Economy of Costa Rica

Costa Rica's basically stable economy depends on tourism, agriculture, and electronics exports. Poverty has been substantially reduced over the past 15 years, and a strong social safety net has been put into place. Economic growth has rebounded from -0.9% in 1996 to 4% in 1997, 6% in 1998, and 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--have undermined efforts to maintain the quality of social services. Curbing inflation, reducing the deficit, and improving public sector efficiency 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 policymakers, as interest costs on the accumulated central government 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.

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. 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.

Costa Rica used to be known principally as a producer of bananas and coffee. In recent years, Costa Rica has successfully attracted important investments by such companies as Intel Corporation, which employs nearly 2,000 people at its $300 million microprocessor plant; Proctor and Gamble, which is establishing its administrative center for the Western Hemisphere; and Abbott Laboratories and Baxter Healthcare from the health care products industry. 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 zone. 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 to more than 1 million in 1999. Tourism now earns more foreign exchange than bananas and coffee combined.

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 Nicaragua 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.

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 does not function, with the exception of a couple of spurs reactivated by a U.S.-owned banana company. The government is expected to open both the ports and the railroads to competitive bidding opportunities for private investment and management during the coming months. The government also 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. The poor state of public finances 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.

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 Trinidad and Tobago. 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 Area (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. It also is a member of the so-called Cairns Group which is pursuing global agricultural trade liberalization in the World Trade Organization.

GDP: purchasing power parity - $26 billion (1999 est.)

GDP - real growth rate: 7% (1999 est.)

GDP - per capita: purchasing power parity - $7,100 (1999 est.)

GDP - composition by sector:
agriculture: 14%
industry: 22%
services: 64% (1998)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 1.3%
highest 10%: 34.7% (1996)

Inflation rate (consumer prices): 10.8% (1999 est.)

Labor force: 1.377 million (1998)

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

Unemployment rate: 5.6% (1998 est.); 7.5% underemployment

Budget:
revenues: $1.93 billion
expenditures: $2.27 billion, including capital expenditures of $NA (1999 est.)

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

Industrial production growth rate: 24.5% (1999)

Electricity - production: 5.742 billion kWh (1998)

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

Electricity - consumption: 5.267 billion kWh (1998)

Electricity - exports: 77 million kWh (1998)

Electricity - imports: 4 million kWh (1998)

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

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

Exports - commodities: coffee, bananas, sugar; textiles, electronic components, electricity

Exports - partners: US 49%, EU 22%, Central America 10% (1999)

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

Imports - commodities: raw materials, consumer goods, capital equipment, petroleum, electricity

Imports - partners: US 41%, Japan 8.1%, Mexico 7.3%, Venezuela 4% (1998)

Debt - external: $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 - 299.63 (February 2000), 285.68 (1999), 257.23 (1998), 232.60 (1997), 207.69 (1996), 179.73 (1995)

Fiscal year: calendar year

See also : Costa Rica