Hotel Owner, San Jose, Costa Rica

Tom: You know, people do absolutely ridiculous things when they come here. I was in a restaurant having lunch and this guy was sitting at a table next to me. He turns and says, "Hey, where are you from?" Then he gives me his card, and it says, "teacher, masseuse and lighthouse keeper." This guy was a character. He met this hooker and started a business with her. He started a business with a hooker! Well he got cleaned out. She even stole his American Express card. And he’s got a family in the States. People do absolutely ridiculous things here. And you know what his comment was when I asked him, "Why did you do all this?" He said, "It’s the palm trees. I saw the palm trees and lost it."

CM: How did you come to Costa Rica?

Tom: Well, I spent two months traveling all over Mexico, not speaking Spanish and riding busses everywhere and experiencing all types of incidents – some pleasant, some unpleasant. I didn’t like Mexico. I vividly remember crossing the border to San Diego and going into… walking into a clean McDonalds. It hit me then that what bothered me, it’s sad to say, was the dirt.

So, I went back to Santa Barbara and sat down in my apartment and starting reading about countries further south. I had never even heard of Costa Rica. I said to myself, "That place sounds interesting." So I called a friend of mine who is a smoke jumper for the Forest Service, and he has lots of time off, and I said, "Mike, let’s go to Costa Rica." And we did.

We actually went back to Mexico first and took the Copper Canyon train ride, which was one thing I had not done. We crossed the border at Agua Prietas on New Years, and everyone was shooting guns and having a real party. We took a bus to Chihuahua that had half the windshield missing, and we rode all night, just freezing. We took the train to the Distrito Federal and then flew to Costa Rica and spent a month travelling all around. I met a person who later became my business associate when I ran the hotel. So my arrival in Costa Rica was just the result of the fact that I had a world atlas in my living room.

Tom: When I came to Costa Rica I spoke more Spanish, and was immediately attracted to the country. It basically had the four things that appeal to me… good weather, good food, beautiful women and cheap booze. You know, man’s basic necessities.

I went back to Santa Barbara where I had one last piece of property to liquidate, and I sold it. Then I had no ties. I owed money to nobody at that time. I bought a plane ticket to Costa Rica; took a taxi to the central plaza and sat down on a park bench beside a gringo who told me about a hotel where I could stay for about six dollars a night. Then I found a small apartment, took some Spanish classes, and then for about the next four years I didn’t do anything. I just took it easy; had a good time; learned Spanish, and got to know the customs and the people.

CM: How did this lead you to the hotel business?

Tom: During this time I met my future business partner in the hotel. He’s an enterprising person from an old German family. Many people don’t realize it, but Costa Rica is a nation of immigrants… If you go back and study the history of immigration to Costa Rica, that is what makes this country different from, say Nicaragua. There have been periods where Lebanese people immigrated, or Spanish people immigrated. There were periods where Polish Jews came to Costa Rica. The Chinese came on the Pacific side and then they brought the Blacks on the Pacific side to build the railroad. The Germans came for the coffee. You can go up to Barva de Heredia, and you will see people who look like you, but they’re Costa Rican. They have blond hair and blue eyes. Costa Rica has a long history of immigration, and that is really what has made it so different and so special.

They just did our first census in 15 years. We have just had another wave of immigration from Nicaragua. Twenty five percent of our population now is Nicaraguan. This occurred during the last 10 years.

CM: Was that controlled, or was it illegal immigration?

Tom: No, it was illegal, but what happened in the last three presidential elections is that the outgoing president always gave amnesty for anyone who was in the country illegally. They got unrestricted residency – the best form of residency you can get. And it didn’t just benefit the Nicaraguans. I know Europeans and Swedes who got residency here because of the amnesty created by outgoing presidents. They do that in the hope of grabbing those votes for that political party…

CM: Of course, that just encourages more illegal immigration.

Tom: It’s a vicious circle. On thing that is sad that has occurred is that, since we have socialized medicine, it has put a huge strain on the medical infrastructure in Costa Rica.

CM: Many people think of Costa Rica as not just a democracy but a credit to capitalism. Is that true?

Tom: Costa Rica has a huge system of hydroelectric power that was financed by the government. Their national insurance is controlled by the government. They have a national alcohol factory controlled by the government. Oil refineries are controlled by the government. Many, many things are controlled by the government really make us a social democratic state. It is heavily socialized… much along the lines of Germany with their social programs and right to work laws and protection laws for workers and that sort of thing.

The average person in the lower income bracket will take advantage of whatever social system that is in place. As the owner of a business I can tell you that the cost of having an employee in this system is higher than the actual wages paid. With all the social programs and the holidays and the vacation days and the federal days, my work costs as an employer are the employee’s base salary plus 57 percent.

CM: Really? That high?

Tom: Yes, and most people don’t realize it. They come here and think the cost of doing business is low because wages are low. Yet, employees get a full month’s salary as a Christmas bonus. It’s calculated by taking their entire income for the year and divide by 12, and that is the annual bonus that the employer has to pay. They also get 15 vacation days right from the start. There are 11 paid holidays. Now when you add all those days up, now you need another employee to cover… see what I mean? These are the hidden costs that people who come here to start businesses don’t factor in… It’s not that you take big hits, but that you take so many small hits. It’s like a group of piranhas always nibbling at you from every corner, and that is really what happens.

Tom: I don’t run a big business. I want to run my life. I don’t want my business to run my life.

CM: you said that the government of Costa Rica recognized that educated people are a resource – a valuable resource to the country. Now companies are coming here not just to set up maquiladoras, but to use this resource and give these people fairly high paying jobs. Is that right?

Tom: That’s correct. I think a big change has taken place for Costa Rica. Now we have maquiladoras closing in Costa Rica and moving to Honduras, El Salvador and Guatemala. Now some of those are closing because of political instability. They originally came to Costa Rica because it was politically stable. And of course the greed factor came into play, and they said, "OK, we’ll just go over there" because they were getting better tax incentives. The same jobs that are coming to Costa Rica have left the United States, so the globalization thing is here, whether we like it or not.

The education thing came, I think, from the fact that there is such a European influence in Costa Rica. I think that really stems from the European heritage. For whatever other reasons, there have been a huge amount of people in Costa Rica who have gotten very wealthy from the aid programs too. It’s not like all the money came in and was efficiently used. You throw enough money at a problem and it usually gets fixed, but … At least a lot of it did do a lot of good.

I have seen a lot of other things have affected it too. I’ve seen huge influences from the laundering of drug money, and the prices real estate… Costa Rican real estate is very expensive. It is not cheap here. Costa Rica is not cheap here. It is three times as expensive as it was when I came here fifteen years ago. Housing prices are even higher than that. Housing prices are probably five times as high. So there has been this huge increase in cost. Which has… well, there was a stronger middle class here ten or eleven years ago. The middle class has become weaker.

We had no personal credit in Costa Rica ten or eleven years ago. It just didn’t exist. Credit cards were almost non-existent as well. In the last eleven years there has been a huge increase in personal debt among Costa Ricans, and that’s one of the reasons why the economy is not stronger right now. Credit card companies are charging 42 interest in dollars, 56 percent interest in colones, and it is really quite different. When you get a credit card here you have to sign a letter of credit. It’s a legal instrument.

CM: They don’t mail them to you for free like they do in the U.S.?

Tom: (Laughs) Oh no. Many times you even have to have a co-signer who signs on the letter of credit. So, the banks are notoriously greedy. There was a Canadian bank that came in here about four years ago… and they have actually put a lot of pressure on them (for reform). The banking system has changed in the last four years. Now you can go into a bank and get a loan in dollars that is fairly reasonable…

That was one of the reasons why many businesses here failed, among Costa Ricans as well, was that they could not service their loan debt with their income.

CM: Why are the interest rates so high?

Tom: Well because the banks here are so inefficient.

CM: Couldn’t you just find another lender with rates closer to market rates?

Tom: Well the banks were controlled previously. They were state banks. The banks that we had were all state banks. Now, when they changed the banking laws four years ago they allowed competition among the banks, but this is a relatively new thing. This is new. A lot of banks still don’t want to come in because it’s risky. It’s risky.

One of the reasons the state banks were so inefficient was because; well I’ll give you an example. When I opened my hotel, I ran out of money. I went to a state bank half a block down the street. At the time, business was incredible. There were more people than hotel rooms. I could put people on the floor and charge them for a night’s stay. I’d give them a shower and a free breakfast, OK? I went to the bank and I said, "I need money to finish my project."

Now, I’ve had millions of dollars of loans in California. I was successful in real estate. I made money. The banker listened to my proposal, and he offered me money at a 40 percent loan to value ratio. Let’s say that if my property was valued at $100,000, he would only loan me $40,000. He wanted five points…

CM: Up front?

Tom: Up front. Then he took me off to the side and asked for a $5,000 bribe for the board of directors. OK? The interest rate was – I don’t remember – 22 percent or 26 percent. It was no good. And I told him, "You know what? I don’t need your money." And I just came back and did it by myself.

What that created was that these banks for many years had portfolios that were completely non-performing. So, the assets in many situations were overstated. That affects the bank. The bank has to make their money somewhere else. So, a certain amount of people who are honest business people pay for the others, and many of them are criminals.

Many of the laws are designed here so that if you are intelligent you will never ever go to jail. I don’t know of one person in Costa Rica that has ever gone to jail for tax fraud. So you have all these different forces at work that are not really designed to make you an honest businessperson. It’s sad to say.

You combine the attitudes they inherited from the Spaniards - if you let me do it, I will – and this is what you get. We have a saying in Costa Rica: "Te doy mi mano, te sacas mi codo." It means, "I give you my hand and you take my elbow." These are things I had to learn along the way…

Business is really interacting with other people just to get what you wish to obtain or to solve your problems, and unless you have somewhat of a psychological profile on this, you’re in the dark. They will say to you, "Yes, yes, yes." Then behind your back they will sell you down the river. It’s very interesting.

CM: Tell me a little bit about the effect of U.S. government policies in Costa Rica.

Tom: Now, Costa Rica is a great example of U.S. foreign policy working. When I came here in 1985 the U.S. government was giving Costa Rican government 230 million dollars a year… This all started with Kennedy’s administration program for the Peace corps, I think, about 1961 –1962.

They put money here into programs to build water systems, to build clinics, and it actually worked. Costa Rica is the only country in Central America where you can drink the water anywhere in the country. You can eat all the food anywhere in the country and not get sick. The water thing is huge because what you don’t realize is it shortens the life span of the people. It weakens all their system so that they can’t work as much. It has a huge effect on the health of the people.

Tom: The Caribbean Basin Initiative was a great program presented by the United States government. This is a great example of part of the US’s foreign policy that really has worked well. As I said yesterday, I really love the United States, and I think they have a lot of foreign policy that is very good. I think we do a lot of good in many parts of the world.

This is a program that was created in the 1980s when the U.S. government saw that they had two choices: either develop the Caribbean and Central and South America so that those countries could be self-sustaining, or the people of those countries would emigrate to the United States. They created this program which they called the Caribbean Basin Initiative which helped different countries… through grants or loans, I’m not sure. In any case, there was funding to allow foreign investors to put in businesses and receive certain tax benefits for different periods of time.

My hotel is a perfect example of that. I came in and received a 12-year contract, which gave me tax-free status. In return, I bought products manufactured here in Costa Rica to build my business. I employ Costa Ricans. I’ve actually taken part of the history of Costa Rica and preserved it. My hotel is part of the national patrimony now. So all these things occurred because of this program. I would not have considered doing this business here without that program. That program is expiring now, but other Latin American countries are creating incentives with tax benefits and free zones and this type of thing.

So the U.S. government does have a lot of good policies that I think have worked over the years. You know, we had the war in Nicaragua that had a huge effect on Costa Rica. I know some of these people who were involved in the war who… worked with the U.S. government. Many of these people are still here. The U.S. has to have a role in a lot of these countries to maintain some point of stability. Otherwise greed will always take over. Unregulated free enterprise is not healthy, OK? But then if it’s over-regulated that creates an unhealthy situation as well, so there is always this pendulum effect where you usually go too far to one side or too far to the other. I think Costa Rica is one of the few countries that have gotten as close to the happy medium as any country in the world.

San José,

Costa Rica

January, 2002