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Costa Rica y esa Elusiva Competitividad
Bobbin / February 1996

By Larry Luxner

Costa Ricans pride themselves on having Central America's highest standard of living, its most stable democracy and its strongest economy.

Yet the country's apparel sector is clearly in trouble.

According to the Camara Textilera Costarricense (Cateco), based in San José, the true cost of garment production in Costa Rica now comes to $2.22 an hour -- compared to $1.46 an hour in the Dominican Republic and only $1.14 an hour in Honduras.

Furthermore, high interest rates, inadequate port facilities and the threat of higher taxes have sent three prominent textile manufacturers packing, leaving nearly 1,500 unemployed workers. In May, "drawback" plants Pegaso (makers of Jordache), Beltica and Perryco -- which had been operating in Costa Rica for 11 years -- pulled out due to high operating costs. The three were generating $17 million yearly in exports. In all, say Costa Rican sources, 28 apparel companies have reportedly closed as a result of NAFTA and competition from Mexico.

At first glance, the overall numbers don't seem that bad. Costa Rica's apparel exports to the United States under the Item 807 program came to $259.2 million for the first five months of 1995 -- a 21% increase from the $214 million recorded for the same period last year. But that's not much when compared to Costa Rica's chief competitors in the region. Honduras, El Salvador, Guatemala, Colombia, Jamaica and the Dominican Republic all saw exports grow faster, not to mention Mexico, which enjoyed a 128% jump in apparel exports over the same period.

"The Costa Rican textile industry is having difficulties because of the high costs," said Philip Goldberg, owner of Industrias Goldberg S.A. and vice-president of Cateco. "The government's Ministry of Foreign Trade has acknowledged that fact, and they're analyzing what they can do to make Costa Rica more competitive. We've set up a work group with the private sector to try to deal with this problem."

According to executive director Gabriela Lobo, Cateco's membership roster includes 1,000 businesses, of which 150 are important exporters. About 70% of those are American companies with subsidiaries in Costa Rica.

Goldberg, who's been in Central America for 17 years, says his company employs 450 workers in the assembly of ladies' raincoats and technical outerwear to such brand-name companies as Patagonia, Macy's and L.L. Bean.

"We're hoping for two things," he told Bobbin in a telephone interview from San José. "One is that we get parity with NAFTA, and the other is that the government take the situation that we're confronting seriously. We're not asking them to lower wages in colones, but if we had a devaluation policy that at least kept up with inflation, we wouldn't be losing ground and having to pay a tax every time we exchange money. Apart from that, we hope that the cost of electricity will go down to a more manageable rate, and that port charges will go down as well."

Goldberg said that unlike surrounding Central American countries, where manufac-turers are offered cut-rate electricity as an incentive to locate there, Costa Rica actually charges industries more. At the moment, power costs about 15.5 cents per kilowatt-hour, compared to 8 cents per kWH in Honduras and only 4 cents per KWH in Nicaragua.

Whether the government can respond immediately to Goldberg's concerns is questionable. President José María Figueres is up against the country's worst protests in 25 years, and opposition politicians say things will only get worse unless Figueres changes Costa Rica's economic course.

In August, nearly 100,000 workers -- the largest show of labor force in years -- demonstrated against a new law covering teachers' pensions. The workers were also angry about plans to privatize several state-owned industries and fire about 8,000 employees. Noticias Aliadas reports that police eventually broke up the demonstration with billy clubs and tear gas; at least eight people were injured in scuffles with police. The draconian measures were adopted to confront Costa Rica's spiraling fiscal deficit, now more than 8% of gross domestic product.

There is one bright spot in an otherwise gloomy picture, however: Costa Rica's apparel industry has pretty much escaped the controversy surrounding working conditions plaguing the rest of Central America.

"In that aspect, Costa Rica has a sterling record as far as labor problems. Our labor laws are among the strictest in the world," says Goldberg. "We believe Costa Rica is a stable place and we're very happy with being here. We just hope the economic trend of the last five or six years will at some point correct itself. But we don't want anything to happen radically."

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