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Because of its endless beauty, natural wonders and
peaceful atmosphere, Costa Rica has become very popular
with nature lovers, adventurers and others.
Presently, tourism and high technology have replaced
coffee and bananas as the main income earners for the
country. Costa Rica's reputation as the destination
of the 90shas helped the economy. Tourism is now the
number-one source of income for Costa Rica. From 1993
to present the tourism industry was the prime source
of foreign capital. In 2004 Costa Rica's tourism industry
had its best year ever, with an estimated 1.5 million
foreign visitors. From December 2004 to May 2005 the
occupancy rate of hotels was between 85 and 90 percent
as compared to the same period in 2004 when it ranged
between 75 percent and 90 percent. The average tourist
spent $1,938, which is a 23 percent increase over the
previous year. In 2005, 1.7 million tourists spent
more than one billion dollars. Most of these travelers
arrived on an ever-increasing number of flights to
the country. Approximately 310,000 came through the
new Liberia airport.
The Walt Disney Company recently announced that Costa
Rica would be the only country in Latin America selected
for their new vacation program called Adventures by
Disney. The only other countries selected in the world
were the United States, Italy, Great Britain, Canada
and France. Travelers will view Costa Rica's natural
wonders on these highly specialized tours.
U.S. high-tech firms are drawn by Costa Rica's lower
costs, educated and bilingual workforce, political
stability, tax breaks and proximity. Consequently,
the electronic sector, led by multinational microchip
manufacturer Intel, became one of the country's top
foreign currency earners by the end of 1998. The new
Intel plant has turned Costa Rica into a leading exporter
of computer parts. It produces about one-third of the
company's computer chips. In 1999, microchips exported
by Intel continued to drive the Costa Rican economy
and were responsible for about half of the country's
booming 8.3 percent growth (GDP), which gave rise to
some of the decade's best economic indicators. Hopefully
this will lead to more foreign investment in this area.
Banana exports are the third major source of income.
After Ecuador, Costa Rica is the second-largest banana
exporter in the world. However, worldwide fluctuations
in prices have affected this export in recent years.
Ideal growing conditions have enabled Costa Rica to
produce some of the world's best coffee for over a
hundred years. Other exports include electrical components,
sugar, cacao, papaya, macadamia nuts and ornamental
household plants. Some of these non-traditional export
items are beginning to rival traditional exports such
as bananas, coffee and sugar.
Another surprising source of income for the country is its
foreign residents. According to the November 14, 2005, edition
of the Wall Street Journal, Costa Rica's retirees contribute
significantly to the $1.4 billion a year in direct spending
by Americans according to the government. The multiple effects
salaries in health care, construction, retail and other
services could bring the total benefit to $4 billion
, nearly 25 percent of Costa Rica's gross domestic product.
The waves of almost 70 million baby boomers are sure to increase
the figures as Costa Rica becomes even more popular as a retirement
haven.
The 2005 Global Outsourcing Report ranked Costa
Rica third in outsourcing potential behind only India
and China. This study takes such factors into consideration
as cost, reliability and efficiency.
Surprisingly, sportsbooks contribute more than $100 million
a year to the Costa Rican economy. More than 100 such firms
are presently operating in the country. Local workers make
good salaries in the online betting industry. Costa Rica is
sometimes referred to as the Las Vegas of the Internet because
of the number of sportsbooks that operate here. One wealthy
sportsbook owner was recently featured on the cover of Forbes
magazine.
Recently, new companies have invested in Costa Rica,
which should help the domestic and export economy.
The California-based wholesale shopping chain PriceSmart
has opened three warehouse-style stores in the San
José area in last several years. The PriceSmart
concept has revolutionized shopping in other Central
American countries as well. In the wake of this U.S.-style
shopping craze, a local company constructed four Hipermás
mega -markets to rival Price Smart.
The Swiss pharmaceutical giant Roche announced it
would build its operations center in Costa Rica to
service its plants in Central America and the Caribbean.
U.S. health products manufacturer Procter and Gamble
recently opened a business center in Costa Rica. Several
U.S. pharmaceutical companies also have opened plants
here.
U.S. all-night diner franchise Denny's opened its first restaurant
in San José and will open several more in coming years.
The GNC nutritional chain has opened several store in the
San José area. Multinational tire manufacturer Bridgestone
Firestone inaugurated a new plant in April of 1999, promising
to double its exports. This wave of new foreign investment
will create thousands of jobs for Costa Ricans. Baskin-Robbins,
Dunkin'Donuts and Cinnabon all plan to open branches in Costa
Rica in the near future.
In 2005 several big players made sizeable investments
in Costa Rica. Wal-Mart purchased a large portion of
Supermercados Unidos.
General Electric bought 50 percent of the stock in
Banco de San José, one of the country's best
private banks. Steve Case, co-founder of AOL and of
Time Warner fame, purchased $23 millon worth of beach
property to build an upscale resort in the Northwest
Pacific area. Wendy's hamburger chain is expected to
open 15 restaurants in Costa Rica over the next five
years.
Real estate investment in creased in 2006. Big players
Monroe Capital Corporation, Steve Case and Hyatt Regency
Hotels are investing heavily in real estate projects.
These events are sure to boost investor confidence
in Costa Rica.
According to Costa Rica's Central Bank, foreign investment
in Costa Rica topped a $1 billion in 2006.
Despite the new areas of investment and exports just
mentioned, Costa Rica is still heavily dependent on
foreign investment and loans to help fund its social
programs and keep its economy afloat. However, the
country no longer receives as much foreign aid as it
used to and still has one of the highest per capita
debts in the world. The government has, at times, been
hard-pressed to meet loan payments from abroad, which
take up most export earnings. Foreign debt has hindered
economic development to some extent. Gradual currency
devaluations have helped the country meet its obligations.
Fortunately, these devaluations have been in small
increments.
One problem is the number of people employed by the
government's massive bureaucratic apparatus. About
one of every seven Costa Rican employees works in some
way or another for the government. Consequently, large
parts of the country's resources goes toward workers'salaries,
benefits and operating expenses instead of pressing
needs as road repair. Some economists believe one way
to help the country progress is to lay off all of the
unnecessary government workers.
Hopefully the present growth in tourism and continued
foreign investment will help the country's economic
future. President Clinton's trip to Costa Rica in May
1997 set the wheels in motion for a freetrade treaty
with the Central American countries. It promises to
be much like the NAFTA treaty between the U.S., Canada
and Mexico.
The Central America Free-Trade Agreement (CAFTA) is
expected to be ratified soon by Costa Rica, and many
believe it will help all of the Central American counties'economies.
The most salient feature of the new trade pact calls
for the partial opening of the government-run telecommunications
monopoly by 2007. After January 1, 2007, Costa Rican
and foreign companies will be able to offer their telecommunication
services, despite the seeming strangle hold of the Instituto
Costarricense de Electricidad, commonly referred
to by its acronym, ICE. Broadband Internet and cellular
phone service will be affected by the opening up of
telecommunications. The treaty also calls for the complete
opening of the country's insurance monopoly or the Instituto
Nacional de Seguros (INS) by 2011. Costa Rica must
allow foreign companies to sell all types of insurance
except mandatory policies by 2008.
Other sectors of the economy affected by the new treaty
are rice, sugar, beef, chicken drumsticks, pork, oils,
ethanol, dairy products, industrial goods, free zones,
textiles and intellectual property.
According to the Central Bank, inflation was 22.56
percent in 1995, almost double what the government
had hoped for. In 1996 inflation was about 14 percent.
It dropped to 11.2 percent in 1997, was around
12.6 percent in late 1998, 10 percent in 1999, 10.3
percent for 2000, 11 percent for 2001, nine percent
for the year 2002 and 9.4 percent for 2003. Inflation
closed at about 13 percent for 2005. The Central Bank
expects inflation to be around 10 percent in 2006.
In an effort to control inflation, the Central Bank
of Costa Rica modified its system to establish the
rate of exchange in October 2006, by switching from
the mini-devaluation one to one in which the rate is
allowed to fluctuate between two ranges. Mini-devaluations
had been applied for 22 years and they consist basically
in a gradual increase of the price of the dollar. In
the past it increased an average 13 cents of a colón a
day. Regarding the control of inflation, the chief
executive of the Central Bank, Francisco Gutiérrez,
explained that, for example, because it would no longer
be possible to forecast devaluation, the chances of
transferring it to domestic prices will be greatly
reduced.
Gross domestic product grew 3.2 percent in 1997, 4.5
percent in 1998, 8.3 percent in 1999, 2.2 percent in
2000, 0.3 percent for 2001,
5.2 percent in 2003, 4.2 percent in 2004, 3.5 percent
in 2005 and an anticipated 3.7 percent in 2006.
Central Bank economic indicators and other financial information
are available (in Spanish) on the bank's web site: http://www.bccr.fi.cr.
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