Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

CR–9. Summary of Discussions in Costa Rica during Milton Eisenhower’s Visit¹

July 18–21, 1958

Discussions in Costa Rica were held with the President,² members of his Cabinet, representatives of other political groups, and Dr. Eisenhower also spoke before the National Assembly. Likewise other members of Dr. Eisenhower’s party met with various Costa Rican officials. The President, Dr. Echandi, spoke with emotion of the national unity achieved by the United States in times of crisis. He mentioned the support given by Mr. Truman and Mr. Stevenson to the President’s recent action in the Middle East. He mentioned also that Costa Rica was a free country in which the full exercise of all democratic freedoms was guaranteed to all citizens and said that he had arranged for the Communist leader Mora Valverde to speak over the radio, thus avoiding the Communist attempt to pose as martyrs who could not enjoy freedom of expression.

It was pointed out by the Costa Ricans that the economy of Costa Rica is largely based on its foreign trade. The principal item of export is coffee which in 1957 produced 49% of the foreign exchange. It was further emphasized that the economic development and improvement in social welfare in Costa Rica were closely bound to the price of coffee. In Costa Rica a very large percentage of the population are directly connected with the production of coffee where small plantations are the rule rather than large landholdings as in other countries of Central America. Thus a rise or drop in the price of coffee directly affects a very large number of Costa Ricans. The President pointed out that the recent drop in the price of coffee had now begun to seriously affect the economic and social stability of Costa Rica. Unemployment had begun to appear precisely at a time when the Government’s revenue had dropped. The Government and people of Costa Rica hoped that the United States Government would do what it could to stabilize coffee prices as a further drop would seriously affect the living standards of the masses and might present a fruitful field for the development of extremist ideas with consequent danger to an Administration which firmly supports the development of private initiative.

The President said that he had developed a plan, the implementation of which would require the conversion of the internal debt to an external debt, but that the possibility of doing this was directly related to reaching an agreement with the U.S. Treasury concerning the payment of taxes by the United Fruit Company. At the present time 50% of the taxes on UFCO profits were paid to the United States and 50% to Costa Rica. If an agreement could be reached whereby the Costa Rican share could be increased this would be a very useful form of assistance for them. They felt that Costa Rica was entitled to a greater share than it was presently receiving. At the present time the revenue from this source for Costa Rica amounts to some $3 million.

Costa Rica had an internal debt of $30 million. If they were able to obtain this agreement they intended to devote the revenue from the banana tax to the servicing of a loan from foreign sources, government or private. 27,000 coffee plantation owners had been affected by the present drop in coffee prices. They had reduced their labor cost by laying off workers and the Government was currently not able to undertake projects giving work to these unemployed. If Costa Rica were able to obtain this $30 million loan they were prepared to assign the revenue from the UFCO tax to service this debt and furthermore the National Bank was prepared to guarantee it. The Costa Ricans felt that if this project could be carried out it would make a very great contribution to diversifying their production and placing the national economy on a more solid basis. Furthermore, this would make available the amounts which the Government now devotes to servicing the national debt for a broad program of road construction which they are working on at the present time with the World Bank. If the loan were secured the Government would then feed this amount into the National Bank system to be loaned out to small rural credit agencies for direct loans to the small planter and farmer. 20% of the loan would be used for diversifying agriculture, developing cattle breeding and improvement of the breeds; 20% would go to stabilize the coffee industry and the remaining 10% would be devoted to housing. The President pointed out that not one cent of this money would be taken by the Government for any public works. For the first time in Costa Rica’s history the total amount of the loan would be turned over to the Development Bank for strengthening the economy and developing private initiative. The recent election had been fought largely on an issue of private initiative against “stateism.”

The President and members of the Cabinet expressed the hope that this loan could be secured from Governmental or private sources in the United States as it was essential for the implementation of their plan. All members of the Government including the President were warm in their expressions of friendship for the United States and understanding of the immensity of the burden borne by the American people. They seemed proud of the high standard of living in Costa Rica. Reception of Dr. Eisenhower’s party was everywhere friendly and warm and while attending the funeral of the Minister of Health who died during Dr. Eisenhower’s stay in Costa Rica,³ Dr. Eisenhower walked several miles in the funeral procession, receiving the warmest demonstrations of friendliness from Costa Ricans of all classes. The matter of alleged United States support for dictators was not brought up by anyone on the Governmental side, although it was brought up forcefully by opposition leader Jose Figueres⁴ during a breakfast at the Embassy which he had with Dr. Eisenhower. Both former Presidents Figueres and Calderon Guardia⁵ expressed the friendliest feelings for the United States, the latter expressing his desire to help President Echandi in the measure in which he were allowed to do so. Figueres stated his belief that the United States had in some measure given the impression of favoring dictatorships and Calderon Guardia expressed his feeling that the United States had perhaps been a little harsh with Trujillo and Somoza who were after all staunch supporters of the United States.

Costa Ricans of all walks of life expressed support for the idea of closer economic integration of Central America and moves towards a common market for the countries of that area.

The projects presented by the Costa Ricans were as follows:

Increase in Capital for Rural Farm Credit Agencies of the National Bank of Costa Rica:

The Costa Rican Government had requested a loan of $5 million from the Development Loan Fund for the purpose of increasing the capital of those rural credit agencies so that they could make low interest loans over reasonable periods of time to small farmers who are perhaps the principal support of the economic and social stability of the country. The United States Embassy was carrying out a study on this. The Costa Ricans hoped for favorable action on the part of United States on this application which would favor a broad sector of the population of Costa Rica and at the same time fulfill the aims which inspired the creation of the Development Loan Fund.

Inter-American Highway:

The Costa Rican Government intends to finish the Inter-American Highway before the end of the present Administration. This would include the stretch between San Ramon and Cartago. They feel that this stretch is vital as it crosses the most heavily populated area of the country. They would like to see the same standard applied here as elsewhere on the highway, that is to say, the United States contributing two-thirds and Costa Rica one-third. They would hope to obtain their third through an Export-Import Bank loan. This work would not only favor the economic development of the country but would also in some measure palliate the growing unemployment problem due to the drop in coffee prices.

Children’s Hospital:

Through ICA the Costa Rican Government obtained a $2 million loan to take care of the major part of the cost of construction of the Children’s Hospital. Additional funds have been obtained within Costa Rica through gifts from private individuals and other sources but they are experiencing difficulty in obtaining the final amount to complete the work. If the loan could be increased by some $950,000 they could be sure of concluding the hospital and of being able to carry on its work.

Sanitary Improvement of the Metropolitan Area:

22% of the population of Costa Rica reside in the metropolitan area of San Jose. The city is growing with extraordinary speed, giving rise to the serious problem of supplying drinking water and adequate sewerage. They have drawn up a plan to repair the old water system, undertake new construction and install water meters and believe that this plan would satisfy all foreseeable needs for 20 years. Plans are already drawn up and work could be undertaken if they could obtain the approximately $3 million necessary to undertake this project.

Sewerage:

An effective sewerage system is planned and is under slow construction. If further financing could be obtained this work could be carried out quickly and effectively. The cooperative Inter-American Public Health Service had rendered valuable cooperation in this work.

Water Supply:

Valuable cooperation has been received from the Point Four program in studying the supply of drinking water to the whole metropolitan area but its resources are inadequate for the size of the problem, and the Government would be very desirous of obtaining a loan which would enable them to go forward swiftly with this project.

German Taxes on Coffee:

The Costa Ricans pointed out that Germany had two taxes on coffee that caused the price of this commodity to be extremely high in Germany. They felt that if the United States could in some way use its influence on the Federal Republic to have these taxes removed or lowered that this might increase German Coffee consumption by as much as 2 million bags yearly.

Desire of the Costa Rican Government to Exchange Surplus Military Equipment for Transportation and Communication Equipment:

The United States Country Team did not feel that the Echandi administration had the firm capability of maintaining internal security and the greatest weakness of the Public Forces was due to the lack of adequate transportation and communication. Recently the desire was expressed by a representative of the present Administration to trade items such as machine guns, rifles and obsolete aircraft for sedans, trucks, radios and two aircraft of the liaison type. They would like to trade in some $200,000 worth of the former items for some $253,000 worth of communications and transportation equipment. This would strengthen the internal security of the country and the exchange of weapons for vehicles would create a good impression for the United States in Costa Rica in the opinion of the Country Team.

Costa Rican Intentions and Hopes:

The Costa Ricans indicated that the Government intends to go forward with a plan to improve the living conditions of the people of Costa Rica while at the same time developing their economy to increase the national revenue and provide a more equitable distribution of wealth. The educational and cultural level of the people is such that they would be able to use effectively any economic assistance which might be rendered and fully discharge any obligations undertaken by accepting such assistance. An improvement in living standards is the best guarantee of the continued social stability of the country which have continued to improve through orderly evolution in contrast to the violence which has shaken neighboring countries. The Costa Ricans expressed the hope that the United States, bearing in mind the economic and social organization of Costa Rica, the cultural level of the people and their devotion to the democratic way of life, will make available the assistance necessary to develop the nation and its economy.

There appeared to be in Costa Rica a better understanding of the operations by the various lending organizations in the United States as well as a more coordinated plan than had been the case in some of the other nations visited. There would appear to be some misconception, however, as to the ability of the United States Government to fix coffee prices and perhaps insufficient understanding of the importance of diversifying the country’s agriculture. The President spoke of his intention to develop cattle for the export of meat as they saw in this a promising and stable market. Tie President and his Ministers paid great tribute to the work of the agricultural experimental station at Turrialba which was visited by Dr. Eisenhower.

Conclusions:

The Government has developed a plan which is totally dependent upon the obtaining of (1) an agreement with the United States Treasury regarding a more favorably arrangement for Costa Rica in the collection of taxes from United Fruit Company, and (2) the obtaining of a $30 million loan to convert the internal debt into an external debt. The Costa Ricans have requested this loan as well as $5 million for development of rural credit agencies and an unspecified amount for road building, an additional million dollars for the Children’s Hospital, $3 million for water supply of San Jose, and an unspecified amount for sewerage and further development of the water supply.

Despite the fact that considerable thought had been given to this plan, it appears that the following would seem to be needed for effective planning: (1) An inventory of the nation’s assets in both human and natural resources; (2) a study to determine the feasibility of agricultural diversification and perhaps the establishment of new industries; (3) a study of the domestic and foreign markets, including revenue from tourism; (4) a reexamination of government organization, financing, taxes and trade policies, with the purpose of seeing whether they could not be more effective in developing the economy of the country and supporting and regulating private investment.

The contacts of the Fact-Finding Mission were uniformly friendly with people from all walks of Costa Rican life and while there may have been occasional misinterpretation of U.S. motives, no feeling of hostility toward the United States was at any time apparent. The President and his Cabinet gave evidence of their whole-hearted support for the United States on the international scene and understanding of the problems of the United States. President Echandi stated specifically that there was too much of a tendency in Latin American countries to believe that the United States could solve all of their economic problems for them.

1. Source: Department of State, ARA Special Assistant’s Files, Lot 60 D 513, “Eisenhower, Milton; Costa Rica, 1958.” President Milton S. Eisenhower of Johns Hopkins University made a three-week factfinding trip, July 12–August 1, 1959, as Personal Representative of the President, to Panama, Honduras, Costa Rica, Nicaragua, El Salvador, and Guatemala. He was accompanied by Roy R. Rubottom, Jr., Assistant Secretary of State for Inter-American Affairs; Tom B. Coughran, Assistant Secretary of the Treasury; Dempster McIntosh, Manager, Development Loan Fund; and Samuel C. Waugh, President, Export-Import Bank. A report on his visit to Costa Rica is in despatch 35 from San José, July 28, 1958. (120.1520/7–2858) For further documentation on the visit, see Document CR–6, footnote 4 in this chapter.
2. A memorandum of Eisenhower’s conversation with Echandi, July 18, 1958, is in Rubottom Files, Lot 60 D 533, “Dr. Eisenhower’s Central American Trip.”
3. Dr. Adolfo Jiménez de la Guardia died July 19, 1958.
4. José Figueres Ferrer, President of the Founding Junta of the Second Republic, May 8, 1948–November 8, 1949; President of Costa Rica, November 8, 1953–May 8, 1958.
5. Rafael Angel Calderón Guardia, President of Costa Rica, May 8, 1940–May 8, 1944.