ECONOMY OF COSTA RICA

After experiencing positive growth over the past several years, the Costa Rican economy shrank slightly in 2009 (-2.5%) due to the global economic crisis. The services sector–around 68% of GDP–was the most affected; tourism fell by 8%. However, Costa Rica enjoys the region’s highest standard of living, with a per capita income of about U.S. $6,900, and an unemployment rate of 6.4%. Consumer price inflation is high but relatively constant at about a 10% annual rate in the last decade. Both the central government and the overall public sector ran fiscal surpluses in 2007.

Significant legislative hurdles slow down passage of new laws and present challenges for the country’s economic policymakers. Top priorities for the incoming representatives include fully completing the implementation of CAFTA-DR, passing fiscal reform, pursuing responsible monetary policy, and creating opportunities for inclusive economic growth. Costa Rica ranks 121st out of 183 countries in the 2010 World Bank’s Ease of Doing Business Index. This hampers the flow of investment and resources badly needed to repair and rebuild 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. Costa Rica is known worldwide for its conservation efforts with more than 26% of its land under protection, thus safeguarding more than 5% of the entire world’s biodiversity.

Costa Rica used to be known principally as a producer of bananas and coffee, but pineapples have surpassed coffee as the number two agricultural export. In recent years, Costa Rica has successfully attracted important investments by such companies as Intel Corporation, which employs 3,200 people at its $1.996 billion microprocessor plant; Proctor and Gamble, which employs about 1,200 people in its administrative center for the Western Hemisphere; and Boston Scientific, Allergan, Hospira, 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 United States. Del Monte, Dole, and Chiquita have a large presence in the banana and pineapple industries. Two-way trade between the U.S. and Costa Rica exceeded $9.6 billion in 2009.

Costa Rica is a country rich with renewable energy. It gets about 99% of all its electrical energy from clean sources, and it is aiming to become carbon neutral by 2021. Costa Rica has oil deposits off its Atlantic Coast, but the Pacheco administration (2002-2006) decided not to develop the deposits for environmental reasons. The Arias administration (2006-2010) reaffirmed this policy. The country’s mountainous terrain and abundant rainfall have permitted the construction of a dozen hydroelectric power plants, making it largely self-sufficient in electricity, but it is completely reliant on imports for liquid fuels. Costa Rica has the potential to become a major electricity exporter if plans for new generating plants and a regional distribution grid are realized. Its 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 public infrastructure has suffered from a lack of maintenance and new investment. Most parts of the country are accessible through an extensive road system of more than 30,000 kilometers, although much of the system has fallen into disrepair. Contamination in rivers, beaches, and aquifers is a matter of rising concern. Although Costa Rica has made significant progress in the past decade in expanding access to water supplies and sanitation, just 3.5% of the country’s sewage is managed in sewage treatment facilities, and the Water and Sewage Institute (AyA) estimates that perhaps 50% of septic systems function. In 2007, Costa Rica experienced nationwide blackouts resulting from a severe dry season (which limited hydroelectric resources) and the state electricity monopoly’s inadequate investment in maintenance and capacity increases.

Costa Rica has sought to widen its economic and trade ties 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, and the Dominican Republic, in establishing a Trade and Investment Council with the United States in March 1998. Costa Rica has signed trade agreements with Canada, Chile, the Dominican Republic, Mexico, Panama, and several Caribbean Community countries. It began negotiating a regional Central American-EU trade agreement in October 2007. Following a public referendum, Costa Rica ratified the U.S.-Central American-Dominican Republic Free Trade Agreement (CAFTA-DR). It entered into force in January 2009. Costa Rica was an active participant in the negotiation of the hemispheric Free Trade Area of the Americas and is active in the Cairns Group, which is pursuing global agricultural trade liberalization within the World Trade Organization. Costa Rica and China are currently moving toward a free trade agreement. In addition to China, negotiators are in talks with Singapore and South Korea.

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