300
Financial Services and Preferential Trade Agreements
30. El Salvador and Guatemala were interested in allowing their financial groups effective access to supply financial services for the millions of Salvadorans and Guatemalans residing in the United States. Salvadoran and Guatemalan banks thought U.S. law contained a series of measures that acted as barriers to the establishment of their commercial presence in several U.S. states. Within this context, the financial groups in those countries saw in the CAFTA-DR-U.S. negotiation an opportunity to relax those measures affecting their entry. The problem was that the relaxation sought by those financial groups entailed reforms to U.S. federal and state laws, an outcome that the United States was not willing to accept. 31. Unlike other countries that have also negotiated with the United States, such as Chile and Colombia, Costa Rica did not consider restrictions on capital controls and cross-border investment management services for pension funds controversial issues. Since the 1990s, Costa Rica had liberalized its capital account, and BCCR authorities thought that in the event of a critical situation on this front, limiting capital flows would have harsher effects on the Costa Rican economy than using other policy means. Moreover, Costa Rica has historically not experienced any recurrent or significant problems with short-term capital inflows. Portfolio management services were not controversial either, because the existing Costa Rican legislation did not prevent local investment or pension funds from subcontracting those services abroad, as long as the local entity remained accountable to Costa Rican supervisory authorities. 32. Contrary to other developing countries, Costa Rica had, since the 1940s, successfully developed a welfare state that led the country to remarkable social achievements. In areas such as health, education, and life expectancy, Costa Rica has reached standards typical of developed countries. However, huge public debt and chronic fiscal deficit have decreased Costa Rica’s capacity to finance social spending. Public unions and left-wing political parties have attempted to take advantage of this situation to associate the market-oriented reforms started in the 1980s—and, in particular, the attempts of several governments to open the various state monopolies—with the dismantling of the welfare state. 33. Participation by the INS in the CAFTA-DR-U.S. rounds at an early stage of the negotiations would have been counterproductive. It would have sent the wrong signal, both on the domestic front and to the United States, that the government was perfectly willing to discuss trade in insurance services. Although the INS did not participate in the initial negotiation rounds, COMEX established contact with the highest authorities of the INS to keep them informed about how the negotiation was evolving. 34. In 2004, the former executive president of the INS publicly announced that he was considering running for president in 2006. In the end, he did not.