Costa Rica - Economy

The economy of Costa Rica, like that of all other countries in Central America, was originally based on the production of tropical agricultural commodities for export. There is some forestry in Costa Rica but very little mining, although steps have been taken to exploit bauxite, sulfur, and petroleum. Since about 1961 there has been a significant expansion of manufacturing activity, but most industrial plants remain small, concentrating on simple consumer goods to displace more expensive imports. Government efforts to promote diversification of agricultural production have resulted in notable expansion of cattle and dairy farming, second in value only to coffee among agricultural sectors. The opening of an Intel chip-making factory in 1998 spurred high growth rates and an influx of high technology companies, and increasing tourism revenues supported the growing economy. GDP growth, based on increases in tourism and industrial output, rose to 8.2% in 1999, while the official unemployment fell to 5.6%. There is relatively little underemployment in Costa Rica. From 2000 to 2002, however, economic growth turned sluggish, averaging a little under 2% per year, the result of both a weakenened external environment—in which tourism, export demand, and foreign invesment were all declining—and slackness in the domestic economy, reflected an average yearly inflation rate of 10.4% and a yearly combined government deficit amounting, on average, to 4.7% of GDP. Costa Rica's unemployment rate, however, has remained at a relatively unproblematic 6%. (with underemployment estimated at 7.8% for 2002), which relieves some of the pressure for reform.

Through the 1960s, prospects for economic expansion were promising, particularly in view of progress toward economic integration in Central America. However, in the 1970s, increases in import prices for raw materials (particularly oil) and finished goods caused an inflationary surge (reaching 100% in 1982), to which some internal policies, such as credit expansion and wage increases, also contributed significantly. Chiefly because of a decline in coffee prices in 1978 and the doubling of oil import costs in 1979, the economic growth rate fell sharply from 8.9% in 1977 to–8.8% in 1982. Costa Rica normally spends the whole of its export revenues from coffee on importing petroleum.

Positive growth rates averaging 3.8% resumed in 1983 and continued through 1985, largely due to government-imposed austerity under IMF standby agreements. Unemployment declined from an official high of 9.1% in 1982 to 6.7% in 1986, the year world oil prices finally collapsed. The annual inflation rate dropped from 90% to 11.8% in the same period. Foreign debt, rescheduled in 1983 and 1985, remained high at $3.67 billion at the end of 1985. The overall growth rate between 1978 and 1988 was 4.1%.

Although per capita income slipped in the early 1990s, Costa Ricans still enjoyed the highest per capita income in Central America. Following a structural adjustment period, real GDP grew by 7.3% in 1992. In 1993, however, economic growth slowed to 4.5%; continually declining until the rate hit–0.8% in 1996. The decline was attributed to lingering negative expectations in the private sector, adverse effects of increasing international competition, and unfavorable weather. Tight fiscal and monetary policies adopted under an IMF standby agreement April 1993 February 1994 also contributed to the mild recession. The government entered into another standby agreement with the IMF which ran from November 1995 to February 1997. By 1998, annual inflation was down to 12%, a significant improvement on the 22.5% recorded in 1995, and GDP growth rose to 6.2%, above the 3.7% recorded in 1997, reflecting increased tourist and export trade, and new investment activity. Inflation dropped to 10.1% in 1999, the year of Costa Rica's strongest recent growth. In 2000 GDP growth fell to 2% and in 2001 to 1.1%. In 2002, GDP growth was estimated at 2.8% and inflation at 10%.

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Sep 13, 2007 @ 4:16 pm
costa rica economy is basically stable and depends on tourism, agriculture and electronic

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