Costa Rica Economy

Compared with its Central American neighbors, Costa Rica has achieved a high standard of living, with a per capita income of about U.S. $4,700, and an unemployment rate of 6.6%. The annual inflation rate hovers around 14% as the Costa Rican Government seeks to reduce a large fiscal deficit.

Controlling the budget deficit remains the single-biggest challenge for the country’s economic policy-makers, as interest costs on the accumulated central government consumed the equivalent of 32.1% in 2003 of the government’s total revenues. About 18.9% of the national budget was financed by public borrowing. 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 eco-tourists.

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 nearly 2,000 people at its $300 million microprocessor plant; Proctor and Gamble, which employs nearly 1,000 people in its administrative center for the Western Hemisphere; and 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. Dole and Chiquita have a large presence in the banana industry. Two- way trade exceeded U.S. $6.6 billion in 2004.

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 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. 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.

The country has an extensive road system of more than 30,000 kilometers. Most parts of the country are accessible by road. 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 has signed trade agreements with Canada, Chile, the Dominican Republic, and is negotiating trade agreements with Panama, and Trinidad and Tobago. Costa Rica concluded negotiations with the U.S. to participate in the U.S.-Central America Free Trade Agreement (U.S.-CAFTA) in January 2004. CAFTA is expected to bring about the partial opening of the state telecommunications monopoly and a substantial opening of the state-run insurance sector. While CAFTA has been ratified by the U.S. and five other countries, the Costa Rican Legislative Assembly has not yet voted on it. Costa Rica is an active participant in the negotiation of the hemispheric Free Trade Area of the Americas as well as a member of the Cairns Group, which is pursuing global agricultural trade liberalization within the World Trade Organization.