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Evaluating Country Programmes
256
At the macro-economic level, USAID assistance during the 1980s was an
unqualified success. This conclusion is based on three features of Costa Rican structural
adjustment:
– The adjustment was quick and (relatively) painless. No other Latin American country
undertook a major adjustment programme where the recovery of employment
levels and real wages for unskilled workers was faster. Except for Chile,
which went through a far more severe recession in the early 1980s, Costa Rica
has had the fastest economic growth in Latin America since 1982. The Government
of President Luís Alberto Monge Álvarez moved resolutely in 1982
to reduce the fiscal deficit and devalue the currency. Inflation was quickly
controlled, and the recovery of production was under way by 1983. By 1986,
real wages for unskilled workers had recovered to their pre-crisis level. The
key to this success was the relatively large amount of resources provided by
USAID to cushion the shock – about USD200 million per year, or 18% of commodity
export earnings.
– The adjustment favoured low-income workers. The change in the structure of production
resulting from the shift away from import substitution to export-led
growth created large numbers of jobs for unskilled workers. This was particularly
true in rural areas, where non-traditional exports were much more
labour-intensive than the crops they replaced (Céspedes and Jiménez, 1995
Morley, 1995).
– The adjustment was sustainable, both economically and politically. Economically,
declining USAID assistance occurred without a decline in economic growth
because earnings from new exports could replace lost foreign exchange earnings.
Politically, the reforms continued to have broad support, and subsequent
governments have continued to implement and broaden them. In
1996, the Costa Rican Government finally permitted private banks to accept
demand deposits, thus completing a process initiated by USAID in the early
1980s and ending a half-century of government monopoly over basic banking
functions.
USAID played the leading role in the macro-economic restructuring in two key
respects. It made common cause with a group of Costa Rican economists to convince
political leaders of particular policy changes needed. Second, the resources
USAID provided during 1982-85 were critical to minimising the severity of the
adjustment; the multilateral agencies provided much smaller net flows of resources
during this period.
Although the programme succeeded at the strategic level, the presence of
massive amounts of local currency created problems. While officially this resource
was jointly programmed, in practice USAID took the lead. During the early years,
the funds supported the macro-economic reform programme, providing funds for
OECD 1999