Bonds Scandal Suggests that China Bought Costa Rica’s Allegiance.

Last week, news that China had swayed Costa Rica’s political allegiance with the purchase of $300 million in bonds was broadcast around the world. After much speculation and international opinion making, the Costa Rican Treasury department said yesterday that it would not release further details regarding the bond purchase, claiming that they had already provided the general public with sufficient details.

The scandal began many months ago, when Costa Rica switched its political allegiance from Taiwan to China. Though reasons for the change were somewhat unknown at that time, Costa Rica announced in June 2007 that it would no longer recognize Taiwan as a sovereign nation, a prerequisite to establishing ties with China. The two Asian nations have been embroiled in sovereignty dispute for years, and the decision left Taiwan with one less ally in the world. Less than a week after Costa Rica’s announcement, Taiwan withdrew financial support and its embassy from Costa Rica.

At the time, it was believed that Costa Rica’s choice was ultimately based on its desire to team up with a rising economic giant and open the country to one of the biggest markets in the world. “Taiwan has been very generous and I thank it for the solidarity and cooperation it has shown for nearly 60 years, but I have taken this decision thinking of all the Costa Ricans… it is an act of elemental realism,” President Oscar Arias said at the time.

Following his words, Jiang Yu, Chinese Foreign Ministry spokeswoman stated, “the establishment of diplomatic ties is in the interest of the two countries and people… it has paved the way for friendly and beneficial cooperation between the two sides.”

The Taiwan government, however, was disheartened and disappointed by Costa Rica’s decision. “I’ve asked our embassies to take extreme precautions against any further pressure by the Chinese communists… this is not something that a country which stands for peace and democracy should do, cut ties with its partner of sixty years,” Taiwan Foreign Minister, James Huang, said.

Last week, documents were released in Costa Rica that detailed another reason for the country’s changing allegiance: China had agreed to purchase $300 million in Costa Rican bonds at a paltry 2 percent interest. Both governments had intended to keep the agreement a secret, but a Costa Rican court ruled that the documents were in the public’s interest and therefore must be released. The fallout was heavy, with both national and international organizations and individuals weighing in on the topic. Most are calling the scandal a part of China’s “checkbook diplomacy”, a tactic that both countries have used to gather allies to their respective sides.

For the most part, the world was shocked by the revelation. Nationally, Costa Ricans reacted with mixed emotions, while the government scrambled to cover its economic bases. Guillermo Zuñiga, the Costa Rica finance minister, warned that the public information could jeopardize Costa Rica-China relations, and possibly cause the larger country to rescind on its second $150 million bonds purchase (only $150 million have been purchased to date).

On September 16, Jose Adrian Vargas, National Treasurer, declined to address public interest regarding the issue and its continuing interest. “We believe that we have given sufficient information on the topic… the required information,” read the Treasury’s official statement. In other words, the Treasury does not care to incite further international embarrassment, and plans to stay mum on all further details until legally obligated to confess.

Photo courtesy of La Nacion.

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Filed under: Costa Rica News on September 17th, 2008