Costa Ricans narrowly approved a free trade deal with the United States in a referendum on Sunday that has split the Central American nation like no other issue in decades.

Fifty-two percent of voters backed the Central American Free Trade Agreement, or CAFTA, according to returns from nearly 90 percent of polling stations. Forty-eight percent were opposed.

The vote lifted Washington's standing in Latin America where the U.S. image has suffered in recent years after leftist leaders took power in countries like Venezuela, Ecuador and Bolivia.

It was also a victory for President Oscar Arias, the 1987 Nobel peace laureate who argues that Costa Rica needs to open its economy more as it is a small country with few natural resources.

"We've decided to board the development bus," said Alfredo Volio, head of the 'yes' campaign. "A beautiful page has been written in this country's history."

Costa Rica was the only country not to have ratified CAFTA and the only one to take it to a popular vote. The deal also includes Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic.

Critics fear it will mean a flood of cheap U.S. farm imports and damage state-run companies, endangering funding for Cost Rica's welfare state.

The agreement exposes state-run sectors like telecommunications and insurance to competition from foreign firms.

"It seriously hurts the poor and it has benefits for the wealthy class," said 29-year-old student Luis Sanchez.


The White House said on Saturday it would not renegotiate the deal if Costa Ricans voted against it. It was the second such warning in only a few days from Washington, which wields heavy influence in Central America.

The United States has struggled recently to push its trade agenda in Latin America. A planned Free Trade Area for the Americas plan has stalled largely because of opposition from regional giant Brazil.

The referendum split Costa Rica, a coffee-producing nation of 4 million people known for its political stability in a region that was torn by civil wars in the 1980s.

In the largest march in Costa Rica in years, about 100,000 people filled the streets of the capital last weekend to protest the trade pact.

Costa Rica, which has no army and boasts of pristine beaches and jungles, has enjoyed almost uninterrupted democratic government for over a century and has much better free education and health care than its neighbors.

Coffee farming, tourism, call centers and microchip manufacturing support the growing economy, which is more diversified than its neighbors. It attracts migrant workers from neighboring Nicaragua and Panama.

"We can't shut the door on the world. We have to compete, produce and sell," said Jose Gadea, 49, a businessman who backed the trade pact.

The U.S. Congress narrowly approved CAFTA in 2005.

Democrats in Congress last week sought to reassure Costa Rican voters their country would not lose existing trade benefits if the pact were defeated.

(Additional reporting by Brian Harris)