Foreign Relations of the United States, 1961–1963, American Republics; Cuba 1961–1962; Cuban Missile Crisis and Aftermath, Volumes X/XI/XII, Microfiche Supplement

78. Memorandum of conversation, April 30, between Figueres and Moscoso and other U.S. officials¹

April 30, 1962

SUBJECT

• Costa Rican Fiscal Situation

PARTICIPANTS

• Jose Figueres, ex-President of Costa Rica
• Jaime Solera, Director-designate of the Central Bank of Costa Rica
• Teodoro Moscoso, AID Administrator for Latin America
• Edward Marasciulo, AID/LA/CAP
• Eric Fisher, AID/LA/CAP
• Joseph Carwell, Deputy Director ARA/REA
• William Barnes, Deputy Director, ARA/OAP
• Virgil Randolph, Officer in Charge, Costa Rican Affairs, ARA/OAP

The meeting was held at the request of Mr. Figueres to discuss the Costa Rican fiscal situation and the possibilities of U.S. assistance to rectify it. Mr. Moscoso mentioned at the outset that while the U.S. was concerned over the difficult financial situation faced by the incoming Orlich Government and desired to be as helpful as possible, under the existing AID legislation it was very largely limited to the financing of developmental projects. If the GOCR’s fiscal difficulties could be remedied by assistance of this character, he said, the U.S. would be glad to consider it, assuming that the projects proposed for financing met the established criteria.

It was mentioned that an IMF Mission was due to arrive in San Jose in the middle of May after the new government had taken office, and that it would presumably be able to clarify the size and character of the budgetary deficit varying estimates of which had been received in Washington. Mr. Figueres said he placed the deficit at 200 million colones ($30 million dollars) while Mr. Solera put it at 177 million colones ($25 million dollars). In addition to the GOCR’s fiscal problem, Mr. Figueres said there was need for an infusion of new funds into the Costa Rican banking system for relending to the private sector.

Mr. Moscoso inquired concerning the possibilities of the GOCR finding new sources of revenue through additional taxes and the improvement of tax collection methods. Mr. Solera said that tax increases and better collection methods would definitely be a part of the new administration’s fiscal program. Mr. Figueres said that the existing economic depression in Costa Rica in which some 50,000 persons were unemployed and many firms were facing bankruptcy made him question the feasibility of raising taxes. While an effort would be made to do so, he was pessimistic about the results and thought that it would be a long time before a significant increase in revenue could be obtained. In answer to a question, Mr. Solera said that there were many possibilities for the reduction of GOCR expenditures during 1962 in order to lessen the fiscal deficit. Mr. Moscoso said that action in this respect, together with an increase in taxes, would be prerequisites for any help from AID.

Mr. Figueres attributed Costa Rica’s difficulties to the decline in world prices of its principal exports of coffee, bananas, and cacao. He estimated that in relation to the export income obtained by Costa Rica in 1954 the country had lost some $30 million a year ever since because of price declines.² The only long-term solution, he said, was an increase in the prices of Costa Rica’s chief export products and a diversification of export items. Mr. Moscoso referred to the report recently prepared by the OAS on the stabilization of export receipts and its proposals for an international agreement toward this end and asked that Mr. Figueres be given a copy.

Mr. Figueres maintained that Costa Rica had no significant problem of capital flight and that private funds on deposit abroad were small. He affirmed the intention of the new government to enter the Central American common market, thus reversing the non-participation policy of the Echandi Government.

Mr. Fisher asked how the reported shortfall in customs duties in 1961 was to be explained since imports in that year were only slightly under those in 1960. Mr. Solera said this was probably due to a change in the composition of 1961 imports but also mentioned that the pattern of imports had been disrupted by the September 1961 devaluation. This action had been debated in the Congress for three months, which gave importers an opportunity to make heavy purchases abroad in anticipation of duty increases. He conceded that duties might not yet have been paid on some of these extraordinary imports and that the shortfall in customs revenues estimated at the end of 1961 might thus not reflect the true situation.

Mr. Figueres estimated the current arrears in taxes at $5 million. Mr. Solera repeated that the new administration planned to undertake comprehensive tax reform measures and Mr. Moscoso recommended that the GOCR seek technical assistance from the OAS for this purpose.

Mr. Figueres referred to the problem of coordinating technical assistance in the economic and financial field since the IBRD, the IMF, and the OAS were all in the picture. Mr. Moscoso said that such coordination was the responsibility of the GOCR. Mr. Figueres said that the new government was thinking of contracting with a private firm to obtain advice on development planning, and Mr. Moscoso said that AID funds were available for this purpose. Mr. Marasciulo said that AID would welcome the receipt from the GOCR of an overall proposal for U.S. assistance, which should be submitted through the USAID/San Jose. He pointed out that Costa Rica was almost the only country in Central America without a development planning office. Mr. Figueres said that some work had been done in this field by the University of Costa Rica and by planners associated with the PLN. He thought that a short-term plan could be prepared for consideration by AID within two or three months.

A discussion then ensued on Costa Rica’s external debt service problem. According to Mr. Solera, the total external debt, including that of both the GOCR proper and the autonomous institutions totaled $57 million, and the service charges on it in 1962 would amount to 16.5 per cent of total export income. Because the GOCR was short of colones to buy foreign exchange, service on the external debt had been halted, although the country’s reserves, (now at the level of 20.8 million dollars,) were sufficient to maintain service payments. Mr. Solera anticipated, however, that the GOCR must reach an agreement with the Export-Import Bank for the refinancing of the unpaid balances of its loans from that institution totaling some $18 million. Present repayment schedules called for $2.5 million in service and amortization on these loans in 1962, which was considered too burdensome. The same problem did not exist with respect to the IBRD loans which had been made to the Central Bank. The IBRD had also made a loan of $8.8 million to the Instituto Costarricense de Electricidad for power development, payments on which would not start until 1964. The ICE had requested another loan of $15 million but because of the current situation of default the IBRD was holding this application in abeyance. Both Mr. Figueres and Mr. Solera recognized the psychological value of the GOCR resuming service payments on its external debt as soon as possible.

In response to a question from Mr. Barnes, Mr. Figueres elaborated on his proposal that U.S. funds be made available to the Costa Rican banking system for relending to the private sector. He said that the four nationalized banks, which together had some 200 branches throughout the country provided a perfect mechanism for channeling funds to productive enterprise and stimulating economic development. Costa Rica, he said, had many able entrepreneurs but there was a dearth of capital for medium and long-term lending, and this situation had placed a brake on economic development in view of the drastic decline in export income. He estimated that an injection of $20 million into the economy through a line of credit to the banking system to be utilized over a period of 3 to 5 years would give such an impulse to productive economic activity that unemployment would be eliminated completely. Mr. Figueres said that ground rules could be developed for the extension of such a line of credit to assure that it would be used only for agreed purposes contributing to economic development. He suggested that tax collections could be improved by making loans to private entrepreneurs contingent upon prior payment of tax arrears. Interest rates would be moderate, not exceeding the current level of 8 per cent.

Mr. Moscoso pointed out that AID development lending was being directed primarily to support individual projects and expressed doubt that Congress would go along with the idea of a general loan to a national banking system for relending to private enterprise.

At the close of the meeting it was agreed that the incoming government should work through the Embassy and USAID mission in Costa Rica in preparing economic and fiscal proposals which it desired to have considered by the U.S. Government.

1. Costa Rican financial situation and possibility of U.S. assistance to rectify it. Official Use Only. 4 pp. DOS, CF, 818.00/4–3062.
2. According to data of the Central Bank of Costa Rica furnished to the IBRD, Costa Rica suffered no appreciable absolute loss in export income in the period since 1954. The value of exports was $84.7 million in 1954, 80.9 in 1955, 67.5 in 1956, 83.4 in 1957, 91.9 in 1958, 76.7 in 1959, and 88.5 in 1960. However, the volume of coffee exports doubled between 1954, when they amounted to 510,000 quintals (46 kilos each), and the years 1958–60, inclusive, when they were at the annual level of 1 million quintals. At the same time, because of the decline in world coffee prices, the value of such exports increased only from $35.8 million in 1954 to $43.4 million in 1960. Had 1954 prices prevailed in the period 1958–60 Costa Rica would have earned some $70 million in each of these years from such exports whereas their actual value averaged only $45 million annually. In the case of bananas, the decline in prices was accompanied by a substantial reduction in export volume, both of which contributed to the drop in export value from $35.8 million in 1954 to $25 million in 1960.