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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
Real Progress: Fifty Years of USAID in Costa Rica private sector development, particularly for non-traditional exports. As time passed, the accumulation of local currency funds led to reduced discipline in the use of such resources and a large USAID presence in monetary policy. Ultimately, the use of local currency reduced the effectiveness of the Costa Rican Central Bank’s monetary policy and led to higher inflation. Left on its own, the Central Bank would have slowed the rate of growth of the monetary base, thus reducing inflation. It also allowed local currency to be used for activities that might not meet careful scrutiny. A spacious new USAID office building was constructed largely with local currency funding. An agricultural college received nearly USD60 million in local currency funding, though its regional mandate caused some to question the reliance on this funding source. Which activities produced results? The relationship between USAID strategies and Costa Rican priorities was relatively harmonious. There were no major strategic conflicts between USAID and the Costa Rican Government, aside from the local currency use issue discussed earlier. This section draws conclusions about which programmes were most effective. Except for the 1980s, when the scale of assistance was massive, USAID assistance between 1945 and 1995 was subsidiary, providing a modest increment to Costa Rican efforts. Most foreign assistance activities make only incremental contributions to activities under way in the recipient country. The bulk of the resources for most activities comes from the recipient country, and other donors may also contribute. This makes the specific contribution of almost any US assistance activity hard to isolate. Nevertheless, the review of US assistance programmes in each major sector shows USAID working with Costa Ricans to pioneer activities. In general, USAID programmes provided early support for new directions in Costa Rican growth, and they appear generally to have played a catalytic role. This can be illustrated by looking at the evolution of USAID assistance in two specific sectors: agriculture and natural resources, and population and family planning. Agriculture and natural resources. From the beginning in 1942, US assistance gave high priority to agriculture. Until the 1960s, USAID sought mainly to transfer modern agricultural practices through hands-on demonstrations and advice by American experts, who also trained numerous Costa Rican agronomists. The emphasis was on finding farmers who were willing to experiment and on encouraging better practices and a wide range of institutional changes. Through 35 agricultural extension offices, education activities such as the 158 4-S clubs established around the country, and collaboration with providers of agricultural inputs, USAID was able to promote a more scientific approach to agriculture. OECD 1999 257
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