter. Although the electorate may not have seized on CAFTA-DR itself as a wedge issue, in Costa Rica a parallel component of the measure has attracted a surprising amount of attention. During the negotiations, San José held a hard line over telecommunications, and nearly withdrew over pressure to open that sector completely. In the end, it was agreed that the country would open itself to internet competition by 2006, and then open its cell phone market by 2007. Although the stalled ratification process has held up the implementation of these measures – the original January 2006 target date has been revised to a hopeful February or March timeframe – the question of how to manage the ICE, with or without CAFTA-DR, still looms large in Costa Rica.

Most Costa Ricans staunchly oppose an out and out privatization of the ICE, and are split on whether the industry should be opened to competition. Oscar Arias, however, has been among the most vocal proponents of opening the telecommunications sector to private competition, which has raised more than a few eyebrows and rankled some Costa Ricans. Although Arias has avoided the suicidal suggestion of privatization, his plans for the future of the ICE, and the forces behind his ideas, have led to deep suspicions about the ultimate intentions of the once-revered leader.

Going Movil
The controversy, which is beginning to envelop Arias’ previously unimpeachable stature, involves the possibility that his interest in opening Costa Rica’s cell phone market to private competition does not spring from high-minded economic theorizing, but rather from his personal relationships with Mexico’s Carlos Slim and former Spanish Prime Minister Felipe Gonzalez.

Slim, a billionaire, and Latin America’s richest man, built much of his fortune upon the voracious expansion of a telecommunications empire throughout the region. After snapping up Mexico’s phone service giant Telmex when it was privatized in 1990 under President Carlos Salinas, Mexico’s crown prince of corruption, Slim’s wealth grew exponentially. Since then, Slim has embarked on a campaign to dominate Latin America’s cell phone and internet markets through a subsidiary company known as América Movil. The company, which has moved aggressively throughout Central America and currently operates in Guatemala, Honduras, Nicaragua and El Salvador, has made no attempt to hide its interest in the Costa Rican market, and recently registered its Telcel logo in the country.

Although up to this point, the ICE’s constitutional monopoly has kept América Movil out of Costa Rica, Arias, and the possible ratification of the CAFTA-DR agreement, could open the country to the company’s advances. Arias has specifically proposed to end the ICE’s monopoly, although he denies any privatization plans. In the event this occurs, América Movil would be well positioned to hoist its flag over Costa Rica.

A Team Effort
The commercial machinations of América Movil have coincided with growing suspicions around the ties between Arias, Slim, and Gonzalez. All three are acquaintances, and Slim and Gonzalez are close friends, who have collaborated in the past. This seeming “old boys” network led to serious discomfort among Costa Rican’s tiny “good government” elements, when Gonzalez visited San José on January 25, and held a private luncheon engagement with Arias.

Accusations were quick to fly, and the head of a powerful union within the ICE, Ricardo Segura, led the charge. Segura gave voice to the misgivings of many when he labeled Gonzalez as merely Slim’s “place holder,” and alleged that the Arias reunion was used to discuss plans to allow América Movil’s entry into the country. The union leader went on to note that even if the opening did not include outright privatization, it would be tantamount to it, as Slim’s commercial steamroller would quickly dominate the country.

Although both Arias and Gonzalez quickly refuted the charges, with Arias quickly denying that the meeting was “to cook up the opening of telecommunications,” and commenting that, “Slim is such a close friend that he has never asked anything of me that related to his business interests.” Gonzalez too rejected the charges, saying that Arias’ status (as he is still a candidate, not the president) by definition impeded the possibility that they would have discussed any sort of business interests.

Yet these watery demurrers have hardly silenced critics, and some may remember that while Arias’ presidency preceded the corruption-fraught administrations of Figueres, Calderón and Rodríguez, he has himself not been immune from scandals regarding the telecom sector. During his first presidency, the ICE granted a free radio frequency concession to Millicom (although the value of the concession was estimated at $120 million) to develop a cellular phone network, which at the time the ICE was in no position to finance. At the time a questionable move, the issue eventually led to conflict when, in 1995, the Supreme Court ruled the initial concession to be in violation of the constitution, and forced Millicom to either abandon the market or operate under contract with the ICE.

A Tough Call
When Costa Ricans cast their ballots on Sunday, it appears unlikely that these rumors will prove lethal enough to erode Arias’ commanding lead. The country’s direction after February 5, however, is murky. Although it now appears as though either CAFTA-DR or Arias himself will ultimately force an opening of the Costa Rican telecommunications market, what remains to be seen is whether América Movil will be able to leverage a personal relationship with the incoming president into propitious enough conditions that would effectively allow it to swallow up the ICE. Any opening will face considerable opposition from the ICE’s unions, whose protests have affected policy decisions in the past, and conceivably arouse discontent in the society at large. If it appears that Arias is playing a similar game as his predecessors did, the controversy would represent one more lash mark for a nation that is urgently trying to heal past wounds.