Twenty years later, Arias leads divided Costa Rica

SAN JOSE, Costa Rica, May 9 (Reuters) Twenty years after first taking office, Nobel laureate Oscar Arias was sworn in again as Costa Rica's president in a nation divided over free trade with the United States.

Arias, who won re-election in February by a razor-thin margin, backs the US-Central American Free Trade Agreement, or CAFTA, which Costa Rica's Congress has opposed.

Costa Rica is the only signatory not to ratify the pact, an important element of Washington's influence in Latin America, where leftist leaders have increasingly challenged U.S.

policies.

Arias said the Central American country of 4 million people should embrace free trade and not cut itself off from the outside world.

''Taking Costa Rica to isolation from great movements in the world is a reactionary cause and a betrayal of the country's youth,'' he said yesterday in his inaugural address before dignitaries like former Polish President Lech Walesa, another Nobel Peace Prize winner, and US first lady Laura Bush.

Many Costa Ricans fear the trade pact would put their country at a disadvantage against cheaper U.S. agricultural imports.

Arias, 65, served as president from 1986-1990 when Central America was torn apart by civil wars. He won the Nobel Prize in 1987 for his role in brokering an end to the conflicts.

This time around, he lacks a clear mandate after his unexpectedly close win over Otton Solis, a CAFTA opponent.

Arias, who was initially expected to win the February 2 race by a landslide, instead squeaked out a 1.12 percent victory.

That has left him without a legislative majority, and he must cut deals with other parties to pass the trade pact. The Supreme Court has yet to decide whether a simple majority or a two-thirds vote is needed to pass CAFTA.

Arias vowed to clean up Costa Rican politics after a series of corruption scandals involving former presidents.

''From today, there will be a clear and inalterable path route when it comes to honesty in public functions,'' he said, speaking in the half-empty national stadium.

Outside, several hundred demonstrators marched in opposition to Arias, who critics say has become too close to business interests over the years.

''It will be four years of social exclusion,'' said protester Rodrigo Chavarri, a telecommunications employee. ''We already know about the free-market philosophy of Oscar and his team.'' Arias says he will use his worldwide acclaim as a Nobel laureate to attract investment. He also wants to shrink government and reach economic growth of 6 or 7 percent, compared with around 4 percent last year.

Passing badly needed fiscal reforms is seen as another major test, and Arias has pledged to push a tax reform bill to force wealthier Costa Ricans to pay more for infrastructure.

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