Costa Rica's TravelWEB

General Information

Costa Rican Business Perspectives

GDP: $ 6.5 billion (1992)

GDP REAL GROWTH: 7.2 per cent (1992)

GDP PER CAPITA: $ 2,096 (1992)

GNP PER CAPITA: $ 2,010 (1992)

UNEMPLOYMENT: 4.3 per cent (1993)

INFLATION: 9.3 per cent (12 months to June 1993)

INTEREST RATE: Deposit: 19.6 per cent (October 1994)

TRADE BALANCE: $ 857 million (12 months to June 1992)

FOREIGN DEBT: $ 4,075 million (June 1992)

INTRODUCTION: Since the mid-1980s Costa Rica has struggled to overcome the negative effects on its traditionally buoyant economy of applying World Bank supported Structural Adjustment Plans (SAPs). Until 1990, almost uniquely among Central American states, not to mention Latin America as a whole, Costa Rica had turned in consistent annual growth rates of over 4 per cent. Crucially, Costa Rica had throughout the late eighties managed to keep economic growth ahead of population growth. The visitor arriving in San Jose from Nicaragua or Honduras, could only blink at the relative prosperity and apparent dynamism. The downturn in 1990 represented the first fall in per capita growth since 1985.

But the 1990s did not bring only bad news. Official unemployment figures dropped to around 5 per cent. Export earnings had, by 1992, almost doubled to US$ 2 bn, most of the growth coming from that IMF favorite, non-traditional exports (shrimp, fruit, flowers and clothing), whilst the traditional exports of coffee, bananas, meat, sugar and cocoa held their ground. Despite government measures to contain them, increased imports eroded the beneficial effects of the export performance, producing a trade deficit that peaked at US$ 468m in 1990. This was reduced to US$ 207m in 1991.

The previous government of Rafael Angel Calderon inherited the program of structural adjustment from the administration of his predecessor former President Luis Alberto Monge. Calderon's electoral victory was due, in large measure, to his promises to concentrate more on the country's social problems; as the economy faltered, these could not be ignored. The Costa Rican electorate had grown accustomed to a steady increase in their prosperity. However, Calderon felt compelled to concentrate initially on introducing further harsh fiscal and monetary measures to reduce the fiscal deficit and contain inflation. A failure to take these steps, it was feared, could endanger continued World Bank and IMF support for Costa Rica. The government argued that a third SAP would, finally, enable proper attention and adequate funding to be devoted to the country's mounting social problems.

In anticipation of SAP III, Economy Minister Thelmo Vargas had pressed for the introduction of draconian measures which included, inter alia, the ending of public sector job stability, the privatization of numerous state owned companies and all round cuts in public expenditure most of which is devoted to paying public sector wages. These proposals were not what the electorate had looked for in electing Calderon. Insult was added to injury when cuts in university funding were announced, resulting in a chorus of disapproval not only from the parliamentary opposition, but also from the trades unions, student bodies and the church. Plans to eliminate certain corporate tax benefits also alienated the business community. In the face of this formidable opposition, and with a working majority of one seat, President Calderon succumbed and put the austerity measures on hold. Economy Minister Vargas resigned.

Growth in 1992 reached 3.5 per cent, and as the austerity measures took effect, so the trade balance swung back into credit. In March 1992, interest rates were cut by 3 per cent and the dismantling of exchange controls led to the convergence of official and parallel exchange rates.

The Costa Rican experience is key to the pattern of economic and social development throughout Latin America. As the virtues of so called adjustment strategies and packages are increasingly called into question even by those agencies that originally established them it remains to be seen whether Costa Rica's fine political balance and open debate will permit the reforms to proceed or be forced by an expectant electorate to find workable alternatives for them.

Reserve Online Now! or Get More Information

Internet Link Exchange
Member of the Internet Link Exchange

Completely Costa Rica
Real Estate | Business | Education | Information | What's New
Costa Rica's Travel WEB | Design Your Own Vacation
Hotels | Tours | Rent-a-Car | Sportfishing | Toll Free
Copyright © 1998 Informatica International Clayton S.A. All Rights Reserved.