Costa Rica WT/TPR/S/83
Page 1
I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. Between 1995 and 2000, the gross domestic product grew at an annual average rate of
4.7 per cent in real terms, albeit with considerable annual fluctuations.  This pattern relied mainly on
the strength of exports of goods and services, which accounted for some 54 per cent of GDP in 1999.
In real terms, GDP per capita grew at an annual average of 2.2 per cent, while resources available percapita to finance domestic expenditure grew at an annual average of only 0.5 per cent.  Since the
previous trade policy review, Costa Rica has experienced a high fiscal deficit mainly financed by the
issue of domestic bonds at a premium.  This has put interest rates under pressure, thus contributing to
maintaining the relatively high real cost of credit.  At the end of 1999, total public debt stood at just
over 54 per cent of GDP.  Inflation rates sinc e 1995 showed a marked downward trend, falling to
10 per cent in 2000.  Furthermore, the effective real exchange rate index remained fairly constant, in
line with the main objective of exchange-rate policy.
2. Since 1995, the balance of payments on current-account transactions has registered large
deficits, mainly due to the trade deficit between 1995 and 1997, and since 1998 to the increase in the
deficit in income imputed to earnings associated w ith activities in free zones.  The deficits have in
part been offset by inflows of foreign direct investment.  Services have shown successive surpluses,
largely due to tourism.  Cost Rica's foreign trade increased significantly, with much stronger growth
rates than during the first half of the 1990s.  Between 1995 and 1999, trade in goods grew at an annual
average of 18 per cent.  The expansion of exports of electronic components, accompanied by
stagnation in the value of exports of agricultural products, has substantially changed the pattern of
Costa Rican exports.  Meanwhile, imports grew more slowly, without significant changes in the
pattern.  Between 1995 and 2000, trade in services recorded considerable growth.  In particular,tourism generated significant inflows of foreign exchange.  Costa Rica's main trading and investment
partners were the United States and the European Union.
(2) E
CONOMIC POLICY AND ECONOMIC DEVELOPMENTS
(i) Performance and structure of the economy
3. Between 1995 and 2000, Costa Rica's GDP grew at an average annual rate of 4.7 per cent in
real terms.  This growth was particularly high between 1997 and 1999, with annual rates for the last
two years slightly over 8 per cent (Table I.1).  This pattern relied mainly on the strength of exports of
goods and services, which accounted for some 54 per cent of GDP in 1999.  The rapid rate of export
growth in the biennium 1997-1998 reflected extremely buoyant export sales from free zones,
especially of electronic components, as well as farm and manufactured products not covered byspecial trade regimes, including bananas and sales of tourist services to non-residents.  In the
biennium 1999-2000, this pattern became  increasingly volatile, since while in 1999 foreign sales of
electronic components continued to expand considerably, in 2000 there was a sharp decline.  Exports
of other goods also fell, a trend which intensified in 2000 when there was also a decline in exports of
bananas and electronic components.  Provisional figures for 2000 point to a marked slowdown in therate of growth of GDP, estimated at around 1.4 per cent, particularly as a result of the decline in
activity in the electronic components industry, while added value in other sectors is expected to rise
by some 3 per cent.WT/TPR/S/83 Trade Policy Review
Page 2
Table I.1
Economic performance
(billions of colons)
1995 1996 1997 1998 1999a2000a
Nominal gross domestic product (GDP) 2,101 2,456 2,982 3,624 4,467 4,792
Nominal national disposable income (NDI) 2,084 2,448 2,954 3,533 4,022 4,475
Real GDP (at 1991 prices) 1,114 1,122 1,186 1,285 1,392 1,412
Real national disposable income 1,142 1,138 1,219 1,322 1,323 1,318
Breakdown by expenditure (% of nominal GDP)
 - Final consumption 84.7 87.6 85.9 83.0 77.4 81.5
        Household consumption 71.2 74.2 72.8 70.1 64.7 67.8
        Government consumption 13.5 13.4 13.1 12.9 12.7 13.7
 - Gross fixed capital investment 18.7 16.8 17.8 20.2 17.7 17.4
 - Variations in stocks -0.6 -0.9 0.3 -0.6 -0.2 -0.5
 - Exports of goods and services 37.6 39.4 40.7 47.3 51.4 49.1
 - Imports of goods and services 40.5 42.9 44.6 49.9 46.2 47.5
Real rates of growth (%)
Real GDP 3.7 0.7 5.7 8.4 8.3 1.4
 - Final consumption 2.7 2.0 5.1 5.3 1.9 1.1
        Household consumption 3.2 2.4 5.1 5.7 1.9 0.9
        Government consumption -0.2 -0.5 4.7 2.2 2.0 2.1
 - Gross fixed capital investment 2.5 -8.0 15.5 25.8 -2.6 -3.6
 - Variation in stocks -121.8 114.5 -221.9 3.5 -135.0 89.3
 - Exports of goods and services 11.1 6.2 8.4 26.4 20.3 -0.9
 - Imports of goods and services 2.6 3.1 14.2 25.0 2.6 -3.8
Prices (percentage variation)
Consumer price index 22.6 13.9 11.2 12.4 10.1 10.2
Interest base rates 31.2 24.2 20.9 20.2 22.0 17.1
Lending rate of interestb40.0 30.2 25.6 26.4 27.4 26.1
Exchange rate  (colon/US dollar)c180.3 208.0 232.8 257.4 285.9 308.4
Real exchange rate index (1995 = 100) 100.0 101.1 100.6 100.4 101.5 99.7
Monetary overview
  Growth rates (%)
Total liquidityd7.2 29.4 17.7 25.5 18.6 18.3
      Money in circulation (M1) 1.3 17.5 43.2 12.3 20.6 11.5
      Quasi money 9.5 33.8 9.5 31.1 17.9 20.8
           - in domestic currency -2.6 34.4 -1.0 22.5 13.2 26.2
           - in foreign currency 29.7 33.1 22.6 39.8 22.0 16.4
  Dollarization ratioe (%) 32.6 33.5 34.9 38.9 40.0 39.3
a Preliminary estimates.
b Weighted average "Other activities" in State banks.c Average exchange selling rate.
d Does not include currency stabilization bonds and short-term investments.
e Estimated as the ratio of quasi money in foreign currency to total money supply.
Source: WTO Secretariat, based on information provided by the Costa Rican authorities.
4. The strong growth in GDP in the biennium 1997-1998 had a major impact on national
disposable income (NDI).  The trend in the latter gives a more appropriate indicator of resources
available in the economy to finance domestic spending, since, unlike GDP, it includes income from
producer entities abroad owned by Costa Rican residents and, most pertinently in this instance,
excludes earnings from entities in Costa Rica transferred abroad.  During 1997-1998, the increase inCosta Rica WT/TPR/S/83
Page 3
NDI reflected the positive effect of the change in th e balance of trade due to the fall in oil prices (in
1998), and the rise in international prices for coffee (in 1997) and bananas (in 1998).
5. The situation changed substantially in the biennium 1999-2000.  The strong rise in GDP in
1999 could do no more than maintain NDI at the same level in real terms as the year before, while in
2000 it is estimated that this indicator fell slightly, by 0.3 per cent, compared with the previous year.
This difference is partly because the growth in GDP was mainly generated by foreign companieslocated in the free zones which generally transfer their profits to parent companies abroad.  Another
factor which had a considerable effect on the trend in real NDI was the adverse effect of the
movement in the terms of trade in 1999-2000 resulting from the rise in the price of oil and falls in
prices of coffee, bananas and some other products, especially farm products, which reduced GDP
growth by 2.9 percentage points in 1999 and 1.8 per cent in 2000.
6. Apart from exports, other factors which contributed to GDP growth since 1995 were the
strong growth in gross fixed capital investment, especially in 1997 and 1998.  The expansion was
mostly due to private sector investment, mainly in construction of infrastructure and equipment to
supply the export market.  The sharp slowdown in  new fixed capital investment in 1999 was due to
other factors, such as the end of INTEL's equipment programme, a weakening of domestic demandand a rise in real interest rates.  As a corollary to investment, imports of goods and services reached
high levels in 1997 and 1998 (Table I.1).  Trends in other components of domestic demand, final
household and government consumption, were strongly influenced by the pattern of NDI.  In
particular, the stagnation in the latter in 1999 and 2000 was reflected in a relative stagnation of per
capita household consumer spending.
7. With respect to the sectoral breakdown of GDP, the main sectors in 1999 were
manufacturing, especially under the free zone regime;  commerce, hotels, and restaurants;community, social and personal services;  financial in stitutions, insurance, real estate and services to
companies; and transport, housing and communications (Table I.2).  Partly as a result of the strong
growth in GDP in the manufacturing sector, the co ntribution of the agricultural sector has declined
perceptibly since 1995, from 13.7 per cent of GDP to 10.5 per cent in 1999.
8. In 1999, GDP per capita was 4,055 dollars, while NDI per capita was 3,411 dollars.  In real
terms, the former grew between 1995 and 2000 at an average annual rate of 2.2 per cent, while NDI
per capita grew at an average annual rate of 0.5 per cent.  The stagnation in NDI precluded any
significant reduction in poverty.  The rate of unemployment (estimated as the total unemployed as a
proportion of the total work force) has remained fairly stable since 1995, ranging from 5.2 to
6.2 per cent.
(ii) Public finances
9. Since the previous report by the Secretariat, Costa Rica has experienced a high fiscal deficit.
The consolidated public sector fiscal deficit varied between a low of 2.0 per cent of GDP in 1998 and
a high of 4.1 per cent of GDP in 1996.  This performance was mainly due to the persistent deficits of
the Central Government and the Central Bank (BCCR).  The remaining non-financial public sectorentities (decentralized institutions and state enterprises) achieved surpluses (Table I.3).WT/TPR/S/83 Trade Policy Review
Page 4
Table I.2
Gross domestic product by sector, 1995-00(billions of colons)
1995 1996 1997 1998 1999a2000a
Nominal GDP at market prices 2,101 2,456 2,982 3,624 4,467 4,792
Nominal GDP at factor value 1,919 2,231 2,718 3,316 4,093 n.a.
Sectoral breakdown (% of GDP at factor value)
Nominal GDP at factor value 100.0 100.0 100.0 100.0 100.0 n.a..
Agriculture, forestry and fishing 13.7 12.9 12.9 12.8 10.5 n.a.
Mining and quarrying 0.1 0.1 0.1 0.1 0.2 n.a.
Manufacturing industry 21.9 22.1 22.4 23.0 29.0 n.a.
Construction 4.7 3.8 3.8 4.1 3.7 n.a.
Electricity and water 2.9 3.0 3.0 2.7 2.3 n.a.
Commerce, restaurants and hotels 19.6 20.0 20.0 20.1 18.7 n.a.
Transport, housing and communications 8.6 8.9 8.9 8.6 7.7 n.a.
Financial services and insurance 4.7 4.7 4.7 4.4 4.4 n.a.
Real estate services 5.0 5.1 5.0 4.7 4.4 n.a.
Other services to companies 2.6 2.7 2.7 2.6 2.6 n.a.
Government services 4.2 4.0 3.9 3.7 3.6 n.a.
Community, social and personal services 15.0 15.7 15.7 16.0 16.1 n.a.
less:  financial intermediary services 3.1 3.1 3.1 3.0 3.1 n.a.
Real GDP at market prices 1,114 1,122 1,186 1,285 1,392 1,412
Real GDP at factor value 1,009 1,010 1,068 1,156 1,261 1,269
Rates of growth (%)
Real GDP at base prices 4.0 0.1 5.7 8.3 9.1 0.6
Agriculture, forestry and fishing 7.3 1.8 1.5 8.2 4.8 -3.0
Mining and quarrying -3.3 -4.8 12.9 9.3 -5.6 -2.1
Manufacturing industry 4.2 0.5 7.7 11.4 24.5 -3.0
Construction 7.6 -17.9 6.1 17.4 -3.2 0.0
Electricity and water 3.1 2.6 5.6 8.7 6.6 6.0
Commerce, restaurants and hotels 2.5 -0.6 5.9 8.1 3.7 1.2
Transport, housing and communications 7.4 4.8 9.9 8.5 6.1 7.2
Financial services and insurance 2.0 2.4 7.8 6.5 9.8 3.0
Real estate services 2.5 2.0 3.2 2.9 3.7 1.5
Other services to companies 3.1 1.0 5.4 6.0 10.9 5.0
Government services 0.6 -4.5 1.5 0.0 0.9 2.0
Community, social and personal services 2.2 1.9 4.4 5.3 2.9 2.5
less:  financial intermediary services 4.5 5.7 6.1 8.9 9.6 1.4
n.a. Not available.
a Provisional estimates.Source: Central Bank of Costa Rica.Costa Rica WT/TPR/S/83
Page 5
Table I.3
Balance of public sector operations
(% of nominal GDP)
Institution 1995 1996 1997 1998 1999
Consolidated public sector -3.0 -4.1 -2.5 -2.0 -3.2
Non-financial public sector (NFPS) -1.6 -2.5 -1.2 -0.8 -1.6
Revenues 31.7 31.5 30.6 29.8 28.7
Expenditure 33.3 34.0 31.8 30.7 30.3
Central Government -3.5 -4.0 -3.0 -2.5 -2.2
Revenues 12.6 12.8 12.7 12.7 12.6
Income tax 2.2 2.2 2.2 2.4 3.0
Sales tax 4.2 5.4 5.1 4.9 4.4
Domestic 1.9 2.7 2.6 2.2 1.9
Imports 2.2 2.7 2.6 2.7 2.5
Selective consumption tax 1.9 2.3 2.4 2.6 2.4
Domestic 0.6 0.7 0.9 0.8 0.6
Imports 1.3 1.5 1.5 1.8 1.8
Taxes on imports 2.3 1.4 1.6 1.4 0.9
Import duties 2.2 1.3 1.5 1.1 0.7
Export taxes 0.5 0.2 0.2 0.2 0.1
Other taxes on foreign trade 0.1 0.1 0.1 0.1 0.0
Expenditure 16.1 16.9 15.6 15.1 14.8
State enterprises 0.8 0.8 0.9 0.5 -0.0
Revenues 10.5 9.8 9.3 8.4 7.8
Expenditure 9.7 9.0 8.4 7.9 7.8
Decentralized institutions 1.1 0.7 0.9 1.1 0.7
Revenues 8.5 8.8 8.7 8.7 8.3
Expenditure 7.4 8.1 7.8 7.6 7.6
Central Bank -1.5 -1.6 -1.3 -1.2 -1.6
Source: WTO Secretariat, based on information provided by the Costa Rican authorities.
10. The reduction in the central government fiscal deficit since 1996 was mainly due to the
increase in tax collection associated with the higher levels of economic activity.  In 1999, the
principal taxes in terms of collection were, in descending order of importance, sales tax, income tax,
selective consumption tax (ISC) and import duties.  The collection of taxes and specific levies relating
to foreign trade fell significantly between 1995 and 1999.  However, the contribution of imported
products to the total domestic tax collected increased significantly.  In the case of the ISC, thecontribution rose from 66.8 per cent of the total ISC collected in 1995 to 73.5 per cent in 1999
(Table I.3).
11. Interest payments have been an important factor in central government current expenditure.
Except in 1998, interest payments exceeded 5 per cent of GDP.  Anothe r significant item of
expenditure was export subsidies in the form of Tax Credit Certificates ( Certificados de Abono
Tributario ), (Chapter III.3), in 1999, which accounted for over 6 per cent of central government
current expenditure.
12. The main source of government financing to meet its cash requirements and service other
domestic and foreign obligations has traditionally been the issue of new domestic debt at a premium.
At the end of December 1999, the Central Government's domestic debt stood at 4,196 millionUS dollars, equivalent to some 27 per cent of GDP, while its foreign debt stood at 1,298 millionWT/TPR/S/83 Trade Policy Review
Page 6
US dollars, just over 8 per cent of GDP.  Total public  debt at the end of 1999 was just over 54 per cent
of GDP.
13. The BCCR's deficits come from its currency stabilization functions, in particular interest paid
in respect of securities issued.  When justified for reasons of a general economic nature, Article 74 of
the Constitution of the BCCR (Law No. 7558 of 27 November 1995) authorizes the BCCR to borrow
without limit through the issue and sale of its own debentures and currency stabilization bonds incolons.  The interest rates, amortization and te rms are determined by the Executive Board of the
BCCR, together with such other conditions as it d eems appropriate for their issue, circulation and
redemption.  The Board has discretion to establish the limits concerning ceilings and financial
conditions for such bonds within which the administration can act.  At the end of 1999, the domestic
debt issued at a premium by the Central Bank stood at some 304 million colons, equivalent to7 per cent of GDP.
(iii) Monetary and exchange policy
14. Since the previous review of Costa Rica in 1995, the objective of the Central Bank's monetary
policy has been to maintain both the domestic and ex ternal stability of the national currency.  Under
the monetary programme for 2000, the BCCR pursued a monetary policy fundamentally aimed atachieving a rate of inflation of not more than 10 per cent a year.  The principal instrument used was
open market operations, mainly by issuing currency stabilization bonds.
15. Simultaneously, the BCCR reduced the legal minimum national currency reserve ratio,
basically seeking to encourage a reduction in lending interest rates and thus reduce the margin of
financial intermediation.  At the beginning of 2000, a reduction in the national currency reserve ratio
from 14 to 12 per cent was approved.  Partly due to this policy, there has been a steady decline in
interest rates, although the real cost of borrowing remains high (Table I.1).  This is mainly due to thestrong government demand for funds in the domestic market to finance the public deficit.
16. The rates of inflation recorded since 1995, measured as a variation in the consumer price
index, showed a strong downward trend, falling from 23.2 per cent in 1995 to 10.3 per cent in 2000.
17. In December 2000, total liquidity in the national banking system stood at 1,669,091 million
colons, representing annual growth of 18.3 per cent, similar to that for 1999.  Since 1997, theproportion of money in circulation as a component of liquidity fell significantly (Table I.1).  The rate
of growth of quasi money was largely determined by quasi money operations denominated in the
national currency.  Under the guidelines of the National Supervisory Council ( Consejo Nacional de
Supervisión ), bank operations on behalf of others and recorded in suspense accounts must be
transferred into individually administered accounts or similar instruments recorded in balance sheet
accounts, which goes a long way to explaining the growth in demand deposit accounts and,
ultimately, quasi money.  The level of dollarization of the economy, measured as the ratio of quasi
money in foreign currency to total liquidity, remains around 40 per cent.
18. The principal objectives of the BCCR's exchange rate policy since 1995 have been to
maintain the relative profitability of sectors that pr oduce for the international market,  to encourage a
sustainable balance of payments position, and to continue to ease the foreign exchange regime.  With
the objective of promoting a more competitive and efficient currency market, the BCCR's
Constitution introduced various changes in the area of foreign exchange.  It ratified the convertibility
of the national currency.  It gave the BCCR greater discretion to determine the foreign exchange
regime.  It increased the number of participants in the currency market, by including all entities
supervised by and registered with the Financial Institutions Supervisory DepartmentCosta Rica WT/TPR/S/83
Page 7
(Superintendencia General de Entidades Financieras, SUGEF ) and currency dealers.  It increased the
flexibility of the foreign exchange positions of  the participating entities.  It allowed economic
operators to hold all foreign currencies and eliminated the fixed charges in the exchange
intermediation margin.
19. Other changes were subsequently introduced designed to base the dollar exchange rate more
on variations in the supply and demand for foreign currency and to involve a larger number ofintermediaries.  As a result, between 1995 and 2000, the margin between the buy and sell rates for the
dollar fell by 40.4 per cent.
20. In an effort to keep the real exchange rate constant, the Central Bank continued to intervene
daily in the currency market, smoothing the US dollar exchange rate by means of small daily
adjustments based on the effects of currency operations by dealers in the currency market, domesticand international inflation rates and currency movements in the country's main trading partners.  The
real effective exchange rate index has remained fairly constant since 1995, an indication of the
effectiveness of foreign exchange policy (Table I.1).
(iv) Balance of payments
21. Since 1995, current account transactions in the balance of payments have shown large
deficits.  The current account deficit almost doubled between 1995 and 1999 (Table I.4).  Provisional
estimates for 2000 point to a growth in the defici t compared with the previous year, placing it at
almost 840 million US dollars.
22. Between 1995 and 1997, the current account deficit was mainly due to the adverse balance of
trade.  Since 1998, with the commencement of INTEL's operations, the structure of the current
account changed substantially.  The trade gap fell in 1998, and reversed the following year, with a
surplus of 626 million US dollars.  At the same time, the revenue deficit rose in spectacular fashion,mainly due to the imputation of earnings associated with activities in the free zones, which rose from
250 million US dollars in 1997 to 1,773 million dollars in 1999.
23. Since 1995, the services sector has shown successive surpluses.  This performance is mainly
due to the favourable pattern of tourism, which gave a surplus in travel services (see section 3.ii).
24. The successive current account deficits have generally been partly financed by direct
investment flows.  In 1999, the high levels of in coming foreign capital offset the current account
deficit and permitted the accumulation of foreign exchange reserves of 480 million US dollars.  The
principal target sectors for this investment were the free zones, banking and tourism (see section 4).
25. Between 1995 and 1999, Costa Rica managed to reduce its foreign public debt.  In terms of
GDP, the balance of foreign public debt was marked by a continuing decline, from 28 per cent ofGDP in 1995 to just under 20 per cent of GDP in 1999.  However, in terms of Gross National Income
(GNI), the reduction was not constant.  Debt declined substantially between 1995 and 1997.  The
sharp fall in 1996 was due to advance repayments of foreign debt under the clause agreed in the
renegotiations concluded in 1990 known as "Val ue Recovery Payments".  From 1998, foreign public
debt rose, in particular as a result of greater use of foreign sources of financing (instead of domesticsources) to cover the public deficit (section ii). In 1999, public foreign debt service represented
8.7 per cent of the total value of exports of goods and services.  No data is available on private foreign
debt.WT/TPR/S/83 Trade Policy Review
Page 8
Table I.4
Balance of payments
(in millions of US dollars)
1995 1996 1997 1998 1999 2000a
Current account -357.4 -264.0 -479.6 -520.8 -692.8 -836.5
Goods -322.3 -249.2 -497.6 -399.0 626.3 -188.5
Exports f.o.b. 3,481.8 3,774.1 4,220.6 5,538.3 6,618.5 5,875.1
Imports f.o.b. -3,804.1 -4,023.3 -4,718.2 -5,937.3 -5,992.2 -6,063.6
Services 56.4 20.4 141.3 233.5 351.9 472.5
Transport -236.6 -250.8 -188.0 -213.6 -194.2 -204.3
Travel 358.3 374.0 394.3 504.6 591.6 625.6
Other services -65.3 -102.8 -65.0 -57.5 -45.6 51.2
Income -225.3 -184.6 -248.8 -468.5 -1.773.2 -1.220.4
Employees' remuneration -0.1 1.9 5.5 -7.1 -14.8 -17.0
Investment income -225.2 -186.5 -254.3 -461.4 -1.758.4 -1.203.4
Current transfers 133.8 149.5 125.5 113.2 102.2 99.9
General Government 34.8 45.7 37.5 39.8 54.1 55.6
Other sectors 99.1 103.8 88.0 73.4 48.1 44.3
Capital account and finance 480.2 67.5 508.4 547.7 883.1 682.9
Capital transfers 0.0 28.1 0.0 0.0 0.0 0.0
Direct investment 331.4 421.3 402.5 606.9 614.5 422.0
Abroad -5,5 -5,7 -4,4 -4,8 -5,0 n.a.
In the declaring economy 336.9 426.9 406.9 611.7 619.5 n.a.
Portfolio investment -24.8 -21.5 74.4 -85.7 32.2 n.a.
Equity -0.4 0.0 -24.5 -33.9 -28.1 n.a.
Bonds -24.4 -21.5 98.9 -51.8 60.3 n.a.
Other investment 173.6 -360.3 31.5 26.5 236.4 n.a.
Commercial credit 159.8 -67.3 84.1 1.1 -36.8 n.a.
Loans -55.8 -136.5 18.5 9.2 32.4 n.a.
Cash and deposits 97.3 -44.7 -70.8 21.3 251.4 n.a.
Other -27.7 -111.7 -0.3 -5.1 -10.6 n.a.
Errors, omission and unspecified capital 98.9 142.0 187.9 -176.5 289.8 n.a.
Changes in reserves -221.6 54.5 -216.7 149.6 -480.1 153.6
Memorandum:
Net international reserves/imports (months) 2.9 2.6 2.8 1.9 2.8 2.5
Foreign public debt (% of GDP) 28.1 24.4 20.8 20.7 20.1 20.9
Foreign public debt (% of GNI) 28.7 24.8 21.2 21.4 22.8 22.6
n.a. Not available.
a Aggregate value at September  2000.Source: Central Bank of Costa Rica.
(3) DEVELOPMENTS IN TRADE
(i) Trade in goods
26. From 1995 to 1999, Costa Rica's foreign trade showed a clear upward trend, with much
higher growth rates than during the first half of  the nineties.  Between 1995 and 1999, trade in goods
grew at an average annual rate of 18.2 per cent, mainly due to the establishment in the country of
INTEL, one of the largest producers of electronic components in the world.
27. The pattern of exports has changed considerably since Costa Rica's previous Review.
Agricultural exports fell from 68 per cent of total exports of goods in 1995 to only 31 per cent in 1999Costa Rica WT/TPR/S/83
Page 9
(Table AI.1).  This trend can be explained not only by the increase in industrial exports, but also the
stagnation in the value of agricultural exports as a result of the adverse effects of fluctuations in the
international prices of some traditional exports, such as coffee.  While these items continue to be the
most important in the agricultural sector, other products such as melons, pineapples, foliage and
ornamental plants have become more important sources of foreign exchange.
28. The manufacturing sector, for its part, has become the engine of growth in exports, especially
since 1998.  This dynamism is closely linked to sales of modular circuits (included in the sub-group
office equipment and telecommunications in Chart I.1).  In recent years, new market niches have also
been emerging, such as instruments for infusion an d transfusion of serums, medicines and hair-dryers.
Exports of clothing fluctuated considerably during the period under review.  In 1999, the main
clothing exports were men's and women's trousers and underwear.
29. Imports grew more modestly than exports, and the breakdown by economic category did not
vary significantly (Chart I.1 and Table AI.2).  The only substantial change, related to activities in the
electronics sector, was the increase in imports of electronic components.
30. The main destination of Costa Rican exports continues to be the United States.  Moreover, its
share in exports of goods has increased considerably, to 52 per cent in 1999 (Chart I.2 andTable AI.3).  In addition, the launch of the Free Trade Agreement between Costa Rica and Mexico
coincided with a significant increase in trade be tween the two countries.  In particular, Costa Rican
exports to Mexico rose from 0.6 per cent of all goods exported in 1995 to 2.3 per cent in 1999.
Modular circuits, palm oil, textiles and aluminium sheets and wire were the main goods exported to
that destination.
31. The European Union continues to be the second destination for Costa Rican products,
although its relative share has declined perceptibly, falling to just over 22 per cent in 1999.  Amongthe European Union member countries, the Netherla nds and the United Kingdom have significantly
increased their imports.  In 1999, these two countries represented some 60 per cent of imports to the
European Union from Costa Rica.  It should be noted that the products traditionally exported to the
European Union, coffee and bananas, have declined in relative importance vis-à-vis  modular circuits
and other non-traditional goods such as pineapples , ornamental plants and foliage, melons and
prawns.
32. With respect to imports by country of origin, the United States has strengthened its position as
the number-one trading partner.  Its share of total Costa Rican imports rose from 45 per cent in 1995
to some 55 per cent in 1999 (Chart I.2 and Table AI.4).  This trend was closely linked to activities in
the electronic components industry.  In 1999, apart from the United States, the main countriesexporting to Costa Rica were Mexico, Japan and Venezuela.
(ii) Trade in services
33. Travel services are the main item of service exports not attributable to factors, followed by air
transport and communications services.  The sectors traditionally in deficit were maritime transport,
business services and financial and insurance services (Table I.5).
34. Between 1995 and 2000, trade in services grew at an average annual rate of 52 per cent.  Not
only was the overall balance on these services positive throughout the period but it also grew
substantially, from a surplus of 56 million US dollars in 1995 to 454 million US dollars in 2000
(provisional figure).  This performance is largely due to the dynamism of the tourist sector, which has
become a major source of foreign exchange earnings for Costa Rica.Costa Rica WT/TPR/S/83
Page 11
36. The statistical information by origin of annual flows of FDI be tween 1995 and 1999 shows
that the sectors that attracted the greatest volume of foreign investment were industry (62 per cent),
tourism (13.8 per cent), services (10.3 per cent) and agriculture (7.4 per cent).1  Between 1995 and
2000, the main source of FDI in Costa Rica was the United States with 63.9 per cent of the aggregate
total, followed by Mexico (9.5 per cent), Canada (3.5 per cent), El Salvador (2.1 per cent) and Italy
(1.0 per cent).  Investment by the United States (some 1,803 million US dollars) was shared mainly
between industry (75.4 per cent) and agriculture (10.1 per cent).  United States investment in theagricultural sector was mainly in banana production.  Mexico's investment flows were concentrated in
financial services (25.6 per cent) and industry (19.2 per cent).  Investment by countries of the
European Union, overall the third in importance with 6.0 per cent of the total, was mainly in industry
(29.2 per cent), followed by tourism (26.1 per cent) and agriculture (10.2 per cent).
Table I.5
Trade in services, 1995-2000
(millions of US dollars)
1995 1996 1997 1998 1999 2000a
Total 56.4 20.3 141.2 233.6 351.9 454.3
Credit 980.7 1.065.9 1.142.4 1.359.6 1.540.8 1.715.4
Debit 924.3 1.045.6 1.001.2 1.126.0 1.188.9 1.261.1
Transport -236.6 -250.8 -188.0 -213.6 -194.2 -185.6
Credit 134.2 149.2 184.5 202.2 245.4 265.0
Debit 370.7 400.0 372.6 415.8 439.5 450.6
- Maritime -280.8 -299.0 -220.0 -273.0 -274.8 -281.6
Credit 8.0 12.2 14.2 15.5 17.0 18.0
Debit 288.8 311.2 234.2 288.5 291.8 299.6
- Air 35.6 48.8 22.2 49.0 72.7 86.2
Credit 115.7 126.9 160.2 176.2 218.5 236.2
Debit 80.2 78.1 138.0 127.2 145.9 150.0
-O t h e rb8.6 -0.6 9.8 10.4 8.0 9.8
Credit 10.4 10.1 10.2 10.5 9.8 10.8
Debit 1.8 10.7 0.4 01 1.8 1.0
Travel 358.3 374.0 394.3 504.6 591.6 644.1
Credit 681.1 710.0 742.3 913.5 1.020.6 1.118.3
Debit 322.8 336.0 348.0 408.9 429.0 474.2
Communications 19.3 19.6 24.3 33.4 39.6 42.8
Credit 57.3 76.5 79.9 85.2 92.5 98.8
Debit 38.1 56.9 55.7 51.7 52.9 56.0
Insurance and financial -43.0 -39.1 -35.9 -28.9 -33.7 -34.1
Credit 9.9 14.4 18.9 23.1 24.3 25.9
Debit 52.9 53.5 54.8 51.9 58.0 60.0
Other business services -22.9 -58.8 -24.0 -34.9 -42.8 1.8
Credit 83.1 101.7 103.9 117.9 122.3 171.8
Debit 106.0 160.5 127.9 152.8 165.2 170.0
Otherc-18.7 -24.5 -29.4 -27.1 -8.6 -14.7
Credit 15.1 14.1 12.8 17.7 35.8 35.6
Debit 33.8 38.6 42.3 44.8 44.4 50.3
a Aggregate value at September 2000.
b Other transport (road, rail, etc.) and various transport services
c Construction services, computer and information services, royalties and patent rights, personal  cultural and recreational
services, and government services not included elsewhere.
Source: Central Bank of Costa Rica, Costa Rica balance of payments.
                                                     
1 In this context, the heading "services" includes financial and other services.WT/TPR/S/83 Trade Policy Review
Page 12
Chart I.2 
Trade in good, by partner, 1995 and 1999
1995 1999
(a)    Ex ports (f.o.b. )
Total:   2,701.8 millon US dollars Total:   6,283.1millon US dollars.
Total:  3,205.5 millon US dollars. Total:  5,986.5 millon US dollars.
               
Source:   United Nations Statistics Division, Comtrade Database (SITC, Rev. 3).Percentage
America
62.6%Asia and rest of world
4.4%
Europe
33.0%
Europe
13.1%(b)    Im ports (c.i.f.)
Asia and rest of world
9.1%
America
77.9%Japan
5.0%
EU(15)
9.4%USA
51.9%EU(15)
22.4%
Mexico
5.8%Asia and rest of world
7.5%
America
68.8% Europe
23.8% USA
40.2%
Asia and rest of world
11.2%
America
78.3%Europe
10.5%
USA
54.8%Other 
Americas
22.5%EU(15)
30.7%
Other Americas
16.8%
Other Americas
17.8%USA
45.3%
Mexico
5.5%Other 
Americas
27.0%Japan
3.8%
EU(15)
11.7%Costa Rica WT/TPR/S/83
Page 13
(5) OUTLOOK
37. The Central Bank's macro-economic projections for the year 2001 anticipate a growth in GDP
of the order of 3.2 per cent in real terms, mainly as the result of the recovery in the high-technology
electronics industry and a similar rise in the remaining productive sectors.  The overall public sector
deficit should fall to around 2.7 per cent of GDP, thanks to a bigger surplus in public institutions and a
smaller Central Bank  deficit.  The latter will be dependent on the Government making earlyrepayment of borrowings from the Central Bank.  With regard to exchange rate policy, the Central
Bank will seek, by daily intervention in the currency  market, to maintain the competitiveness of Costa
Rican products in the rest of the world.  The fundamental objective of the Central Bank in 2001 will
be to keep domestic inflation at about 10 per cent.