Countries of the World/COUNTRYS.BIN/dp/0097/00971.txt

Text File | 1991-06-24 | 26KB | 398 lines

$Unique_ID{COW00971}
$Pretitle{290}
$Title{Costa Rica
Chapter 3A.   The Economy}
$Subtitle{}
$Author{Donald P. Whitaker}
$Affiliation{HQ, Department of the Army}
$Subject{land
percent
hectares
large
farms
private
area
costa
government
million}
$Date{1983}
$Log{Bananas*0097101.scf
}
Country:     Costa Rica
Book:        Costa Rica, A Country Study
Author:      Donald P. Whitaker
Affiliation: HQ, Department of the Army
Date:        1983

Chapter 3A.   The Economy

[See Bananas: Bananas, a major Costa Rican export]

     The Costa Rican economy operates under the general principles that
characterize a largely private enterprise system. Since the civil war of 1948
and the Constitution of 1949, however, the government has taken an active
role, not only through regulation but also through public sector
corporations. Initially, this involved the takeover of such operations as
banking, electric power generation and distribution, and telecommunications.
In the 1970s, intervention was expanded to agriculture and industry;
corporations were formed to implement projects that were considered desirable
for economic development but were not undertaken by the private sector-either
for lack of interest or because of the large investment required.

     Since early times, the economy has been trade oriented, and economic
development has been based largely on the agricultural and livestock sector,
in particular on the export of coffee, bananas, and livestock products.
Manufacturing has grown in importance-in employment provided, foreign
exchange earned, and diversification of production-but its structural
emphasis on use of imported materials has limited its contribution in overall
development. The country's most valuable natural resources are its cultivable
land-an area of large dimension and good soils-and its pastures that can
support great numbers of cattle. Hydroelectric potential, which is still only
partially utilized, offers the possibility for a substantial degree of energy
self-sufficiency. The remaining major natural resource, the nation's forests,
has not been used to full advantage; much of the forest wealth has been
dissipated without much real return, although enough remained in 1983 that,
with proper care, future national requirements could still largely be met.
Minerals have contributed only in a small way to economic growth. The known
resources in 1983 could not be counted on to aid future economic expansion
significantly.

     In 1983 the country was in the third year of a deep recession, after
almost two decades of positive and generally steady growth. Between 1960 and
the late 1970s the gross domestic product (GDP) had grown in real terms at
an impressive average annual rate of 6 percent. The expansion of agriculture
had been very satisfactory and well above the population growth rate, and
manufacturing growth had proceeded at double the rate of agriculture.
Throughout the period, inflation had remained low, except for a relatively
brief period in the mid-1970s when the domestic situation had been adversely
influenced by the worldwide increase in oil prices.

     Unemployment was moderate, and a gradual increase in real income had
occurred. The gains from this economic growth were spread through the
extension of educational and health facilities, especially in rural areas,
the development of the country's economic infrastructure, and wider access
to the conveniences of modern life. Per capita income in comparable values
doubled during this time from the equivalent of US$838 in 1960 to US$1,630
in 1979; in the latter year it was well above that of the other Central
American states.

     In 1976 and 1977 unexpectedly high receipts from external trade had
resulted in a boom psychology that was translated into greatly increased
government expenditures on social services, large outlays for expansion of
communications and transportation facilities, and wage increases. In the
private sector spending escalated, including a sharp increase in the purchase
of durables that involved substantial installment buying. However, almost
overnight the country's terms of trade turned unfavorable, and certain
negative factors that had been gradually developing had a cumulative effect
on the economy. These included a slowing down of agricultural growth as
virgin land disappeared, diminishing investment in import-substitution
manufacturing as new markets shrank, and rising deficits of government
corporations. In 1979 the GDP grew at only 4.9 percent, still good by
comparison with other developing countries but down over 22 percent from the
rate of 6.3 percent the year before. In 1980 the downward trend accelerated,
and growth in total output of goods and services was under 1 percent. In
1981 the GDP dropped sharply by 4.6 percent, and in 1982 it registered a
further decline of some 6 percent.

     Corrective steps initiated by the administration of President Rodrigo
Carazo Odio, who had been elected in 1978, were not pursued with the
determination necessary. Foreign borrowing increased in a desperate attempt
to bolster the rapidly deteriorating economy. By the end of Odio's term in
early 1982 the country's foreign debt was approaching US$3 billion. In May
1982, a new government headed by Luis Alberto Monge Alvarez took office.
Monge had promised quick action to resolve the crisis and proposed a program
of strict austerity. Costa Rica has an open economy that functions in a
democratic political setting. Characteristic of the latter, action is
frequently slowed by the need to reach agreement on issues between the
executive and the legislature. However, considerable progress was made within
a reasonable period, aided by the fact that Monge's party had secured a large
majority in the Legislative Assembly. This included moves to reverse the
highly inflationary fiscal and monetary policies of the preceding
administration that included new revenue measures, increases in charges for
government-provided services, and cutbacks or postponement of expenditures
in order to reduce budgetary deficits. The administration also undertook to
reduce the swollen public sector bureaucracy and the drain on credit by the
autonomous government agencies that had seriously impeded private sector
operations and expansion. Significantly, an important measure of control over
the exchange rate of the colon, which had depreciated from 8.6 to the United
States dollar in 1980 to more than 60 in mid-1982, was effected; by late 1983
a unified bank-free rate of about 43.5 had been established.

     The steps taken had achieved a measure of stability. Major domestic
problems remained, however, including large-scale unemployment, which ran over
9 percent, and underemployment in excess of that figure. The inflation rate,
which had reached 90 percent in 1982, had dropped markedly in the first nine
months of 1983 (averaging about 8 percent), although a principal cause was
a broad decline in purchasing power. There was an urgent need to stimulate
production in both manufacturing and agriculture. A major reorientation
of manufacturing from its overwhelming dependence on imported raw materials
to the development of industries based on domestic agricultural production
was required.

Land Resources, Use, and Tenure

     Substantial variations exist in estimates of the use potential of Costa
Rica's some 5.1 million hectares. A report assembled in 1980 for the United
States Agency for International Development (USAID) listed 2.2 million
hectares (somewhat more than 42 percent) of the country's total area as
usable for seasonal or permanent crops or pastureland. Land best suited for
forestry purposes, including natural and plantation stands of trees, totaled
another 1.5 million hectares (30 percent). Almost 7 percent of the country's
area (352,000 hectares) consisted of swamps, lakes, and other inundated land.
The remainder, 1.1 million hectares (21 percent), included land suited
largely for environmental protective use: forests for watershed protection
and eros