During and immediately following his term, Carazo played a central role in the founding of the
University for Peace, a United Nations-affiliated educational institution that offers graduate programs in peace and development studies. His government also concentrated on and promoted the country's
petrochemical industry and even began exploration and digging near the
Talamanca Mountain Ridge in search for
petroleum. In the energy sector, his government inaugurated the
hydroelectric plant in
Lake Arenal. The Carazo government also regulated the excavation of
gold in the southern region of the country. On the international front, Carazo had to deal mainly with the radical changes in the neighboring country of
Nicaragua, which had been under the control of the
Somoza dictatorship for decades, whose rule Costa Rica had always opposed. As the
Sandinista movement rose in the 1970s, Nicaragua was faced with civil unrest and small armed clashes. Costa Rica's government supported any movement against Somoza and so backed the Sandinista insurgents. Many of the battles that took place in the Nicaraguan region bordering Costa Rica spilled onto Costa Rican soil. Carazo's government warned Somoza to stay on his side of the border several times. The government also started planning for the creation of a defence force to fight off any Somoza attempt to attack Costa Rican territory. The attacks finally ended in 1979 once the Sandinistas took control of the country, and Somoza was exiled. The government received a strong backlash from the public, and the opposition claimed that Carazo had failed to protect Costa Rica's sovereignty. Furthermore, Carazo's government allowed three US helicopters to touch down on national soil to facilitate Somoza's escape from Nicaragua. That sent the President's critics on a political bashing rampage, calling the matter a disrespect to national
sovereignty. Later, in 1982, the
Central American Democratic Community was formed in
San José with US backing. Its aim was to isolate Nicaragua from the rest of
Central America as long as they had a Communist regime in power. Another big move was in 1981, when Carazo's government broke off all diplomatic ties with
Fidel Castro's
Cuba. Carazo's government was plagued by economic instability and social unrest. During his presidency, there was a world
economic recession.
Petroleum prices were at historic highs, and the value of Costa Rica's main crop,
coffee, was falling. Against the advice of his Minister of Finance,
Hernán Sáenz Jiménez, and the
International Monetary Fund (IMF), Carazo instructed the Central Bank of Costa Rica to borrow heavily to maintain the value of the
colón, the local currency, in the hope that an economic recovery was close at hand. That policy eventually became unsustainable, leading to a catastrophic sudden devaluation in September 1980. The heavy load of debt that the central bank acquired contributed to the highest rates of
inflation that Costa Rica has endured ever since. After stepping down as president in 1982, Carazo became a well-known critic of the IMF and other global financial institutions. In his last years, he campaigned vigorously against the
Central American Free Trade Agreement (CAFTA). ==Later life==