Economy

Costa Rica's basically stable economy depends on tourism, agriculture and electronics exports. It has the second biggest GDP per capita in Latin America. Poverty has been reduced over the past 15 years, and a social safety net put into place. Economic growth rebounded from -0.9% in 1996 to 4% in 1997, 7% in 1999, before dropping to 4.7% in 2006. The Central Bank attributes almost half of 1999 growth to the production of Intel Corporation's microprocessor assembly and testing plant.

Inflation rose to 22.5% in 1995 but had dropped to 11.1% by 1997. In 2006, it stood at 12.1%.

Large government deficits - fuelled by interest payments on the massive internal debt - and inefficient administration by government monopolies have undermined efforts to maintain the quality of social services. Curbing inflation, reducing the deficit, and improving public sector efficiency through an anti-corruption drive, remain key challenges to the government. Political resistance to privatisation has stalled liberalisation efforts.

Controlling the budget deficit remains the single biggest challenge for the country's economic policy makers, as interest costs on the accumulated central government debt 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, investments in many cases that would result in higher quality infrastructure if not made through the many inefficient government monopolies.

Resources

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 has 2 seasons, both of which have their own agricultural resources. The seasons are the basic, wet and dry, tropical seasons. One-quarter 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.

Exports and Jobs

Costa Rica used to be known principally as a producer of bananas and coffee. In recent years, however the country has successfully attracted important investments by such companies as Intel Corporation, which employs nearly 2,000 people at its custom built $300 million microprocessor plant; Procter & Gamble, which is establishing its administrative centre for the Western Hemisphere in Costa Rica; likewise 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 zones. Well over half of that investment has come from the US.

Tourism also is booming, with the number of visitors up from 780,000 in 1996 to 1.5 million by 2004. 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 Central America and has the potential to become a major electricity exporter if plans for new generating plants and a regional distribution grid are realised. 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.

Infrastructure

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 kilometres, 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 neighbouring 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 didn't function for several years, until recent government effort to reactivate it for city transportation.

The government 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.

Trade Policy

Costa Rica has sought to widen its economic and trade ties, both within and outside the region. It 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 Cuba. It lobbied aggressively for enhancement of the US Government's Caribbean Basin Initiative and has made clear its interest in joining the North American Free Trade Agreement (NAFTA) or signing a similar treaty with the US.

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. Despite this involvement, Costa Rica is the only signatory to the US-Central American Free Trade Agreement (CAFTA) that has not ratified it. CAFTA implementation would result in economic reforms and an improved investment climate.

Costa Rica also is a member of the so-called Cairns Group which is pursuing global agricultural trade liberalisation in the World Trade Organisation.