Prosecutors are investigating former President Rafael Angel Calderón and several top government officials for allegedly having received large sums of money to arrange a multimillion-dollar government contract for a pharmaceutical company.

Analysts say it is the most devastating corruption scandal to hit the country in decades, and some say it could permanently mar Costa Rica's reputation as an exemplary Latin American Nation.

News of the payments was reported on the Channel 7 News program Telenoticias last Saturday, the first of a number of revelations this week related to the corruption scandal linked to a $39.5 million loan from the government of Finland. The loan came as part of the now highly controversial Finland Project, a plan to update medical equipment in Costa Rican hospitals run by the Social Security System (Caja) -- the country's state-run public health-care system.

Former Caja executive director Eliseo Vargas, who proposed the project when he was a legislative deputy in 2001, was arrested Tuesday and given a six-month preventive detention order for allegedly interfering with a government investigation and making illicit payments of $200,000 in certificates to former Caja modernization chief Juan Carlos Sánchez.

Sánchez, who had been transferred to the Calderón Guardia Hospital, resigned from the Caja on Monday.

Channel 7 reported that the payments to Calderón, who was President from 1990-94, came from a $9.2 million "commission" requested by the executives of the Costa Rican pharmaceutical company Corporación Fischel. According to Channel 7, the funds came from the controversial Finland Project, which the Legislative Assembly passed in a record three days in December 2001. In January 2002, the debt was transferred to the state.

The loan was granted on the condition that at east 50% of the medical equipment purchased be Finnish, criteria only one company could meet during the public bidding process. That company was Finland-based Instrumentarium, which distributes its equipment in Costa Rica through Corporación Fischel, meaning the Costa Rican company directly profited from the contract.

Calderón received $440,500 of the funds through a Panama-based company he owns and manages, according to the broadcast.

Local media also reported Monday that the Panamanian company Marchwood Holdings, presided by Fischel's executive president, Walter Reiche, provided $23,700 to purchase a 2002 Toyota Rav4 for Vargas' 20-year-old daughter Andrea. She reportedly sold the vehicle a week after La Nación re-ported on April 21 that Marchwood Holdings funded a luxury home for Vargas, which he rented at half-price from a former Fischel executive. Vargas resigned from the Caja the day after the reports ran (TT, May 14).

The report did not detail how the remaining $8.7 million of the alleged "commission" may have been distributed.

Immediately after the report aired Saturday night, prosecutors obtained a warrant and raided the offices of the bank BAC San José, seizing documents related to the transfers, which allegedly were made by Panamanian companies linked to Fischel. After the raids, a judge prohibited Calderón from leaving the country during the investigation. The judge issued a similar order for Sánchez.

In direct response to the allegations, the Social Christian Unity Party (PUSC) granted Calderón's request to be separated from the party, which he both founded and chaired, during the course of the investigation. Calderón also immediately contracted criminal lawyer Gonzalo Castellón.

Confronted by an army of reporters early this week, 55-year-old Calderón refused to provide details about the transactions "out of respect for the investigation." He repeatedly told reporters to "be calm" and said "everything will be explained in its moment."

Members of the press cornered him Monday as he went to visit economic crimes prosecutor Warner Molina in San José. Molina declined to see Calderón, explaining to the former President that he had "a full agenda." Calderón gave him a letter that declared his intention to cooperate fully with the investigation.

Calderón, in a statement he issued Sunday in response to the initial Channel 7 broadcast, admitted his company received the payments, but said the transactions were for "correct acts" and "have nothing to do with the public offices I held."

"I am a professional and a businessmen who works, invests and undertakes, just like thousands of Costa Ricans, with the goal of receiving an income," the former President said.

Local media also reported that Calderón's wife received part of the payments. Calderón's first cousin, Alfonso Guardia, allegedly cashed certificates totaling $80,000 from money sent to BAC San José by Panama-based Harcourt Holdings, also managed by Reiche. Guardia, when cashing the certificates, asked that the money be sent via a check to former First Lady Gloria Bejarano de Calderón, La Nación reported.

The original transfers were reportedly made by the company Datex-Ohmeda, a branch of Instrumentarium (according to Datex-Ohmeda's Web site), to companies in Panama managed by Fischel's executive president, Walter Reiche.

Costa Rican financial prosecutors working in Panama told the press this week that the transaction was one of many between banks in Finland and businesses owned by Reiche in Panama and the Bahamas.

Cecilia López, a Panamanian anti-corruption prosecutor who has investigated corruption cases involving a former Nicaraguan president and Peru's former intelligence director, is also investigating the scandal, Al Día reported.

Fischel's Reiche remains behind bars in Costa Rica serving a preventive detention order since early June. He is suspected of destroying documents sought during the government's investigation of the Finland Project, threatening witnesses and bribing government officials.

Investigation into the loan began in April, after La Nación revealed the house rental arrangement between Vargas and Olman Valverde, Fischel's former financial chief.

In a press declaration, Corporación Fischel general manager Alfredo Brenes denied that the Costa Rican company had any connection to the Panamanian companies involved in any of the transactions. However, La Nación reported that all three presented themselves before the bank BAC Panama as "companies related to Corpo-ración Fischel."

One of the companies, O. Fischel and Cía S.A., carries the same name as a Costa Rican company established in 1950 that later became Corporación Fischel. Also, the Panamanian companies were all at one point presided by Fischel executives.

The executive president of Oscol S.A., the first company to receive the $9.2 million from Datex-Ohmeda, according to Channel 7's report, is Emilio Bruce, president of Fischel's board of directors. Reiche is Oscol's vice-president. After the initial allegations against Vargas, Bruce stepped down from his post as president of the Costa Rican Chamber of Commerce (TT, May 14).

Reiche is also the executive president of Harcourt Holdings, the Panamanian company that allegedly transferred $440,500 to Calderón's company, Sultana.

The scandal has had a devastating impact on the ruling Social Christian Unity Party, with both its founder and a former party head involved -- Vargas was the PUSC Legislative Assembly faction leader when he presented the Finland Project. In a statement released Sunday, party leaders Lorena Vásquez and Federico Vargas said the Chan-nel 7 broadcast about Calderón "causes us great pain, as it affects a loved human being to whom this country owes very much."

Though much remains to be resolved, some analysts say the scandal is the worst the country has seen in decades.

"This is the end of Costa Rica being exceptional," said Luis Guillermo Solís, a political analyst with the University of Costa Rica (UCR). "This (corruption) equalizes Costa Rica in the regional context, in the Latin American context."

Edgar Cascante, an independent political analyst, agreed with Solís on the gravity of the crisis, since the Finland project funds were intended to assist in Costa Rica's deve-lopment. However, Cascante said Costa Rica can still salvage its image in the long term.

Instrumentarium, the Finnish medical equipment company that won the Caja contract in 2001, was bought in October 2003 by General Electric Medical Systems Information Technologies. Instrumenta-rium CEO Olli Riikkala spoke at a conference in Helsinki, Finland, announcing the takeover.

Riikkala said GE and Instrumentarium "share uncompromised integrity. If you are in the medical business, that's the first thing you have to have -- integrity in everything you do."