Costa Rica - Economic development



Despite trying to remain neutral, Costa Rica was affected adversely by regional political turmoil in the late 1970s and the 1980s. Instability in neighboring Nicaragua and Panama discouraged new investment and tourism in Costa Rica. Many displaced Nicaraguans and Salvadorans sought refuge in Costa Rica, further burdening the country's educational and health facilities. An oil shock and debt crisis also made economic recovery difficult.

Following an economic crisis in the early 1980s, Costa Rica made significant progress toward macroeconomic stability, structural adjustment, and growth through increasingly diversified exports. Gross domestic product (GDP) growth averaged 4% from 1988 to 1998. Nontraditional exports and tourism have increased rapidly and account for almost 60% of foreign currency earnings. Impressive growth after 1998 was recorded, in part due to the investments of the Intel Corporation. Although that and other North American corporations remain crucial to the success of the economy, since 2000, growth slowed to around 2%, unemployment remained at 6%, and inflation remained at 10%.

The government faced a large budget deficit in 2002 (it was 6% of GDP, up from 3.8% in 2001); 42% of the 2001 national budget was financed by public borrowing. The public debt was 52% of GDP in 2002. In 2000, an effort to privatize the telecommunications sector failed, and important economic sectors remain controlled by large public enterprises. The government in 2003 planned to implement tax reform to broaden the tax base, and to improve the condition of the financial system. Costa Rica is a supporter of the Free Trade Area of the Americas.

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