Luis Guillermo Solis, president of Costa Rica HARDtalk

Welcome to HARDtalk, with me, Stephen Sackur.

They used to call Costa Rica the Switzerland of Latin America.

It seemed so much more stable, peaceful

It didn't even bother maintaining a standing army. Well, it still

doesn't have that army, but it does have some very un Swiss like

problems. A budget crisis, endemic poverty, organised crime and

corruption. My guest today is Costa Rica's president, Luis Guillermo

Solis. He came into power promising change, so what has gone wrong?

Mr President, Luis Guillermo Solis, welcome to HARDtalk.

I am pleased to be his. I guess your career over the last two years is a

lesson in how fickle public opinion can be. You came into office with an

extraordinary mandate. I think it had 78% of the presidential vote.

Today you have an approval rating which when I checked the polls was

standing around 14 - 15%. What has gone so wrong? We are trying to

solve all of the problems you mention at the beginning of the

problem. We are finding a lot of resistance. Polls are like

photographs. They change with time. I was fourth before being elected

president and then something happened in 1.5 months, so I know it

will change. What is important is to address issues we have mentioned,

and others we are dealing with, and solve problems as the people would

like to see them solved after years of neglect. What is interesting

about you is as indicated you were not very well-known in Costa Rica as

a big-time politician before running for president. You told the people

you were fundamentally different. You would do politics differently.

There were some symbols you indicated. You said if you win you

won't have pictures of yourself in everyone's offers. You won't have

placques referring to you as president. Things will be done

differently. The public seems to not buy the idea that you are different.

This is a big discussion -- plaques. How much can you change in four

years and what was the expectation of the people? They convened by a

campaign insisting change. I continue to say that we are changing

things. But there is a dynamic in a country that has been as you mention

stable for a long time and then started to decline 20- 30 years ago

with economic problems, corruption problems. These are problems I

promised to address in the campaign and which I am working with. As I

say in Costa Rica, the people elected me for four years, not two.

There comes a point and I guess you have reached it now when promises

don't hold good. If you are not delivering, you are not delivering.

If we get to the problems, let's start with the economy and public

finances. You have completely failed to get on top of what is a

dangerously high public deficit. Not quite. We are dealing with the laws

require to be changed in Congress and furthermore the economy is

strong sans the deficit. If you look at what I promised it was a growing

economy, a stable and solid economy, which is happening, except with

regards to the deficit. Politics is great because you can make promises

that mean everything and nothing. You promised work and happiness. You

don't have much happiness right now. What we have promised, it is not

fair but what we have so far is an economy growing at 4.2%, double the

average in Latin America. Zero inflation. How terrible that you can

deliver that growth and have a deficit of 6%. Because of structural

problems after decades... You promised to address it and you

haven't. If we go through it you have choices. You can impose taxes.

You have talked about a new VAT sales tax. It seems you haven't

delivered on that. That is a process in which we are. We have some time

to do it. It is the responsibility shared with the legislative. This is

an issue that four previous governments couldn't address. This

is a new bid. We presented the project change the laws to the

Congress. Eight of them. Six have to do with expenditure, two with income

and we are dealing with them as we speak. This is not the end. We are

dealing with it. We will get to expenditures in a minute. If we

stick with taxation for a moment, Costa Rica has an extraordinarily

low level of income tax. 13%. 13% quacks Mac looking at it, only 14%

of Costa Ricans pay tax at all -- 13%?! That is unsustainable. This is

why we are trying to increase it a little bit. I don't believe in zero

deficit. We have agreed with the international financial

organisations to drop it 3.75% to a little more than 2.5% deficit. The

IMF says you has no choice. In a report the IMF said that the public

debt to GDP ratio in your country is on an unsustainable path. It is not

something you have agreed. You have no choice. We have agreed. They have

helped us with projects presented to the legislature. We have a good

relationship with the IMF. They have agreed what we are seeking is what

is needed. We don't need to go to zero deficit as some of my opponents

would like to see. This is out of the question. We cannot have that

without risking Costa Rica to social turmoil. We will get to that

possibility in a minute. All of the other things are fine. LAUGHTER they

are not fine! Look at the international ratings agencies, SNP

reduce your credit rating to negative outlook BB-. You are in

danger of becoming the sort of country no one will lend to. That is

because of the deficit. I know that! If you look at the other indicators,

they are up, GDP growth for .2%. Last year the indicators were 2.8.

We have almost double that. -- 4.2% this is double the average in Latin

America. More investments, up 14%! Here you are in London trying to

persuade business to invest. I think you seem to see foreign direct

investment as a way out of your economic troubles. Undoubtedly.

Imagine I am an investor. Let's talk, you and me. I am thinking

about putting money in Costa Rica. I see the credit ratings agency have

cut your rating. That alarms me. It means there is more risk. I also see

that you are struggling to keep a lid on labour unrest. You have had a

national strike, the health service, the schools service in uproar

because of cuts you're trying to make to public expenditures. I am

thinking as an investor, this country is not stable at all, never

mind Switzerland. You have not seen the other statistics I am trying for

you to look at. Costa Rica remains one of the most stable political

democracies in the western hemisphere. It continues to enjoy a

solid social security system, which I think explains the stability of

the country. It continues to have one of the most experienced and well

thought of educational systems, public educational systems, in Latin

America. (CROSSTALK). The problem is you cannot afford these things.

Social welfare, education system. Not only do we afford them but we

are keeping that responsible path. We have a constitutional mandate to

invest as much as 8% of GDP on education. My Administration has

taken that amount to 7.89%. I have vowed to have the 8% achieved at the

end of my mandate. That continues to be a serious objective of the

government that we have not neglected at all. Let us talk about

the way in which you pitch your bit for foreign investment around the

world. It seems to me the one place where you have really had traction

in recent years is China. China has put a lot of money into Costa Rica.

Not quite. The US and Europe. China has not put much. They have put a

lot of money in Latin America but in Costa Rica it has not been the case.

China has been investing in one huge road which will make San Jose close

to the Caribbean but the new port... You have been to see the

President. Three times. You came back bearing gifts. You were

delighted you have a grant of $25 million. But then soon afterwards

news came that one of the most important ventures with the Chinese,

which was a major new oil refinery which you had been planning for the

last nine years, the whole project collapsed. The contract didn't work.

It was not my contract. I inherited it. We try to change it. President

Xi try to change it. It didn't work out. We decided that it was not

worth pursuing. What is the lesson on the dangers of relying on foreign

direct investment to get your economy going? You have to do things

right, not wrong, you need contract and good incentives, you need to

seek for what you can do and have a clear vision of what you need. So

far we have developed enormously in the service sector. Tourism is up,

double digits, we are back... The numbers before the crisis in 2008.

We are extremely well suited in medical devices, for example. We are

in sophisticated manufacturing. And so you have to find investment in

areas where the country can profit from and these are a couple of them.

And we have others, obviously, but these are fundamental. Isn't one of

the saddest indictments of not just your record but the record of the

last few administrations that you've delivered economic growth, as you

say Costa Rica is a tourism centre for people from the US, Europe.

Canada. All sorts of places, you have strong points, but you have

consistently failed to deliver up on poverty reduction or indeed

elimination. Compared with other central American countries you are a

richer countries. One fifth of the population. That 20% who are poor,

some of them really poor, it hasn't died in the last 20 years. Whereas

Nicaragua, much poorer, but they are actually delivering on poverty

reduction. Why are you failing so badly? It has to do with several

things, fundamentally employment, with the economy not growing as fast

as it should. This is the main explanation. We opted for making the

Costa Rican economy associated with the most dynamic processes on the

global world and we forgot that most of our own educated workforce was in

the agricultural sector, and that was left behind. One of the things

that I vowed to do and I am doing was try to bring that back. To

strengthen the internal markets where the small and medium-size

enterprises can generate more jobs. This is I think the fundamental, key

issue. We will grow stronger and it will grow faster, and that number

will go down. This will explain some of the country is growing as fast as

they have. And other explanation is, you are frank about it, you talk

about it, corruption. The elite and those who are well-to-do in Costa

Rica have consistently creamed off quite a lot of the assets of the

country by way of corruption. This was the case in the past. 7% of GDP

you said was lost in corruption. Latin America. This is the overall

number, the ID, international development bank, users. I have had

no cases of corruption in the last two years in my Administration --

IDB. In your administration? In your due respect I don't think that's

what most Costa Ricans believe. They are wrong. Show me where it is one.

There is no corruption. Obviously I am not talking about petty

corruption, that could happen everywhere. I am talking cases where

leaders of the country or hierarchs in institutions are somehow found

doing wrong doing. That's not the case. If there is no corruption, if

all your public officials in all branches of government are

completely honest, then they must be incompetent, especially in law

enforcement, because if you look at what the United States bureau of

international narcotics and law enforcement is about your country

and other international observers of the drugs cartels and their money

laundering activities, you will see that right now in your country today

there is major money laundering going on. The drugs cartels use your

country as a sort of entrepot for getting drugs from Columbia to the

United States and Mexico. You know this is happening. If officials are

not helping them they are just incompetent. In your country and

elsewhere, money laundering is a huge problem. Nobody can claim that

it has been detected and solved anywhere.

The country currently catching more drugs is Costa Rica. Much more than

those who are closer to the US. We have been getting more than

everybody else because we are popular and the police force is

competent but the drug-trafficking continues to be a big challenge to

all the countries here. That is true. But is their culpability in

and out of the country? The bureau of narcotics in the USA that Costa

Rica a complex bureaucracy which slows capture and it remains a

nagging issue. One of the top three countries for cocaine transition

into the US. Organised criminal elements are wielding a growing

influence. We have been working with the US agencies including the FBI

and the EA. Diplomatically. We want to deal with this. You talk a good

game but the fact is that on the ground times of cocaine are still

going through your country every us. -- tons. This is a regional issue.

And producing the flow we are part of the corridor. Other countries in

Central America are fighting it off on land, in the sea, in the air, and

we are doing it successfully. Is there a continuation of this

phenomenon in the region? Of course. It will continue to be. This is one

of the most profitable criminal businesses in the world. This raises

the other element in our conversation, you are desperate to

save money and have been imposing austerity on things like law

enforcement. Going back to a US report, they say this trend, drugs

going through your country, raises serious concerns about the Costa

Rican's ability to prevent these criminal organisations from

furthering their business. Even though you say you are committed to

the fight against international drugs crime you and putting the

resources into it to allow you to prevent it. -- aren't. This

situation needs to be handled every day. Investments in security are

necessary to deal with drugs, but also contraband and other organised

crime activities. The government has committed to this and will work with

the private sector to stop this. We aren't capable of putting an end to

drug-trafficking in Costa Rica and the Caribbean area, this has to do

with the production of drugs down south and the incoming drugs in the

USA and Europe. Drugs are thriving. We are victims of this, not part of

the problem. Do you agree with your Attorney General who said recently,

a quote, there is no returning to the peaceful Costa Rica that was

free of violence and criminal organisations. Costa Rica is now a

violent country. If you look at the numbers for Costa Rica itself, that

may be the case. But Costa Rica is one of the more safe and less

violent countries in Latin America. But it is a question of trajectory.

Not so long ago I was in Honduras with HARDtalk, it has the highest

murder rate in the world for a country not at war. Honduras, you

know more than I do, drug cartels are killing those countries. It

could happen to you. Of course. That is why we are dealing with these

issues. We want young man who are unemployed to stop getting involved

in drugs. Statistics say it is most likely them. That is why employment

is also important. Not only in cities, but the borders and the

coasts of Costa Rica. But if you look at the statistics, yes, violent

crime has risen. Last year we had a peak. It has come down already. We

want to keep it down. It is a permanent concern of ours in order

to keep it down. There is a very violent debate about legalising

drugs in Latin America. Uruguay has gone that way. Colorado and other

states in America have looked at it. Europe, Portugal, they have

legalised drug use to a certain extent. Is that the answer? That

isn't the answer. The problem isn't marijuana, it is cocaine. And nobody

is talking about legalising that. Maybe it is time. It isn't being

discussed. Should be? Maybe. We should put it on the table. Argue

putting it on the table? I think the legalisation of drugs in general

needs to be discussed. -- Are you putting. We need to see the benefits

and negative consequences. Are you for it? I am against it. But I am an

academic. I like to see evidence of things. And I don't see conclusive

evidence yet. I haven't seen countries that have legalised

marijuana dealing well with hard drugs. We also have to look at the

networking around cocaine which is extremely violent. That is in the

case with marijuana all the time, especially with personal usage,

which isn't a criminal activity in Costa Rica. We haven't criticising

the person using marijuana as in most countries around the world. But

the legalisation of the drug trade and hard drugs in particular is not

a good idea. It down is like a daft question but I was intrigued. You

say it isn't illegal to use marijuana. Have you used it? No, I

haven't. Let's talk about something else. We have talked drugs. The

movement of poor people in particular. In the case of the

Western Hemisphere, those who want to get to the US. For you, it is a

2-pronged challenge. One is Cuba. Americans have lifted the wall. That

is affecting you. Many Cubans are worried the US laws may change soon

because of the normalisation of relationships. They are trained to

get to the US right now. Many are coming through your country. --

trying. How worried are you about the amount of Cubans you are having

to deal with? We have had 6500 stay in Costa Rica because Nicaragua

closed the borders to them. We have had to deal with that mass of human

beings. They were potentially a letter to Mexico. They were. Others

went by land. -- airlifted. First to El Salvador and then on. The same

thing happened with the migrants in Panama. They have just enacted a

similar strategy with Mexico for 3500 Cubans that they had. It

sounds... Many could still come because they are in Ecuador. That is

right. Is your message to the US that you have to change the law?

Yes. I sent a message to President Obama. Unless they have a drive for

the policy... For example, the Cuban Adjustment Act and other laws.

Otherwise it will continue. They are coming formerly out. It isn't the

situation with other migrants coming through Central America without

papers. -- formally. Poor people are often seeking... They are flying to

South America and are desperate to move up the continent to get to the

US. I use for defying your borders to make sure they don't get through

the country? -- are you for defying. Those who come and are

identified at the border are put through migration procedures which

basically means they are brought into a detention centre. We try to

find out where they come from, whether they have children. They are

then taken to a place they can safely be given help, not a

detention centre. They should not assume they can come through, but

they can. We can't guard every inch of the border. The alternatives are

to deport them back to where they come from and sometimes we don't

know where that is. A final thought. You were a surprise

president. You have two years left and you have had to years. Are you

still think you can accomplish everything you have promised even

though you aren't going to have a second term? I will deliver those

promises. I haven't hated being a president. Eye-watering to them. Are

you sure? Absolutely sure. -- I will deliver them. Mr president, thank

you very much for being on HARDtalk. Thank you for your time.

A lovely day on Tuesday, many places were dry and bright,

The closer you were to the North Sea coast there was a nagging

north-easterly breeze making it feel chilly at times and more cloud into