1942: Costa Rica

Military and economic cooperation between the United States and Costa Rica, the first Latin American nation to declare war on all the Axis powers, was extensive during 1942. The Costa Rican army, numbering not much over 500 men a year ago, has been expanded and is being trained by a United States military mission which arrived in February. United States military units are stationed in the country. By an agreement signed Jan. 16, lend-lease funds of $550,000 were allocated for the purchase of arms for the new army. Costa Rican bases have been put at the disposal of the United States. Finally, the all-weather 'pioneer' road is being rushed to completion through Costa Rica by the United States. Designed to supplement the still incomplete Inter-American highway, it will provide uninterrupted overland communication to the Panama Canal. It would have great strategic significance in the event of a blockade of the Canal; in the face of the submarine menace it will serve a very useful function in providing freight transportation facilities from Central America to the United States. Work on the permanent Inter-American highway is being speeded up in all five Central American Republics as the result of a $20,000,000 loan approved Jan. 16 out of a special fund set up by the United States Congress. Of this amount Costa Rica was to receive $8,000,000 towards the completion of 250 miles which, at the beginning of the year, were still unpassable; an additional $4,000,000 was to be taken from the Costa Rican treasury for this purpose.

The torpedoing of a United Fruit Company steamer in the harbor of Puerto Limón in July, causing the death of a number of Costa Rican workmen, led to violent anti-Axis demonstrations in Costa Rica, which resulted in the wrecking of some eighty Axis-owned business establishments. In November, Costa Rican coastal defenses 'repulsed' a German submarine which was foraging for food and supplies only about 200 miles from the Panama Canal.

By an agreement announced June 16 with the Rubber Reserves Corporation, similar to pacts concluded with Brazil, Perú, and Nicaragua, the United States will purchase all exportable rubber produced in Costa Rica in the next five years. Costa Rica, like Brazil, has also been stocked with seeds from the Firestone rubber plantations in Liberia. A contract for the planting of hemp by the United Fruit Company on abandoned banana lands was the subject of a special session of the Costa Rican Congress in February. The loss of the Philippines supply of manila hemp would make this abacá development significant to the United States.

On Aug. 9, final Congressional approval was accorded to the $2,000,000 loan from the Export-Import Bank which will be used to consolidate the floating debt as well as to finance public works.

1941: Costa Rica

Enthusiasm for Pan Americanism was notable in this little Republic. Impressive demonstrations, both anti-Nazi and pro-democracy, occurred during the year, and the Government was very active in cracking down on German propaganda. A plan for freezing the assets of the wealthy German colony, which owns many large coffee plantations and sugar mills, was under consideration in June. The nation, with a tiny army of 350 men, is virtually unarmed, however, and its propinquity to the Panama Canal made this a matter of concern to the United States. A United States military mission was, therefore, agreed on during the summer, and modern arms were shipped from the United States. Then came Pearl Harbor and the War of the Pacific. Almost immediately Costa Rica declared war on Japan, having the distinction of being the first Latin American nation to do so.

A boundary dispute with Panama, which caused armed conflict in 1921, was settled with the conclusion of a treaty May 1. The frontier was fixed at the existing de facto line. The area involved includes the mouth of the Sixaola River and land both east and west of the Central American cordillera. Costa Rican claims have rested on an award handed down, in 1914, by United States Chief Justice White, which Panama rejected. The present agreement was concluded without reference to the White award.

A new Export-Import Bank loan, totaling $4,600,000, was contracted, superseding that of 1940. It provided for the early completion of the Costa Rican link in the Pan American highway. Costa Rica is obligated to pay only $2,500,000 of the construction costs. The new loan, bearing interest at 4 per cent, is to be serviced, beginning in 1945, with a gasoline tax.

The long-pending threat of nationalization of the Costa Rican subsidiary of the Electric Bond and Share has been ended with Congressional approval of a new 25-year contract with the Government. Expropriation of this public utility had actually been authorized in 1938.

1940: Costa Rica

Costa Rica, the most democratic nation of Latin America, has resisted the Central American trend towards continuísmo (the lengthening of the presidential term by tampering with the constitution or legal machinery of the state), the President rejecting a proposal this year to extend his term from four to six years. President Calderón Guardia, who assumed office May 8, was elected Feb. 11, by an overwhelming majority, in the country's first secret and obligatory balloting. The new President represents the National Republicans. He was opposed by the Communists, who are limited to the towns, and by the Brotherhood Party, a group organized in the isolated province of Guanacasteca to fight Communism, and, with this election, participating in national politics for the first time.

Before his inauguration the President visited the United States and, since his conversations with President Roosevelt, has repeatedly stressed his country's willingness to work for continental solidarity and to take all measures necessary for joint defense of the Panama Canal. In September he announced the offer of a long-term lease of Cocos Island, 400 miles off the Pacific Coast, to the United States for air and naval bases to guard the western approaches to the Canal. Like the Galapagos Islands off the coast of Ecuador, this island is realized as having strategic value to the United States. Again, at the close of the year, it was reported from Costa Rica that the project of the United States to assist in the establishment of defense bases in Mexico, Nicaragua and Costa Rica, the bases to belong to the country of their location and to be managed by United States officers only in the event of war requiring the defense of the Canal and of the Americas generally, had the support of the Costa Rican people. Opposition to this question of bases has been articulate, too, and hemisphere defense has been attacked by the defeated Communist presidential candidate as a cloak for North American commercial supremacy in Latin America.

Similar criticism has been made of the Costa Rican section of the Pan-American highway, to be constructed with a $4,600,000 Export-Import Bank loan, announced Sept. 24, practically 60 per cent of the proceeds of which are to be used for the purchase of equipment in the United States. This was the first commitment under the increased Congressional appropriation to the Export-Import Bank (see also ARGENTINA), and is assigned to an undertaking which is of strategic importance in connection with Canal defense. It will benefit Costa Rica by partially meeting the unemployment problem due to the drastic curtailment of the Republic's coffee market. The Communist attack on the road maintains, however, that the country needs a highway running from the Atlantic to the Pacific, not a military road southward.

Improvement in the coffee situation is hoped for now that the United States marketing quota fixed at 200,000 bags annually for the next three years (see EL SALVADOR), has been established. This figure compares very favorably with actual shipments to the United States of 110,000 bags during the crop year 1939-40. Further credits may be needed from the United States, however, to purchase surplus coffee, 50 per cent of which will remain unsold, although the government has agreed to take up this balance and issue money against it. The heavy import surplus is, in part, due to the expenditures by the United Fruit Company, about $9,000,000 out of a proposed $15,000,000, on its project for the Parría-Quepos banana development on the Pacific slope. This enterprise represents the best example of scientific banana farming in the world. Although marketing Costa Rican coffee is a serious problem, cocoa and banana exports have been well maintained this year. A plan for rubber cultivation has been proposed to Costa Rica by the United States Government, as the result of an investigation conducted by the Department of Agriculture under a $500,000 appropriation for the study of mass production of rubber in the Americas, by which the United States would furnish the money to establish a rubber industry and set up experimental stations under United States specialists.

1939: Costa Rica

A political move without precedent in Costa Rican history was made in July when a united front of all opposition parties, including the Communists, was formed to oppose Dr. Calderón Guardia, President Cortés Castro's semi-official candidate for president in the elections to be held in February 1940. The new bloc is called the National Democratic Alliance. It has declared that democratic institutions in Costa Rica, which is unique among Central American republics in the strength of its democratic tradition and practice, were threatened by official pressure. The Alliance has succeeded in getting 80-year-old Dr. Ricardo Jimenez, three times President of the Republic and a personally popular and very able political figure, to run as its candidate. Political excitement in the country is great.

President Somoza of Nicaragua during the year unsuccessfully attempted to negotiate a treaty with Costa Rica for the canalization of the San Juan River, a feature of one of the three suggested plans for a second interoceanic canal. Costa Rica has never accepted the Bryan-Chatnorro Treaty, which grants the United States canal rights across Nicaragua, because of the failure to consider Costa Rica's rights in framing that pact.

A measure, before Congress since 1937, was passed in March establishing a customs surtax of 100 per cent on imports from nations with which Costa Rica has an unfavorable trade balance. This law will affect Japanese imports principally, Japan's favorable balance from 1935-38 being $2,766,833. Italy's action in curtailing the use of coffee is likely to cause a surcharge on Italian imports also. The object of the measure was to protect, by greater reciprocity, trade with the United States and Great Britain. Germany replaced Great Britain as the heaviest purchaser of Costa Rican coffee in 1938-39, German ownership of coffee plantations and control of coffee-cleaning plants aiding the Reich's trade with the Republic.

Germany's extensive economic interests in Costa Rica and the proximity of this Central American republic to the Panama Canal have led to a sharper fear of Nazi penetration and espionage here than in any of the other Central American states. On the other hand, the exceptional adherence of Costa Rica to democratic institutions and procedure should make it less fertile soil for Nazi propaganda.

A plan was announced in March for a three-year resumption of interest payments on the Republic's defaulted dollar bonds, outstanding to the amount of $8,131,720. In its statement recommending nonacceptance, the Foreign Bondholders' Protective Council said. 'The council feels, and its feeling is confirmed by disinterested studies, that Costa Rica could make a larger service. The council considers the service unjustifiably low in view of the fact that Costa Rican revenues in the past two years have been the highest in the country's history; yet the offer now made is the lowest Costa Rica has ever made to the bondholders and represents only 3.4 per cent of the Government's budget for this year.'

1938: Costa Rica

Expropriation of the properties of a North American owned subsidiary of the Electric Bond and Share Company, representing an investment of $3,000,000, was voted by the Costa Rican Congress in August but, since Costa Rica's Constitution calls for payment before expropriation and since funds for compensating the owners were not available, the actual taking over of the properties did not seem imminent. It is thought that the step was taken to give President Leon Cortes authority to negotiate an agreement with the electric company. The National Electric Board has had nationalization of electrical services under consideration for years. It may be that Mexico's expropriation policy and the interpretation in Latin America of President Roosevelt's Pan-American Day speech as recognition of the principle of expropriation on payment of the original investment minus depreciation, may have influenced this move of the Costa Rica Government. The valuation of the electric company's properties was increased in May for assessment of direct taxes and back levies. In October, Germany offered to establish competing electric plants, equipped with German machinery, credit payments to be made in coffee at the rate of 25,000 sacks annually.

Since coffee is the chief product of Costa Rica, the 6 per cent increase in cost of living in 1937 is attributed largely to the lower price of that commodity following Brazil's abandonment of its price maintenance policy. This shift in policy led Costa Rica to reduce the coffee export tax. Reduced revenues make desirable a reorganization of the taxation and revenue system of the country, and the government has engaged a Chilean expert to recommend necessary changes. The budget for 1937, which estimated expenditures at 32,597,872 colones, revenues at 32,804,000 colones, stood as a working basis for 1938. The United Fruit Company will invest $10,000,000 in developing 4,000 hectares in the uncultivated Pacific coast region of southern Costa Rica, according to a contract approved July 21, which calls for an export tax of two cents a bunch on bananas for the next fifty years.

There has been little change in the political situation during the year except that by the Congressional elections held Feb. 13 the Cortes administration regained majority control of the Congress.