TARIFAS INTERNACIONALES (Ultima Actualización: 1 de febrero del 2000)

Leave behind materials should include the following:

• Cover letter

• Analysis materials that describe why liberalization will benefit Costa Rica

• Supporting documents from outside experts (articles, white papers, etc.)

The following is a cover letter for the leave behind materials. The other documents are included in other sections of this report and may simply be attached. At the bottom of the following cover letter is a list of the other documents that should be included as part of the leave-behind packet for all deputies.

Dear Deputy:

Thank you for giving us the opportunity to visit your office and express our concerns regarding the ongoing debate on telecommunication reform. We visit you today not only as a telecommunications service provider, but also as a future participant in the rapidly growing Costa Rican economy. It is our hope that you will recognize the tremendously positive impact that telecommunications liberalization will have on this nation’s economy, and that you will support economic growth and development by supporting liberalization.

Liberalization of the telecommunications sector will allow Costa Rica’s infrastructure to respond quickly and efficiently to changes in the economy. Over time it will introduce competition that will drive down prices and increase the quality and variety of services available to private citizens and corporations. Liberalization will also attract foreign companies who will invest their own capital in Costa Rica and help expand the reach of telecommunications throughout the country. Finally, once ICETEL completes the transformation to a private or quasi-private entity, it will free government resources that may then be used to address other needs.

ICE currently provides telecommunications services that are unparalleled by any other state-owned institution in Latin America, and Costa Rica is rightfully proud of this achievement. However, as ICE celebrates fifty years of leadership, it is important to recognize that the next fifty years of growth will be based, in part, on Costa Rica’s ability to attract foreign direct investment, and foreign investors won’t come unless they know they will have access to cutting edge communications technology. Liberalizing the telecommunications system will open it to private investment that will speed Costa Rica’s acquisition of state-of-the-art wireless and information technology—technology that other countries are already rapidly acquiring.

Of course, foreign telecommunications providers will only invest in Costa Rica and help the country update its telecommunications infrastructure if they are assured a level playing field. Costa Rica’s laws need to clearly spell-out ICETEL’s status as a quasi-private institution so foreign competitors understand that ICETEL will receive no favoritism or special privileges due to its unique circumstances. Newer and stronger language such as that in the attached amendment proposal must be added to the proposed text for the new telecommunications law. Costa Rica should also consider signing the WTO Basic Telecommunications Agreement in order to demonstrate to foreign investors the stability and durability of its commitment to open and fair competition within the telecommunications sector.

Once again, thank you very much for this opportunity.

Sincerely,
GlobalCom

[Included along with this cover letter should be a copy of the Economics of Telecommunications Reform: Why Costa Rica Will Benefit (Section 6), a copy of the proposed amendment language (Appendix D), and a copy of the white paper from businesses (Appendix E).

In 1945, when Costa Rica promulgated its latest constitution, it abolished its armed forces and institutionalized state-owned enterprises in telecommunications, energy, and many other sectors. Since that time, Costa Rica has enjoyed a peace and relative prosperity unequalled in Central America. It has become known as "the Switzerland of Central America."

Now the country is poised for unprecedented economic expansion. Indeed, it is rapidly shedding the weight of its import substitution policies of the past as it participates in Latin America’s movement toward export oriented growth strategies and trade liberalization. The country’s relatively well-educated work force, its open economy, and its high-quality infrastructure have given it a head start on the rest of Central America. UN, USAID, and Peace Corps development support are already being pulled out of the country.

Nonetheless, Costa Rica will need to see through the privatization of key state-owned enterprises if it is to fully realize the benefits of economic development. For example, in today’s world of rapid technological change, the Costa Rican government can no longer afford to support ICE (Instituto Costarricense de Electricidad, the Costa Rican Electricity Institute), the government-owned monopoly supplier of energy, telecommunications, and Internet services. ICE rightfully takes credit for promoting economic development over the last few decades. Now, however, ICE needs to be reformed to facilitate Costa Rica’s future economic progress. Unfortunately, relatively few politicians and very few public citizens recognize this need, which has left the reform process caught in a net of political rhetoric and public ignorance.

In order to more fully illuminate the current challenge of privatizing ICE, the following sections describe:

• The political and economic history of Costa Rica;

• Costa Rica’s political institutions and the legislative process of telecommunications deregulation; and

• The current status of telecommunications deregulation in Costa Rica.

The political and economic stability that characterize Costa Rica’s late twentieth-century development belie the country’s chaotic and unstable colonial and independent pre-WWII history. The principal culprit of this disorder—an inordinately powerful coffee-growing elite—was also responsible for maintaining a large-scale governmental presence within the Costa Rican economy. This legacy persevered into the modern era, as did the country’s dependence on export agriculture, which only recently began to diminish in a process that has placed Costa Rica at an economic crossroads.

During the colonial period, which followed Colombus’ arrival in 1502, Costa Rica was of little of interest to old-world explorers, and it maintained its spot on the back burner of the Spanish Empire until independence in the 1820s. The post-independence era witnessed the rising importance of coffee exports and the development of an elite social class made up of coffee plantation owners. Their economic power translated easily into political clout; as Costa Rican politics oscillated between democracy and military rule, this elite demanded increasing support from the government.

The growth of political parties did little to stabilize Costa Rican politics. Instead, vicious competition between parties and boom-and-bust economic cycles led to constant political upheavals until the Constitution of 1949 established an independent electoral commission and new electoral laws. The armed forces were disbanded at the same time, which reduced the probability of a military coup.

The Constitution of 1949 also introduced the concept of Autonomous Institutions (AIs) as a means to "further weaken the executive branch through the devolution of political power to technocratic agencies beyond the control of the executive. . . . [And to] promote the social, economic, educational and cultural well-being of Costa Ricans without interference from politicians."¹ Now, the President may appoint or remove AI heads, but he enjoys no direct control over their actions. Created in 1949 to manage the country’s energy and telecommunications, ICE was one of the first autonomous institutions to be established.

Ironically the new electoral and campaign finance laws created a virtual two party system. "Two major parties dominate Costa Rica today: the PLN and the PUSC, which together regularly account for more than 95 percent of the presidential vote."² In a convoluted system of elections, the two parties’ leaders heavily influence the selection of candidates for future elections. However, because party leaders enjoy relatively minimal power to control the behavior of delegates once they assume elected office, Costa Rica’s political parties are fractious; crossing the party line is commonplace in the Legislative Assembly. The PLN, Costa Rica’s most powerful political party, does not have a unified position on the issue of telecommunications reform. It is generally known for its strong support for the creation of autonomous institutions and for embracing a policy of government involvement in the economy.

Because deputies in the Legislative Assembly and heads of Autonomous Institutions now hold powers formerly held by the Executive, interest groups focus their lobbying efforts on these officials. Lobby groups, however, must be careful not to violate Costa Rica’s influence peddling laws, which stipulate that all lobbying activities must be carried out by the individual or organization who is to benefit from such activities.

While government policy has minimized the role of labor unions in Costa Rican politics, other interest groups do find a place in the national dialogue. Business associations such as the Chambers of Industries, Commerce, and Agriculture or the National Association for Economic Growth (ANFE) maintain a vocal presence in national politics. International financial institutions such as the World Bank, IMF, and USAID have also used conditional grants or loans as incentives for Costa Rican policy changes.

Lobbying organizations often use newspaper advertising to spread their messages. La Nación, with approximately 113,000 readers, is the country’s most widely distributed paper. Other papers include La Prensa Libre³, Diario Extra⁴, or La República⁵.

Heavy government intervention in Costa Rica’s economy and society, mostly under the direction of the PLN, defines this country’s development since the Civil War. After a wave of nationalization that brought energy, telecommunications, and the national banking system under state control, the PLN took over where the governing junta left off. It created many AIs, which made it difficult for non-PLN administrations to repeal PLN initiatives.

In 1962, the PLN instituted a policy of Import Substitution Industrialization (ISI) designed to decrease Costa Rica’s dependence on agricultural exports that had traditionally subjected the country to unpredictable booms and busts. Thus, trade barriers were erected against products from all trading partners except those of the Central American Common Market (CACM) of which Costa Rica was a member. Import substitution industrialization helped Costa Rica to increase its total percentage of industrial exports, but it fostered inefficiencies and created a soaring trade deficit based on the importation of raw materials.

By the early 1970s, Costa Rica’s economy was much more diverse, although coffee and bananas continued to represent an extremely high proportion of export earnings. Although the PLN did not always hold the presidency, it was undoubtedly the driving force in public policy. It instituted massive state involvement in the economy by creating even more AIs and adopting both a nationalized health plan and a new universal social security system.

Until the late 1970s, Costa Rica’s main sources of export earnings—coffee and bananas—earned high stable prices. This allowed the PLN to develop expensive government programs that have resulted in impressive social and economic achievements. By 1978, Costa Rica’s economy was relatively diverse (in comparison with its near total dependence on coffee and bananas several decades earlier), and its population was healthy, and relatively well off. But the good times could not last forever, and in the late 1970s and early 1980s they came to a crashing halt.

Political instability in the Central American region reduced the Central American Common Market to virtually nothing, and the prices of Costa Rica’s principal export crops dropped. Because it’s manufacturing sector developed behind a wall of protection, the disintegration of the Central American Common Market signaled the disappearance of Costa Rica’s only viable market for manufactures. The country’s debt soared along with oil prices that added costs to an already inefficient manufacturing sector. Costa Rica’s economy plummeted into the worst recession since the Great Depression of the 1930s.

Ironically, the economic crisis of the early 1980s precipitated a radical change in PLN economic policy. Using the strong public mandate from its 1982 election, the PLN transformed itself into the party of the free-market and instituted a successful package of austerity measures designed to reign in the economy. It began to sell off the AIs that were once the bread and butter of PLN politics.

Costa Rica reoriented its economy with support from the IMF and, more importantly, the United States and USAID. By selling off and deregulating government institutions, Costa Rica reduced the burden on its national coffers while promoting competition. The United States’ Caribbean Basin Initiative also offered preferential tariff rates to Costa Rican exports that partially offset the loss of the Central American Common Market. Free trade zones (FTZs) fostered the growth of non-agricultural exports such as textiles, and a conscious effort to diversify led to the promotion of non-traditional agricultural exports (NTAEs) such as cut flowers.

Now the WTO and United States recognize Costa Rica as a country that maintains relatively few barriers to trade. Costa Rica’s open economy attracts important foreign investment and capital that helps further the progressive diversification of its economy. Many of the inefficient state-owned enterprises are gone, but a few remain.⁶

Current political debate centers on the scope of neoliberal reforms rather than their existence. Miguel Angel Rodriguez, the current president and a member of the PUSC, maintains a centrist approach that acknowledges Costa Rica’s social democratic leanings. He is a strong proponent of privatization efforts, including privatization of ICE, but he also supports protective agricultural tariffs. Without an overwhelming mandate (like the one enjoyed by the PLN in 1982) or an acute economic crisis to create pressure for reform, it will be difficult for Costa Rican politicians to achieve further economic reforms.

Opposition parties can appeal to the electorate’s sense of pride in Costa Rica’s social democratic values, thwarting the leadership’s chances for reforming the Costa Rican economy.

The Ulate-Figueres Pact of 1948 put an end to Costa Rica’s last civil war; it allowed a governing junta to rule by decree for eighteen months after which the president-elect Otilio Ulate Blanco assumed power under the soon-to-be-constructed Constitution. A popularly elected constituent assembly finished that task in 1949, creating the basis for Costa Rica’s current political regime.

The Constitution of 1949 prescribed a new system of electoral laws that dramatically impacted the nature of politics and lobbying in Costa Rica. It established the Supreme Electoral Tribunal (TSE) to oversee elections and interpret electoral law. It enfranchised women voters, and it reduced the voting age to twenty (this was subsequently reduced to 18 in 1971). Since the TSE made voting mandatory, Costa Rica’s voter turnout has averaged nearly 80 percent.

Presidential, Legislative Assembly, and municipal officer elections are held simultaneously on the first Sunday in February every four years. The next elections will be in 2002. There are seven legislative electoral districts, each of which holds a certain number of seats in the Legislative Assembly based upon proportional representation.

Votes for the President are aggregated at the national level. The state provides campaign funding for parties that received at least five percent of the vote in the previous election, making it difficult for third parties to break into the two-party system. Also, the President must win at least 40 percent of the vote, or face a runoff election. This makes it less likely that disgruntled factions will break off from established parties, but creates a wide diversity of political opinion within one party, which sometimes makes party solidarity impossible to achieve.

The new constitution and subsequent amendments created a weak executive. The President may introduce legislation only with the approval of the appropriate minister, exercise decree only if it lies within existing law, and serve only one term in office. He may not be reelected or veto any budget bills. The President does, however, have the power to invoke extraordinary legislative sessions in which he controls the agenda, doles out discretionary funds for pet projects, and heavily influences the next set of party candidates. He also has responsibility for preparing the national budget (but may not veto any amendments), and appointing the heads of the AIs and his cabinet ministries.

Legislative Assemblies

The Constitution of 1949 devolved much of the President’s power to the fifty-seven member Legislative Assembly. This body has the ability to introduce and pass legislation, which may be vetoed by the President. A two-thirds majority is needed to override an executive veto, except on budget bills. Most of the real work of the Legislative Assembly happens in the six permanent committees, but real policy debate and formulation still takes place on the Assembly floor.

Deputies cannot serve two consecutive terms, yet they may return to the Assembly after one election cycle has passed. This results in very few veteran deputies (only 11 percent return for a second term).⁷ The Assembly elects a President who makes committee appointments. This election follows party lines strictly so the majority party takes the most important seats on all of the committees. Most legislation passes with a simple majority, however constitutional amendments require a two-thirds majority.

The Costa Rican Judiciary is an extremely independent branch with twenty-two members and thirty-seven alternates. It commands at least six percent of the national budget as mandated by law. The Legislative Assembly elects justices for staggered eight-year terms, which are automatically renewed unless two-thirds of the Assembly objects. Since 1989, the Court has been divided into four chambers that examine particular legal issues. The newest, Sala IV, deals with interest groups’ legal objections to government policies. This is a popular new avenue for interest groups to push for policy change.

These quasi-governmental institutions maintain a high level of control over policy in their particular domain. While the President appoints and may remove the heads of these agencies, the institutions themselves are not legally responsible to any branch of government. AIs such as ICE even hold the capacity to raise revenue, which further distances them from governmental influence. A two-thirds vote of the Assembly is required to create or abolish an Autonomous Institution.

Two parties have traditionally dominated Costa Rican politics. Third parties hold a small minority of Assembly seats. One of the dominant parties is always the PLN. Although this party now espouses a somewhat neoliberal agenda, it has social democratic roots and its constituents continue to exhibit pro-government leanings.

At present, the PLN’s opponent, the PUSC, holds both the Presidency and a majority in the Legislative Assembly. This has prompted the PLN to oppose the PUSC’s efforts to reform ICE, even though the PLN recently espoused a pro-liberalization policy concerning the privatization of many AIs. Right now, Miguel Angel Rodriguez strongly supports the introduction of competition into the telecommunications market.

Costa Rican political parties do not traditionally maintain strong control over their members’ voting habits. Assembly votes are rarely recorded or publicized, and it is common for deputies to cross party lines with little repercussion.⁸ It is therefore possible for lobbyists to form a multi-party consensus around political issues.

Telecommunication reform may be accomplished several ways: 1) ICE itself may institute reform under its mandate as an Autonomous Institution; 2) the President may, with the approval of the relevant minister, introduce legislation in the Assembly (which would require a bill to pass in the Legislative Committee on Government and Administration and then win a two-thirds vote on the Assembly floor); or 3) a deputy may introduce legislation in the Assembly. It is extremely unlikely that ICE would choose to relinquish its monopoly, and in fact the institution is known to oppose such reform.

Considering the power of the deputies and Costa Rica’s high voter turnout, public support is important to any lobbying effort. Newspaper, radio and television advertisements offer an effective means of putting an issue on the campaign agenda.

While it is helpful to have the President’s support for change, his limited authority means he should not be the prime target of lobbying efforts. The committee that will review a proposed piece of legislation should instead be targeted. Because the majority party in the Legislature controls committee appointments, it is worth the effort to lobby that party extensively. In the event that a two-thirds majority is needed, lobbying organizations must be careful not to alienate the opposition party, lest their issue become an opposition rallying cry.

Finally, Sala IV in the Supreme Court is important because it hears cases in which an interest group opposes a particular policy on legal grounds.

The lengthy debate over telecommunications deregulation in Costa Rica prompted Herbert Rodriguez—President of Ticopager S.A., and President of the Costa Rican-American Chamber of Commerce’s High Technology committee—to state:

We have been discussing the liberalization of the telecommunications market for more than four years, and we have achieved nothing. The intentions have been good, but nothing more than intentions. . . . The problem is purely political, it does not matter whether the country benefits or comes to harm, what is important is how to make life as hard as possible for the ruling party. Every party has its position depending upon whether it is in the government or the opposition.⁹

Indeed many in the business community are extremely frustrated over telecommunications reform. The process of market liberalization is mired in party politics, the public’s lingering sentimental attachment to ICE, and general ignorance of the issue.

In fact, there is widespread support for reform in what would appear to be all the right places. President Miguel Angel Rodriguez himself announced, "If this reform is not approved this week, all of ICE’s transformation will fall at least one year behind due to unavoidable legal and constitutional procedures. And to lose one year is to lose too much time."¹⁰

Telecommunications reform also has overwhelming support from domestic and international businesses and organizations. In a survey of 600 businesses in tourism, agriculture, industry, commerce, construction, services, and financial services, UCCAEP (The Union of Private Business Chambers and Associations) found that:

• 39 percent of businesses favored eliminating the monopoly on telecommunications and privatizing ICE;

• 41 percent of businesses favored eliminating the monopoly on telecommunications and not privatizing ICE; and

• 20 percent did not favor any changes in the current telecommunications system.

There is also international support for telecommunications reform in Costa Rica. In its Investor Attitude Study, the U.S. Department of Commerce’s Office of Latin America and the Caribbean stated:

The best infrastructure services are provided by the state telecommunications and energy company, ICE, which has long been a source of pride by the general population. However, there is consensus by U.S. investors (and increasingly by the overall business community) that although ICE may have served the country well in the past, greater private investment will be needed to modernize services. Most U.S. investors are generally satisfied with existing telecommunications services, although there can be a long delay to get a telephone line installed, costs could be more competitive, and cellular service is at times erratic. The main concern, though, is if the country is going to be successful competing in the high-tech world, the investment and technology needed to keep telecommunications at the cutting edge can best be acquired through private participation.

[U.S. companies believe that the Government of Costa Rica could improve the investment climate by establishing a] framework for competition in telecommunications, particularly for cellular and value-added services.¹¹

It is surprising that reform has remained elusive despite such high level and widespread support. The nature of that support, however, creates opportunities for opposition parties to forestall reform. According to La Nación, Unimer Research International conducted a survey of 1,201 Costa Ricans to determine their knowledge of the issue of telecommunications and energy reform. A strong majority of those polled professed to know little, if anything, about the proposed reforms.

• 48.4 percent of Costa Ricans said that they were completely unfamiliar with the plans to reform ICE;

• 21.8 percent claimed to know very little about telecommunications and energy reform;

• 20.8 percent had a general idea of the issue; and

• 3.1 percent assured researchers that they understood the propositions.¹²

The Unimer study went further, asking questions about the Rodríguez Administration’s handling of the issue, and citizens’ opinions on what should be done with ICE.

• 75.6 percent of the 512 people who claimed to have a general idea or know very little about the initiatives answered "no" when asked whether the Rodriguez administration had offered them information regarding the sought after reforms; 21.8 percent answered "yes."

• 68.1 percent of the aforementioned 512 declared that the government had managed the ICE reform process poorly.

• 21.5 percent believed that the government was functioning well.

• Of all of the people who claimed to have a certain degree of understanding of the reform process, 70.2 percent favored a reorganization of ICE to make it more efficient.

• 8 percent of those people favored the gradual introduction of competition in the market.

• 6.4 percent did not support either of these options.

• 5.6 percent would agree with the selling off of some services.¹³

As the numbers show, the public remains largely in the dark concerning telecommunications reform. Nearly half of all respondents said they knew nothing about it, while another twenty-one percent said they know very little. Furthermore, respondents tend to blame the Rodríguez administration for failing to disseminate information.

The numbers also suggest that once the public understands the issue, it tends to favor reform. All this points to a public relations failure on the part of the PUSC and the Administration.

The Rodríguez administration submitted its reform plan to the Foro de Concertación Nacional in May. This body, made up of political parties, unions, civic organizations, and other interest groups, is used to build consensus and thereby make it easier to pass legislation. The telecommunications committee of the Foro has recommended a phased ‘opening up’ of the sector over four years that includes full de-monopolization. Instead of privatizing the ownership of ICE, the Foro recommended offering ICE’s various services as concessions and making ICE just another competitor in the market.¹⁴

This recommendation has now become the proposed Ley General de Telecomunicaciones,¹⁵ which proposes to make ICE a quasi-governmental state-owned agency operating within a competitive market. In order to accomplish this, articles 188, 189, and 190, of the Costa Rican Constitution require amendment (which requires a two-thirds majority vote in the Legislative Assembly). Rodriguez submitted this bill to the Assembly along with two others that reformed other parts of ICE.

Subsequent debate has covered the timeframe for liberalization, the merits of bundling the three bills, and the issue of profit-utilization. Eventually, the three bills were bundled to form the combo energético, which was accepted in the Committee on Government and Administration and is now ready to be introduced on the floor of the Legislative Assembly. The debate on the Assembly floor is expected to be particularly heated, with the PLN emphasizing the need for government oversight during a gradual liberalization process and the PUSC pushing for swifter liberalization.

The exact nature of the legislation will be determined during the floor debate when amendments may be introduced and the bill’s wording may be modified. Accordingly, the floor debate offers an opportunity for lobbying groups such as GlobalCom to insert their language or ideas into the law. The ability of GlobalCom to gain the support of deputies from all parties for a particular amendment or issue will be critical in order to influence the shape of the law.

• 62 percent of telephone lines are in metropolitan areas, 38 percent are in rural areas.

• In 1997 there was a waiting list of 49,000 for new phone lines.

• National calls have a 57 percent completion rate.

• International calls have a 50 percent completion rate.

• In 1995, there were 8.4 workers per 1,000 lines employed at ICE.

• From 1994-1995 ICE’s response to breakdowns averaged 30 hours.

Footnotes:

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