Costa Rica : cash transfer evaluation

Cash Transfer program in Costa Rica concludes that the program has had positive effects on public policy formation and actual economic development, leading to successful short-term stabilization and intermediate-term structural adjustment. Dollar transfers under the program have been linked to policy reforms designed in consultation with the World Bank and the International Monetary Fund. These reforms have included privatization, exchange rate unification, tariff rationalization, export promotion, fiscal deficit reduction, and financial sector restructuring. Successes have included complete exchange rate reform, limited privatization, substantial nontraditional export promotion, substantial fiscal deficit control, and substantial liberalization of the private financial sector. Success is not yet evident in the area of tariff reform, however, and the progress of privatization is slower than originally scheduled. Local currency projects under the program have had more immediate impacts, since they involve direct expenditures. project funded under the Costa Rica Cash Transfer program established a private sector investment promotion agency (CINDE) which has had significant success in promoting foreign investment and exports. Later projects supported the divestiture of the state holding company (CODESA), the development of the private financial sector, and several infrastructural activities. Though the evaluation team concluded that most of these projects yielded positive results, performance in terms of project selection could be improved by reducing the number of projects funded and by subjecting local currency projects to scrutiny similar to that given to development assistance projects. The project team found no overt evidence of dependency created by the A.I.D. Cash Transfer program in Costa Rica. the existence of a single external foreign currency source reaching 5% of GDP does at least create the possibility of a growing economic dependency on that source. One of the prime recommendations of this report is that future ESF Cash Transfer programs be designed with a specific timetable for phaseout and a prior analysis of potential dependency creation. In summary, the evaluation team concludes that the objectives of the Costa Rica ESF Cash Transfer Program have been met, but that certain administrative reforms are advisable. (Author abstract)