Costa Rica Economy

Costa Rica's basically stable economy depends on tourism, agriculture, and electronics exports. Poverty has been substantially reduced over the past 15 years, and a strong social safety net has been put into place. Economic growth has rebounded from -0.9% in 1996 to 4% in 1997, 6% in 1998, and 7% in 1999. Inflation rose to 22.5% in 1995, dropped to 11.1% in 1997, 12% in 1998, and 11% in 1999. Large government deficits--fueled by interest payments on the massive internal debt--have undermined efforts to maintain the quality of social services. Curbing inflation, reducing the deficit, and improving public sector efficiency remain key challenges to the government. Political resistance to privatization has stalled liberalization efforts.

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 is negotiating or seeking ratification of trade agreements with Chile, the Dominican Republic, Panama, and Trinidad and Tobago. It lobbied aggressively for enhancement of the U.S. 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 U.S. 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. It also is a member of the so-called Cairns Group which is pursuing global agricultural trade liberalization in the World Trade Organization.

Costa Rica is predominantly an agricultural country, with about 20% of the population occupied in farming. Coffee, until recently the nation's principal export, is produced on the small farms and plantations of the central plateau; sugarcane, bananas, and other tropical fruits are grown on the larger coastal plantations of both shores. (Costa Rica is the world's second-largest exporter of bananas, after Ecuador, and bananas are now the country's leading agricultural export.) Food crops include maize (corn), rice, potatoes, and beans. Food supplies must be supplemented by imports from neighboring countries and the United States.

The Pan American Highway, which runs through the country from the Nicaraguan to the Panamanian border, has greatly facilitated the transport of goods to market. A railroad links San Jos? to the ports of Lim?n on the Caribbean and Puntarenas on the Pacific, but both links were knocked out of operation by accident or natural disaster in the early 1990s; in 1995 they were closed indefinitely.

The government has encouraged foreign investment in tourism and manufacturing to diversify the economy. Hospitable people, low crime rates, and spectacular scenery encouraged 792,300 foreign tourists to visit Costa Rica in 1995. The country is the world's fastest-growing destination for adventure and nature travel. Cruise ships have made it a regular port of call, and resorts are sprouting on both coastlines. Tourism has now surpassed manufacturing as the leading source of national income.

Although Costa Rica is generally considered one of Latin America's more successful economies, growth has been hampered by a large foreign debt. By 1996 the interest payments alone on this debt consumed about one-third of all government revenues and required unpopular cuts in the nation's social-welfare system. In the late 1990s, economic stagnation and inflation that outpaced increases in wages contributed to an overall decline in the standard of living.

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