COSTA RICA: CHALLENGES TO STABILITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90T00155R001300070002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 22
• Document Creation Date: December 23, 2016
• Document Release Date: December 12, 2013
• Sequence Number: 2
• Publication Date: June 1, 1986
• Content Type: NIE

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Director of
Central
Intelligence
MASTER FILE COPY
Costa Rica:
Challenges to Stability
DO NOT GIVE OUT
OR MARK ON
NIE 83.4-86
June 1986
Copy 548
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THIS ESTIMATE IS ISSUED BY THE DIRECTOR OF CENTRAL
INTELLIGENCE.
THE NATIONAL FOREIGN INTELLIGENCE BOARD CONCURS,
EXCEPT AS NOTED IN THE TEXT.
The following intelligence organizations participated in the preparation of the
Estimate:
The Central Intelligence Agency, the Defense Intelligence Agency, the National Security
Agency, and the intelligence organizations of the Departments of State and the
Treasury.
Also Participating:
The Assistant Chief of Staff for Intelligence, Department of the Army
The Director of Naval Intelligence, Department of the Navy
The Assistant Chief of Staff, Intelligence, Department of the Air Force
The Director of Intelligence, Headquarters, Marine Corps
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NIE 83.4-86
COSTA RICA:
CHALLENGES TO STABILITY
Information available as of 5 June 1986 was used in the
preparation of this Estimate, which was approved by the
National Foreign Intelligence Board on that date.
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L 1 II:. 11 1 .1
1.1 1 1 1 1 1 1 III
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CONTENTS
Page
SCOPE NOTE
1
KEY JUDGMENTS
3
DISCUSSION
7
The New Government
7
Domestic Challenges
7
The Economy
7
Internal Security Threats
9
Foreign Challenges
12
Relations With Nicaragua
12
Attitude Toward the United States
13
Negotiations Posture
13
Implications for the United States
14
Key Variables
14
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SCOPE NOTE
This Estimate examines the challenges to Costa Rica's political and
economic stability that will confront the new and untested administra-
tion of President Oscar Arias over the next two to three years. It focuses
on economic problems, the activities of extremist groups, relations with
Nicaragua's Sandinista regime, and Costa Rica's limited capabilities to
deal with these challenges. It also addresses Arias's likely policy toward
Nicaragua and the anti-Sandinista insurgents, as well as his willingness
to continue close relations and cooperation with the United States.
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i?n gua
CA
Lago de
Nicaragua
Hacienda
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Nicaragua
*Los
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Caribbean Sea
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0
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50 Kilometers
g0 Miles
Puntarenas
Puerto
Limon
Golfito
Panama
707869 (A05509) 6-86
2
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KEY JUDGMENTS
Newly installed Costa Rican President Oscar Arias will face a
number of challenges over the next several years, including a weak
economy and the prospect of rising worker unrest, a more militant
extreme left that is receiving clandestine support from Cuba and
Nicaragua, and a belligerent and heavily armed Sandinista regime on
Costa Rica's northern border:
? The Sandinistas are likely to continue military incursions into
Costa Rica in pursuit of Nicaraguan insurgents in an attempt to
intimidate San Jose and force it to implement an agreement to
permit international monitoring of the border.
? The small groups on the extreme left have been receiving arms
and training from the Sandinistas, Cuba, and Libya over the
past several years, and the largest faction now has a paramilitary
force of several hundred men. They are increasingly capable,
should the opportunity arise, of resorting to violence, which
would seriously test the widely dispersed, 8,000-man Costa
Rican security forces.
? The prospects for economic growth under Arias are constrained
by Costa Rica's large foreign debt and the need to undertake
austerity measures to maintain access to IMF and World Bank
support. Continued slow economic growth and persistent unem-
ployment are likely to stimulate increased labor unrest and
popular dissatisfaction.
We believe Costa Rica's strong democratic tradition and responsible
approach to government will enable Arias to keep these problems from
seriously endangering the country's stability
We believe also that Arias, in confronting the key issue of how to
deal with Nicaragua, will try to stay on the fine line that allows him to
coexist with the Sandinistas but maintain close ties to Washington. At
the same time, he will want to protect Costa Rica's image as a
democratic, independent, and neutral country. He appears to be less
disposed than former President Monge to allowing the insurgents
sanctuary in Costa Rica, and he publicly spoke out against US military
aid for the anti-Sandinista forces before taking office. He believes that
diplomatic pressure on the Sandinista regime is more likely to achieve
positive results than is the insurgency, and he is likely to take an active
role in efforts by the Central American democracies to persuade
Managua to open up its political system.
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We believe Arias, as one means of defusing tensions with Nicara-
gua, will keep open the option of proceeding with negotiations to reach
an agreement enabling an international commission to monitor Costa
Rica's northern border. Such an agreement would hinder insurgent
operations in the border area as well as resupply from Costa Rica, but
the international monitoring team is unlikely to put a serious restraint
on rebel activities. And, while Arias is likely to arrest and expel any Nic-
araguan insurgent leaders whose presence in Costa Rica becomes too
blatant he is unlikely to close insurgent political offices in San Jose.
Extremist groups lack enough support to threaten Costa Rica's
government seriously over the next few years, and its security forces?
with US and other foreign assistance?are gradually improving their
organization, training, intelligence, and equipment to cope with the
prospect of increased domestic violence. Furthermore, Cuba and
Nicaragua do not see Costa Rica as ripe for revolution, nor do most Cos-
ta Rican radicals. We believe that Cuba and Nicaragua are encouraging
preparations for armed struggle there primarily as a means of creating
problems for the United States in the event Washington undertakes
direct military action against Nicaragua. Nonetheless, the evolving
militancy of the extreme left may result in increased terrorism,
especially since Libya reportedly has recently become involved in
training and financing one of the more violence-prone factions. In-
creased terrorism by some leftist groups may also spark a violent
reaction by rightist extremists, who are also well armed and financed.
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We believe President Arias is committed to negotiating IMF and
World Bank agreements even though these would require tough
austerity measures. He believes that he can create enough new jobs to
preclude substantial labor unrest, but this will be difficult. Nevertheless,
fewer than 20 percent of Costa Rican workers are organized, and their
unions lack strong political clout. Thus, organized labor is not likely to
be a major factor influencing Arias's decisionmaking on economic
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On balance, President Arias is likely to seek to remain a close ally
of the United States, especially because he regards US financial support
as crucial to Costa Rica's economic recovery and because he regards
Washington as the ultimate guarantor of his country's security. Never-
theless, he is a strong-minded individual, and may pursue diplomatic
policy initiatives with Nicaragua, both bilateral and multilateral, that
risk undermining US attempts to maintain military pressure on Mana-
gua through support to the anti-Sandinista insurgents. He is no friend of
the Sandinistas, and his posture toward both Washington and Managua
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will depend heavily on Sandinista behavior toward San Jose, the
potential success of the Nicaraguan insurgency,' and the performance of
the Costa Rican economy over the next several years:
? Arias will have a freer hand to improve relations with Nicara-
gua if tensions remain low, but he will have to adopt a more
confrontational approach if Managua behaves aggressively.
? If Arias perceives the anti-Sandinista insurgency as weakening,
he will be more likely to seek an accommodation with
Nicaragua.
? If the insurgents get stronger, Arias would be more tolerant of
the rebels' presence in Costa Rica.
? A worsening economy would increase Arias's desire to avoid
conflict with Nicaragua, whereas a strengthened economy
would allow him to take a stronger position against the Sandinis-
tas
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Costa Rica: Selected Economic Indicators
Note scale changes
Real GDP Growth Average Annual Consumer Price Inflation
Percent Percent
6
100
3
I
Wtir.:
80
I
0
60
?3
40
?6
20
?9 0
1980 81 82 83 84 85a 866 1980 81 82 83 84 85a 86b
Per Capita GDP Public Sector Budget Deficit as a Share of GDP c
Index: 1979=100 Percent
100
15
80
12
60
9
40
6
20
3
0
1980 81 82 83 84 85? 86b 1980 81 82 83 84 85a 86b
a Estimated.
b Projected.
c Includes Central Bank operating losses.
309324 606
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DISCUSSION
The New Government
1. Newly inaugurated President Oscar Arias will
face considerable difficulties in guiding Costa Rica's
38-year-old democratic system. Like popular outgoing
President Alberto Monge, Arias comes from the cen-
ter-left National Liberation Party, Costa Rica's largest
political party. Despite his relatively impressive vic-
tory at the polls, where he received 52 percent of the
vote, Arias will have an uphill battle in pushing his
policies?including modest social programs?through
the 57-member National Assembly, because his party's
29 seats leave it with only a bare majority. The major
opposition coalition, bolstered by a gain of seven seats,
now holds 25 and intends to challenge Arias much
more than it challenged Monge on a variety of issues.
Opposition leaders reportedly believe Arias's apparent
intention to chart a foreign policy more independent
of the United States will jeopardize US economic aid.
Other parties represented
in the National Assembly include the Communists?
with two seats?and a small, independent party with
one.
2. Arias will
confront several key problem areas. Economic matters
are an area of significant concern. Although impres-
sive by Central American standards, Costa Rica's
average growth rate of 3 percent during the period
1983-85 was generated largely by some $600 million in
US assistance, rather than by internal forces. Heavy
external debt, the need to regain access to IMF
financial support, and persistent high unemployment
are other economic problems with which Arias must
cope. Arias also will have to contend with the potential
for rising domestic violence by Costa Rican leftists?
encouraged and aided by Nicaragua and Cuba?and
with countermeasures by rightists.
3. Costa Rica's most volatile political problem is its
relationship with its northern neighbor. San Jose wants
to avoid any armed confrontation with Nicaragua, as
well as spillover effects from the fighting there, and
Managua will continue pressing San Jose for a firm
agreement on an international commission to monitor
the border and deny anti-Sandinista insurgents the use
of Costa Rican territory. Arias's desire to project a
neutralist image and demonstrate his independence
from the United States will reinforce the search for a
modus vivendi with the Sandinistas. In dealing with
these issues, however, the President also will be influ-
enced by the need to remain on a correct footing with
the United States, Costa Rica's principal trade partner
and largest aid donor
Domestic Challenges
The Economy
4. The prospects for economic growth over the next
two to three years are modest, largely because of Costa
Rica's substantial foreign debt, which official figures
put at over $4 billion?one-third larger than GDP?as
well as the continued disruption of the Central Ameri-
can Common Market and its inability to diversify
exports. (See charts.) Per capita debt stands at $1,750,
among the highest in Latin America. Moreover, al-
ready rescheduled debt service obligations will require
$550 million this year. Debt service due during the
next two years exceeds $750 million annually, but San
Jose probably will be able to reschedule as much as
one-fourth of that. Increased foreign exchange?
thanks to lower international interest rates, lower
world prices for oil imports, and higher prices for
coffee exports?will help Costa Rica catch up on debt
arrearages and meet debt servicing obligations, leaving
little for expanded imports to fuel economic growth
for at least the next two years.2
5. High on Arias's agenda, therefore, is maintaining
the financial support of the IMF, World Bank, and
commercial bankers, which have grown impatient
with San Jose's missed targets, compromised reforms,
The Director, Bureau of Intelligence and Research, Depart-
ment of State, estimates that economic growth over the next two
years is more likely to be in the range of 3 to 4 percent and not as
indicated in this Estimate. While some of the foreign exchange
windfall from coffee, petroleum, and interets rates will go to pay
debt, some will also be used to finance imports of the capital and
intermediate goods needed to improve on last year's I.6-percent
growth.
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and debt arrearages. In April the IMF suspended its
program, along with standby drawings of $20 million,
because of failure to meet economic performance
targets. Meanwhile, the World Bank has delayed
disbursement of $40 million because Costa Rica did
not lower tariffs and freeze public sector hiring. On 7
May, the day before Arias took power, San Jose
temporarily suspended interest payments until it re-
ceives expected funds from the World Bank and the
US Government?expected by late June 1986. We
believe Arias is committed to negotiating IMF and
World Bank agreements even though it will require
trimming spending further, reforming commercial
laws, and making additional cuts in the public sector.
Such an austerity package would allow San Jose to
renew debt payments and set the stage for growth in
the future, but would hold current growth to modest
levels, at best, for at least the next few years.
6. Access to funding from international institutions
is particularly critical because of declining private
investment as regional political turmoil continues to
dampen business confidence. US investment in Costa
Rica, for example, fell from $303 million in 1980 to
$230 million in 1984, according to the US Department
of Commerce
F?Ithree major US firms recently terminated their
operations and that some of the remaining 100 US-
owned companies are considering doing the same.
7. Even assuming IMF and World Bank funds are
restored, some serious problems will remain. Unem-
ployment currently hovers at 10 to 12 percent, and per
capita income is only about $1,250. Living standards
probably will remain unchanged?at 15 percent below
1979 levels?and could plummet further unless sub-
stantial foreign assistance is received. Nonetheless,
inflation, though down from 90 percent in 1982,
averaged 15 percent last year but continues to decline.
(See table 1.)
8. Despite these circumstances, Arias has embarked
on a domestic program that remains true to his party's
ideology, and identifies the state as the major instru-
ment to promote social welfare. During the campaign,
he pledged to build 80,000 new housing units, relying
on funds from USAID and the Inter-American Devel-
opment Bank, and to create 25,000 new jobs each
year?enough to cover labor force expansion. Arias's
campaign promises may have generated excessive
public expectations and probably are beyond his
reach, given the need for new austerity measures.
Table 1
Costa Rica by the Numbers a
Costa Rica
Average of
Other
Core Four
Countries b
Population growth
2.3%
3.0%
GDP per capita (1979=100)
86
79
Unemployment
10-12%
23%
Inflation
15%
27%
Budget deficit
(percent of GDP)
7.0%
7.0%
a Based on 1985 data.
b Guatemala, El Salvador, and Honduras.
9. With little prospect for significant economic
growth and in the face of increased labor concerns,
worker unrest may grow in the next two to three years.
Relations between former President Monge (see inset
on next page) and organized labor were strained
during his term, according to press
reporting. IMF-imposed austerity measures limited
San Jose's ability to meet many worker demands, and
the 1984 walkout against United Brands proved the
longest and costliest strike in the country's history.
Increased labor agitation yielded no significant gov-
ernment concessions, however, and two labor reform
initiatives that would have strengthened labor's hand
languished in the Legislative Assembly, largely be-
cause of opposition by business interests
10. Despite increased activism, organized labor's
limited membership, disunity, and weak party ties
most likely will prevent it from exercising significant
influence on national politics over the near term.
Fewer than 20 percent of Costa Rican workers are
affiliated with unions, and the major democratic and
Communist unions are failing to attract a significant
number of new members, according to academic
studies. In addition, both the democratic and Commu-
nist labor movements suffer from internal factionalism
and have failed so far to align themselves with the
strong political party system. In fact, a major confed-
eration?the Solidarity Movement, which is neither
democratic nor Communist?is based on a concept of
labor-management harmony that precludes the use of
political parties as vehicles for achieving workers'
demands.
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Monge's Economic Legacy
Although President Monge's stabilization efforts were
the most successful in Central America, backsliding
during the latter part of his administration left Costa
Rica with still-daunting economic problems that con-
strain his successor's policy options.
When Monge took office in 1982, the budget and
foreign trade deficits were out of control, inflation was
near triple digits, and economic activity was plunging.
Monge immediately clamped down on public spending,
further devalued the colon, and took steps to promote
exports and reduce government's role in the economy.
Within six months of taking office, Monge was able to
sign a one-year IMF standby agreement and reschedule
payments on $1.1 billion in debt obligations. As a result,
inflation declined sharply and the economy began to
rebound.
Despite the good start, Monge was unable to maintain
policy momentum during the second half of his admin-
istration. After his first stabilization program expired,
he delayed for over a year in coming to terms with the
IMF for a followup program. Monge finally agreed to a
second accord in March 1985, only after debt pressures
again became unmanageable. Subsequently, commer-
cial bankers rescheduled payments of another $600
million coming due through 1986 and granted San Jose
$75 million in new loans.
Presidential politicking during 1985 reinforced Mon-
ge's reluctance to ask Costa Ricans for further sacrifices
and was partly responsible for the haphazard imple-
mentation of his second stabilization program. Opposi-
tion politicians blocked some required trade initiatives,
and the administration failed to make further progress
on freezing public-sector hiring, cutting food subsidies,
or reducing deficits in public-sector enterprises. In these
circumstances, worrisome budget and foreign payments
deficits began to reappear. As a result, the rate of
economic growth for 1985 fell to an estimated 1.6
percent while per capita growth declined for the first
time since 1982.
Although the economic situation today is not as
serious as it was during the last change in government,
many of the same aspects of economic and financial
disarray are present. Neither business confidence nor
economic growth has fully recovered to pre-1980 levels,
and growth prospects are still dependent on substantial
external funding. On the financial front, San Jose
continues to test the patience of Costa Rica's creditors
because of its chronic delays in payments, and commer-
cial bankers are increasingly unwilling to lend it new
money.
Internal Security Threats
11. Reports of growing militancy within Costa Ri-
ca's small extreme left, which numbers about 7,000
members (see table 2), may portend renewed violence
over the next two to three years, although much will
depend on developments in Nicaragua. The left's poor
showing in the last several elections has, in our opin-
ion, undercut its traditional strategy of seeking power
through peaceful means.
leaders who advocate preparation for armed
struggle have gained increased influence, although
leftist violence has thus far been limited:
? The two Communist organizations?the 4,500-
member Costa Rican People's Party (PPC) and
the more militant 2,500-member Popular Van-
guard Party (PVP)?have been building up their
paramilitary wings for several years, although
much will depend on developments in Nicara-
gua. Potentially the most dangerous group?
should the PPC become more violence prone?is
the Mora Canas Brigade, a 300-member force
composed largely of PPC militants.
many Brigade members have
received military training in Nicaragua and ac-
quired combat experience by helping the Sandi-
nista Army patrol the southern border and pur-
sue insurgent forces into Costa Rica.
? The New Republic Movement (MNR), with 100
to 200 members, advocates armed insurrection
and is probably the most violence-prone group in
Costa Rica. The party has clandestine cells that
we believe are responsible for a number of
terrorist actions. After apprehending some of its
members in a bank robbery last year, Costa
Rican security officials discovered plans to sur-
veil US personnel.
? The Socialist Party, which claims a membership
of 50 to 100, is a pro-Cuban organization that
reportedly has headed a campaign?including
bomb threats?against a Voice of America sta-
tion in Costa Rica. Unlike the other three ex-
treme leftist parties the Socialists lack a paramil-
itary wing.
12. Foreign support?particularly from Nicaragua
and Cuba?has been critical to the improving para-
military capabilities of the Costa Rican left. In addi-
tion to training, Managua has provided weapons.
arms shipments to various
radical groups included rifles, rocket-
propelled grenade launchers,
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Table 2
Major Leftist Parties a
Party Leadership
Estimated
Membership
Comments
Costa Rican People's Party Manuel Mora
4,500 Holds one congressional seat. Has strong youth
wing. Leaders divided over successor to Mora.
Pro-Moscow. Has largest paramilitary apparatus,
which numbers several hundred and has fought in
Nicaragua.
Popular Vanguard Party Humberto Vargas,
Arnaldo Ferreto
2,500 Espouses more militant philosophy than People's
Party. Has small paramilitary wing. Controls left's
other congressional seat.
New Republic Movement Sergio Ardon
100-200 Most terrorist-prone group. Has ties to Libya. Seeks
destabilization of government and removal of for-
eign investors.
Socialist Party
Alvaro Montero
50-100 Party leader virulently anti-American and admirer
of Fidel Castro. Intellectuals predominate. Has
campaigned against Voice of America station in
Costa Rica.
a All of these leftist parties are legal in Costa Rica.
ammunition between 1981 and 1983. In 1984 and
1985, Costa Rican Communists continued to acquire
training and combat experience in Nicaragua:
? Some leftists reportedly have received military
training in Cuba as well. In addition,
Costa Rican Communist ea
ers frequently journey to Havana to seek advice
and other support.
13. Despite its evolving militancy, the extreme left
faces serious constraints. It lacks popular support and
remains riven by personal rivalries and fractiousness?
notwithstanding periodic Nicaraguan, Cuban, and So-
viet efforts to encourage unity?that would hamper
any attempt to launch an insurrection.
suggests Nicaragua and Cuba still do not see Costa
Rica as rine for revolution, nor do most Costa Rican
14. Nonetheless, a significant outbreak of violence
in Costa Rica would place a strain on a political system
with a strong pacifist tradition.
the limited terrorist activity that emerged
during t e early 1980s as a spinoff of the insurgent
situations in Nicaragua and El Salvador caused consid-
erable public concern. It has targeted primarily for-
eigners rather than Costa Rican nationals:
? In March 1981, for example, three US Marine
guards were injured by a bomb attack on their
vehicle. The assailants were members of a small,
pro-Cuban, Communist group known as "The
Family," apparently linked to the MNR. They
subsequently were arrested by the security forces
acting on information provided by the public.
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? In January 1982,
an unsuccessful kidnaping attempt by a Salva-
doran guerrilla group against a Salvadoran resi-
dent of San Jose resulted in the deaths of three
would-be kidnapers and the arrests of two others,
both Salvadorans who had been trained in
Nicaragua.
? In July 1982 a Colombian leftist who bombed a
Honduran airline office in San Jose told Costa
Rican authorities that three Nicaraguan diplo-
mats had planned the operation. Considering the
act part of a Sandinista plan to destabilize the
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The Security Forces
Costa Rica has had no standing national defense force
since 1948, when the Army was proscribed by the
Constitution and officially disbanded. Police and securi-
ty functions are performed by the Civil Guard, under
the Ministry of Public Security, and by the Rural
Assistance Guard, under the Ministry of Government
and Police. These forces are generally capable of
performing routine law enforcement roles but tradition-
ally have not had the equipment, ttaining, or organiza-
tion needed to perform conventional military functions.
The increasing threat from Nicaragua has created a
public consensus to modernize and professionalize these
forces with improved intelligence capabilities, better
training, and some limited equipment acquisitions to
enhance mobility, firepower, and communications.
Nevertheless, the country's longstanding neutralist and
antimilitary sentiments will continue to preclude the
allocation of resources needed for dramatic improve-
ments in force capabilities. Moreover, some 75 percent
of positions in the Civil and Rural Assistance Guard
forces are subject to political patronage, and turnover
attendant to the inauguration of each new administra-
tion will continue to affect the competence and effec-
tiveness of most elements adversely.
Monge government, San Jose expelled the
diplomats.
? Assassination attempts against anti-Sandinista
leaders Alfonso Robelo and Eden Pastor. in 1983
and 1984 were attributed to Managua.
15. Increased leftist activity or new tensions with
Nicaragua may spark a violent reaction by the ex-
treme right. The Free Costa Rica Movement, a para-
military organization with some 1,000 members, who
make up a significant part of the security force
reserve, has long been active in defending against
perceived leftist threats. Following the killing of two
members of the Costa Rican Civil Guard by Sandinista
troops in a border clash in May 1985, rightists orga-
nized a violent demonstration at the Nicaraguan Em-
bassy, and a new group called Fatherland and Free-
dom claimed credit for bombing an electrical
transmission tower providing electrical power to Nica-
ragua. In addition,
Costa Rican authorities this year identified a new
100-member rightwing paramilitary organization,
which, calling itself the Central American Falange,
appears well financed and armed
16. Costa Rica's security forces?modestly
equipped, poorly organized, and spread thin?are
unprepared to cope with serious violence, despite
recent improvements.
Turnover among officers and enlisted men in both
Guards traditionally has been high, because salaries
are low and because the political parties view the
security forces as a means of patronage.
17. Although
Arias intends to follow Monge s
policy of upgrading the security forces with US and
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other foreign assistance, improvements over the next
two to three years may fall far short of needs. During
recent years, the United States replaced the Civil
Guard's 1940s-vintage arms with modern rifles and
support weapons. In addition, San Jose has formed a
rapid-reaction Civil Guard battalion of six US-trained
companies numbering about 1,000, as well as a formal
reserve force that numbers 3,000 but eventually is to
reach 10,000.
18. The reorganized intelligence
service is improving steadily and has scored several
successes, including the arrest of Mexican drug king
Rafael Caro Quintero last year
rias intends to streamline the bureaucracy
an put competent officers in midechelon leadership
positions to bolster morale. The President also has said
repeatedly that he will seek continued US assistance,
presumably including counterterrorism training. Giv-
en San Jose's economic troubles, however, Arias proba-
bly will be unable to offer the higher salaries needed
to boost morale and retain competent people.
Foreign Challenges
Relations With Nicaragua
19. In dealing with Managua, the Costa Rican
Government has been influenced by two conflicting
strains in public opinion. On the one hand, traditional
antipathy toward Nicaragua?the only country ever to
invade Costa Rica?has been fanned since 1979 by the
Sandinistas' increased Marxist-Leninist tendencies and
repeated military incursions into Costa Rica. Public
opinion polls consistently show a strong dislike for the
Sandinista regime. In a March 1986 poll, 78 percent of
the respondents had an unfavorable opinion of Nicara-
gua, and 91 percent avowed that the Sandinistas
represented a threat to Costa Rica. On the other hand,
the constitutional proscription of a professional mili-
tary reflects a general preference for avoiding conflict.
In the same March poll, 49 percent expressed approval
of the recent normalization of relations with Managua,
with only 15 percent opposed. There is also growing
popular concern over the influx of Nicaraguan refu-
gees, whose numbers now approach 100,000.
20. San Jose's attitude toward Nicaragua also has
been keyed to other factors, including decreased opti-
mism about anti-Sandinista insurgent prospects, the
stalemate in the Contadora peace negotiations, and
especially a perceived need to appear more indepen-
dent of Washington
many government officials are convinced
that the Sandinista regime is too well entrenched to be
ousted by the insurgency, and their tolerance for the
insurgents has been strained by reports of rebel in-
volvement in looting, arms and drug smuggling, and
possible assassinations. While Costa Rica has supported
the Contadora talks, it apparently believes it cannot
rely on multilateral solutions to protect its interests.
21. Costa Rica is particularly concerned that its
international image as a democratic, unarmed, and
neutral country has suffered in South America and
Europe from being identified with US efforts against
the Sandinistas. San Jose has traditionally relied on its
democratic image for international support, and was
very disappointed at the failure of other Latin Ameri-
can democracies to condemn Nicaragua following an
OAS investigation of the May 1985 border clash in
which two members of Costa Rica's Civil Guard were
killed by Sandinista troops. Under President Monge,
San Jose's foreign policy?especially toward Conta-
dora?was guided by its need to show Managua as the
intransigent party in Central America. Arias, like
Monge, will try to restore Costa Rica's credibility
among Latin American and European social demo-
crats by appearing independent of the United States.
22. Responding to these considerations, Monge tried
to reach an accommodation with the Sandinistas, but
his need to stand up to periodic Nicaraguan provoca-
tions led his policies to trace a zigzag course. In
September 1983 he proclaimed Costa Rican neutrality
in Central American conflicts and applied the policy
explicitly to the civil war in Nicaragua, in part to
avoid being seen as a surrogate for the United States.
At the same time, he continued to permit the anti-
Sandinista rebels to conduct numerous political and
military activities out of Costa Rica as long as they did
not attract undue attention,
23. Two subsequent incidents heightened San Jose's
suspicions of Nicaragua. In December 1984, Sandinista
authorities entered the Costa Rican Embassy in Mana-
gua and seized a Nicaraguan youth who had sought
asylum there. The regime's refusal to give him up led
Monge to recall his Ambassador, to reduce the size of
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Nicaragua's mission in San Jose, and to boycott a
scheduled meeting of the Contadora peace talks. Last
years's border clash resulting in the deaths of two Civil
Guard members inflamed public sentiment even
more. Nonetheless, reliable reporting indicates secret
talks between the two countries resumed last fall, and
these resulted in a normalization of relations in Febru-
ary. In addition, Managua and San Jose again agreed
to pursue the formation of an international border
commission, although they still disagree on its compo-
sition and function.
24. We believe Arias will try to stay on that fine
line that allows him to coexist with Managua but
maintain close ties to Washington.
the President considers US support for
the anti-Sandinistas counterproductive, because it pro-
vides the regime with an excuse for internal repression
and intransigence in regional negotiations. Moreover,
Arias fears that prolonged violence in Nicaragua will
spill over into Costa Rica, increasing the flow of
refugees and scaring away foreign investors. Confident
the United States would defend Costa Rica in the
event of an invasion,
Arias feels he has some maneuvering room. The
President also believes that a strong economy will
protect Costa Rica from Nicaraguan subversion and
that a more neutralist foreign policy could win more
economic aid, investment, and tourism from West
European and Latin American countries.
25. For all these reasons, Arias prefers to stay on
correct terms with the Sandinistas while trying to
marshal Latin American diplomatic pressure to move
them toward democratization. Although Costa Rica's
continuing need for US economic aid to help stabilize
the economy is likely to prove an incentive for Arias to
move cautiously, we believe he doubts the United
States will abandon him, and therefore feels he can
take a more independent line.
Attitude Toward the United States
26.
In public, however, Arias has been
critical of US policy and in April, while on an official
visit to South America, again denounced US military
aid to the insurgents, despite an earlier US demarche.
He is likely to continue to stress that political solutions
to the regional conflict deserve priority
Negotiations Posture
27. We believe Arias will keep open the option of
proceeding with negotiations for a bilateral agreement
to neutralize the border, especially if multilateral talks
falter. From his perspective, he probably could justify
such an accord on the basis of public opinion polls, a
longstanding Costa Rican pacifist tradition, the lack of
a military counter to Managua, and the chance to
bolster his standing in Europe and Latin America. At
the same time, Arias is likely to send messages to
Washington that any changes are much less significant
than may appear on the surface and do not signal a
"fundamental" or "radical" shift in San Jose's policies.
28. In our judgment, a formal bilateral agreement
between Managua and San Jose to neutralize the
border is likely to result in some complications for
insurgent military operations and resupply activities
across the Costa Rican border. Costa Rica has proposed
a small, cosmetic international border force, primarily
to enhance its international image, while Nicaragua
wants a large force to seal the border. Although the
two sides have agreed on a framework for future talks,
they have not yet settled on the makeup of the border
force. Any international border force would face
considerable difficulty monitoring the 300-kilometer
border. The Costa Ricans are likely to cooperate with
an international force and try to prevent members of
their security forces from assisting the rebels to avert
any embarrassing incident. In our view, Arias is likely
to arrest and expel any insurgent leader whose pres-
ence becomes too blatant, but he is unlikely to close
insurgent political offices located in San Jose
29. Like Monge, Arias may find it politically expe-
dient to pursue multilateral and bilateral agreements
simultaneously. While he endorses the Contadora pro-
cess, Arias is skeptical that the process will be success-
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ful. He has embraced an initiative by President Cerezo
of Guatemala for the formation of a Central American
parliament?including Nicaragua?as a potential al-
ternative negotiations forum, but he sees this princi-
pally as another means of putting diplomatic pressure
on Managua to open up its political system
Implications for the United States
30. On balance, President Arias is likely to seek to
remain a close ally of the United States, especially
because he regards US financial support as crucial to
Costa Rica's economic recovery and because he re-
gards Washington as the ultimate guarantor of his
country's security. Nevertheless, he is a strong-minded
individual and may pursue certain diplomatic policy
initiatives with Nicaragua, both bilateral and multilat-
eral, that risk undermining US attempts to maintain
military pressure on Managua through support to the
anti-Sandinista insurgents. His posture toward both
Washington and Managua will depend heavily on
Sandinista behavior toward San Jose, the potential for
success of the Nicaraguan insurgency, and the perfor-
mance of the Costa Rican economy over the next
several years.
31. Costa Rica's pursuit of a bilateral agreement
with Managua would undermine US interests in sever-
al ways:
? It plays into the hands of the Sandinistas, who
have tried to divide and neutralize Nicaragua's
neighbors by dealing with them individually as
an alternative to dealing with them in a multila-
terial context.
? The creation of a border inspection team would
hinder the ability of anti-Sandinista rebels to use
Costa Rican territory, as would any further
restrictions on their activities introduced as part
of an agreement with Managua.
? Finally, Nicaragua would cite an accord with San
Jose as a precedent for a similar settlement with
Honduras, raising the possibility that the main
insurgent group might no longer be able to
operate from Honduran bases.
Key Variables
32. In our judgment, the following variables will be
critical in determining Costa Rica's political and eco-
nomic development?including relations with Nicara-
gua?during the next two to three years:
? Sandinista Behavior. Arias will have a free
hand to pursue an accommodation with Mana-
gua only if tensions remain low. Nicaraguan
cross-border operations or other provocative
measures would inflame public opinion and nar-
row the President's freedom of action, as would a
large inflow of additional refugees. In addition,
cross-border activity. probably would further de-
ter foreign investment.
? Nicaraguan Insurgent Performance. If Arias
perceives the insurgency as weakening, he will be
more eager to come to terms with the Sandinistas
and more willing to contemplate a total ban on
rebel activities. If the insurgents grow stronger,
Arias will be more likely to turn a blind eye to
their use of Costa Rican territory:
? Economic Stability. Failure to enact an eco-
nomic stabilization program could lead to an
unraveling of pending financial agreements with
international creditors. A worsening economy
also would heighten Arias's dilemma, augment-
ing his desire both to reach an accommodation
with Managua and to continue to receive sub-
stantial US aid. Renewed growth, on the other
hand, probably would increase his willingness to
confront the Sandinista regime
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