Evaluation of the divestiture program of Corporation Costarricense de Desarrollo, S.A. (`CODESA"), Costa Rica, 1984-1988

Key findings are as follows. (1) The USAID Mission in San Jose has pioneered in a new field with impressive success. The Costa Rica privatization program has been a unique experience, but many of the elements designed for it and the problems solved can be useful in planning privatizations elsewhere. (2) Creation of a private sector trust (FINTRA) to function as an intermediary in divestiture activities solved problems which might otherwise have led to failure of the program. (3) The use of local currency generated in connection with A.I.D."s Economic Stabilization Fund (ESF) programs, and held on deposit with the Central Bank of Costa Rica (BCCR), to offset CODESA borrowings from the BCCR in amounts related to an adjusted cost basis valuation of assets divested was essential to the success of the program, had little (if any) cost to A.I.D., and facilitated the demonetization of those funds and avoidance of their potential inflationary effect. (4) The key individuals involved in the program, particularly those working on behalf of USAID/CR, FINTRA, and (since mid-1986) CODESA, have done an outstanding job of initiating, planning, and carrying out an extremely difficult and challenging task in a highly professional manner. (5) A number of mistakes and miscalculations were made in planning and carrying out the program. These were principally (1) a failure to define the valuation method to be employed (or at least to recognize the magnitude of the potential problems which might result), (2) the adoption of an overly optimistic timetable that underestimated bureaucratic resistance, political delays, and problems in the individual enterprises (although it did take into account the probable political need to complete divestiture before the end of President Monge"s term), and (3) a failure to require a change in CODESA management at the outset of the program, or to require that the law enacted provide for the ultimate liquidation of CODESA at the end of the program. These errors or misjudgments (or, in most of the cases cited, acceptance of apparent political reality) are understandable in the light of the pioneering nature of the program, and in fact correspond to identical mistakes since made in privatization programs in other countries. In the CODESA case the resulting difficulties encountered were resolved as necessary without long-term damage to the process. (Author abstract)