San José, Costa Rica, since 1956

Average Salaries Losing Their Buying Power

China enticed Costa Rica to break up with Taiwan by promising millions of dollars in aid and loans, as well as agreements on trade, tourism and investment.

In a secret memo dated June 1, 2007, Costa Rica agreed to forge diplomatic ties with China and end its 60-year relationship with Taiwan in exchange for political and economic aid.

The memo, signed by Costa Rican Foreign Minister Bruno Stagno and his Chinese counterpart, Yang Jiechi, was released earlier this month in response to an order from the Constitutional Chamber of the Supreme Court (Sala IV).

Such checkbook diplomacy is nothing new. But the memo makes public, for the first time, China s willingness to use its enormous foreign exchange reserves for political ends. Among other inducements, China promised to buy $300 million in Costa Rican bonds by dipping into its $1.8 trillion foreign exchange reserves, the world s largest such store.

Nicholas Lardy, a China specialist at the Peterson Institute for International Economics, said the purchase worries China s critics, who fear the Eastern giant is using its vast financial assets to further a hidden political agenda.

Meanwhile, the secrecy shrouding the deal has angered reporters and opposition politicians, souring their relations with President Oscar Arias, whose approval rating with the public is falling.

On June 6, 2007, five days after the memo was signed, Arias told the wire service EFE that talk of a pending break with Taiwan was speculation. He announced the news later that night.

During a trip to Beijing in October, Arias told the daily La Nación that the bonds purchase was a mere possibility. The next month, he told a group of mayors, I have many flaws, but I don t lie to anyone.

Not true, reporters said. The daily La Nación published an article earlier this month with an unusually strong headline: Government Lied to Country about the Sale of Bonds to China.

The Arias administration has bristled at the criticism. In a guest column last Friday in La Nación, Presidency Minister Rodrigo Arias called the article humiliating and slanderous and said La Nación was an echo chamber for the opposition.

I m tired of trying to govern a country that believes criticism at any cost is the best way to carry out opposition, Oscar Arias said Monday, according to EFE. Political analyst Luis Guillermo Solís said Arias should have anticipated the Sala IV s ruling and sought permission earlier from Chinese authorities to make the bonds purchase public.

Costa Rican Ambassador to China Antonio Burgués was also uneasy about the secrecy. In a report a year ago this month, he wrote that Yang Wanming, then the subdirector general at the Chinese Foreign Ministry s Latin American department, mentioned the possibility of signing other agreements, not in front of the press.

In response, I was emphatic that Costa Rican laws do not permit confidential agreements.

Such lack of transparency has cast a shadow over what even Arias critics describe as a series of plum deals for Costa Rica. In addition to the bonds purchase, China agreed in the memo to give Costa Rica $130 million in aid over the next three to five years.

China also said it would support Costa Rica s bid for a seat on the United Nations Security Council, which Costa Rica won in October, and recommend Costa Rica as a destination for tourists and investors. Tico students would receive 20 scholarships to study in China, the memo said, and the two nations would explore a free-trade agreement.

In a recent op-ed, Vice President Laura Chinchilla implored readers to focus on the merits of the China deals, rather than their secrecy.

This controversy should not eclipse the benefits the country has secured, she wrote.

Still, Citizen Action Party (PAC) lawmaker Alberto Salom said he suspects foul play in the form of an intermediary who may have received kickbacks from the bonds purchase. A congressional committee that oversees public spending and income will soon begin an investigation into the deal.

Most of China s gifts slowly have been made public over the past 15 months. But the secret memo suggests they were enticements, rather than rewards, for Costa Rica s policy shift.

That s business as usual, say China experts and political analysts here and in the United States.

The fact is that countries use money to win influence, said Jerome A. Cohen, a China specialist at New York University School of Law. Look at how the U.S. uses aid for diplomatic purposes.

Taiwan and China have long used their checkbooks in a battle for diplomatic recognition. Taiwan, which China regards as a renegade province, gave Costa Rica millions of dollars for transportation, housing and other projects during the two countries long friendship.

Attracting Costa Rica, the only Central American country to recognize China, was a diplomatic coup for the Asian giant, Lardy said. Some 23 mostly tiny, lesser-known countries recognize Taiwan, while 171 nations support Beijing.


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