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Real Progress: Fifty Years of USAID in Costa Rica
Dollars which USAID provided to the Central Bank were used mainly for private
sector imports. The importer paid the Central Bank (or a commercial bank operating
on its behalf) the equivalent in colones of the dollars required for imports. USAID
could have ignored those colones, treating the dollar transfer as the intended purpose
of the aid. In which case, colones acquired by the Central Bank would have
been just another part of its resource base for setting domestic credit and monetary
policy.
Instead, USAID chose to treat the colones as a resource available to allocate for
development purposes. These colones, it should be emphasised, were a resource
for USAID, but not for Costa Rica. The only resource transfer to Costa Rica took place
with importation of the goods and services paid for by the USAID dollars. Local currency
was used for the whole gamut of activities undertaken by USAID. Massive
amounts of colones gave USAID/Costa Rica sufficient resources to support numerous
initiatives in economic and social development. USAID funding became the
provider of last resort for these initiatives, such as a new series of textbooks for
Costa Rican schools, for which the Costa Rican Government lacked funds. This large
pool of funds was jointly programmed by USAID and the Costa Rican Government,
but agreements were often reached at high policy levels with little public discussion.
This led some to charge that USAID/Costa Rica constituted a “parallel state”.
The primary goal of the USAID programme was first to stabilise and then to
transform the macro-economic policy regime and institutions. USAID’s approach to
stabilisation was orthodox and mainly involved following the lead of the International
Monetary Fund, reinforcing the IMF’s efforts to control the public sector deficit,
monetary aggregates, and the external balance.
USAID’s concentration on economic transformation flowed from a diagnosis
that the Costa Rican economy suffered from three main problems: the government
was too large; the financial sector was incapable of delivering financial services
needed for a dynamic economy; and the country needed to shift from import substitution
towards exports. The bulk of USAID resource transfer during the 1982-92
period was allocated to support broad economic policy changes in response to
these three priorities.
Assessment
As in previous periods, a shift in the USAID approach was matched by a similar
shift by the Costa Rican Government. The severity of the 1980-82 crisis made popular
a major policy shift, and sharp cuts in government spending, the dismantling of
the government holding company known as CODESA, and devaluation of the
currency were all widely seen as necessary.
OECD 1999
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