INSTITUTIONALIZING EXPORTAND INVESTMENTPROMOTION ORGANIZATIONS:THE CASE OF COSTA RICA'S C.I.N.D.E

Kenneth A. Lanza

CIDR Working Papers Series
November, 1995

The author was a Fellow in the Program in International Development Policy (PIDP) of the Center for International
Development Research during the 1993-94 academic year. He currently serves as the Deputy Director of the Office of Economic
and Institutional Reform for the U.S. Agency for International Development (USAID) in Washington D.C. The opinions
expressed in this paper are the author's and not necessarily those of USAID or any other branch of the U.S. Government. Errorsof commission or omission are the author=s alone.

SUMMARYThis essay examines the institutional development of the Coalici\n Costarricense de Iniciativas deDesarrollo (CINDE) in leading the way for Costa Rica's export-oriented growth. CINDE is an export
and investment promotion organization (EIPO) that was created by the Costa Rican private sector in 1982
with support from USAID. The author argues that despite the unique contextual characteristics of Costa
Rica during CINDE's development, the general lessons regarding the dynamics of successful EIPO
institution-building may be broadly applicable for other countries in economic transition to an exportorientation. CINDE=s experience shows that the basic influences of an organization's legal framework,
internal structures, technical and financial autonomy combined with goals mutually acceptable togovernment are the common denominators in determining successful EIPO institutionalization.

TABLE OF CONTENTSINTRODUCTION1
THE ENVIRONMENT FOR TRADE, INVESTMENT AND EXPORT PROMOTION4COSTA RICA'S CHOICES5
THE LEGAL FRAMEWORK7
THE MANDATE8THE MODELS9CINDE'S ORGANIZATIONAL EVOLUTION10
FINANCING CINDE14ASSESSING CINDE=S ACTIVITIES AND ITS CONTRIBUTION TO ECONOMIC GROWTH16
Foreign Investment Promotion16
Development of Non-Traditional Exports18
Training22
WORKING WITH THE GOCR23
THE TRANSITION TO SELF-SUFFICIENCY25
Self-Sustainability: The Theoretical Effects of Definition, Measurement and Attribution28
The Nature of the APrincipal-Agent@ Relationship and the Structure of EIPOs29
Organizational Structure and Its Impact on Self-Sufficiency31
LESSONS FROM A SUCCESSFUL MODEL33
CONCLUSIONS37
REFERENCES39
ANNEXES42

INTRODUCTION
This essay examines the institutional
development of the Coalici\n Costarricense deIniciativas de Desarrollo (CINDE) in leading
the way for Costa Rica's export-oriented growth.
CINDE, an export and investment promotion
organization (EIPO)1, was created as an
association of 76 prominent local business men
and women on October 29, 1982 under the"Association Law" of Costa Rica.
Itsmanagement was comprised of a ten-member
Board of Directors drawn from its associates.
Funding for the endeavor came almost
exclusively from the United States Agency forInternational Development (USAID), which
provided institutional and programmatic support
to serve a broad range of development
initiatives, including nontraditional export
promotion and the attraction of direct foreign
investment into the country.
While the context is unique, the institutional
development of CINDE is meaningful forevaluating one example of a successful, if
difficult, institutionalization process for tradedevelopment organizations. Assessing CINDE's
experiences may convey some important lessons
regarding EIPO structure for countries in
economic transition to an export orientation.
Generally, there are few examples of successful
EIPOs. Donald B. Keesing and Andrew Singer,in their 1989 publication entitled What Goes
Wrong? Official Promotion and Marketing
Assistance for Manufactured Exports from
Developing Countries, demonstrated by using a
number of developing country cases that official
export promotion organizations failed to meettheirorganizational
andprogrammatic
objectives. The most important reasons forthesefailureswere(1)
inappropriate
institutional structures, (2) inadequate funding,(3) confusion between regulatory andadministrative roles, and (4) inflexible personnel
systems. The organizations that Keesing andSinger studied were severely constrained frommaking substantial contributions towards export
growth and investment promotion largely
because of inadequacies of structure,
insufficient autonomy from government and theinability to attract and maintain appropriatetechnical staff.
How is successful institutional development
measured? While there are many dimensions
and facets which one could use to define
measurement and examine the processes of
institutionalization, there are essentially 12
independent variables which help explain
institutional effectiveness. Those variables are:# degree of specificity of the agency's activities# degree of competition faced by the agency# degree of geographical dispersion of theagency's activities# degree of political support or commitment# degree of overt political intervention# presence of outstanding managers# effectiveness in the application ofmanagement techniques# exogenous factors# result (rates of return) of the project's
investment# degree of success of institutional development
programs# deficit (or absence of revenue) or surplus# lower than average salary levels

In this essay, AEIPO@ and A trade development organization@ are used interchangeably although theconventional lexicon defines the latter=s functions more broadly than the former=s. Essentially, EIPOs
provide services which seek to attract foreign investment, assist foreign investors, educate exporters,
transfer technology and engage in policy dialogue with the government to alleviate constraints to export
and investment growth.
1In a theoretical context, however, three major
sets of techniques have emerged to assess
institutional development.
The first set oftechniques is quantitative, and derives frommathematics and economics. Quantitativetechniques explain institutional developmentfrom an algorithmic perspective but largely
neglect or ignore behavior patterns in theirmodels. The second technique is the systems
approach. In the systems approach, social
science techniques are combined with systems
analysis and include tools such as manpower
and organizational planning, job description andjob evaluation as measurement foundations.
The third set of techniques is adapted from thesocial sciences and examines the structures,procedures and management decisions of theorganization with special reference to the
behavioral responses of individuals and groups.
This essay demonstrates CINDE's institutional
evolution within the context of the social
science framework.
The "state of the art" of institutional
development has evolved along two main lines.
At one extreme is the private-sector, industrialfinancial perspective of management scienceand business administration. At the other is theformalistic and legalistic approach of public(development) administration.
The twodisciplines
have
concentratedontheeffectiveness of institutions at the national,
sectoral, or regional levels, but little has been
done to organize clients or constituents at the
local level and to improve the relationships
between the institutions and their constituents.
Second, the development administration field
has concentrated on the establishment ofinstitutions which were expected to remain2

unchanged for long periods. Third, the role ofpolitics in institutional success is treated as one
more exogenous variable in management
sciences.
While satisfactory for assessing
private sector development, it is a far too
simplistic and unsatisfying explanation forunderstanding the institutionalization of public
service organization, especially if thatorganization is a private organization providing
a public good as in CINDE's case.2
CINDE's story is intriguing because it isdistinctly different from the typical progressionof EIPO institutional development.
Whileorganizational structures of EIPOs varysignificantly from one country to another, nosingle structural pattern can be considered as A
the model@ for success. The setup adopted inindividual countries, by necessity, must reflect
the uniqueness of its context-definedparameters.3
A confluence of contextual
circumstances, including government andprivate sector cooperation, large infusions offoreign assistance and innovative approaches toproblem-solving,
positioned CINDE todramatically and successfully contribute to
Costa Rica's export growth during the 1980s.
CINDE can rightfully claim substantial credit
for helping Costa Rica achieve its export andinvestment goals and in making a successful, if
difficult, institutional transition from complete
dependency to relative autonomy. It is one of
the few organizations of its type to have nearlyreached financial self-sufficiency4 while
managing to avoid many mistakes incurred bysimilar developing country institutions.

THE ENVIRONMENT FOR

The theories of institutionalization and subsequent discussion were adapted from Arturo Israel's book,Institutional Development: Incentives to Performance, Washington, DC: The World Bank, 1990, pp. 1-47.
3
Jaramillo, Camilo. A The Basic Functions of a Trade Promotion Organization.@ International Trade
Forum, 1992, p. 1.
4The concept of financial self-sufficiency is defined to mean the capacity to acquire, from whateversource (donor funding, government contributions, cost recovery, etc.) sufficient resources to maintain aTRADE, INVESTMENT AND
EXPORT PROMOTION
An important part of evaluating the motivation
for CINDE's creation and its eventual success isto understand Costa Rica's macroeconomic
circumstances by the early 1980s. In large
measure, the economic crisis of the early 1980s
was brought about by the partisan politics of the
1960s and 1970s and the inability andunwillingness of successive administrations to
adopt prudential fiscal and monetary policy
measures which would curtail government fiscal
spending and reduce trade imbalances. The late1960s saw a deterioration of Costa Rica's
relationship with it partners in the Central
American Common Market at the same time that
other Central American countries were leaving.
The CACM union became increasingly
irrelevant. By the time José "Pepe" Figueres of
the Partido Liberaci\n Nacional (PLN) became
Costa Rica's president in 1970 for the second
time, liberal trade among member CACM
countries had given way to protectionism,
animosity and deteriorating trade balances.
Under José Figueres' leadership, the newadministration revived old, high-cost PLN
programs
designedtofoster"public
participation in the economy". Those programs
consisted primarily of providing governmentfinanced employment.
At the same time,
Figueres sought to limit Costa Rica's
dependence on its traditional sources of export
revenue, coffee and bananas, through an
agricultural diversification program and byencouraging industrialization through an importsubstitution program.
By 1972, half-way through Figueres' term, Costa
Rica's government deficit reached -4.2 percent
of GDP.
While government expenditures
increased, so did the level of investment. By

1974, the total investment represented 27
percent of GDP. Meanwhile, real per capita
GDP growth averaged 4.4 percent each year
between 1970 and 1974 but was financed
largely by the inflow of external debt whichamounted to 31.3 percent of GDP by 1974.
While real poverty did fall dramatically, thepolicies adopted by the Figueres governmentand subsequent PLN administrations would
prove to be economically unsustainable.
By the time President Oduber assumed office as
Figueres' successor in 1974, austerity measures
had been adopted.
Nonetheless, Oduber
announced programs calling for land
redistribution, nationalization, higher taxes anda stronger public sector with more governmentfinanced jobs. He discounted the austerity
measures which had been designed to saveforeign exchange through import compression
and fiscal expenditure reduction. While theexternal oil shock (OPEC I) contributed to a
declining current account balance, it was
financed by significant external borrowing
which reached 41.9 percent of GDP by the time
Oduber left office.
Excessive government
spending financed with external debt propped
up per capita GDP growth from -1.4 percent in1975 to 3 percent by 1978 when his term ended.
By 1979, the country was on the verge of
economic crisis. Debt service had reached 9.8
percent of GDP, external debt had climbed to59.5 percent of GDP and the Current AccountBalance had declined to an historical low of 13.8 percent of GDP. Until 1978, favorable
terms of trade and external borrowing postponed
the inevitable restructuring. Real GDP growthbegan to edge down and inflation began toincrease sharply, going from less than 3 percent
in 1971 to nearly 19 percent in 1980. The worst
was yet to come.

core staff and provide a minimally acceptable level of services.

Trade Balance$100

1960-1980

Millions of U.S. Dollars$0($100)($200)($300)($400)($500)($600)
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 19

Years
The election of President Monge signaled
increased awareness of the importance of a tradedevelopment strategy. While Monge's campaign
rhetoric had promised to "return the people tothe land", indicating a need to focus onagriculturaldevelopment
andincreased
production, it also signaled a turn to an
outwardly oriented economy. The economiccrisis in which the country found itself by the
beginning of 1981 fostered a realization that an
inwardly-looking policy environment did little
to protect the economy from external forces andan increasingly integrated world economicorder. The recognition of the inability to sustain
Import Substitution and Industrialization Policy,
combined with the difficulties of the CACM,
prompted the Monge government to focus onagricultural
diversification
withexport-oriented focus to third markets.

an

By 1983, the GOCR had announced its support
for non-traditional agricultural production forexport and eliminated all taxes levied on
agricultural and manufactured non-traditional
exports. A unified exchange rate was also
adopted and, in 1985, a crawling peg regime
was begun. The GOCR also created the "export
contract" to encourage foreign investment andexport development which includedaCertificado Abono de Tributaci\n, or valueadded tax rebate program for non-traditional
exports.
Trade with the U.S. grew as Costa Rica's
exports increased. The Caribbean Basin
Initiative (CBI), announced in 1981 under the
Reagan Administration and adopted by the U.S.
Congress in 1983, helped create an environment
which encouraged trade and investment with
Caribbean and Central American countries byoffering duty-free access to U.S. markets for
non-traditional exports.5 By the end of 1982,
the year in which CINDE was formed, only US$273 million (31.4 percent) of Costa Rica's totalexports of US $870.4 million went to the UnitedStates. By comparison, at the end of 1992, US$730 million was being shipped to the UnitedStates alone on an export base of nearly US $1.9
billion.6

COSTA RICA'S CHOICESThe principal structures under which EIPOs
have been established are public institutions orsome form of private incorporation.7 The EIPOs

5

that have been established as a public agency
have been numerous and fall into two basic
categories. First are those entities which are
fully structured as a section, division or
directorate within a ministry of trade orcommerce or industry. Many EIPOs begin as asection of the ministry and then gain some
additional power and become departments ordirectorates. The principal disadvantage withthis type of EIPO structure is that its autonomy
and operational flexibility are often curtailed by
restricting rapid access to financial and humanresources and by forcing upon it standardized
public service procedures which hamper an
EIPO's responsiveness in fulfilling its mandate.
One major advantage, however, is the ease withwhich it can be created; a simple decree by theminister is usually sufficient.
The second type of public EIPO structure is an"autonomous" or "semiautonomous" institution.
This is the most frequently used form forestablishing trade development organizations.
Sometimes referred to as "councils" or"commissions",
theautonomousorsemiautonomous legal basis provides relative
authority and some flexibility to entities whileallowing the government to maintain its public
service standards. The foremost disadvantage inthis type of structure, however, is the confusion
which often arises when the tasks ofpolicy-making combine with implementing
export and investment promotion functions. In
many cases, institutions tend to overemphasize
the former function to the detriment of the latter.
Ideally, autonomous organizations should befree to appoint and manage personnel according
to their particular professional requirements

In fact, the response to the CBI was largely a result of promotion, which increased regional awarenessof the Reagan Administration=s interest in developing U.S. trade with the region.
6
From CENPRO's October 1993 quarterly statistics for traditional, non-traditional exports, free tradezone exports and tourism and from AID's Selected Economic and Social Data for Latin America and the
Caribbean. The figures cited exclude tourism exports. If tourism exports are included, Costa Rica's
export base increases to US $2.3 billion for 1992.
7
This typology and discussion were adapted from Camilo Jaramillo, Trade Promotion Organizations: A

rather than civil service regulations but only a
few organizations actually possess the necessary
leeway to act.
The second major type of institutional structure
is some form of private structure. In somecases, private initiatives formed throughexporters' associations or chambers ofcommerce have carried out promotional
activities. In other cases, associations have been
formed with the responsibilities for export andinvestment promotion divested to the private
entity. This was CINDE's case.
In a move toward an outwardly-oriented
economic structure, one critical decision facing
the Government of Costa Rica (GOCR) in 1983
was whether or not CINDE's responsibilities
would supplant the activities undertaken by
Costa Rica's official Centro de la Promoci\n deExportaciones y Inversiones (Center for the
Promotion of Exports and Investments,
CENPRO). CENPRO was created by law in1968 as the government's official export andinvestment promotion agency.
As anautonomous agency functioning under the
Ministry of Foreign Trade, it engaged in a broad
range of trade development activities andestablished overseas promotional offices but
was staffed with government employees andsubjected to civil service regulations. As apublic entity, its personnel systems werecharacteristically unresponsive and inflexible.
Pressures to respond to political andbureaucratic criteria dominated its behavior anddiminished its organizational capacity to adhere
to technical guidelines.8 By the early 1980s, it
was clear that CENPRO had neither the human,
technical or institutional capacities toaccomplish its goals of export development andinvestment promotion which were the principal
components of the GOCR's outward orientation.
CENPRO's limited budget proved to be just oneof the serious constraints to achieving its broad
mandate to encourage investment and Costa
Rican exports. Resources were scarce, technicalability was poor and CENPRO's institutionalframework was inadequate for managing thedifficult challenges of an increasingly complex
trade and investment regime. At the same time,
U.S. Government policies for Latin America
were emphasizing a "private sector" approach toproblem solving in lieu of traditional
government-controlled solutions.9
CENPRO
had become an unresponsive and bureaucratic
entity, organized in a different time for a limited
purpose and characterized by its cumbersome
processes, ineffective administration andincompetent technical management of trade andinvestment flows between Costa Rica and therest of the world.
In an atmosphere ofstabilization and the outwardly-oriented
economic restructuring of the early 1980s, the
GOCR's planning for CINDE began with anunderstanding of the need to compensate for

Variety of Approaches. International Trade Forum, 1992.
8
As Keesing and Singer point out (in "How Support Services can Expand Manufactured Exports,"
Washington, DC: World Bank Working Paper 544, 1990) tasks relating to export marketing may welldeserve subsidies or direct support when they capture for the country externalities that private firms
cannot. Those services include publishing and disseminating trade statistics, information useful toexporters which are not readily available about markets abroad, and arranging for exporters to participate
in trade fairs abroad. It was not until 1990 that CINDE and CENPRO agreed formally to divide
responsibilities which left many of the responsibilities cited above to CENPRO, especially trade show
support and trade statistic dissemination.
9
The Caribbean Basin Initiative (CBI) was announced by the Reagan administration in 1981 andpassed by the U.S. Congress in 1983. It provided incentives for direct U.S. investment into the region
such as tariff reductions and tax write-offs for U.S. businesses conducting seminars and conferences in
the region, inter alia.

CENPRO's inadequacies in fulfilling its
mandate to lead Costa Rica's move toward an
export driven economy.

THE LEGAL FRAMEWORKThe GOCR and USAID selected a private sector
framework for CINDE's design. The choice ofa private association for CINDE's legal structure
was, perhaps, a critically important element to
its institutional success. The vast majority ofbureaucratic,
government-managed
organizations had failed to achieve their
purposes as numerous studies have empiricallydemonstrated.10 The opportunity to construct a
new model appealed to USAID officials who
were aggressively pursuing private sector
oriented policies. Anxious to recover from theeconomic trauma of the early 1980s, the GOCR
readily accepted a private sector EIPO structurewith hopes of being able to take advantage of
new trade expansion opportunities enacted by
the Caribbean Basin Initiative. Similarly, theyheld expectations that a private sector CINDE
would succeed where a bureaucratic CENPRO
had failed. The issue confronting them was thetype of private institution to create.
Costa Rica's laws allowed for three basic typesof private business structures: incorporation,foundation and association.
A legal"incorporation" in Costa Rica refers principally
to profit-seeking organizations (sociedades
an\nimas). In the case of CINDE, a corporate
structure was viewed as an inappropriate
framework
which
would
distorttheorganization's purpose and motives. The GOCR
viewed CINDE as an organization carrying out
functions critical to achieving the country's
development objective of export and investment

10

promotion. Endowing it with a corporation
status would fail to provide the appropriate
institutional incentives to accomplish its
mandate since the beneficial social returns
would be high but the private returns would be
low.
While Costa Rican foundations were
"nonprofit",
tax-exempt organizations, thecountry's "Foundation Law" was excessively
rigid. It prevented agile responses to intraorganizational changes which active andeffective EIPOs require. For example, anychange to a foundation's bylaws or charter, nomatter how minor, required the dissolution of
the original foundation. A new foundation
would then have to be reconstituted
incorporating the new changes;
a timeconsuming
andexpensiveprocedure.
Additionally, Costa Rica's foundations werelegally obligated to have government
participation in determining the organization's
objectives, its policies and directing its
expenditures. The central government and themunicipality in which a foundation is registeredare legally required to appoint two of the fivefoundation directors. Yet the basic rationale forcreating a private institution rested on theintention to attract private sector representationand to encourage broad participation by
numerous business groups in its activities. Thus
the foundation model was also rejected as an
appropriate framework. USAID officers wereconcerned about the legal restrictions placed on
the number of members permitted on the Boardof Directors and the GOCR's authority over two
positions. Preserving the technical integrity ofthe organization and assuring wide, private
sector representation were USAID goals uponwhich its assistance was conditioned. Excessive
GOCR influence over operational management

See Keesing and Singer, "Development Assistance Gone Wrong: Failures in Services to Promote
and Support Manufactured Exports," Finance and Development, March 1992 (also World Bank Working
Paper 543). Also see Steven Graubart and Elizabeth De Vega, IPAC, Inc., conclusions of primary andsecondary research on EIPOs through 1989.

would limit the ability to technically insulate
CINDE from external political pressures andconstrain broad-based private representation.
USAID and the GOCR determined, finally, thatthe closest acceptable legal framework was an
association. Under the law, a Costa Rican
association could establish broad representation:an "assembly" of owners. Further, unlike
foundations which were required to havegovernment participants assigned to theirboards, associations were free to choose thenumber of board directors and from where theycame. At the same time, associations could
maintain many positive features of a corporation( i.e., the issuance of ownership shares) but
could combine them with the advantages of afoundation's nontax status.11 In January 1984,
after CINDE had been established legally as an
association, USAID provided it with the first
funding tranche valued at US $11.6 million.

THE MANDATECINDE's statutes were broadly written.
Generalized statements regarding "development
initiatives"andreferences
tooveralldevelopment goals were carefully crafted into
the text to provide CINDE with a flexible yet
prudent mandate in which it could assist in
redirecting the country=s move towards anexport-oriented economy.
The charter=s
language also emphasized CINDE=s role insocial and economic development. It purposelyleft open the much more difficult technicalissues of precisely what services CINDE would
provide or how its resources would be allocatedto meet general social and economic
development goals.
Specifically, CINDE's statutes defined its
objectives in Article 3. Five objectives were11

specified.
The first required CINDE to"contribute to the fundamental civic values thatcharacterize Costa Rica's society, such as
liberty, democracy, the respect for institutions
and laws, justice and peace."
The second
emphasized"supportingtheeffective
application of the concepts of responsibility andsocial justice, as important elements within arealistic scheme of national development." The
third objective required CINDE to "assist in
economic and social development for thecountry's general welfare while strengthening
institutions, productive and private entities, anddeveloping exports."
The fourth objective
required "cooperation with the formation of afavorable environment to attract investment forthe development of private enterprise." Thefinal objective asked CINDE to "contribute to
the strengthening and restructuring ofproductive national entities so they can acquire
the necessary potential to effectively competewith similar entities in other countries, while
improving their knowledge, technology,
managerial and technical capacities, efficiency
and productivity."12
The charter was silent about CINDE's
responsibilities (vis-à-vis the GOCR or
CENPRO's role) for achieving specificobjectives in the move to an export-driven
economy. The emphasis on private participationin CINDE, however, was clear and the majorityof articles established checks and balances foradministering the organization in accordancewith Costa Rica's association law without
legislating government involvement.

THE MODELSThe main issue to be decided following theestablishment of its legal framework was thenature and extent of CINDE's internal

Organizations receiving USAID donor assistance are free from all taxes under terms of the 1962
bilateral Treaty for Technical and Economic Cooperation.
12
Estatutos de CINDE, October 19, 1982, pp. 2-3.

organization. Given its broad mandate topromote social and economic development, its
directors, USAID and the GOCR reviewed thestructural options cognizant of the range ofservices CINDE was expected to provide.
Typically,
EIPOs are grouped into three
categories:
transmitter, facilitator andpromoter.13 Services range from the broadest
and least in-depth type of service -- transmissionof information -- to the most comprehensive andexpensive form of service -- promotion of
investment and exports.
"Transmitter" organizations usually focus ondeveloping and communicating
marketinformation by creating databases andanswering a range of general questions forinvestors and exporters. Transmitter services
are general and can apply to virtually all sectorsofthe economy. They emphasize policy
development and research, databases and market
research across the whole range of sectors toestablish and disseminate basic information
concerningthecountries=
investment
environment and export opportunities.
"Facilitator"
organizations
establish
multisectoral and general investment and export
promotion services, such as campaigns topromote products through trade shows andinvestment missions, on-site investment
services, general training assistance, producer
and buyer travel assistance, and investor searchservices. They provide services to clients at a
discrete point in the marketing or production
cycles. While a transmitter organization might,
for example, prepare and distribute brochures
advertising a trade show,a facilitatororganization might also provide logisticalsupport for companies' attendance.

13

Conversely, "promoter" organizations provide
firm-specific technical assistance and brokering
services to a limited number of producers in alimited number of sectors. Promoter services
are in-depth and attend to production andmarketing needs for a narrow band ofenterprises in specified sectors. They are
considered "full-service" organizations which
often establish overseas promotion offices toassist in attracting new investments and sales
leads for domestic exporters.
In light of the emphasis to increase investment,a full-service "promoter" organization wasconsidered the most appropriate model.
CINDE's choice as a "promoter" organization
was the result of (1) the high expectations
placed on it by the GOCR to lead Costa Rica's
export and investment drive, (2) the need toaccommodate various private interest groups
and,most significantly, (3) the level ofresources it had acquired from USAID andwhich had been "promised" for later years. The
decision was also largely influenced by the
successful experience of the Irish Promotion
Agency14 and its Industrial Development
Authority=s attraction of foreign investment.
The Irish Promotion Agency model provided a
beginning framework upon which CINDE's
original organizational design was based andwas brought to the attention of management by
an USAID-contracted consultant, Toni Shiels,
who had considerable experience in establishingand managing Ireland's CINDE-equivalentorganization.
That model emphasized
aggressive promoter activities, overseas
operations and identifying and "cold-calling"
potential investors.
Once the decision toThis typology was created by the Department Economics Group of Louis Berger International, Inc., inan evaluation for the Agency for International Development entitled Promoting Trade and Investment in
Constrained Environments: A.I.D. Experience in Latin America and the Caribbean. Washington DC:
A.I.D. Evaluation Special Study No. 69, 1990.
14
Also known as Coras Trachtala (CTT).

establish a promoter model had been made by
the Board of Directors in consultation with the
Ministry of Foreign Trade, CENPRO and
USAID, CINDE's internal structure took shape.

CINDE'S ORGANIZATIONALEVOLUTION
As a full-service promoter agency, CINDE got
off to a slow start. Its founding members anddirectors were all private Costa Rican citizens
chosen for their prominence in their fields:
academics, entrepreneurs and professionals. As
CINDE's 1983-84 annual report stated:[The founding members anddirector's] main motivation was tocreate an organization which wasneither a chamber nor a labor union
nor a businessman's association, nor
a professional college, nor a club forserving the community...As CINDE
is made up of citizens from different
levels of society and many walks oflife it neither represents nor favors
any one in particular. As it involves
people of different democratic
political ideologies it does not
attempt to proselytize or take adogmatic attitude... [CINDE's] task
is to back specific programs andprojects which, in the short-term, canbe translated into more favorable
conditions
forinvestment,
production and greater well-being
for all sectors of society.15
The decision to be a "promoter" organization

15

defined CINDE's internal structure from the
beginning but it was understood that it would
take time to build the necessary institutional
capacity to internalize the functions of a fullservice organization. CINDE's, therefore, reliedon private voluntary organizations as the chief
vehicle for project implementation and began its
activities with three main areas of operation:
Programs with Voluntary Organizations (OPV);
the Program for Promotion, Investments andExports (PIE) and,the Program forCommunication and Public Awareness (MC).
In order to fulfill its social and economic
mandates, CINDE supported the work of OPVs
largely in training small business owners,
craftsmen, cooperative members, workers, labororganization
members,andsolidarity16
association members. The second main sphereof CINDE's activities was the program forproduction, investment, and exports (PIE).
While the basic objective and emphasis of the
OPV activities were social, the thrust of PIE's
programs was to strengthen and improve thecountry=s economic structure. The link between
the two programs was the attention and supportof small, medium and large-sized "productive
units" to make them more efficient. PIE's
activities were also managed by voluntary
private chambers and institutions such as the
Chamber of Industries, which was comprised ofsome 5,000 members in businesses of all types
and sizes. Finally, CINDE's Communication
and Public Awareness Programs aimed at
educating the public about the need for
economic development, social justice and thepreservation of democracy and the mechanisms
through which they would occur.
A
fundamental goal of this set of programs was to

CINDE--Two Years of Achievement, 1983-1984. San Jose: CINDE. January 1985, p.1.
Solidarity Associations are legally empowered employer-employee associations which are permitted
under Costa Rica's Solidarity Laws to provide financial services to members on a preferential basis. They
have grown to be extremely popular among both employers and employees, much to the chagrin andvocal objections of organized labor groups which have rapidly lost credibility and have come to be
associated with communist ideology.
16

favorably impact public opinion to support
policy options which were favorable toincreasing private investment and developing
exports. CINDE made a priority of this program
to encourage and strengthen the nation's image
as a location for investment, tourism andbusiness potential with as few obstacles as
possible.
By the end of its first year of operation (1983),
CINDE had provided funding to several OPVs,
sponsored technical seminars on the problems ofexporting, organized the visit of consultants toadvise the GOCR on the adoption of favorable
policies for export development and investment
attraction, and established a comprehensive
action plan to take advantage of the recently
passed Caribbean Basin Initiative. CINDE
shifted its focus to promoting foreign
investments after its initial broad approach(export and investment promotion, general
lobbying, studies, training etc.) Proved less thansufficient. By 1985, CINDE had completely
restructured its programs. Since domestic firms
were not yet ready to compete in export
markets, a new foreign investment promotion
program (PIE) tried instead to identify andcontact individual foreign companies that might
be interested in investing in Costa Rica. Foreign
offices were established in the U.S., Europe andeventually in the Far East. The results wereastonishingly successful.17 A USAID evaluation
noted that the A project demonstrates theeffectiveness of developing a targeted
investment package... managers effectively
reformulated their strategy to better matchproject promotional effects with the competitive
advantages resulting from changes in the policy
and productive structure environment.@18
CINDE was finding its way as a new17

organization and its operational structure began
to expand as a result. By the end of 1985,
CINDE had successfully integrated three new
project activities within the framework of its
programs: an agricultural project, a training
project and an institutional strengthening
Component to under its three main programcategories. The Agricultural Project (CAAP)
completed numerous supporting studies anddiagnostics for resolving technical production
problems,
marketingobstaclesandtransportation bottlenecks in the export of nontraditional agricultural products. The Training
Project (PROCAP) organized 89 courses andseminars and trained 2,652 people from small
businesses, financial institutions, universities,
and public institutions in technical issues. They
also granted 92 full scholarships for short-term
training in technical areas in the country andprovided 5 scholarships to U.S. universities. To
help institutionalization, CINDE provided
assistance to 15 different OPVs ranging fromwomen's credit organizations to regional
development organizations to small businessassistance groups.
In April 1986, the founding Executive Directorof CINDE, Fernando Naranjo Villalobos, left tobecome Minister of Finance under the Arias
Administration. He was replaced by Federico
Vargas Peralta. Under Peralta=s watch, CINDE
began to drift, losing sight of its original
mandate.
During 1986, on advice from
USAID,19 CINDE divested itself of the OPV
programs creating a separate, independent
umbrella institution, ACORDE, to administer
credit assistance to Costa Rica's private
voluntary organizations. By June 1989, amidst
growingdissatisfaction
with
CINDE'sleadership, an increasingly fragmented internal
structure and a change in government from theArias Administration (PLN party) to theCalder\n Administration (PUSC party),

See Annex 3 for CINDE=s operational results.
Louis Berger International. AID Special Study No. 69, 1990.
19
See CINDE, 1986 Memoria, p. 16.

18

CINDE's Board of Director recruited a new
Executive Director, Carlos Eduardo RobertG\ngora. Carlos Robert had managed one of
Costa Rica's largest and most successful
businesses, Dos Pinos, a huge private
cooperative enterprise producing dairy products
for local consumption and export. He was arespected, although not a particularly prominent,
member of the PUSC party who brought withhim a turgid management style but a perceptive
vision.
It was Carlos Eduardo Robert's
assessment of the new environmental reality andhis vision of a new internal structure which
provoked CINDE to take seriously its transition
to a financially sustainable institution.
However, under his management theorganization nearly collapsed.
During Carlos Eduardo Robert's tenure (July 1,
1989 through November 15, 1991) CINDE
matured as an organization, understood its new
mandate and began to adapt to the shifting
environment.
The process of maturation,
however, was nearly fatal. CINDE was staffedwith young, bright professionals who were used
to commanding abundant resources in an
expanding organization and accustomed tooperating under the lenient (some would say"detached") management of Federico Vargas
Peralta. The appointment of Carlos Eduardo
Robert as the Executive Director was a dramaticturnaround which rapidly became known as the"reign of terror" by CINDE's staff.
The first change introduced by the new

20

Executive Director affected the divisions within
CINDE: Administration was combined withFinance and Internal Audits, the Program forCommunication and Public Awareness was
dramatically reduced in scope and funding andchanged to a "unit" of research and dialogue,
and CAAP (changed to Agricultural Division),
PIE (changed to Marketing) and PROCAP(changed to Industrial Division which assumed
PROCAP's training activities) were provided
with more organizational authority andoperational support. At the same time, Carlos
Robert acquired a new location for CINDE,
making a wise financial investment to assure itof permanent, rent-free facilities in a moresuitable location.
Carlos Robert=s authoritarian style was viewed
as "undemocratic" by the young professional
staff and incited a number of resignations fromsome of CINDE's most talented employees.
Others were offered the opportunity to resign or
to be fired.20 While the realities of everdeclining budgets forced retrenchment, Carlos
Eduardo Robert's management of the processcontributed to an atmosphere of mistrust, sappedmotivation, and pushed out some of CINDE's
brightest people. The erosion of CINDE's
foundation finally forced A.I.D. to act toprovoke the resignation of Carlos Eduardo
Robert21. In November 1991, following the
involvement of President Calder\n, U.S.
Ambassador Luis Guinot and other prominent
individuals, the CINDE Board of Directors, led
by Luis Gamboa22 requested Carlos Eduardo

These included the Director of PIE, Rodrigo Ortiz, who had managed arguably one of the mostsuccessful promotion campaigns the country had ever witnessed and Clara Zomer, the talented andsuccessful manger of CINDE's training activities (PROCAP) who resigned in frustration in March 1990 justnine months after Carlos Robert assumed the Executive Director's position.
21
See "Renunci\ gerente de CINDE," La Naci\n, September 25, 1991, for local press accounting of the"resignation" and an editorial in the same edition by Carlos E. Robert, "CINDE: s\lida y eficaz". Also A.I.D.
internal "Sequencing of Events" memorandum from Kenneth A. Lanza to Ambassador Luis Guinot,
September 24, 1991.
22
Luis Gamboa, an industrial engineer elected to the Presidency of CINDE's Board in 1991, was also
President and CEO of CONAIR Corporation=s manufacturing facility located in Cartago Free Trade Zone.

Robert's resignation. After consultation andrecommendation by AID, CINDE=s Board of
Directors agreed that Ernesto Rohrmoser, who
had been a member of the CINDE Board of
Directors in prior years and who brought aneffective,
more mature management style,would oversee CINDE temporarily until apermanent Executive Director was found.
Ernesto Rohrmoser managed CINDE from
November 16, 1991 through June 30, 1992.
During his brief tenure, he agreed to an A.I.D.generated request to undertake a comprehensive
strategic plan which would provide restructuringrecommendations to move CINDE towardfinancial self-sufficiency. A.I.D. agreed tofinance the study, which was completed in
October 199223 after Rohrmoser had departed,but its recommendations were embraced by the
new Executive Director and by CINDE's Boardof Directors. It was the blueprint which was toform the structure of the new CINDE.24
On July 7, 1992, Oscar Cabada Corvisierassumed the Executive Director's position. He
had been managing the government-run
CENPRO for the previous two years and had
become well-versed in the problems ofrestructuring the export and investment
promotion regime. AID had suggested Oscar
Cabada as a candidate for consideration to
CINDE=s Board President to replace Ernesto
Rohrmoser. A competent man in his early
thirties who was known for his pragmatic if
sometimes impetuous behavior, Oscar Cabada
reinstilled a sense of confidence and direction tothe organization. The downsizing of CINDE
continued, but this time under a more respected
and "modern" manager.

23

By the time Oscar Cabada assumed control of
CINDE, the Private Agricultural andAgribusiness Council (CAAP) Division, theIndustrial Development Program and the Human
Resources and Training Division (PROCAP),
and the Marketing Division (PIE) weresignificantly downscaled in terms of human andfinancial resources but became effective
organizational divisions within CINDE. 25
By this time, CINDE had been recognized as thesource of solid policy advice in the field of tradedevelopment by the Calder\n Administration.
The government's reliance on CINDE's advice
for policy development, especially through the
Minister of Trade, Roberto Rojas,26 began toinfluence
investment and trade policy
outcomes. CINDE's department of research anddialogue had been all but disbanded during
Carlos Eduardo Robert's leadership, so the taskof lobbying fell to the Executive Director andthe members of the Board of Directors. Under
Luis Gamboa's leadership and with theencouragement of A.I.D. and Minister Rojas,
CINDE took an active role in pursuing policy
dialogue with the government's economic teamand began to advocate for reforms in a public
setting. The role as an independent policy
advisor to the GOCR was perhaps CINDE's
most important contribution to Costa Rica's
development during the 1991-1993 period, an
important time frame for apertura or economic
liberalization of the trade and investment
regime. By 1991, CINDE had organized itself
into operating divisions consisting of theMarketing Department (foreign investment
promotion), the Agriculture Division (technicalassistance to nontraditional agriculture firms),

The study was undertaken by a team from the InterAmericas Group, Miami, Florida under an A.I.D.
"Exitos" contract.
24
See Annex 1 for a list of CINDE Executive Directors and their tenures.
25
See Annex 4 for a historical head-count comparison.
26
Roberto Rojas was appointed as the Minister of Trade during Calder\n's administration in the fall of1990 and took an active interest in CINDE. In addition to his responsibilities as Minister of Commerce, hethe Industrial Division (training programs, firmlevel assistance for export industries) and theGeneral Management Division (which held the
Executive Director, planning, and lobbying
functions as well as overall management support
services).

FINANCING CINDE
Many of CINDE=s activities were funded by
USAID as a separate "project" and its financing(either directly or indirectly) became CINDE's
principal source of funds.
While USAID
tracked each activity as separate toaccommodate U.S. Government project
accounting practices,
CINDE's central
management and USAID project officers
assured budgetary and programmatic cohesion.
USAID-generated local currency derived from
Economic Support Funds (ESF), which flowed
through the central government channels, wasused to meet CINDE's overhead expenses.
These counterpart funds represented the
GOCR's "commitment" to CINDE and fulfilled
the conditionality which required pari passu
contributions by the government for USAID's
continued support. At the same time, additional
U.S. Dollar Development Assistance grants
were provided for specific projects by USAID
directly to CINDE without passing through
GOCR channels. Thus, financing CINDE's
institutional development and program needs
was accommodated and the perception of
GOCR financial commitment was maintained.
A.I.D. signed an initial agreement called an"institutional grant" with CINDE in October1982 which donated the col\n equivalent of US$11.6 million.27 Documents from this period

state that[t]he destination of these funds isregulated by the aims of both the A.I.D.
and CINDE and they are subject to strict
accounting controls. The Central Bankof Costa Rica was officially informed of
the agreement with A.I.D., and CINDE
on its own initiative, send half-yearlyreports of its activities to the same.
Although not stated expressly in theagreement [with A.I.D.], CINDE
adopted the policy of channeling thefunds exclusively into the financing of
programs
and
pays
its
own
administrative expenses with part of theinterest on the donation.28

By the end of 1984, A.I.D. had signed
agreements with CINDE granting an additional
US $9.68 million in col\n equivalent from
grants provided through the ESF agreement with
the GOCR. These "host country-owned local
currencies" became the backbone of CINDE's
financing.
As early as January 1984, A.I.D. was planning
for CINDE's future self-sufficiency. One grant
to CINDE provided the financing to create thePrivate Investment Corporation(P.I.C.) a
private sector financing entity (financiera)
established specifically to assist in capitalizing
the development and expansion of nontraditional exports from Costa Rica. In August
1984, A.I.D. donated to CINDE an additional
US $5 million29 to purchase the majority of the
P.I.C.s stock--51 percent.

assumed control of the Ministry of the Economy in May 1993.
27
Project number 515-0186, CINDE Funding Summary - 1982-1992, San José: USAID, 1993.
28
CINDE, Two Years of Achievement. San José: CINDE, 1984.
29
This was a creative and complex scheme. A.I.D. provided the local currency equivalent of US $5
million in ESF colones to COFISA through the Central Bank, an A.I.D. established Development Bank
which was attempting to emerge from bankruptcy and required assistance in recapitalizing its local

30

A.I.D.'s Support to CINDE 1982-1992

Millions of ($)

$20
$15
$10
$5
$0
1982
1984

1986
1988

1990
1992

Institutional Supp
Training

AgriculOther

PIE

A.I.D.'s purpose in providing the grant was togive CINDE a source of income which the P.I.C.
dividends were expected to generate.31 Duringthat same year, USAID provided additional
funding to pay for CINDE's "public awarenesscoordinator", and for the sponsorship of an agribusiness workshop and the establishment of a
training project (PROCAP 515-0212).
In 1985, grants funds were provided to initial
the Agriculture Program, CAAP, and in 1986
A.I.D. funds were passed through CINDE's
budget to finance the operations of the Ministryof Exports.32 During those two years, USAID
granted an additional US $2.4 million to
CINDE. In 1987 and 1988, CINDE establisheda new project, "Non-Traditional Agriculture
Exports", CAAP received further funding and
the Promotion, Investment and Export (PIE)

currency accounts. In exchange, COFISA provided financing for the dollars required to purchase P.I.C.'s
shares and managed the purchase on behalf of CINDE for a management fee plus interest on the dollar
financing. As condition for the exchange, A.I.D. also agreed with COFISA to "jointly program" theproceeds from the interest received by COFISA for micro and small business development in Costa Rica.
See AID-CINDE-PIC Trust Agreement, San José: USAID, pp. 8-84.
30
CINDE held the majority shares in P.I.C. but, in accordance to the P.I.C. bylaws established with
A.I.D. approval, institutions were limited to a 3 percent voting share. The purpose of the restriction was toassure broad-based private sector participation. Therefore, although CINDE owned 51 percent of theoutstanding P.I.C. shares, only 3 percent were "Class A" voting shares.
31
In fact, P.I.C. dividends have provided an annual U.S. dollar income to CINDE which has reached$250,000 in some years.
32
See Memorandum of Understanding--No. 2, USAID/San José and the GOCR, 515-0194A, January 1,

program began to receive support. In those twoyears, A.I.D. provided US $14.06 million inequivalent colons. During 1989 and 1990,
further institutional grants were given to
CINDE, and PROCAP received add-on funding,
as did PIE. In 1991 and 1992, CINDE received
further donations valued at US $5.7 million.
Between October 1982 and December 1992,
USAID
provided US $63.36 million to
CINDE's efforts either directly to the institution
or through the GOCR with ESF-generated local
currency.

ASSESSING CINDE==S ACTIVITIESAND ITS CONTRIBUTION
TO ECONOMIC GROWTH
Foreign Investment Promotion
Although initially the strategic decision wasmade to evolve into a promoter organization
based upon the Irish model, CINDE began its
foreign investment marketing program in a
"facilitator" mode. For its first two years, themarketing of foreign investment was undertakenon the assumption that Costa Rica had been
identified already as a possible investment
opportunity by foreign multinationals. It was
not until the summer of 1985 that the foreign
investment program actively became a"promoter" organization. The five year plan for
1986-1990 called for "...achieving the project
goal [of investment promotion] by efficiently
using [CINDE=s] resources to target, approachand bring to Costa Rica foreign investment,
taking advantage of the Caribbean Basin
Initiative, and of the incentives and special
conditions which Costa Rica has to offer theforeign investor".33 The program began to
identify Costa Rica's assets and liabilities in amore organized fashion, and identified offshore
manufacturing companies which would be
attracted to the comparative advantages offeredby Costa Rica's legal and economic
environment. The program began to establish
an international network to support "cold calls"
on foreign companies through five overseas
CINDE offices.
Two foreign investment goals were clearly
defined: increasing foreign investment andgenerating
manufacturing
employment.
CINDE's five-year aggregate targets were to (1)make 5,000 presentations to potential foreign
investors, (2) conduct or assist in 300-375 site
visits, (3) generate 15,000-18,750 full timeequivalent jobs, (4) close 75-100 new
investments for a total of between $132 million
and $165 million, and (5) generate incremental
export sales of between $185 million and $230
million.34 An incentive program for its sales
force was designed to motivate the staff. Sales
efforts focused on attracting investments under
three separate legal regimes which CINDE had
helped to draft and had lobbied Costa Rica's
Congress for passage. Those legal regimes
included: (1) a free trade zone or export
processing zone law,(2) a "temporary
admissions" regime, which provided incentives
to drawback industries from the U.S. and, (3)export contracts which provided similarprotection and incentives as a free trade zone
but which permitted production facilities to beestablished anywhere in the country.35
Direct foreign investment in Costa Rica began
to climb. In 1986, direct foreign investment was
only $18.97 million. In 1991 alone, CINDE
attracted over $120 million in direct foreign

1986.
33
Program for Foreign Investment 1986-1990, San José: CINDE, 1985, p. 13.
34
Bell, Evaluation of CINDE's Progress Towards the Attainment of Its Objectives and Long Term Goals,
May 1988, p. 8.
35
A.I.D., Special Study No. 69, May 1990, pp. 24-26.

investment, largely from international (mostly
Spanish) hotel developers who had beenencouraged by CINDE's advocacy and thecountry's aggressive ecotourism activities. By
September 1993, direct investment had reached$49.6 million for that year. Between 1986 and
September 1993, CINDE's program had
attracted $417.7 million into Costa Rica, wellexceeding its original five year plan projections.
CINDE's credibility
was enhanced by its
private-sector operational framework. The rate

CINDE's efforts were a "significantly
influential" factor in persuading foreign
investors to select Costa Rica as an offshore
location. The analysis defined "attribution" ofa specific investment to CINDE's efforts when itwas...clearly proven that CINDE played
an important part in one or two
possible roles in the process [ofattracting investment]: a) the'salesman' role where a personal
contact with CINDE provided acompany with relevant informationand thus convinced it of investing in
Costa Rica, or b) the 'facilitator role'
where a personal contact with
CINDE provided the company with asubstantial amount of services thatwere critical in helping the company
accomplish its investment objectives.

Net Foreign Direct Investment
1986-1993 (Sept)$250
Millions of $

$200
$150
$100
$50
$0

1986 1987 1988 1989 1990 1991 1992 1993
Years

CINDE had claimed that from the inception of

CINDE's Attribution Total FDI

its marketing activities, 116 companies madeof investment into Costa Rica was largely aresult of CINDE's technical competence, its
credibility and its success in lobbying for legal
and regulatory reforms which helped set thestage for investment
Just as important,however, was CINDE's role in bringing thosechanges to the attention of companies with aninterest in offshore investment.

investments in the country based on CINDE's

CINDE's claims of attracting investment seemedexcessive to many observers and prompted
objective evaluation. The confluence of policychanges, CBI incentives, Costa Rica's politicalstability, and other exogenous variables wereclearly factors in attracting investment.
However, in the final analysis, the fact that
direct foreign investment decisions wereprincipally the result of CINDE's efforts had to
be demonstrated if it was to justify continued
investment promotion expenditures.

corporate decision-makers who were responsible

assistance. Direct interviews were undertakenwith 25 randomly selected companies, astatistically

relevant(withadegreeofconfidence of plus or minus 5 percent) offor their company's investment decisions. Fourlevels of attribution with associated weights
wereestablished:

(a)

clear

attribution(according to the established definition) = 100
percent; (b) probable attribution where one of
the two roles defined was clearly performed by

In 1990,
USAID commissioned PriceWaterhouse to evaluate the extent to which

CINDE but the other was not (or both were only

partially performed by CINDE) = 66 percent; (c)limited attribution where neither of the roles
were clearly present = 33 percent; (d) no
attribution where neither role was present = 0
percent.
The evaluation concluded that CINDE's
activities had influenced positively nearly 80
percent of their claimed foreign investment
between 1986 and 199036 and 61.3 percent of
the $566 million of direct foreign investment
flowing into Costa Rica during those years. 37
More revealing and significant, perhaps, wasthat in 42 percent of the cases the decision toinvest offshore had not been made when CINDE
approached the company to promote Costa
Rica's advantage as an offshore manufacturinglocation. In the balance of the cases, 58 percentof the companies had already decided to invest
offshore but had not yet determined in whichcountry when CINDE approached them.
Development of Non-Traditional Exports
CINDE's export development program was also
showing signs of success. In 1972, to begin theprocess of stimulating non-traditional exports to36

third countries outside the CACM, the Export
Promotion Law (No. 5162) was passed which
established "temporary admissions" to provide
Costa Rica's entrepreneurs access to goods andmaterials needed to stimulate exports.
Temporary admissions regimes and free tradezones were established by the Export Processing
Zones and Industrial Parks Law (No. 6695),
adopted in 1981, while export contracts wereadopted by the Law of Export Incentives (No.
6955), in 1984. These regimes helped set thepolicy environment to promote the developmentof non-traditional exports so that by the end of
1992, non-traditional exports comprised 63
percent of total exports38, up from a 42 percent
share in 1980 -- an increase of over 40 percent.
The goal of expanding the markets for Costa
Rica's exports was also met. By the end of 1989,
over 74 percent of exports were flowing to nonCACM countries.
CINDE's role in generating non-traditional
exports was fundamental to assisting the
successful conversion from a traditional to nontraditional export focus. The transition to nontraditional exports relied in large measure on
diversifying the agricultural base to shift theheavy export dependence on bananas and coffee
to crops such as strawberries, flowers, green andblack pepper, melons and other non-traditional
crops.39 USAID devised a "Non-traditional
Agricultural Export Strategy 1986-1990"(NTAE) which was designed for CINDE's

Price Waterhouse. USAID--CINDE's Investment Promotion Program Attribution Analysis, October,
1990, p. 10.
37
A.I.D. Latin America and the Caribbean: Selected Economic and Social Data, April, 1992, p. 157.
38
From CENPRO statistics, November 1993, and excludes tourism receipts.
39
Non-traditional agricultural exports were defined as any agricultural exports excluding raw coffee,
bananas, unrefined sugar and beef.

implementation. The strategy sought to promote
investment in Costa Rica's agriculture fordiversification into intensively produced crops
with the potential for high economic return, andto assist emerging agroindustries at criticalpoints in the development of export markets in
the U.S. and elsewhere.
The program=s
implementation was structured to work with
CINDE's Marketing Division (PIE at the time),
CINDE's Agricultural Division (CAAP at thetime), CENPRO and the Ministry of Foreign
Trade. The project's emphasis was to reduce
constraints to diversification, assist farmers inmaking the transition and to engage the GOCR
in policy dialogue.
The [AID] mission is working with
CAAP as the prime implementing
agency. CAAP will be the organization
primarily responsible for policy
dialogue. In addition, CAAP will
promote domestic investment in Costa
Rican agriculture and assist in defining
needs for joint-venture partners. These
sector programs will be carried out by
CAAP staff with mission counterparts
as appropriate....[CAAP has the
responsibility] to develop and supervise
a production plan which will include:
the requirements, scope and timing ofstudies, definition of needs andtechnical assistance required, provisionof that assistance, training, market
research and establishing market
contacts.40

USAID projected an increase of US $3.5 million

40

in 1987 and US $4.4 million in 1988 of nontraditional agricultural exports as a direct resultof the NTAE project through CINDE. By theend of December 1992, USAID had expended
US $2.8 million on the NTAE project through
CINDE, and the GOCR had provided CINDE's
Agricultural Division with an additional US$2.47 in equivalent local currency to undertake
nontraditional export conversion.41
The results attributed to the NTAE projectthrough CINDE showed remarkable growth.
Measurable increases in Costa Rica's nontraditional agricultural exports attributed as a"direct result" of the project were analyzed inJuly 1989. They showed project-attributable,
non-traditional agricultural exports of US $5.3
million by the end of 1988 with a projection of
US $62.8 million by the end of 1994,42 wellexceeding the project=s original targets.
Non-traditional manufactured exports were also
critical to increasing the country's economic
growth.
In 1983, US $101.1 million in
manufactured exports were sent to the UnitedStates from Costa Rica. By 1991, the figure hadreached US $622.3 million -- an average annual
increase of over 64 percent.43
CINDE'smarketing and industrial programs provided
extensive training and firm-level assistance to
Costa Rica's small manufacturing sector to help
foment the increase in manufacturing exports.
The vast majority, however, came from foreign
manufacturers
establishingoffshore
manufacturing plants under the export contract
regime of the free trade zone regime provided
by Costa Rica's laws.
While CINDE's
marketing department was credited withattracting a significant portion of the new

Excerpted from the USAID/Costa Rica Strategy Paper, January 1987.
USAID/Costa Rica, CINDE Summary Funding Sheet 1982-1992, Private Sector Office.
42
William E. Bolton (Checci and Company Consulting) and Harry Manion (ATMA International, Inc.),
Evaluation of USAID/Costa Rica Nontraditional Agricultural Export Strategy, (Contract No. 515-0000-C-009035-00), July 1989, p. 34.
43
Agency for International Development, Latin America and the Caribbean: Selected Economic Data,
April 1992, p. 183.
41

investment in the manufacturing areas (largely
into Free Trade Zones) which accounted for thebulk of non-traditional manufactured exports,
CINDE's industrial division, created in 1990,
focused on Costa Rican manufacturers who
demonstrated
potential
forsuccessfulinternational competition.
The division's
activities concentrated on providing intensive
and specific training to those companies andprovided highly subsidized technical assistanceto firms in order to position them for export
competition.
The sectors of concentration
includedplastics,
metal-mechanics,
agroindustry, and the textile/apparel industry.
By 1991, CINDE claimed that "[t]he industrial
division generated a total of U.S. $7,131,785.00
in industrial exports effectively obtained(realizadas) during 1991. From this total, 62
percent were generated by businesses to which
we had given technical assistance."44
Finally, the non-traditional exports category
includes revenues from tourism.
Tourism
growth in the country has climbed rapidly in the

Tourism Revenue
1970-1993

Million of ($)

$500
$400
$300
$200
$100
$0
1970 1985
1987 1989
1991 1993

Years

44

CINDE, Memoria 1991, January 1992, p. 13.

45"Ecotourism" may be defined as tourism which encourages the protection and sustainable utilizationof the ecosystem and which appeals to adventure, ecological or conservation-minded tourists. Estimates
are that each ecotourist spends an average of six times the amount spent by a conventional package tour
participant.
46
Mario Rojas Vega established a "ecotourism" hotel on his land along the Rio Reventaz\n in Turrialba.
He is first cousin to Robert Rojas who was Minister of Foreign Commerce and Economy in the Calder\nAdministration and an ardent supporter of tourism development as a matter of GOCR policy.

46

Additional pressure to pursue tourism development was applied by Ernesto Rohrmoser, CINDE's
Executive Director during the 1991-1992 transition period, who had an interest in developing the"Papagayo" project on Costa Rica's west coast.47 CINDE's activities for supporting tourism development
increased during 1988-1992, as the organization's
leaders recognized its potential for contributing toboth ecological conservation and economic growth.
Training
An underlying factor of CINDE's success in stimulating non-traditional export development was therecognition early in the institution's history of the pivotal role of developing human capacity. The
Programa de Capacitaci\n (PROCAP) began with A.I.D.'s provision of US $3.36 million in project
grants during August 1984.48 The project's objective was to provide short-term, technical training incountry and to sponsor a limited number of observational tours to the United States for non-traditional
exporters. Its goal was threefold: (1) to increase exports, penetrate new markets and initiate new export
projects, (2) increase productivity and reduce production costs, and (3) strengthen overall humanresources to develop the capacity of the private sector.
A recent (1993) evaluation concluded that 60.6 percent of the 91 firms evaluated attributed an increase in
their export production to PROCAP training. In terms of sector composition, those firms attributing
PROCAP with contributing to an increase in exports included 54.8 percent of the agroindustrial firms
interviewed, 60 percent of the industrial firms surveyed and 100 percent of the service firms which
participated. Results were equally impressive for increased production, productivity and strengthening of
human resources which firms attributed to their PROCAP experience.
En efecto, todos los participantes apuntan algún aspecto de fortalecimeinto, fundamentalmente,
un mejor conocimiento del mercado estadounidense y sus particularidades y una mejor visi\nempresarial. El 82% calific\ la utilidad de la capacitaci\n como buena o más que buena. La
mayoría la considera muy buena o excelente. S\lo el 8.7% la consider\ de regular utilidad y el
1.1% la consider\ 'de ninguna utilidad'. 49

PROCAP's activities, while oriented toward the private sector, had an impact on the public anduniversity sectors as well. Participants in those sectors were equally enthusiastic with the quality of
training and its usefulness to their respective specialities.
Before CINDE began its training for the non-traditional private sector exporters, there were virtually noother organizations dedicated to providing professional short courses and seminars for the sector. Today,

47

Papagayo had begun in the 1970s as a part of the GOCR's development plan. It rapidly became an
infamous "white elephant". Infrastructure was laid but not completed. Rohrmoser became interested inhelping to speed privatization efforts when he was the Executive Director of FINTRA, S.A., theprivatization "trust" founded by USAID. He became frustrated by the intractability of many of Costa Rica's
laws concerning ownership and management of beachfront property and the ardent resistance of certain
GOCR officials within the Tourism Agency who viewed Papagayo as a GOCR prerogative.
48
See A.I.D. Project 516-0212, Cooperative Agreement and Memorandum of Understanding,
USAID/San José: August 1984.
49
A.I.D., PROCAP Short-Term Training Evaluation, 1993, p. 4.

there are numerous organizations offering training choices to help resolve export problems. PROCAP's
training acted as a catalyst, stimulating Costa Rica's export sector with new knowledge and approaches
to solving marketing and production problems. By the end of 1992, PROCAP's training programs andseminars were recuperating nearly 65 percent of the program's total costs.50
CINDE had come far in its ten-year history. Despite, or perhaps because of, its many managementtransitions, and because of its flexibility and access to resources during critical times, CINDE hadsignificantly contributed to Costa Rica's objectives of sustainable economic growth.
It could
appropriately and legitimately
claim the creation of 35,766 jobs and the generation of US $346.83 million in value added exports.
CINDE had achieved both technical goals of export development and investment promotion and hadearned a reputation as a dedicated and competent part of the GOCR's strategy for economic growth. 51
CINDE had managed to meet and even exceed its organizational objectives. The question was, however,what made CINDE unique to other EIPO organizations around the globe that had failed to achieve both
output and institutional objectives?

WORKING WITH THE GOCR
Government cooperation and commitment to an export-oriented economy are arguably the single mostimportant factors influencing an EIPO's success. In CINDE's case, the extent of favorable GOCR
policy-making largely framed CINDE=s success in export development and in attracting foreign
investments. It had survived three political administrations under two different parties with only
moderate changes to the technical goals of the organization. The single constant was an increasingly
favorable policy environment. Over time, a real sense of "partnership" developed between the GOCR
and CINDE and each side learned to respect the institutional boundaries of the relationship.
Government commitment to the goals of export development and investment promotion is a necessary
element to an EIPO=s success, but it alone is an insufficient condition. Government rhetoric of support
must translate into substantive policy. Inherent in CINDE's achievement was the government's support
for and adoption of macroeconomic trade reforms, privatization, financial liberalization, and thewillingness of the GOCR to A cut its losses@ by departing from unsuccessful government-controlledmodels of EIPO development, which provided CINDE with the flexibility and autonomy to pursue its
objectives. The government also agreed to commit substantial portions of its AID-generated local
currency to CINDE=s programs.

50
51

InterAmericas Group, CINDE Evaluation, October 1992, p. 34.
See Annex 3.

What explained, however, the government=s motivation in relinquishing its responsibility to a private
association for implementing the country=s trade promotion activity? The efficiency of service provision
which CINDE provided was clearly one part but it was unlikely the single most important element in the
GOCR=s decision to divest its implementation responsibilities for the country=s export and investment
promotion to a private association. Most likely, the decision was linked to the external pressures of thedonor community, especially USAID, which lobbied for a private sector approach to the management oftrade promotion activities by using its considerable resources to leverage an initially hesitant GOCR
divestiture. The relatively large sums of U.S. foreign assistance which flowed into the country,
combined with a vigorous U.S. government approach to problem-solving through private sector
mechanisms were probably more influential in the GOCR=s decision to relegate its responsibility to a
private association than any other single factor.
More intriguing, perhaps, are the reasons why the relationship between CINDE and the GOCR, whichwere essentially A purchased@ through the generous contributions of AID, has continued to survive as
donor contributions diminish. One answer is that, as CINDE=s sponsor, the GOCR could also take credit
for CINDE=s success in meeting export and investment promotion targets. Its accomplishments added
credibility to the institution and provided the GOCR with a degree of confidence in CINDE=s ability todeliver results, something CENPRO had rarely accomplished in the past.
The GOCR's commitment to policy liberalization, its financing, and its willingness to accept CINDE's
unconventional structure were important elements in CINDE's achieving its operational mandate and its
institutional evolution to a self-sufficient entity. The GOCR had, after all, a government-managed
CENPRO. Yet it had agreed to sponsor the foundation of a new model for CINDE. As a private,"independent" association of private individuals, CINDE was not formally subjected to GOCR pressure
to adhere to a particular development plan or objective. Nonetheless, given its reliance on donor funds (alarge portion of which flowed through the GOCR), CINDE cooperated closely with the government in
helping to formulate policy and influenced a legislative direction that favored export development.
In essence, CINDE became a policy "think-tank" for trade and investment issues upon which the GOCR
could rely for solid analysis and implementation support. CINDE had attracted the best young minds in
Costa Rica in part because its salary structure 52 was far superior to many other private sector firms in
Costa Rica and also because its mission was viewed by many young, public service-oriented Costa

52

One A.I.D.-commissioned study, undertaken by Price-Waterhouse in 1991, indicated that CINDE's
management, its overseas promoters, and some of its technicians earned 30-60 percent above
comparable positions offered by national and international firms in Costa Rica.
53
By 1990, CINDE employed 265 people. Just four years before, in 1986, it employed only 92. USAID
Memorandum to Kenneth A. Lanza, Director, Private Sector Office USAID/Costa Rica from John Holder,
Investment Consultant, September 4, 1991.

Ricans as an important and worthwhile development effort. The influence wielded by this group ofyoung activist employees53 left an important mark on the GOCR and brought innovative private sector
perspectives directly to GOCR leaders.
CENPRO's contributions also were enhanced. As part of CINDE's planning, CINDE-employedtechnicians acted as "advisors" to CENPRO, helping to coordinate the work between the GOCR's official
promotion agency and the private sector agency. A division of labor was established to minimize
duplication of activities with CENPRO's role focusing on "facilitator" activities, i.e., assisting local
exporters to attend trade shows, administering the free trade zone regulations and collecting statistics.
CINDE's role consisted of "promoter" activities, i.e., selecting sectoral and firm-level interventions,establishing overseas promotion offices and providing a full range of investor services. This division of
responsibilities helped to make each organization efficient and focused in achieving many facets of theexport and investment strategy.
USAID facilitated this relationship by contracting the services of a consulting firm, CARANA, toprovide a technical advisor to CENPRO. The "advisor" was appointed as CENPRO's Director (aposition usually reserved for a high-ranking civil servant) and reported to the Minister of Foreign Trade.
Under CARANA's advisor, CENPRO instituted a "one-stop" window (ventanilla única) where exporters
could complete all the necessary documents required by all GOCR agencies and ministries in one
location. The time needed to process export forms (i.e., foreign currency uses, licenses, productregistrations, c.i.f. and f.o.b. values etc.,) was reduced to a few hours instead of weeks.

THE TRANSITION TO
SELF-SUFFICIENCYCINDE entered a transition phase in December 1990 when USAID provided its final "institutional
support" grant. It has been widely recognized54 that the positive externalities generated by EIPOs justify
some government support because the costs of services are unlikely to be fully recovered by the private
sector. CINDE=s institutional development challenge was to obtain the necessary financial support tosustain its operations.
As it has restructured and downsized in an effort to conserve resources, CINDE's total annual budget
dropped to US $4.4 million in 1993 from the previous year's US $5.9 million and from ahigh of US $11.27 million in 1990.

53

By 1990, CINDE employed 265 people. Just four years before, in 1986, it employed only 92. USAID
Memorandum to Kenneth A. Lanza, Director, Private Sector Office USAID/Costa Rica from John Holder,
Investment Consultant, September 4, 1991.
54
See Keesing and Singer, for example.

CINDE's Operating Costs 1985-1991$14
Millions of ($)

$12
$10
$8
$6
$4
$2
$0
1985
1986
1987
1988
1989
1990
1991

PIE/Mkting
Other Pgms

CAAP/Agri
Admin

PROCAP/Industr
Overhead

Its core costs, or those central to CINDE's main staff andadministration, will come from two principle sources. First, CINDE's "own" funds will provide theprimary source. They include (1) dividends it has earned from investments made with AID grants, (2)interest flows on US $25.5 million of USAID-donated equivalent local currency rediscount lines in theCentral Bank of Costa Rica, (3) interest on banking accounts, (4) dividends received on ownership of
P.I.C. shares or the capital gains received from their sale, and (5) funds recovered from the sale oftangible assets.55
Second, a USAID-created Costa Rican export foundation, FUNDEX, established by a Joint Local
Currency Subprogramming Agreement between the GOCR and USAID on October 24, 1990 received a
US $27.15 million equivalent endowment. The funds were provided primarily for the purposes ofsubsidizing CINDE's activities as long as CINDE continued to achieve its "objectives" as defined by the
GOCR and agreed to by USAID. As stewards of those resources, FUNDEX's Board of Directors was toassure that those objectives were met. FUNDEX would also solicit grants from private U.S. andEuropean foundations to support CINDE's work and other export development efforts in Costa Rica.
Competition for FUNDEX's scarce resources would be assured since the FUNDEX-AID-GOCR
agreement also required it to consider assistance to other organizations offering similar services. CINDE
would receive continued support only if its high performance standards were maintained in thejudgement of FUNDEX's Board of Directors.56 CINDE's projects would be financed from a combinationof cost recovery efforts, direct project assistance (as opposed to institutional support financing) from

55

Tangible assets means such items as cars, furniture and office equipment.
The October Agreement did not obligate FUNDEX to fund CINDE. It required only that funding be
provided to certain "program" areas listed in Annex I of the Agreement, which could be carried out by anygroup deemed capable by FUNDEX's Board of Directors in accordance with the grantee selection criteria
listed in the Agreement. It was presumed and understood, however, that CINDE was the mostexperienced and capable private entity in the country for providing export and investment services andthat competition would be limited initially. It was expected that once FUNDEX's funds were madeavailable, other potential grantees would compete for resources thereby injecting sufficient competition to
encourage CINDE's continued efficiency. In fact, by September 1993, FUNDEX was assessing grantapplications from five other entities, public and private, to provide various services. See FUNDEX, Informe
de Actividades, September 1, 1993.
57
For example, the InterAmerican Development Bank recently agreed to a US $5 million export
56

AID and other donors (such as FUNDEX), government grants and from private sector contributions.57
Nonetheless, a fully successful transition toward self-sufficiency depends upon CINDE=s ability to
manage and maximize its resources while concurrently adapting to and meeting the demands of thecountry's changing environment. A long range planning exercise concluded that...CINDE must ensure its financial viability and sustainability. Not only must CINDE beefficient, effective and professional, but with the availability of funds from FUNDEX decreasingover the near future CINDE must maximize in a financially sound manner the use of its internal
resources, staff, equipment, and capital, and develop a plan that will leverage such resources.58
Recognizing its financial vulnerability, CINDE has actively promoted a "cost recovery" objective as thecentral part of its overall strategic plan. The plan call for divisional managers to increase revenue fromservice fees by 4.8 percent each year beginning in 1993, while holding operations expenses constant in
col\n terms.
The general experience of EIPO organizations with regard to financial self-sufficiency has been dismal,
however. The nature of the services imply both high costs and limited direct return. As a recent
evaluation concluded,
Real progress on sustainability requires, first of all, a tough-minded and realistic assessment of
the potential for financial self-sufficiency, that is, a situation in which the revenues derived fromservices cover the costs of those services. Evidence clearly indicates that investment promotion
activities cannot support an investment promotion agency without some form of public or private
sector grant support. Although export-promotion activities (e.g., marketing and production
research services) can more easily be put on a fee basis than can investment promotion services,
official export promotion agencies still require some form of subsidy or grant financing.59
Yet the concepts of receiving government support, meeting private sector needs and establishing
financial self-sufficiency are not as incompatible as they might seem. The nature of an organization andthe structure of its management affects its capacity and predisposition to achieve financial
self-sufficiency. In fact, financial self-sufficiency requires that a balance be established and maintained
between separate constituencies within the government, the private sector and the donor communities.
To achieve this balance, CINDE=s long term communication plan60 proposed the following:development project (finalized in March 1994) which CINDE will administer. Additionally, the Republic ofChina (Taiwan) has provided US $5 million to the Central Bank of Costa Rica in April 1994 with a portionof its FUNDEX- administered interest earnings dedicated specifically to CINDE's investment promotion
activities. A.I.D. initiated contact with the Taiwanese Ambassador to Costa Rica, H.K.Tsao, and through anumber of informal meetings over a two-year period, convinced him of the worthiness of contributing to
CINDE's development.
58
Thomas, Joseph, Recommendations for the CINDE Long Range Strategic Plan, InterAmerica's
Report to Oscar Cabada, General Manager, CINDE, October 9, 1992.
59
A.I.D., Special Evaluation No. 69, May 1990, p. 41.
60
InterAmericas Group, Communications Plan for CINDE. Miami, Florida, Exitos Consulting Team,
October 1992.

# Improve Constituency relations/interaction: Communication should be used to gather
information from the constituencies on their needs and to involve more groups and individuals inthe support and implementation of projects and activities.
# Improve Cost Recovery: Communication is used to convey the need for cost recovery, tomarket products and services and keep in touch with market needs.
# Diversify the Donor Base: CINDE will need to establish and maintain communication
channels with all of the international donors, FUNDEX, as well as the GOCR sources andpotential donors within the private sector.
# Leadership in Building a Costa Rican Development Agenda: This new component of CINDE=srole will need to be established by bringing key actors together and facilitating a consensus based
decision-making process. CINDE will then need the capability to develop an effective policy
advocacy communication strategy.
# Building and Maintaining Interinstitutional Collaboration: CINDE has elected to place a muchgreater emphasis on interinstitutional collaboration, a role which needs to be established througheffective communication. Joint efforts on projects will require ongoing interaction andinformation dissemination among the network of collaborators.
# Project Fundraising: As the need for new projects is identified, CINDE staff will need theability to identify potential sources of funds and solicit them through effective presentations.

Self-Sustainability: The Theoretical Effects of Definition, Measurement and Attribution 61
The high returns to the country's aggregate economy through the positive externalities generated byexport and investment promotion services are in little doubt when the policy environment is appropriately
constructed. In fact, CINDE itself helped establish a favorable environment through policy advocacy andtechnical assistance to the GOCR. Private sector capture of those positive externalities, however, isdifficult. High social returns and the difficulty that private firms face in directly capturing positive
externalities create an ideal case for government service provision. Nonetheless, this "market failure"62
should not be confused with the inability of a EIPO provider to become financially self-sufficient as longas (1) its objectives are clear, (2) its institutional design is structured appropriately to accommodate achanging environment and the shifting demand for its services, (3) a reasonably clear level of attribution
can be drawn between donor inputs and EIPO outputs and (4) sufficient opportunity for competition toprovide services exists or is expected to be generated given the demand for them.
The conventional definition of A financial self-sustainability@ generally refers to a state achieved byprofit-maximizing organizations. However, that definition is limited in scope and not especially useful in
its application to explaining EIPO potential. It states that financial self-sufficiency implies anorganizational capacity to generate sufficient revenue from the sale of its services to users to cover theorganization=s costs of providing them. It is presumed that financial self-sufficiency can be achieved

61

See John D. Donahue, The Privatization Decision. New York: Basic Books, 1989, Chapters 1-3 for an
exhaustive and interesting theoretical discussion.
62
See Edith Stokey and Ricah Zeckhauser, A Primer for Policy Analysis, New York: 1978, pp. 298-308,
for a discussion of the five primary causes of market failures in which the inability of the private sector tocapture externalities is one cause.

only if those directly benefitting from the services are willing to pay for them in their entirety. While thatdefinition may be appropriately applied to profit-maximizing organizations, it is insufficient forestablishing a standard of financial self-sufficiency in nonprofit oriented EIPOs.
If the conventional definition is broadly and more appropriately defined as the ability of an organizationto acquire from whatever the source the resources necessary to sustain its administration and to provide aminimal level of core services, then EIPO financial sustainability can be obtained by demonstrating clear
objectives, accountability, and measurable attribution. For example, it is presumed that EIPOs which
receive government grants are not financially self-sufficient by the very fact that the sale of their services
cannot cover the cost of providing those services and because they rely on government grants to cover
operating costs. Leaving cross-subsidies aside,63 if one were to consider the government as a Auser@ or
benefactor of those services whose return (positive externalities) exceed its costs (grant), then as long as
government=s objectives were being satisfied, grants to the EIPO would essentially cover the costs of theservices provided. Hence, as long as services are in demand, are competitively priced and are achieving
their objectives at an acceptable rate,64 then EIPOs could theoretically achieve financial self-sufficiency.
Presumably, if governments cease their funding support, either the financial measure of positive
externalities (returns) no longer sufficiently exceeds the cost of the grant (investment) or government
policies toward trade liberalization and promotion have changed. In either case, demand for EIPO
services would decline and so should the institutional capacity to provide them. A retrenchment strategy
would be an appropriate and expected response just as it would be for a consumer products company thatfinds demand for its product waning.
EIPOs= relationships with governments are perhaps even more difficult to understand given the difficulty
and ambiguity of attributing government inputs to EIPO outputs. For example, governments can easily
measure how many shoes are produced at a state-owed shoe factory and can link the number of shoes
produced to the number available. In other words, there is a direct and readily identifiable correlation
between government input (subsidies to make shoes) and the factory=s output (the availability of shoes).
Determining a level of attribution to the output of an EIPO=s services, however, is a much more difficult
task. Yet measures of aggregate increases in direct foreign investment and levels of nontraditional
exports can be taken and verified. It is precisely those aggregate government measures to which EIPO
performance should be linked. While attribution is difficult to clearly and precisely ascribe to EIPO
services, it is not impossible.
It is unrealistic for EIPOs to charge users for all of their services or to expect recuperation of all
operating costs from fee-based services. However, as long as the positive externalities generated by theprovision of services continues to exceed government=s contribution to generate them, then society
benefits. Government, as society=s agent, becomes one of the EIPO=s principals. It also becomes its
indirect client. Thus, government=s provision of resources to EIPOs is fully justified when its economic

63

Cross subsidization refers to the process through which the profits from fee generating services areapplied to the expenses of providing other services which do not fully recover costs.
64
One difference between a profit maximizing private entity and a nonprofit maximizing, private entity
providing a public service is, of course, the measurement of results and attribution of those results toeffort. In the former, measurement of demand, price levels, and competition is relatively easy. It is a far
more difficult task to measure positive externalities and to attribute their cause directly to the EIPO service
provision.

return to society is lower than government=s costs of providing a grant to the EIPO. As long as EIPO
services are efficiently contributing to the goals of the government, then these services will be in demand.
As long as the demand for services, exists, financial self-sufficiency for EIPOs is possible.
The Nature of the APrincipal-Agent@@ Relationship and the Structure of EIPOs
The central issue is not whether EIPOs require government or donor funds to supplement operationalcosts. They do. Rather, at the core of understanding financial self-sufficiency is the A principle-agent@
relationship between EIPOs and the government. The principal-agent theory postulates65 (1) that agentsact on behalf of the principal, (2) that although interests may be unequal, there may be incentives tocooperate, (3) that contractual arrangements are sought to induce the agent to behave to maximize thewelfare of the principal and (4) the principal is assumed to be unable to change the payoff. In CINDE=scase, its institutional design and method of governance altered the conventional principal-agent
relationships.
As Keesing and Singer have shown, EIPOs that have been structured formally as part of government
institutions or ministries have not fared well either in achieving technical objectives or accomplishinginstitutional development ones.66 One reason for this can be found in the Ax-inefficiencies@67 that creep
into bureaucratic systems, lack of structural and organizational flexibility and interference in technicaldecisions based on political motivation.
Yet EIPOs, even when legally constituted as private entities, are still agents of government because they
are, in most instances, carrying out government objectives and using some government funds to do so.
EIPOs are meant to provide services to meet overarching government objectives for trade development,
but that should not mean that government bureaucrats need to control operational or even strategic
decisions. In fact, experience indicates that to be successful, EIPOs must maintain autonomy in theirdecision-making processes in order to assure efficiency and guard the integrity of the technical decisions.
In much the same way, private voluntary organizations help government to meet poverty alleviation
objectives without direct government control or interference in operations. Rather, government funds areused to meet shared objectives:
The designation [as an autonomous entity] itself has a certain influence on the nature of theinstitution=s responsibilities and activities, and on the degree of autonomy with which it operates.
For instance, authorities, boards and councils have often been established, as their name implies,
as a forum composed of government officials who decide on export promotion and development
matters. They are provided with a technical and operational secretariat for the implementation of
their activities. In addition to their normal trade promotion work, some of these bodies havepolicy-making responsibilities, and in many cases they are granted coordinating functions.73

See Yair Aharoni, AState Owned Enterprises: An Agent without a Principal,@ in Leroy Jones, PublicEnterprises in Developing Countries. Cambridge: Cambridge University Press, 1982.
66
See Keesing and Singer, ADevelopment Assistance Gone Wrong,@ World Bank, 1989.
67
See Harvey Leibenstein, A Allocative Efficiency versus X-Efficiency,@ American Economic Review,
1966. He defines x-efficiency as the natural tendency for bureaucratic organizations to gradually lose
discipline and rationality and a tendency to depart from unnatural industriousness.
73
Jaramillo, Camilo, ATrade Promotion Organizations: A Variety of Approaches.@
65

The legal structure of the institution and the creation of a private sector constituency, therefore, can help
to redraw the boundaries of the principal-agent relationship and to broaden participation to private sector
groups. Private groups can both lobby government to change sector objectives and can contribute directly
to the EIPO itself as it undertakes activities and provide services which they deem important.
Can movement towards the national objectives of increasing value-added exports and investment be
attributed to the EIPO=s inputs? In the case of investment services and export promotion activities,
measurability of inputs is relatively simple, i.e., how many investors did it assist, how many courses did
it provide to exporters, how many participants attended? The more difficult and important measure is theoutput or the consequences of the services. The terms under which the principal-agent relationship isdefined and the structure of the organization determine the extent of government accountability forresults and determines acceptable methods of measuring achievement.
The behavior of EIPOs, therefore, is not entirely explainable in the conventional principal-agent terms.
For example, as agents of government EIPOs can be a significant force in selecting and pursuing theirown objectives, given the frequent lack of clarity in the principal=s (government) objectives and becauseof competing interests of the two principals (government and the private sector) in manipulating theagent.74 An EIPO=s behavior and achievements should not be analyzed only as a set of A contractual
outputs@ (i.e., provide so many training courses, assists so many investors, make so many A cold-calls@etc.) but must be considered as the result of an intermingling of interests between a coalition ofmanagers, the board of directors, government ministers, civil servants, and donor agencies. Thiscertainly was the case with CINDE.
In essence, the principal-agent relationship between EIPOs and governments, the clarity of objectives set
forth in those relationships and the nature of attribution of outputs affect the capacity of EIPOs to befinancially self-sufficient. The more measurable and attributable its output (the Aends@) to its efforts, themore likely it will be able to obtain funds. The more diffuse the government-decreed objectives, theweaker are its links and attribution to output and the less the likelihood of support. Hence, theprincipal-agent relationship also influences an EIPO=s organizational structure which, in turn, affects its
capacity for financial self-sufficiency.
Organizational Structure and Its Impact on Self-Sufficiency
Is CINDE=s institutional structure designed to provide insulation from government=s micromanagement
and political manipulation even though it receives government support? Is it flexible enough to respondquickly and appropriately to private user demands and at the same time satisfy the government need=s formeasurement, accountability and attribution? In essence, CINDE seems to have struck an appropriatebalance for satisfying both needs: independence and measurable results. Its achievements, however,were more likely serendipitous than earned by prudent and foresighted planning and design.
Perhaps the Alayering of principals@ phenomena helped to position CINDE for its institutional successes.
For example, the GOCR determines the overall export and investment goals for Costa Rica to which
CINDE=s activities must contribute if it expects to bid successfully for government grant funds. In

74

See Yair Aharoni, AState-Owned Enterprise: An Agent without a Principal.@

addition, however, FUNDEX, as a private foundation with minimal government input, acts as anindependent intermediary for deciphering and monitoring CINDE=s achievements and for authorizing
additional funds based upon those same objectives. This layered and balanced relationship provides
CINDE, the agent, with a degree of insulation from a politically motivated shifts by one of its principals,
the government. It also provides a powerful forum for a well-endowed private sector foundation to
influence the direction of CINDE=s efforts and to counter potentially negative impact of government
manipulation:75
A key element in the success of TPOs [EIPO] is the active involvement of the export community
in the selection and implementation of the organization=s activities, and one of the best ways toachieve this is to have the business sector adequately represented on the board either throughexperienced business men or women, or representatives of private organizations. Suchinvolvement can also be reinforced through the establishment of consultative or advisorycommittees for the TPO.76

In order to capture efficiently the positive externalities which governments seek from trade development
activities, EIPOs require flexibility and autonomy in operations. National input targets (e.g., spend thisamount of money on training, and this amount on investment promotion, etc.) should be linked togovernment=s output objectives (i.e., increased value-added exports, increased level of direct foreign
investment, new jobs created, etc.) if EIPOs are utilizing public funds. Indeed, they would not likely be
the recipients of public funds unless their activities were supportive of their government sponsors. Yet tobe effective, EIPOs should have the freedom to make technical decisions without undue politicalinfluence and in response to their largely private sector constituency .
Self-sustainability, as we have defined it, will be affected by the extent to which an EIPO can manage its
own focused agenda while balancing private sector interests and demands with government=s need formeasurable, attributable results. Consequently, an EIPO=s legal framework and organizational structure
are significant factors in determining its capacity to be Afinancially self-sufficient.@ CINDE=s transition
toward financial self-sufficiency is underway. Cost recovery is only one component of a broader
strategic plan which incorporates constituency development and interinstitutional collaboration.
Developing a sense of private sector Aownership@ is also an objective which will contribute to assuring its
financial base.
In summary, it is clear in the literature that trade development organizations require donor or government
input to sustain a full range of export and investment promotion services. However, acceptance ofoutside sources of funds should not imply a lack of financial self-sufficiency if one expands theconventional notion of financial self-sufficiency to apply to nonprofit organizations providing public
goods. The transition to a financially self-sufficient organization, then, is achievable as long as theservices provided by the EIPO are in demand, whether by the government to help meet national output
objectives, or by the country=s private sector users. Obviously, the nature and level of services provided
will be affected by the availability of resources, but an EIPO can increase the demand for its services by75

Of the five FUNDEX Board Members, all are highly regarded private sector professionals with only
two appointed by the GOCR.
76
Jaramillo, Camilo, ATrade Promotion Organizations: A Variety of Approaches.@providing measurable results which are attributable to its efforts. However, to deliver effective andefficient service, EIPOs should be insulated from political manipulation which compromises technicaldecisions. They must also be able to retain any financial surpluses from year to year so a degree ofstability and certainty is injected into their operations. Their legal framework and organizational
structure, therefore, become important elements in determining their capacity to achieve financial
self-sufficiency.

LESSONS FROM A
SUCCESSFUL MODEL
CINDE has made significant contributions to the country's economic restructuring through thedevelopment of nontraditional exports and through investment promotion. It has approached its taskssystematically and comprehensively, if not always smoothly, addressing a wide range of issues affecting
trade and investment, including promotion, marketing, regulation, technology and the formation of public
policies.
CINDE's success stems largely from (a) its legal status, (b) its organizational structure, (c)its institutional
flexibility, (d) its technical capacity, (e) its early and considerable access to resources, and (f) its
management of GOCR and donor relations. The characteristics that allowed CINDE to succeed include
the following:
9 It maintained substantial operational autonomy from the GOCR, yet worked effectively
and flexibly with it toward the same goals. While most EIPOs are public entities under the formal
direction and budgetary control of government, CINDE's legal structure safeguarded its budgetary
autonomy and minimized political interference, allowing it to avoid A many of the problems associatedwith government-run trade promotion organizations in other countries, an achievement largely
attributable to its private status."77 The U.S. Government's interest and sponsorship through USAID also
acted to ameliorate potential political manipulation of the institution. CINDE's flexibility allowed it toshift human and financial resources as the policy environment changed and realities shifted. The natureof its funding agreements with A.I.D. and the GOCR were not unduly restrictive and did not impede
CINDE from reallocating resources according to changing circumstances. As Keesing and Singer point
out, "A useful element...is built-in flexibility. Experience in this area shows that institutions [which are
not flexible] created in the early stages of a policy transition remain unsatisfactory and start to hinder
export development as the country policies toward manufactured exports improve."78
9 It did not monopolize the suppliers of export-related services and information. CINDE's
structure and modus operandi fostered rather than stifled other private sector organizations which
provided similar services such as the American Chamber of Commerce, local agricultural chambers,
private consultants, financial and legal services. For example, CINDE often subsidized Chamber training
activities with a direct infusion of funds. It also referred potential investors to reputable local lawyers
and financial intermediaries.

77

Nash, Costa Rica: Sustaining and Strengthening Links to the World Economy. Washington, D.C.:
World Bank, Trade Policy Division, December 1991, p. 12.
78
Keesing, Donald B. and Andrew Singer, How Support Services Can Expand Manufactured Export,
pp. 19 and 33.

9 Its structure insured private sector involvement and collaboration, especially inprogram design. The 10-member Board of Directors and each division's advisory board were drawn
from CINDE's current 84-member private sector assembly representing a range of domestic industries
and services with interests in export and investment issues. Private sector involvement in selecting anddesigning projects assured a demand-driven program and provided ample support. Its internalorganization also assured its efficient provision of services. As Keesing and Singer recommend,
Project components for promoting investment and providing support services for exports should
almost certainly be kept separate...Experience suggests that when export promotion services tolocally owned firms are combined with investment promotion, one task nearly always dominates
to the detriment of the other.79
CINDE's internal organization divided the responsibilities between two separate divisions -- aMarketing Division responsible for investment promotion and services and an Industrial Division which
provided export services to local manufacturers.
9 It focused on in-depth research and promotional activities in targeted industries thatshowed potential for strong export development. CINDE's targeted promotion of export sectors
channeled scarce resources into specific industries to encourage the development of competitive andcomparative advantages. Specifically, those sectors included the plastics, metal-mechanics, agroprocessing, electromechanical and electronics subsectors. In agriculture, research and technicalassistance focused on the development of nontraditional agricultural products such as asparagus,
strawberries, melons, broccoli, cacao, hot chilies, macadamia nuts, tomatoes for processing, black
pepper, ornamental plants and flowers. CINDE also successfully concentrated on developing ecotourism.
Tourism receipts, for example, grew from US $20.9 million in 1970 to US $420 million in 1992.
CINDE recognized its dynamic comparative advantages in searching for elements of uniqueness in factor
supplies such as the input availability, labor skills, relative factor costs, location and transport costs. It
was able to successful shift priorities as the GOCR=s economic policies changed, often providing advice
and assistance.
9 It made effective use of financing to support and encourage export activities. Nothing
succeeds like success. Resources were efficiently and effectively allocated which encouraged further
grants to CINDE to sponsor its activities. In addition, the ability to measure its contributions and todirectly attribute80 to CINDE levels of export and investment growth enhanced its credibility and helped
to convinced bilateral and multilateral donors that it was an effective institution which could meet
donors' objectives. Limited use of CINDE's grant resources to fund GOCR agencies, such as CENPRO,
to strengthen its capacity to provide export services, also proved to be a valuable strategy both from a"political" perspective and from a technical one.
9 Institutional evolution was sequential and synchronized with the country==scomparative advantages. CINDE began its services in 1983 primarily as a A transmitter@ of79

Keesing, Donald B. and Andrew Singer, How Support Services Can Expand Manufactured Exports.
World Bank, WPS 544, November 1990, p. 31.
80
As provided by the Price-Waterhouse study of 1990 and the Nash evaluation of 1991.

information and evolved into a A facilitator@ organization as its structure permitted. Its evolution to a A
promoter@ institution, while planned early, was pursued only after the country had positioned itself toaccommodate investors= expectations and exporters= capacities. Creating false expectations among
investors and exporters alike can be damaging to creating and promoting the country=s image in a world
market. For example, luring investors with assurances of a trained and eager workforce, favorable
foreign investment policies, easy transportation access and tax havens will backfire if the workforce is
not eager or trained and if the government is unable or unwilling to adjust policy and to create andmaintain favorable conditions. Likewise, domestic exporters enticed with the promise of access to
profitable foreign markets will also be discouraged when products are rejected for substandard quality or
the quantities ordered by foreign purchasers are too large for local firms to accommodate. Therefore, topromote investment successfully requires first working with government to create a favorable and stableenvironment. Developing an export base also requires sufficient training, upgrading of technology andmarketing to assure that the linkages to foreign purchases are sustained once they are created.
Several general characteristics also must be present if an EIPO is to be successful:
9 Organizational flexibility should be an integral part of an EIPO==s structure toaccommodate the transitions between modes of services which the country requires atdifferent stages of its economic progress. An organization=s structure must be flexible enough toaccommodate an institutional ebb and flow which is linked to both the country=s environment and thegovernment=s capacity to change business conditions. Services should begin at the basic and broad levelof a transmitter organization, move to the more advanced services provided by a facilitator organization,and evolve eventually to the directed and segmented service provided by a full promotion. The
sequencing is important to avoid the problems inherent in promising investors and exporters favorable
conditions which may not yet exist or which may be largely transient.
9 The timing of an EIPO==s transition from one mode to another should be synchronouswith government==s success at changing the business climate. The EIPO=s timing fortransforming from a transmitter to a facilitator to a promoter organization and back again will be linked
to the government=s capacity and willingness to create a favorable environment. Once the perception ofstability is achieved, where incentives and the business environment are competitive and efficient, EIPO
activities should retrench from an active promoter role to facilitator or transmitter modes. As investors= A
confidence@ in the favorable business environment increases and the country=s advantages become
known, large-scale proactive promotional programs can no longer easily provide the yields to make themefficient investments, either financially or when viewed by a social cost benefit measure. In CINDE=scase, the transition from transmitter to facilitator took the initial two years of its operation -- 1983 and1984. Its subsequent move to a promoter organization was accomplished in 1985. Its transition back toa facilitator mode began in 1991 as foreign promotion offices were closed and resources shifted again
toward training.
9 An A evolutionary pattern@@ of EIPO service provision which begins slowly with basic
information services, rises to include facilitation and promotion and then retreats backAKuznet=s Curve@ is essentially an inverted AU@ shape which Simon Kuznet used to demonstrate therelationship between per capita GNP and inequality, in which the distribution of income may take theshape of an inverted AU.@ During the economic development transition, inequality first rises, then peaks
81to basic services should be linked to the country==s economic progress and should be
anticipated. CINDE=s transitions along this continuum resembled movements along Kuznet=s curve81,
where the shape of the inverted A U@ corresponded to the nature and intensity of services provided inproportion to indicators of raising exports and investment.

Measure of Per Capital FDI or Export

Theoretical Cycle
for EIPO Service Provision
12
10
8
6
4
2
0
1

3

5

7

9 11
13
15

Years

Transmitter
FacilitatorPromoter

Theoretically, the early stages of EIPO evolution inwhich countries are defining long term strategies and identifying comparative advantages, EIPOs should
provide transmitter services: essentially low-cost information which is current and easily available.
Likewise, export development activities should be limited to providing low-cost information regarding
foreign market potential and access, basic technical training and new technological developments. EIPOs
also should begin to provide governments with information about what changes to the environment are
required to attract investors. As government policies adjustand new incentives are created, EIPOs will find their services in demand by the government and private
sectors alike, especially to facilitate transactions, locate factory sites, assist with domestic financing
requirement, etc. As the environment improves and the country establishes a Atrack record@ of successful
investments, promotional activities will find a more receptive audience and should increase.
Simultaneously, export training for domestic producers should increase and sources for export credit
identified or created.
Once interest and investor momentum have been established and the country has generated a criticalmass of investment, greater social cost-benefit returns may be generated by limiting or scaling backpromoter services and by reemphasizing facilitator and transmitter services. During the first two years of
an EIPO=s operation, usually the policy environment of the developing country is insufficient to sustain
an active promotional program. During this Apolicy assessment and adoption@ phase, transmitter services
should dominate with supporting facilitator services being phased into the EIPO=s list of services as
demand for them increases. The second phase, beginning three to five years after initiation of activities,

and finally falls. In a sense, this Apattern@ may be compared to an ideal sequencing of EIPO operational
services mode. [Gillis, Malcolm, Economics of Development. New York: W.W. Norton, 1992, pp. 84-93.]

entails Apolicy stabilization@ characterized by the adoption and application of favorable business policies
which provide investors with confidence and incentives for increasing investment and export production.
Transmitter and facilitator services should be supplemented by active promotional activities once theenvironment has been created to provide adequate incentives to investors and exporters. As the percapita foreign direct investment and per capita value-added export value reach a critical mass, the needfor expensive Apromotional@ activities should begin to taper off and a focus on facilitation and transmitter
serviced should increase. During this part of the institution=s maturation, facilitation services should also
concentrate on satisfying the investors that are already in-country rather than just focusing on newclients.

CONCLUSIONS
Although CINDE's institutional development has been affected by sporadic leadership, a rapidlychanging environment, and transitional problems, its contributions have been unusually successful.
Unlike many organizations of its type, CINDE achieved its objectives of promoting export growth,
attracting foreign investment and creating a flexible, self-sustaining organization. The economic andpolitical circumstances surrounding Costa Rica in the early 1980s and the specific context in which it
began are, perhaps, unique. The political importance attached to Costa Rica by the United States as aresult of the Jackson Plan (Kissinger Commission Report) of the early 1980s assured massive inflows offoreign assistance and the accompanying policy conditionality to liberalize the economy. It also gave
USAID a significant voice in helping to plan the country's move toward an export oriented economy andin CINDE=s creation and subsequent management. Developing countries are not likely to see again, inthe near or midterm, such a massive level of assistance from the United States (with the possible
exception of assistance to the Newly Independent States of the former Soviet Union). Costa Rica has arelatively sophisticated private sector infrastructure and one hundred years of democratic governance.
Many developing countries are struggling with nascent democracy and many only have an underpinningof private sector structures.
Nonetheless, institution development planners should heed the lessons of Costa Rica's CINDE. Despite
the unique contextual characteristics of Costa Rica during CINDE's development, the general lessons
regarding the dynamics of successful EIPO institution-building may be broadly applicable. That is not to
say that CINDE's experiences are easily replicable or even desirable in every case. Rather, the basic
influences of the organization's legal framework, internal structures, technical and financial autonomy
combined with goals mutually acceptable to government are the common denominators in determining
successful EIPO institutionalization.
However unlikely, other developing countries may be faced with circumstances similar to Costa Rica's
in contemplating a EIPO design. An autonomous, demand-driven structure should be seen as an essential
element of successful EIPO institution-building. But Ademand@ should include the government=s need forthe provision of these services, not just those which can recover costs because private users are willing to
pay for them. Earning the financial and political support of the central government is equally critical but
it is especially difficult because operational and technical autonomy must be maintained and theorganization must be insulated, as much as possible, from political influences.
Above all, institutional and government policy objectives must be similar or at least not working at crosspurposes. At the same time, the organization must exhibit the characteristics of a competitive provider ofservices including efficiency, command of market share, risk-taking behavior, entrepreneurship,
responsiveness to the environment and innovation. Likewise, private sector input and support are key tothe long term institutional survival of EIPOs. Lacking private sector stakeholders and flexible
organizational structures, there is little doubt that EIPO programs will be limited in scope, poorly
managed, financially unsound and unresponsive to the real needs of a developing country.

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ANNEXES