Costa Rica endorses China’s mega infrastructure initiative

New agreement could unlock project finance, but have the two partners learned from past disputes?


Chinese ambassador to Costa Rica Tang Heng signs a BRI agreement with vice president and foreign minister Epsy Campbell (image: Fabíola Ortiz)

Costa Rica pledged to promote China’s Belt and Road infrastructure initiative (BRI) on September 3 with the signing of a memorandum of understanding by vice-president and foreign minister, Epsy Campbell and Tang Heng, China’s ambassador in the capital San José.

The Central American country is the second to sign a BRI agreement with China after Panama, in June last year. The move could encourage more countries in the region to join the ambitious trade corridor, analysts said.

“El Salvador has recently joined as one of the countries that recognise ‘One China’, and it will happen sooner or later with the rest of the countries,” international trade consultant Fabio Piedra told Diálogo Chino.

In Central America, they are interested in asserting power in the area of their potential rival, the US

Chinese President Xi Jinping launched BRI in 2013 with the promise of revolutionising global trade through infrastructure projects in Eurasia, Africa and now in Latin America. Trinidad and Tobago, Antigua and Barbuda, and Bolivia have already signed agreements under the BRI banner.

Chinese companies have already established 82 ‘economic and commercial cooperation’ zones’ in countries supportive of the BRI, with investment of US$29 billion and the creation of 244,000 jobs, according to a press release issued in advance of the event.

Tang declared the initiative to be a new paradigm for international cooperation.

“This initiative stands out for its qualities of openness, transparency and inclusion. It is not a geopolitical strategy tool in any sense, nor does it seek to set up exclusive clubs or to pursue a sphere of influence. All countries willing to participate will be equal partners”, he said during the signing ceremony.

However, Constantino Urcuyo, an expert on international cooperation from the University of Costa Rica (UCR), said that China is waging a political battle to expand its global power through diplomatic channels.

“In Central America, they are interested in asserting power in the area of their potential rival, the US,” he told Diálogo Chino.

BRI also stands accused of being a vehicle for China to dump its surplus industrial capacity in developing countries and of supporting environmentally harmful projects.

What are the benefits for Costa Rica?

Many BRI projects are financed by the Asian Infrastructure Investment Bank (AIIB) and Costa could yet benefit from funding as the new multilateral institution looks to extend lending to Latin America. However, China Development Bank and China Exim Bank – two state-run ‘policy banks’ – lend amounts for infrastructure to the region and it is not always clear which banks finance BRI or non-BRI projects.

China announced that it would inject $8.7 billion in aid for new countries that join the initiative.

Ambassador Tang told Diálogo Chino, there are several funding tools under the BRI framework, but still no precise figure on aid to Costa Rica. Campbell said Costa Rica is considering whether to accept contributions from the AIIB for infrastructure projects.

“This is a possibility that may open up, and we are assessing everything, along with our entire country’s portfolio. As long as this partner [China] offers us better conditions than the others, we will then utilise the framework of the Belt and Road to finance some projects,” she said.

However, the International Monetary Fund (IMF) has expressed concern about the initiative because of the possibility of indebtedness and the risk of non-payment, as happened in some countries such as Sri Lanka, Mongolia and Pakistan.

Piedra played down the risk of this happening to Costa Rica, saying it would benefit from financial assistance from a Chinese bank, providing it is long-term.

“We all had to go to a bank to finance our first home. It is a risk that we are willing to take – and we have a friend to count on,” he said.

China-Costa Rica relations

Costa Rica established diplomatic relations with China in 2007. Over the past eleven years, relations have focused mainly on the construction of specific infrastructure projects.

However, a shelved project to modernise and expand an oil refinery in Moín, in the southern province of Limón, has strained relations.

In 2013, the Comptroller General of Costa Rica highlighted a conflict of interest in the project’s feasibility studies given that they were undertaken by a subsidiary of the Chinese partner. The dispute arose in April 2016 when the Costa Rican Petroleum Refinery (Recope) Board of Directors decided to dissolve the Chinese-Costa Rican Reconstruction Corporation (Soresco).

Recope and Chinese partner the China National Petroleum Corporation International (CNPCI) are presently in arbitration at the International Chamber of Commerce in London. According to reports, the hearing may last until the middle of next year.

This small country can be a very good ally in climate matters, conservation projects and general well-being. Costa Rica can contribute enormously to China’s green development strategy

But according to Campbell, the past has lessons in how to resolve future disputes more efficiently:

“Beyond contemplating specific projects at this particular time, this agreement allows us to begin to examine what are the real alternatives that will be of benefit to the country, and to think about them from a long-term perspective rather than an immediate one.”

Tang agreed and said it is “normal” for some commercial projects to fail: “We are going to resolve this international arbitration as soon as possible. It is important that we now look to the future. In this case, we now have the experience to lay the groundwork before commencing a project in Costa Rica,” the diplomat said.

Piedra said that the priority with China will be to attract investments that commit to protecting the environment, while moving away from polluting industries.

In less than three decades, the small country sandwiched between Panama and Nicaragua experienced a drastic change in mentality and environmental policy.  In 1987, only 21% of Costa Rica’s territory was protected by forest cover. Today, that number includes more than half of its territory.

Successive governments have embraced progressive environmental policies that included payment mechanisms for environmental services. New president Carlos Alvarado Quesada has now pledged to make Costa Rica the first carbon-neutral country by 2021.

Piedra believes that partnering with China has mutual environmental benefits:

“This small country can be a very good ally in climate matters, conservation projects and general well-being. Costa Rica can contribute enormously to China’s green development strategy.”