U.S. trade agreement divides Costa Rica

SAN JOSE, Costa Rica, Oct 4 (Reuters) - Costa Rica votes on Sunday whether to rip up a trade pact with its closest ally, the United States, in a referendum that has revealed sharp divisions in the tropical nation known for its stability.

In the largest march seen in Costa Rica in years, about 100,000 people crammed the streets of the capital San Jose last week to protest the trade deal, which they say will destroy the country's prized welfare system, among the strongest in Latin America.

The latest opinion poll by the La Nacion newspaper shows Costa Ricans rejecting the Central American Free Trade Agreement, or CAFTA, 55 percent to 43 percent. Other recent polls show an even split between supporters and opponents.

Costa Rica, which has no army and boasts of pristine beaches and jungles, has enjoyed almost uninterrupted democratic government for over a century and has much better free education and health care than its mostly poorer neighbors.

Some say the CAFTA issue has injected the country with a democratic energy that it has lacked for many years.

"The referendum has awoken much more passion than many presidential elections I remember," said Luis Munoz, 41, an office worker, who said he would vote in favor of CAFTA.

Supporters of the deal contend that Costa Rica needs to open its economy more and attract enough capital to promote growth, provide more and better jobs and alleviate poverty among its 4 million citizens.

But the agreement would open state-run sectors like telecommunications and insurance to competition from foreign firms, and opponents say that threatens institutions that have contributed to the country's social stability for decades.

"When a poor peasant farmer gets sick he uses a telephone provided by the state to call an ambulance provided by the (state insurance institute) that takes him to a state-run hospital," said opposition leader Alberto Canas, 87, who helped develop the country's welfare state in the 1940s.

Coffee farming, tourism, call centers and microchip manufacturing support the growing economy, which is more diversified than its neighbors and attracts migrants from Nicaragua and Panama.


U.S. Trade Representative Susan Schwab said on Thursday the pact would not be renegotiated in the case of a "No" vote. Many of the deal's opponents say they are pro-trade but argue they could thrash out a better agreement.

The referendum over CAFTA, the world's first such vote on a U.S. trade pact, comes as a culmination of more than 20 years of economic reform in Costa Rica that has seen the country move gradually away from the welfare state and toward free market economy.

"There are clear indications that the population has been resenting this change of models," said Ricardo Sol, a university of Costa Rica sociologist.

The "No" camp received a boost last month with a scandal over a government memo leaked to a university newspaper that urged mayors to use dirty tricks to scare voters to support the CAFTA. A top minster resigned.

President Oscar Arias said in a nationally televised address on Tuesday that rejecting CAFTA would lead the country to miss out on a "universe of opportunities."

Costa Rica is the only country not to have ratified CAFTA -- which includes Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic -- and will be the only nation to decide the issue by referendum.

The pact is in full effect elsewhere in the region after being narrowly approved by the U.S. Congress. Its passage through the parliaments of Central America was often overshadowed by street protests against the deal.

Earlier, Arias said Costa Rica must not isolate itself from the world by rejecting CAFTA.

"We want to be the Switzerland of Central America," Arias told a reporter referring to a common sobriquet for Costa Rica. "Not the Albania of Central America."