Mr Arias narrowly won an election held in February

Mr Arias, 65, vowed work to stabilise the Central American country's economy and to govern with a commitment to democracy and human rights.

Mexican President Vicente Fox was among several Latin American leaders attending the inauguration.

Several thousand protesters marched outside to demand Costa Rica not ratify the Cafta free-trade agreement.

From today on, we will have a defined path regarding honesty and ethics in public office Oscar Arias

The protesters - among them union members, students and academics - argue that the Central American Free Trade Agreement will only benefit big business.

Mr Arias believes the deal will help to create jobs and strengthen the economy in Costa Rica.

Mr Arias, of the National Liberation Party, narrowly defeated 51-year-old Otton Solis, of the Citizens Action Party, in a poll in February.

He is best known for winning the Nobel Peace Prize in 1987 after helping to broker an end to civil wars in Nicaragua and El Salvador.

"From today on, we will have a defined path regarding honesty and ethics in public office," Mr Arias promised in a half-hour inauguration speech.

"I haven't arrived at this post to please any particular group, but to defend the interest of Costa Rican society as a whole."