Foreign Relations of the United States 1977–1980; Volume XV; Central America, 1977–1980

340. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter¹

Washington, August 4, 1980

SUBJECT

• Letter to President Carazo (U)

During the last few months, President Carazo of Costa Rica has been extremely helpful to us on a number of issues, especially Cuban refugees and El Salvador. He has hosted two conferences in San Jose on Cuban refugees, and he has agreed to challenge the Cubans for a UN Security Council seat next fall. In the months ahead, we will need his cooperation even more on Central America, at the UN, and on Cuban refugees. On May 26, President Carazo wrote to you to request help on an issue of fundamental importance to his country—economic development (Tab B).² He will expect us to be as responsive to his concern as he has been to ours. (C)

President Carazo describes the serious economic problems his country faces and requests your support for two proposals: (1) a special fund for housing (requiring a $50 million soft loan); and (2) a mechanism for channeling US deposits into Costa Rica’s banking system. He writes that “exceptional solutions are required to keep Costa Rica as a true example of democracy.” (C)

The response which State prepared (Tab A) was delayed because State and IDCA are currently debating whether to continue the bilateral aid program to Costa Rica, a middle-income developing country, in FY 82. IDCA wants to phase out such programs in line with Ehrlich’s concentration strategy, while State argues that Costa Rica is a key democracy in a turbulent region and terminating aid would not only be a setback to Costa Rica’s economy but it would send a signal throughout Central America that we are treating radicals like Nicaragua better than democracies. State and IDCA resolved this debate by deferring it until the Fall Budget Review. The result is that the letter at Tab A does not include a paragraph reaffirming your intent to maintain a bilateral aid program, even though State, OMB, IDCA, and Owen all recognize that the letter would reinforce the present Costa Rican expectation that our development aid program will be continued in FY 62.³ (C)

If you sign the letter at Tab A, which is reasonably positive, while contemplating the termination of aid to Costa Rica, it will at best be considered disingenuous. The very fact that we are addressing questions such as whether to end aid and restrict textile exports from Costa Rica rather than questions such as how to increase aid and trade suggests an intent different than implied by the letter. Considering the special and difficult circumstances of Costa Rica and the importance which our aid program has in showing that we favor democracies in the region, you may want to consider adding an explicit reaffirmation of your intent to continue the aid program. This would send as powerful a message of your concern to our government as to Costa Rica’s. The following paragraph added to your letter would make that point: (C)

Generally speaking, our bilateral development assistance is directed toward the poorer developing countries of the world and is targeted to assist urgent, long-term development problems in specific sectors. But I have made an exception to this approach for the Caribbean and Central America, and I place a particularly high priority on assisting democratic and progressive nations in the region. We intend to maintain our bilateral aid program to Costa Rica and to seek ways to make it more effective in the future. (C)

However, the above would constitute a decision to continue aid to Costa Rica. State, IDCA, OMB and Owen would prefer that you send the letter at Tab A without the paragraph above. (C)

Tab A

Letter from President Carter to Costa Rican President Carazo⁴

Washington, August 4, 1980

Dear Mr. President:

Before responding to the issues raised in your letter of May 26, may I first express my appreciation for Costa Rica’s key role in arranging the San Jose II Conference. Although much work remains to be done, your active participation helped us in our search for creative solutions to our hemisphere’s grave refugee problem.

I share your deep concern about the economic situation Costa Rica now faces. Rising oil prices and inflation are causing economic dislocation in most nations, and I know that such problems are particularly difficult for a small democracy that wishes to remain responsive to the aspirations of its people in a turbulent time and region.

Certainly any strong effort to control inflation and balance-of-payments difficulties merits international assistance in support of domestic measures within Costa Rica. I am pleased to see that you are continuing to work with the International Monetary Fund.

Costa Rica’s friends and the multilateral development lending institutions may also have a major role to play. Much of our development assistance goes through multilateral lending institutions, and I have asked the U.S. Executive Directors at the World Bank and the Inter-American Development Bank—the principal sources of assistance within the hemisphere—to lend strong support to programs for Costa Rica in the context of a determined effort by your government to address Costa Rica’s economic difficulties.

With respect to your proposal for a housing fund, we have already provided Costa Rica with an $11.4 million housing guarantee program. I understand this $11.4 million is available as soon as the Costa Rican institutions involved conclude the necessary negotiations with commercial banks in the U.S. We would be pleased to continue cooperating on housing investment guarantees.

We have also recently augmented the housing program of the Central American Bank for Economic Integration by $23 million, and Costa Rica should be able to take advantage of these funds.

Regarding the question of time deposits with Costa Rican banks, I was pleased to note Costa Rica’s recent success in placing a five-year bond issue of $50 million in the international market. This reflects continuing investor confidence in your country’s long-term economic prospects. Given this confidence and continued pursuit of strong economic policies, it can be expected that foreign investors will wish to take advantage of future investment opportunities in Costa Rica.

Finally, I have asked Frank McNeil, the new U.S. Ambassador to Costa Rica, to work closely with you and your government and to cooperate in every way. Costa Rica has consistently been an example to the hemisphere of a nation devoted to the welfare of its people. I assure you of our continued interest in Costa Rican progress.

Sincerely,

Jimmy Carter

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 7, Costa Rica, 1980. Confidential. Sent for action. Carter initialed the top of the page.
2. Attached but not printed is a translation of Carazo’s letter.
3. The reference to “FY 62” is an apparent typo for FY 82.
4. No classification marking.