A Scandal Tarnishes Costa Rica’s Reputation for Democratic Stability

This blog was updated on March 2, 2018.

Costa Rica is facing a corruption scandal — el Cementazo (from the Spanish word for cement) — unlike any other in the country’s history. The situation will have serious repercussions for the nation’s once highly regarded democratic institutions because it involves high-level officials in all three branches of government.

Since this summer, the country has been shaken by the revelation that a questionable $30 million bank loan that allowed a local company to import cement from China involved an alarming number of alleged corruption crimes by businessmen, congressmen, and a justice of the Supreme Court as well as members of the public prosecutor’s office and of President Luis Guillermo Solís’ administration.

This scandal may pale in comparison to others in the region, such as in Brazil and Mexico, but until now, Costa Rica has been considered an exceptionally stable democracy whose commitment to democratic values was second to none. In a Latin American region scarred by decades of civil wars, an unreliable approach to the rule of law, and sharp economic and social inequality, this reputation seemed even more treasured. Back in 2004, this perception was threatened by a series of high-profile corruption scandals that involved three former presidents. As demoralizing as it was for Costa Ricans to realize that some of their leaders were no different than other corrupt politicians, the country’s democratic institutions proved that no one was above the law. Two of the former presidents were prosecuted to the maximum extent possible, sending a clear message: unlike numerous Latin American countries where corrupt leaders enjoy impunity for their crimes, Costa Rica held its leaders accountable. The country’s judicial branch emerged as a model for the rule of law in Costa Rica and across the region.

At the center of the Cementazo scandal are a local importer of Chinese cement and a Supreme Court justice who — at the very least — is suspected of enabling the allegedly corrupt businessman, if not colluding with him. The businessman’s scheme to import cement and deceive a state bank also involves high-profile politicians with presidential aspirations, high-level officials of Banco de Costa Rica — the main state bank that facilitated the loan — as well as members of the public prosecutor’s office and of the Supreme Court, among others. The complexity of the Cementazo saga easily matches that of the HBO series “House of Cards,” which makes it impossible to fully recount in the limited space for this blog. However, the main facts of the story are summarized below.

Costa Rica’s cement industry had been controlled by two companies, Cemex and Holcim, which together maintained a high price for cement, which raised construction costs. The Solís administration favored any effort to break up this duopoly and lower construction prices for consumers. In 2014, a local businessman, Juan Carlos Bolaños, formed a company — Sinocem — to import cement from China. In order to do so, however, he needed a loan and the legislative branch to modify a decree that blocked the importation of cement that was over 45 days old. In other words, if a company wanted to import cement from abroad, it would have to be produced, shipped and imported within 45 days, which disproportionately favored the two local producer giants. Members of the Legislative Assembly (Congress), and allegedly people from Solís’ inner circle, promised Bolaños the decree would be modified. The promise itself would arguably be in line with the administration’s goal to break the cement duopoly and with the open market philosophy of various members of the Legislative Assembly. However, it has now been revealed through congressional testimony that Bolaños shipped a substantial amount of cement before the decree was actually modified. The matter is still under investigation, but for Bolaños to have taken such a risk could be seen to suggest that he knew his influence in the Legislative Assembly and in the Solís administration could result in a change in his favor.

Furthermore, several irregularities surround Banco de Costa Rica’s approval of an approximately $30 million loan to Bolaños. Among them are alleged influence peddling and the use of the cement itself as collateral for the loan when it is a perishable product. Moreover, Bolaños repeatedly imported less cement than the loan called for and yet the bank continued to disburse funds to his company. An audiotaped conversation between Bolaños and a bank official exposed Bolaños’ plan to defraud the bank. The whole situation has resulted in Bolaños’ arrest, the resignation of several members of the bank’s board of directors — many whom had been appointed by Solís — the indictment of the former president of the bank, and the arrest of the general manager and several other bank officials.

The crux of the Cementazo involves Costa Rica’s judicial branch — the public prosecutor’s office and the Supreme Court. A congressional investigation and several people at the Supreme Court revealed that Attorney General Jorge Chavarría — now suspended — seems to have stalled the investigation by dismissing claims of potential influence peddling between Bolaños and a couple of congressmen. In addition, a Supreme Court justice, Celso Gamboa, who is a member of the court’s criminal chamber, conceivably had ties to Bolaños and did not disclose this issue properly or recuse himself in matters related to the investigation. Gamboa failed to explain a trip to Panama City, allegedly with Bolaños and other Sinocem partner; he said it was a coincidence that they traveled the same days, took the same flights and stayed in the same hotel. A local newspaper reported that both Bolaños’ and Gamboa’s tickets were bought with the same credit card.

The importance of the Cementazo saga is not in the many details but in the threat it represents to the country’s democratic institutions. The congressional investigation into the many irregularities surrounding the case is taking place against the backdrop of Costa Rica’s next presidential elections, which will be held in February. To make matters worse, Bolaños — through his associates — had reportedly made financial contributions to several political parties in order to maintain his influence in the next administration. Unfortunately, it will be well into the next president’s term when the breadth of Bolaños’ corruption network is known. One can only hope that once the investigations are completed, the next president is not found to be entangled in the web of corruption. In the meantime, the reputation of, and confidence in, the country’s institutions — and especially in the once “model” judicial branch — are being severely tested.

Erika de la Garza is the program director of the Latin America Initiative at the Baker Institute.  Originally from Costa Rica, de la Garza’s  chief areas of interest include U.S.-Latin America relations; emerging leadership; coalition building between public, private and civil society actors; and trade and business development in Latin America.

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