Economy of Costa Rica

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Costa Rica's basically stable economy depends on tourism, agriculture, and electronics exports. It has the second biggest GDP per capita in Latin America. Poverty has been reduced over the past 15 years, and a social safety net put into place. Economic growth rebounded from -0.9% in 1996 to 4% in 1997, 6% in 1998, 7% in 1999.

Inflation rose to 22.5% in 1995, dropped to 11.1% in 1997, 12% in 1998, and 11% in 1999. Large government deficits - fueled by interest payments on the massive internal debt - and inefficient administration by government monopolies have undermined efforts to maintain the quality of social services. Curbing inflation, reducing the deficit, and improving public sector efficiency through an anti-corruption drive, remain key challenges to the government. Political resistance to privatization has stalled liberalization efforts.

Costa Rica's economy emerged from recession in 1997 and has shown strong aggregate growth since then. After 6.2% growth in 1998, GDP grew a substantial 8.3% in 1999, led by exports of the country's free trade zones and the tourism sector. The Central Bank attributes almost half of 1999 growth to the production of Intel Corporation's microprocessor assembly and testing plant.

The strength in the nontraditional export and tourism sector is masking a relatively lackluster performance by traditional sectors, including agriculture. Inflation, as measured by the Consumer Price Index, was 10.1% in 1999, down from 11.2% the year before. The central government deficit decreased to 3.2% of GDP in 1999, down from 3.3% from the year before. On a consolidated basis, including Central Bank losses and parastatal enterprise profits, the public sector deficit was 2.3% of GDP.

Controlling the budget deficit remains the single biggest challenge for the country's economic policy makers, as interest costs on the accumulated central government debt consumes the equivalent of 30% of the government's total revenues. This limits the resources available for investments in the country's deteriorated public infrastructure, investments in many cases that would result in higher quality infrastructure if not made through the many inefficient government monopolies.

1 Resources
2 Exports and Jobs
3 Infrastructure
4 Nationalized Industry
5 Trade Policy
6 Statistics
7 Major Companies
8 External links

[edit] Resources

Costa Rica's major economic resources are its fertile land and frequent rainfall, its well-educated population, and its location in the Central American isthmus, which provides easy access to North and South American markets and direct ocean access to the European and Asian Continents. Costa Rica has 2 seasons, both of which have their own agricultural resources. The seasons are the basic, wet and dry, tropical seasons. One-fourth of Costa Rica's land is dedicated to national forests, often adjoining picturesque beaches, which has made the country a popular destination for affluent retirees and ecotourists.

[edit] Exports and Jobs

Costa Rica used to be known principally as a producer of bananas and coffee. (Its principal exports are still listed as coffee, bananas, cocoa, sugar, lumber, wood products and beef.) In recent years, however the country has successfully attracted important investments by such companies as Intel Corporation, which employs nearly 2,000 people at its custom built $300 million microprocessor plant; Procter & Gamble, which is establishing its administrative center for the Western Hemisphere in Costa Rica; and Abbott Laboratories and Baxter Healthcare from the health care products industry likewise. Manufacturing and industry's contribution to GDP overtook agriculture over the course of the 1990s, led by foreign investment in Costa Rica's free trade zones. Well over half of that investment has come from the U.S. Tourism also is booming, with the number of visitors up from 780,000 in 1996 through more than 1 million in 1999 to 1.5 million by 2004. Tourism now earns more foreign exchange than bananas and coffee combined.^[1]

The country has not discovered sources of fossil fuels--apart from minor coal deposits-- but its mountainous terrain and abundant rainfall have permitted the construction of a dozen hydroelectric power plants, making it self-sufficient in all energy needs, except oil for transportation. Costa Rica exports electricity to Central America and has the potential to become a major electricity exporter if plans for new generating plants and a regional distribution grid are realized. Mild climate and trade winds make neither heating nor cooling necessary, particularly in the highland cities and towns where some 90% of the population lives.

[edit] Infrastructure

Costa Rica's infrastructure has suffered from a lack of maintenance and new investment. The country has an extensive road system of more than 30,000 kilometers, although much of it is in disrepair. Most parts of the country are accessible by road. The main highland cities in the country's Central Valley are connected by paved all-weather roads with the Atlantic and Pacific coasts and by the Pan American Highway with Nicaragua and Panama, the neighboring countries to the North and the South. Costa Rica's ports are struggling to keep pace with growing trade. They have insufficient capacity, and their equipment is in poor condition. The railroad didn't function for several years, until recent government effort to reactivate it for city transportation.

The government hopes to bring foreign investment, technology, and management into the telecommunications and electrical power sectors, which are monopolies of the state. However, political opposition to opening these sectors to private participation has stalled the government's efforts.

Costa Rica has a reputation as one of the most stable, prosperous, and least corrupt Latin American countries. But in fall 2004, three former Costa Rican presidents (Jose Maria Figueres Olsen, Miguel Angel Rodríguez, and Rafael Angel Calderon) were investigated on corruption charges related to the issuance of government contracts.

The poor state of public finances and the maladministration by state monopolies will continue to limit the state's ability to try to modernize these sectors in the absence of a political consensus to permit private investment. Failure to act soon on telecommunications could prove an obstacle to the government's desire to attract more world-class foreign investment.

[edit] Nationalized Industry

Some large sectors such as utilities and telecommunications are nationalized and/or are government supported monopolies.

Although there are no formal capital controls, it has been claimed that the prevalance of state-owned banks have had the same effect. They are also blamed for the rampant inflation that currently runs at around 11%.

The quality of these industries, particularly power and communications, have been sharply criticized for the outages that occur nearly daily.

The large amount of government intervention and support for these industries has been blamed for the lack of funding for and virtual non-existence of police.

[edit] Trade Policy

Costa Rica has sought to widen its economic and trade ties, both within and outside the region. Costa Rica signed a bilateral trade agreement with Mexico in 1994, which was later amended to cover a wider range of products. Costa Rica joined other Central American countries, plus the Dominican Republic, in establishing a Trade and Investment Council with the United States in March 1998.

Costa Rica is negotiating or seeking ratification of trade agreements with Chile, the Dominican Republic, Panama, and Cuba. It lobbied aggressively for enhancement of the U.S. Government's Caribbean Basin Initiative and has made clear its interest in joining the North American Free Trade Agreement (NAFTA) or signing a similar treaty with the U.S. Costa Rica is an active participant in the negotiation of the hemispheric Free Trade Area of the Americas, a process that the Costa Rican Government chaired in preparation for the April 1998 Summit of the Americas in Santiago, Chile.

Despite this involvement, Costa Rica is the only signatory to the US-Central American Free Trade Agreement (CAFTA) that has not ratified it. CAFTA implementation would result in economic reforms and an improved investment climate.

Costa Rica also is a member of the so-called Cairns Group which is pursuing global agricultural trade liberalization in the World Trade Organization.

[edit] Statistics

GDP: $20.2 billion (2006)

GDP PPP: $37.96 billion. (2006)

GDP real growth rate: 6.8% (2006 est.)

GDP per capita: purchasing power parity - $11,100 (2005 est.)

GDP composition by sector: agriculture: 8.5% (2005) Bananas, pineapples, coffee, beef, sugarcane, rice, dairy products, vegetables, fruits and ornamental plants. industry: 29.7% (2004) Electronic components, food processing, textiles and apparel, construction materials, cement, fertilizer. services: 61.8% (2004) Hotels, restaurants, tourist services, banks, and insurance.

Population below poverty line: 20.8% 2004*

Household income or consumption by percentage share: lowest 10%: 1.1% highest 10%: 36.8% (2004 est.)

Inflation rate (consumer prices): 9.43% (2006)

Labor force: 1.81 million (2004 est.)

Labor force by occupation: agriculture 20%, industry 22%, services 58% (1999 est.)

Unemployment rate: 6.6% (2004 est.) (understated); 7.5% underemployment

Budget: revenues: $2.497 billion (2004 est.) expenditures: $3.094 billion (2004 est.)

Industries: microprocessors, food processing, textiles and clothing, construction materials, fertilizer, plastic products

Industrial production growth rate: 24.5% (1999)

Electricity production: 5,742 GWh (1998)

Electricity production by source: fossil fuel: 9.28% hydro: 80.62% nuclear: 0% other: 10.1% (1998)

Electricity consumption: 5,267 GWh (1998)

Electricity exports: 77 GWh (1998)

Electricity imports: 4 GWh (1998)

Agriculture products: coffee, bananas, sugar, corn, rice, beans, potatoes, beef, timber

Exports: $6.4 billion (f.o.b., 1999 est.)

Export commodities: coffee, bananas, sugar; textiles, electronic components, electricity

Export partners: USA 49%, EU 22%, Central America 10% (1999)

Imports: $6.5 billion (c.i.f., 1999 est.)

Import commodities: raw materials, consumer goods, capital equipment, petroleum, electricity

Import partners: USA 41%, Japan 8.1%, Mexico 7.3%, Venezuela 4% (1998)

External debt: $3.9 billion (1998 est.)

Economic aid - recipient: $107.1 million (1995)

Currency: 1 Costa Rican colon (C) = 100 centimos

Exchange rates: Costa Rican colones (C) per US$1 - 506.11 (April 2006), 479.57 (July 2005), 299.63 (February 2000), 285.68 (1999), 257.23 (1998), 232.60 (1997), 207.69 (1996) and 179.73 (1995)

Fiscal year: October 1 – September 30