Costa Rica's Economy Bears Fruit of Ten Years of `Structural Adjustment' but Growth Built on Exports Has Created Rise in Imports and Huge Trade Deficit

By David Dye, | The Christian Science Monitor, February 23, 1994 | Go to article overview

Costa Rica's Economy Bears Fruit of Ten Years of `Structural Adjustment' but Growth Built on Exports Has Created Rise in Imports and Huge Trade Deficit


David Dye,, The Christian Science Monitor


DEPENDING on the economist, Costa Rica's economy is either the Central American success story of the decade or a jerry-built structure about to come tumbling down with a thud.

On the surface, Costa Rica's economy is booming. Never mind that San Jose, the capital of what was once called the Switzerland of Central America, is a car-crammed and increasingly smog-ridden city. Costa Rica is riding a $400 million wave of tourist investment that has dotted its lush landscape with new hotels and package tours for the ecology-minded.

High growth rates, soaring exports, rising per capita income, single-digit inflation, and Latin America's lowest unemployment combine to form a star-studded statistical picture.

The glowing present is the product of a 10-year process of "structural adjustment." Before a crisis in the early 1980s, strongly interventionist governments protected domestic industry, while providing Costa Ricans with perhaps the highest standard of public welfare in Latin America.

In little more than a decade, however, policymakers have reversed this. They have opened up the economy to a flood of imports, cut spending on social programs, and privatized state-run businesses in an effort to win the game of international competitiveness.

Once known mainly as a producer of bananas and coffee, Costa Rica now sells on world markets a wide variety of agricultural produce and simple manufactured goods, many of them produced in duty-free zones within Costa Rica.

One question, however, is whether the 6 to 7 percent growth of the last two years can be sustained. Noting that outgoing President Rafael Calderon is leaving behind record high reserves and a tiny government deficit, economist Ronulfo Jimenez with the governing Social Christian Unity Party argues that "if current policies are adhered to, the economy can grow 5 to 6 percent over the next four years."

Carlos Manuel Castillo, also an economist and president of the National Liberation Party which won a national election Feb. 6, disagrees. "These growth rates have been nurtured in an explosion of imports, and are not sound or sustainable."

Mr. Castillo is pointing to the immediate problem which will confront president-elect Jose Maria Figueres when he takes office May 8 - Costa Rica's massive trade deficit. If tourist income and "nontraditional" exports are booming, imports are rising even more rapidly, to the point of creating an $800 million deficit - 7.8 percent of national output - in 1993.

Economist Otton Solis, who won election as a deputy this year and is a critic of government policy, notes the irony in this result. Referring to a trade and payments crisis in the early 1980s, which forced the turn toward current policies, Mr. Solis argues that "the problem that was supposed to be solved by economic adjustment has gotten worse."

Although strong foreign investment and speculative capital inflows have kept Costa Rica's accounts in balance the last couple of years, World Bank experts privately foresee a crunch coming, perhaps by the end of 1994. …

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