Summary: CR Investment Profile

Editor's note: Since the news stories on this blog tend to trickle out specific facts on the country's economy, a summary of the country's economic history in the past 50 years may be helpful for those considering settling or establishing businesses here.

In her recent visit to New York, President Laura Chinchilla took advantage of the opportunity to lay out a complete picture: she has set a goal during her four-year term of achieving an FDI of $9 billion, hoping to top the previous administration by 34%.

The oldest stable democracy in Latin America with a population of 4.5 million, Costa Rica already accomplished one of the United Nations' Millennium Development goals 50 years ago when it establish compulsory primary education. Its 93% literacy gives its work force, according to Foreign Trade Minister Anabel Gonzalez, "flexible and adaptable human resources" setting the nation apart from others in the region.

In the world ranking of education and health, it ranks 22nd, its closest Latin American competitor being Puerto Rico at #51. In higher education and training it is #43, not far behind Uruguay. Chinchilla credits this to the 1948 abolition of the military and the channeling of funds that would be used for that purpose into universal education and health.

The nation enjoyed a Gross Domestic Product of $29.7 billion in 2008, although this contracted 1.6% in 2009 due to the world economic crisis. GDP is expected to bounce back to 4.5% growth in 2010 and reach 5% next year.

Exports present an even brighter picture: $8.7 billion in 2009, including high tech and medical devices as well as agricultural produce. This will undoubtedly rise due to a number of companies opening factories here this year.

Costa Ricans have been selective in the type of businesses they court. (In recent years public criticism discouraged a small arms manufacturing company from settling here, feeling it would damage their moral stance of promoting peace.) They have long courted what once was called "smokeless industries," ones that would not interfere with the environment.

The recent economic crisis showing the country's resiliency that caused Moody's to upgrade its investment index from Ba1 to Baa3 is probably due to a diversification of export that has not always been the case.

In 1980-81, the country suffered a severe economic crisis when the price of coffee, then its chief export, dropped sharply. The governments in the 1970s had been investing heavily in development and social concerns but at a cost of borrowing heavily from international lending institutions.

The colon jumped from an official rate of 8.56 to the U.S. dollar to 20 on the street in a black market money exchange. During 1981 it rose to 100 colones per dollar, causing some businesses, mainly importing firms, to go bankrupt. Unlike in many countries, no civil unrest broke the domestic tranquility and a new government's negotiation with lending agencies brought relief.

Succeeding governments moved to promote diversification in earning foreign exchange after that crisis. For many years, Costa Ricans have not depended on the world market price vagaries of one main export. To that end, the government gave tax breaks to tourism businesses, enabling that sector to become the country's biggest foreign exchange earner until it was later replaced by high tech exports.