Costa Rica WT/TPR/S/180/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Costa Rica's annual economic growth averaged  4.9 per cent during 2001-2005.  Growth has 
been particularly vigorous since 2003, reflecting in particular increased investment and exports.  As a 
result, per capita GDP climbed 12.8 per cent from 2 001 to 2005, reaching just over US$4,600 in 2005. 
2. The fiscal deficit has been contracting since 2003.  Achieving and maintaining fiscal balance 
is, however, one of the main challenges facing the Co sta Rican authorities, particularly if high debt 
repayments, pension payments and specific statutor y disbursements are taken into consideration.  
Monetary and exchange-rate policies have undergone substantial changes in the period under review.  
In October 2006, with a view to exerting a tighter rein on inflation (which reached 14.1 per cent in 
2005), the authorities decided to change from a cr awling-peg to a crawling-band exchange rate 
system, in what they consider to be a first step to wards the adoption of a more flexible exchange rate. 
3. In spite of good export performance, the balan ce-of-payments current account has been in 
deficit, mainly as a result of a worsening trade bala nce deficit.  In contrast, the services balance has 
been in surplus, largely owing to favourable tour ism sector performance.  Costa Rica's main trading 
partner is the United States.  The country’s  main exports are manufactured goods, notably 
microprocessors, and its most important agricultural export item is bananas.  Almost 80 per cent of imports are manufactured goods, the most significant items being, in descending order of importance, 
electronic integrated circuits and electronic micro-a ssemblies, chemicals and fuel.  Costa Rica is a net 
recipient of foreign direct investment, which has made a major contribution to GDP and export 
growth. 
(2) M
ACROECONOMIC TRENDS  
(i) Structure of the economy, production and employment 
4. The sectoral composition of the Costa Rican ec onomy has been relatively stable since 2001 
(Table I.1).  Services, taken as a whole, continue  to account for the largest share of GDP, with 
commerce, restaurants and hotels being the most  important single contributor.  Of the goods-
producing industries, manufacturing continues to be the largest contributor to GDP.  The agriculture 
and livestock sector remains a significant employer, accounting for 14.7 per cent of employment in 2005, the second highest percentage afte r trade and repair (Table I.1). 
5. During 2001-2005, the Costa Rican economy expanded at an average annual rate of 4.9 per 
cent in real terms (Table I.2), showing particularly  robust growth since 2003 in spite of the impact of 
oil prices.  The growth rate has been sustained mainly by increased investment and exports.  Net 
exports, however, have been negative as a result of structural factors in the national economy and the 
deterioration in the terms of trade.  The une mployment rate has remained broadly stable. WT/TPR/S/180/Rev.1 Trade Policy Review 
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Table I.1 
Sectoral structure of GDP and employment, 2001-2005 
 2001 2002 2003 2004 2005 
GDP at current market prices 100.0 100.0 100.0 100.0 100.0 
% of GDP at market prices:      
Less:  Taxes on products and imports (net  of subsidies) 9.6 9.6 9.3 9.5 9.8 
GDP at basic prices 90.4 90.4 90.7 90.5 90.2 
Agriculture, forestry and fishing 8.0 7.7 7.9 7.8 7.8 
Mining and quarrying 0.2 0.1 0.1 0.1 0.2 
Manufacturing industry 19.8 19.4 19.3 19.7 19.7 
Construction 4.3 4.2 4.2 4.3 4.1 
Electricity and water 2.6 2.5 2.4 2.6 2.5 
Commerce, restaurants and hotels 17.9 17.3 17.3 17.6 17.9 
Transport, storage and communications 7.7 8.2 8.5 8.7 8.8 
Financial services and insurance 4.7 5.1 5.4 5.3 5.5 
Real estate services 4.1 4.0 3.8 3.6 3.4 
Other business services  3.7 3.9 3.9 4.1 4.2 
Public services 3.7 4.0 3.9 3.7 3.7 
Community, social and personal services 17.2 17.8 17.8 17.0 16.8 
Less:  Financial intermediation services indi rectly measured (FISIM) 3.4 3.9 3.9 4.0 4.3 
Employment       
Total employed persons (thousands) 1,552.9 1,586.5 1,640.4 1,653.9 1,777.0 
% of total employed:      
Agriculture and livestock 15.1 15.3 14.6 14.3 14.7 
Fishing 0.5 0.6 0.5 0.5 0.5 
Mining and quarrying 0.1 0.1 0.1 0.2 0.2 
Manufacturing industries 15.0 14.3 14.0 13.9 13.7 
Electricity, gas and water 1.3 1.4 1.3 1.4 1.2 
Construction 6.9 6.7 6.7 6.5 6.5 
Trade and repair 18.9 19.1 19.7 19.9 18.7 
Hotels and restaurants 5.5 5.2 5.5 5.5 5.5 
Transport, storage and communications 5.5 5.7 5.7 5.8 6.3 
Financial institutions 1.9 2.0 2. 2 2.2 2.0 
Real estate and business ac tivities 6.0 6.5 6.2 6.2 5.8 
Public service 4.7 4.5 4.6 4.7 4.6 
Education 5.5 5.8 6.0 5.8 5.9 
Health and social care 3.8 3.3 3.0 3.1 3.5 
Community and personal services 3.9 3.7 4.4 3.8 3.6 
Households with domestic staff 4.9 5.3 4.8 5.5 6.8 
Offshore organizations 0.1 0.2 0.1 0.2 0.1 
Non-specific activities 0.4 0.3 0. 4 0.3 0.4 
Source : Central Bank of Costa Rica and the National Statistics and Census Institute ( Instituto Nacional de Estadística y 
Censos ). 
6. Given the importance to the Costa Rican economy of current transfers (see below), national 
disposable income (NDI) is a more appropriate i ndicator than GDP of the resources available in the 
economy to finance domestic spending, since, un like GDP, it includes net family remittances and 
income from producer entities abroad owned by Costa Rican residents and, most pertinently in this 
instance, excludes earnings transferred abroad from entities in Costa Rica.  In the period 2001-2005, 
NDI was equivalent to 97.2 per cent of GDP and the difference between the two was largely Costa Rica WT/TPR/S/180/Rev.1 
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attributable to net outflows of profits from foreign en terprises established in Costa Rica.  In this same 
period, NDI grew at an average annual rate of 3.6 per cent. 
Table I.2 
Basic economic indicators, 2001-2005 
 2001 2002 2003 2004 2005 
Current GDP (billions of colons) 5,394.6 6,060. 9 6,982.3 8, 142.4 9,542.9 
Current GDP (US$ million) 16,403.4 16,844.3 17,514.3 18,593.0 19,969.2 
GDP per capita (US$) 4,092 4,119 4,200 4,376 4,616 
Gross national disposable income (billions of 
colons) 5,219.1 5,905.3 6,781.5 7,878.8 9,318.9 
Real GDP and components, growth rates (%)       
Real GDP (rate of change) 1.1 2.9 6.4 4.3 5.9 
Final consumption costs 1.4 3.0 2.8 2.8 3.2 
  Household consumption 1.1 3.1 3.2 3.1 3.6 
  General government consumption 3.6 2.3 -0.3 1.3 0.1 
  Gross fixed capital formationa 2.6 6.6 7.2 -0.5 6.0 
Exports of goods and services -9.6 3.7 12.0 8.1 12.7 
Imports of goods and services 1.1 7.0 0.9 9.0 12.5 
GDP by type of spending (% of current GDP)      
Final consumption costs 82.7 82.6 81.2 80.2 80.0 
  Household consumption 68.4 67.8 66.8 66.1 66.3 
  General government consumption 14.3 14.8 14.5 14.1 13.8 
Gross capital formation 20.3 22.6 20.6 23.0 25.2 
  Gross fixed capital formation 18.3 18.9 19.2 18.6 19.0 
  Change in inventories 2.0 3.8 1.5 4.4 6.2 
Exports of goods and services 41.5 42.4 46.7 46.3 48.7 
Imports of goods and services 44.5 47.6 48.5 49.5 54.0 
Memorandum items       
Terms of trade (rate of change)  -1.8 -1.6 -2.7 -2.0 -3.7 
Gross savings (% of current GDP) 14.0 14.8 15.9 16.8 17.4 
Total population, as at July of each year (millions 
of inhabitants) 3.9 4.0 4.1 4.2 4.3 
Labour force, as at July of each year (millions)b 1.7 1.7 1.8 1.8 1.9 
Unemployment rate 6.1 6.4 6.7 6.5 6.6 
Nominal minimum wages (change) 12.4 7.0 9.4 11.3 14.6 
Real minimum wages (change) 1.3 -2.5 -0.4 -1.6 0.5 
a Gross fixed capital formation corresponds to asset investments by enterprises. 
b Total employed and unemployed. 
Source : Central Bank of Costa Rica and the National Statistics and Census Institute. 
7. According to the IMF, economic growth and forei gn trade have been subject to fluctuations in 
response to the volatile performance of the micropr ocessor industry, represented by US company Intel 
(see Chapter IV(3)), which accounted for 20 per cent of total exports in 2005.1  Central Bank of Costa 
Rica (BCCR) estimates show the simple average a nnual rate of change in real GDP for the period 
1996-2003 to be 4.3 per cent if INTEL operati ons are included and 3.8 per cent otherwise.2 
8. The share of gross fixed capital formation in GDP has seen a slight upward trend in the period 
under review.  Following a 0.5 per cent decline in 2004, gross fixed capital formation rose 6.0 per 
cent in 2005, fuelled by investment in capital goods undertaken mainly by enterprises operating under 
the free zone regime. 
                                                      
1 IMF (2006). 
2 BCCR (2004). WT/TPR/S/180/Rev.1 Trade Policy Review 
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(ii) Fiscal policy 
9. The Ministry of Finance is responsible for managing the country's fiscal policy.  Its main 
objective is to stabilize public fina nces by focusing on enhanced ta x revenues and the strengthening of 
mechanisms to rationalize public expenditure allocation.3  Achieving and maintaining balanced public 
accounts is an ongoing challenge for the Costa Rican authorities, especially if the rigid expenditure 
structure, including high debt  repayments (see below)4, pensions payments a nd specific disbursements 
laid down in the Constitution5 or by law, is taken into considera tion.  In 2006, the total public debt-to-
GDP ratio was relatively high at 55.0 per cent.6  Public external debt servicing represented 4.4 per 
cent of goods and services exports in 20 05, down from 6.7 per cent in 1999. 
10. The fiscal deficit has been declining since 2003 and in 2005 reached its lowest level in a 
decade (Table I.3).  Efforts to reduce the fiscal deficit during 20 02-2005 centred on the adoption of 
measures to control expenditure.7  The lower deficit is also the r esult of increased revenues, reflecting 
stronger economic growth, tax and Customs admini stration reforms (such as implementation of the 
duty collection system known as the Informati on Technology for Customs Control Scheme 
(Tecnología de Información para el Control Aduanero  – TICA) (see Chapter III(2)(i)), and the 
creation of a temporary tax under the Fiscal Con tingency Law (Law No. 8343).  In mid-2006, the 
Government reverted to a proposal to introduce ne w fiscal measures in order to remedy the chronic 
deficit.  The key elements of the proposal include:  replacing sales tax by a broader-based value-added tax (VAT);  broadening the income tax base;  and introducing a tax on financia l transactions as well 
as certain other taxes. 
11. The 2007 draft budget submitted to the Legislative Assembly underlines the need for 
improved revenue collection efficiency, greater cont rol of public expenditure and a reduction in the 
fiscal deficit.
8  Under this draft budget, some expenditur es do, however, escape government control, 
such as remuneration outlays, pension schemes funded  out of the national budget, and public debt 
servicing, which together represent 80. 7 per cent of the national budget. 
                                                      
3 Ministry of Finance, Plan Estratégico 2005-2007  (Strategic plan 2005-2007), consulted on line at:  
https://www.hacienda.go.cr/NR/rdonlyres/EF540A 2B-008A-418A-9517-F3B39DB35413/11635/MHPlan 
EstrategicoVersion11.pdf. 
4 Ministry of Finance, Proyecto de Ley de Presupuesto 2007 - Exposición de Motivos  (Draft budget law 
2007 – rationale),  consulted on line at:  https://w ww.hacienda.go.cr/Msib21/ Espanol/Direccion+General+ 
de+Presupuesto+Nacional/proyley2007.htm. 
5 Pursuant to Article 78, "public expenditure on state education, including higher education,shall not be 
less than six per cent of gross domestic product per year". 
6 BCCR, Minutes of Meeting No. 5296-2006 of 20 September 2006, consulted on line at:  
http://www.bccr.fi.cr/documentos/secretaria/archi vos/BCCR-5296-2006%20Art.10%20dictamen%20positivo% 
20a%20RECOPE%20contrate%20credito%20externo%20con%20el%20BCIE.pdf. 
7 Ministry of Finance, Informe Final de Gestión – Octubre 2005-Mayo 2006  (Final management report:  
October 2005-May 2006), consulted on line at:  h ttps://www.hacienda.go.cr/NR/rdonlyres/EBBDA04E-C62E-
4A54-9ABE-13E50EDB8D4E/12483/Informedegestion2006.doc. 
8 Ministry of Finance, El Proyecto de Ley de Presupuesto Ordinario y Extraordinario de la República 
para el Año Económico 2007  (Draft law on the ordinary and extraord inary budgets of the Republic of Costa 
Rica for the fiscal year 2007 ), consulted at:  https://www.hacienda.go.cr/Msib21/ 
Espanol/Direccion+General+de+Presupuesto+Nacional/proyley2007.htm#proyecto. Costa Rica WT/TPR/S/180/Rev.1 
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Table I.3 
Non-financial public sector (NFPS) financial accounts, 2001-2006 
(Percentage of GDP and US$) 
 2001 2002 2003 2004 2005 2006 
Total NFPS revenue (% of GDP) 25.5 26.0 24.8 24.4 25.1 .. 
 Tax revenue 19.6 19.9 19.9 19.7 20.2 .. 
 Non-tax revenue 2.1 2.2 2.1 2.0 2.0 .. 
 Operating surplus of non-financial 
public enterprises 2.9 4.1 2.7 2.8 2.9 .. 
 Current transfers 0.2 0.2 0.1 0.0 0.0 .. 
 Capital inflows 0.7 0.0 0.2 0.0 0.0 .. 
 Total NFPS expenditure (% of GDP) 27.1 28.4 27.4 26.5 25.5 .. 
  Current expenditurea 22.2 23.2 22.5 22.3 21.7 .. 
  Interest payments 4.0 4.3 4.3 4.1 4.1 .. 
  Capital expenditure 4.8 5.2 4.8 4.1 3.8 .. 
  Net lending 0.1 0.1 0.1 0.0 0.0 .. 
NFPS balance (% of GDP) -1.6 -2.5 -2.5 -2.0 -0.4 .. 
Central government balance -2.9 -0.9 -0.2 -0.1 0.6 .. 
  Decentralized non-corporate institutions 
balance .. -1.9 -2.3 -1.7 -1.3 .. 
  Local government balance -0.0 -0.1 -0.1 0.0 0.1 .. 
  Non-financial public enterprise s balance 0.6 1.3 0.2 0.3 0.7 .. 
Current account balance 2.6 2.8 2.1 2.2 3.4 .. 
Total public sector balance (% of GDP)  -1.90 -2.3 -2.8 -1.7 -0.1 .. 
Total public debt (US$ million) 9,295.7 9,987.6 10,599.1 10,716.5 10,786.3 11,387.7b 
Public external debt (US$ million) 3,174.6 3,280.6 3,733.0 3,883.7 3,639.0 3,612.1b 
Total NFPS domestic debt (millions of 
colons) (as at December of each year) 1,515,019.1 1,738,594.4 1,885,741.5 2,249,671.7 2,436,180.9 2,668,206.8b 
Total domestic debt of the financial public 
sector (millions of colons) (as at 
December of each year)c 3,156.80 3,156.80 3,156.80 3,156.80 43,521.60 56,784.78b 
Domestic and external NFPS debt (% of 
GDP) 4.2 4.1 5.3 5.9 5.4 5.2b 
.. Not available. 
a Current expenditure includes:  wages and salaries, social secu rity contributions, purchases of goods and services, interest, and 
current transfers. 
b Balance as at November 2006. 
c Information on financial sector domestic  debt to 2004 is provided by the BCCR and refers to bank debt capitalization 
instruments.  Data provided by national banking institutions on the basis of half -yearly surveys are incl uded as of 2005.  The 
National Bank of Costa Rica, the housing mortgage bank Banco Hipotecario de la Vivienda  - BANHVI, mutual insurance funds 
Mutual Alajuela  and Mutual la Vivienda  and mutual savings and loan association Mutual Cartago de Ahorro y Préstamo  all 
reported debt in 2005.  Agricultural credit bank Banco Crédito Agrícola de Cartago  and Banco Popular  joined their ranks in 
2006. 
Source : Central Bank of Costa Rica a nd the Ministry of Finance. 
12. The issue of new domestic bond debt has been the main source of financing for deficit 
spending by the Government in order to meet its current requirements and service other obligations.  
Central government domestic bond debt, as at November 2006, totalled C 2,670,809 million 
(US$5,235.4 million).9 
(iii) Money and exchange rate policy 
13. Monetary and exchange rate policy underwent  significant changes during the period under 
review.  During the period 2001 to October 2006, the main objective of this policy, under the crawling 
                                                      
9 Ministry of Planning and Economic Policy ( Ministerio de Planificación Nacional y Política 
Económica  – MIDEPLAN), Deuda Interna Bonificada como Porcentaje del PIB según Tenedores 1965-2004  
(Domestic bond debt as a percentage of GDP by holder 1965-2004), consulted on line at:  http://ns.mideplan.go.cr/sides/economico/05-16.htm. WT/TPR/S/180/Rev.1 Trade Policy Review 
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peg exchange rate system, was to maintain domestic  currency stability.  In October 2006, the decision 
was taken to abandon the crawling peg exchange rate system and replace it by a crawling band 
system.  This measure is seen as a first step towa rds a more flexible exchange rate system and the 
BCCR considers that it will provide it with the mean s to control inflation more efficiently.  The 
BCCR also feels that this decision is a step in the right direction as regards reducing inflation but that, 
in order to bring inflation into line with the inte rnational rate, progress must be made in respect of 
finding a solution to the fiscal problem, by means of the approval of fresh government revenue.10  The 
BCCR's medium-term objective is to move towards a system of inflation targeting.11 
14. Under the crawling peg exchange rate system, the BCCR set a daily reference exchange rate 
for intrabank transactions and undertook to buy or  sell any excess foreign-currency supply or demand 
by banks.  However, this system generated a serie s of costs.  The semi-fixed exchange rate system 
meant that monetary policy was, to a great exte nt, conditioned by rising capital inflows, thereby 
hindering the struggle against inflation.  Moreove r, the crawling peg exchange rate system was 
fuelling inflation.  In 2002, the pass-through coeffici ent was estimated at 13 per cent in the short term 
and 68 per cent in the long term for tradable goods and at 10 per cent and 45 per cent, in the short and 
long terms respectively, for non-tradable goods.12  According to the BCCR, exchange rate 
predictability discouraged econom ic operators from hedging the exchange rate risk, thereby 
encouraging the dollarization of deposits and cred it and generating further risks for the financial 
system.13 
15. Furthermore, the fact of maintaining a semi -fixed exchange rate system has meant that 
monetary policy effectiveness has been limited by the BCCR operating deficit, which stood at 1.4 per 
cent of GDP in 2005 and is an ongoing cause of liquidity  injection.  This factor, together with the 
reserve accumulation, is the main cause of liquidity  expansion.  Reserve accumulation has only been 
partly neutralized, with the result that monetary aggr egates have expanded (Table I.4).  In the first half 
of 2006, currency issue and total liquidity (M3) showed average annual growth of 21.9 per cent and 22 per cent, respectively.
14  Inflation hit an annual rate of 14.1 per cent in 2005, a fact that can be 
partly explained by the exceptionally high oil prices. 
16. The Costa Rican authorities feel that there is  a need to capitalize the BCCR in order to 
eliminate the impact of its losses - finan ced each year by the issue of currency15 - on domestic prices.  
According to the authorities, the origin and pers istence of BCCR financial imbalances are, in essence, 
determined by past quasi-fiscal operations.  Such operations involved the granting of a very wide 
range of exchange rate and inte rest rate subsidies.  For the BCCR, these measures entailed exchange 
losses, the constitution of assets with below-market ra tes of return and the incurrence of public-sector 
and external debt to finance these subsidies, larg ely without a balancing entry in the recoverable 
assets account.  All of the above brought about a stru ctural problem, reflected by the existence of 
                                                      
10 Central Bank of Costa Rica, Press release of 13 October 2006, consulted at:  
http://www.bccr.fi.cr/documentos/metas/archivos/Comunicado-13-10-2003.pdf. 
11 BCCR (2006a), Ch. 3. 
12 BCCR (2002). 
13 Article 5 of the Minutes of Meeting No. 5300- 2006 of the BCCR Board of Directors, held on 
13 October 2006. 
14 BCCR (2006b). 
15 Ministry of Finance, Banco Central reacomodó sus deudas  (Central Bank debt readjustment), 
consulted at: http://www.hacienda.go.cr/centro/da tos/Noticia/Banco%20Central%20reacomod%C3%B3% 
20sus%20deudas-La%20Naci%C3%B3n%2012%20ENE-2005.doc. Costa Rica WT/TPR/S/180/Rev.1 
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more cost liabilities than revenue-generating assets.  Furthermore, the effectiv e asset rate has been 
lower than the cost of obligations.16 
Table I.4 
Main monetary indicators, 2001-2006 
(Percentage) 
 2001 2002 2003 2004 2005 2006 
Issue of currency (balances as at end 
December, in billions of colons) 223.0 249.9 275.4 277.7 332.2 448.5a 
M1 measured at financial system level 
(balances as at end December, in billions of 
colons) 486.5 596.0 703.2 706.9 875.7 1,088.3a 
M2 measured at financial system level 
(balances as at end December, in billions of 
colons) 1,037.5 1,241.9 1,480.6 1,746.9 2,157.6 2,749.1a 
M3 (December, in billions of colons ) 1,828.1 2,211.6 2,614.2 3,507.8 4,236.9 5,159.6a 
M1 / GDP (% of GDP) 9.0 9.8 10.1 8.7 9.2 9.6 
M2 / GDP (% of GDP) 19.2 20.5 21.2 21.5 22.6 24.3 
M3 / GDP (% of GDP) 33.9 36.5 37.4 43.1 44.4 45.6 
Interest rates       
Average active interest rate, colonsb 26.9 26.6 26.7 23.5 23.9 23.1 
Average passive interest rate, colonsc 13.6 13.8 12.9 11.5 12.0 11.7 
National currency interest margin 13.3 12.8 13.8 12.0 11.9 11.4 
Average active interest rate, US$ 11.7 10.0 9.8 9.5 9.5 10.8 
Average passive interest rate, US$ 5.3 4.0 2.7 2.1 2.2 3.0 
Interest margin, US$ 6.4 6.0 7.1 7.4 7.3 7.8 
Inflation (change December-December)        
Consumer price index (CPI) 11.0 9.7 9.9 13.1 14.1 9.4d 
Industrial producer price index (IPPI) 
including fuel 6.3 9.8 11.8 20.0 13.1 12.6d 
Industrial producer price index (IPPI) 
excluding fuel 8.6 8.4 11.0 17.8 12.1 13.9d 
Exchange rate       
Exchange rate (average for period:  
Colon / US$) 328.9 359.8 398.7 437.9 477.8 511.3 
Exchange rate variation (December-December) 7.4 10.8 10.5 9.6 8.3 4.2 
Real effective multilateral exchange rate 
variatione (December-December) -2.2 5.8 6.6 -1.1 -0.9 -2.7 
Real effective exchange rate to the US$ 
(December-December) -5.1 4.7 3.8 -1.9 4.0 -5.9d 
a Figures of the BCCR as at 15 December 2006 and of  commercial banks as at 1 December 2006. 
b Corresponds to the annual average of the we ighted averages of the interest rates re ported by financial intermediaries to the 
Central Bank every Wednesday.  The weighting factors used are the amounts of new placements by each intermediary. 
c Corresponds to the annual average of the we ighted averages of the interest rates re ported by financial intermediaries to the 
Central Bank every Wednesday.  The weighting factors used are the deposit balan ces of each intermediary. 
d November/November. 
e A minus sign indicates appreciati on;  a plus sign, depreciation. 
Note: M1 corresponds to money in circulation plus current account de posits in national currency;  M2 (liquidity in domestic cur rency) 
is M1 plus savings deposits in national currency;  and M3 (tot al liquidity of the national banking system) corresponds to M2 pl us 
deposits in foreign currency. 
Source : Central Bank of Costa Rica. 
17. The new exchange rate band system was introdu ced gradually in 2006.  In January 2006, the 
decision was taken to adjust the exchange rate on the basis of inflation expectations, rather than past 
inflation.  In April 2006, an exchange rate marg in of C 0.75 to US$1 was established for foreign 
                                                      
16 Draft Capitalization Law of the Central Bank of Costa Rica ( Proyecto de Ley de Capitalización del 
Banco Central de Costa Rica ), File No. 16.131. WT/TPR/S/180/Rev.1 Trade Policy Review 
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currency transactions with the BCCR on the interba nk market (Organized electronic foreign currency 
negotiation market ( Mercado Organizado de Negociación Electrónica de Divisas  – (MONED).  This 
margin was established with a view to helping banks become accustomed to operating in an 
environment similar to that of a band.  Regul ations on reserve requirements for financial 
intermediaries were also amended to  reduce daily reserve deposit volatility. 
18. A new foreign exchange regulation, the Re gulation on cash foreign exchange operations 
(Reglamento para las Operaciones Cambiarias de Contado  - ROCC)17, has been in effect since 
20 September 2006.  This new regulation, inter alia , defines BCCR rules in respect of bodies 
authorized to participate in the foreign exchange market and regulates the operation of stock exchange 
offices and foreign exchange dealers.  New rules have  been developed to allow for the use of foreign 
currency hedging instruments.18  In November 2006, the BCCR launched a new electronic platform 
for foreign exchange operations (Foreign currency market ( Mercado de Monedas Extranjeras  – 
(MONEX) to replace the MONED. 
19. The exchange rate band system was introduced on 17 October 2006.19  Under this system, the 
exchange rate is determined by the market within the limits established by the exchange rate bands.  
The BCCR intervenes when the exchan ge rate reaches these limits.  The band was initially established 
as a relatively narrow one and will br oaden over time (taking economic conditions into consideration) 
as economic operators hedge agains t foreign exchange exposure.  The BCCR expects uncertainty 
about the exchange rate, though limited, to help  to reduce the high level of dollarization (see 
Chapter IV(5)(v)) and to restrain short-term capital inflows, together with their destabilizing impact.20 
20. In order to prevent the major exchange ra te fluctuations which could arise from the 
participation in the system of no n-banking public-sector institutions, such institutions are required to 
carry out their foreign currency transactions with  the BCCR whenever their daily transactions exceed 
US$100,000 or the monthly transaction volume exceeds US$10 million;  transactions involving lesser amounts are to be conducted with State commercial banks.
21 
(iv) Balance of payments 
21. The balance-of-payments current account suffered a chronic deficit in the period under review 
(Table I.5), mainly as a result of a deterioration in the balance of goods.  Preliminary estimates for 
2006 indicate that both exports and imports continue d to expand rapidly, in spite of which the trade 
deficit inflated.  The deterioration in the balance of trade can be partly explained by higher oil prices, 
which contributed to a worsening of the goods trade deficit.  This deterioration has, however, been 
partially offset by a continuous expansion in the services balance surplu s, a surplus largely 
attributable to the favourable development of t ourism, computer and online data-processing services 
and business support services (see section (3)(ii) below). 
                                                      
17 Approved by the BCCR Board of Directors in Article  6(ii) of the Minutes of Meeting No. 5293-2006 
of 30 August 2006, published in the Official Journal La Gaceta  No. 179 of 19 September 2006. 
18 BCCR (2006d). 
19 Article 5 of the Minutes of Meeting No. 5300- 2006 of the BCCR Board of Directors, held on 
13 October 2006. 
20 BCCR (2006d). 
21 Article 7 of the Minutes of Meeting No. 5300- 2006 of the BCCR Board of Directors, held on 
13 October 2006. Costa Rica WT/TPR/S/180/Rev.1 
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Table I.5 
Balance of payments, 2001-2006 
(US$ million) 
 2001 2002 2003 2004 2005 2006a 
I. Current account -602.9 -856.9 -880.0 -795.9 -971.0 -768.2 
A. Trade account -74.5 -592.6 -312.9 -564 -1,026.5 894.7  
Exports 6,848.7 7,132.1 8,184.0 8,611.5 9,720.8 8,325.1  
Goods (f.o.b.) 4,923.2 5,269.9 6,163.0 6,369.7 7,099.6 6,169.6 
Services 1,925.5 1,868.2 2,021.0 2,241.8 2,621.2 2,155.6 
Imports -6,923.2 -7,730.7 -8,496.9 -9,175.5 -10,747.3 -9,219.9  
Goods (f.o.b.) -5,743.3 -6,547.7 -7,252.3 -7,791.0 -9,230.3 -8,072.7 
Services -1,179.9 -1,183.0 -1,244.6 -1,384.5 1,505.3 1,223.2 
Goods balance -820.1 -1,277.7 -1,089.4 -1,421.3 -2,142.4 -1,827.1 
Services balance 745.6 685.2 776.4 857.3 1,115.9 932.3 
B. Revenue -679.3 -439.8 -775.9 -444.3 -214.9 -110.3 
   Employee remuneration -19.2 -19.0 -21.4 -19.3 7.5 -15.7 
   Investment income -660.1 -420.8 -754.5 -425.0 -222.4 -94.6 
C. Current transfers 150.9 175.5 208.8 212.4 270.4 236.9 
   General government 14.8 3.3 3.6 6.2 4.3 15.4 
   Other sectors 136.1 172.1 205.2 206.2 266.1 221.4 
II. Capital and fi nancial account 447.6 1,070.9 1,183.8 812.4 1,208.8 935.1 
A. Capital transfers 19.3 13.0 25.3 12.7 0.0 0.0 
B. Direct investment 450.8 625.3 548.1 733.3 904.0 1,073.6 
C. Portfolio investment 18.6 103.4 11.2 141.6 -344.5 -1,569.4 
D. Other investment -41.2 329.3 599.2 -75.2 649.3 1,430.9 
III. Errors and omissions 168.5 -51.0 35.1 63.7 155.7 285.0 
IV. Reserve assets -13.1 -163.0 -338.9 -80.3 -393.5 -452.0 
Memorandum items:       
Current account / GDP (percentage) -3.7 -5.0 -5.0 -4.3 -4.9 -3.5 
Capital account / GDP (percentage) 2.7 6.4 6.8 4.4 6.1 4.2 
Total external debt  (US$ million)  3,242.5 3,337.7 3,753.0 3,883.7 6,622.1 6,669.2 
Total external debt  / GDP (percentage)  19.8 19.8 21.4 20.9 33.2 30.1 
External debt servicing / goods and services 
exports 9.2 8.6 11.3 8.6 6.5 5.2 
a First three quarters. 
Source : Central Bank of Costa Rica. 
22. The current transfers account has been positive a nd rose gradually in the period under review.  
The share of family remittances in current transfer s climbed from 59 per cent of total current transfer 
receipts in 2000 to 85 per cent in 2005.  According to 2005 estimates, inflows of remittances into Costa Rica represented approximately 2 per cent of GDP.
22 
23. The capital account showed a growing surplus throughout the entire period under review, bar 
a temporary drop in 2004.  Foreign direct investment  and other private capital inflows have fuelled the 
growth of international reserves, in spite of th e expanding current account deficit (Table I.5). 
                                                      
22 BCCR (2005). WT/TPR/S/180/Rev.1 Trade Policy Review 
Page 10 
 
 
24. In 2005, the ratio of total external debt to GDP stood at 33.1 per cent (public external debt of 
14.3 per cent of GDP and private external debt of 18 .8 per cent of GDP).  Public external debt as a 
percentage of GDP has shown a downward trend, standing at around 14.3 per cent in 2005.  This reduction in public external debt is , however, partly the result of the substitution of external debt with 
domestic debt, as well as the early redemption of BCCR debt. 
(3) T
RADE AND INVESTMENT FLOWS  
(i) Trade in goods 
25. Tables AI.1 to AI.4, taken from the UN Comm odity Trade Statistics Database (Comtrade), 
show the composition and direction of trade in go ods in Costa Rica.  Import and export statistics 
include the free zones. 
26. Costa Rica's total trade (imports and exports) has continued to increase, albeit at slower rates 
than during the second half of the 1990s.  Exports in the period 2001-2005 grew at an average annual 
rate (December to December) of 3.7 per cent, as  compared with 11.0 per cent from 1997 to 2000;  
import growth rates were 9.0 and 12.8 per cent, r espectively.  Imports have seen a continuous upward 
trend, while exports have recove red from their fall in the year 2000, mainly as a result of the good 
performance of companies operating in the free zon es.  Exports have been expanding rapidly since 
2002 and there has been a diversification of the export base. 
27. Almost two thirds of exports are manufactured  goods and one third are agricultural products 
(Table AI.1).  The main export items under manu factured goods are electronic products (mainly 
microprocessors), followed by chemicals (including pharmaceuticals), medical devices, and made-up 
articles.  The main agricultural export item is ba nanas, followed by pineapples and flowers.  Other 
exports include coffee, melons, sugar and manioc. 
28. The structure of exports has altered in th e period under review.  Industrial goods have 
captured a greater share of total exports, reachi ng 65 per cent in 2005.  Exports of agricultural 
products increased in absolute terms in the period 20 01-2005;  their percentage share of total exports 
has, however, varied, accounting for 32.7 per cent in 2005.  The importance of manufactured goods 
exports is closely linked to sales of modular circ uits and computer parts, which represented around 
20 per cent of exports in 2005. 
29. Almost 80 per cent of imports are industrial goods, such as (in decreasing order) integrated 
circuits, petroleum oils and medicines.  Fuel im ports have grown steadily, doubling in value between 
2001 and 2005 (Table AI.2), which is mainly  a reflection of the rise in fuel prices. 
30. The main destination for Costa Rican exports is  the United States (Table AI.3).  Exports to 
this country grew steadily during 2001-2005, although its percentage share of the total contracted by 
seven points, declining to 42.8 per cent in 2005.  The other countries of the American continent, taken 
together as a group, are the second destination for Costa Rican exports, representing 24 per cent of the 
total in 2005, with the European Union ranking third that same year, with a share of 17.0 per cent.  
The share of Asian countries burgeoned from 7.3 per cent in 2001 to 14.5 per cent in 2005.  Almost 
10 per cent of 2005 exports went to the six East Asian traders, and almost 3.4 per cent to China, as compared with 0.3 per cent in 2001.  The upswing in  Costa Rican exports to China was driven mainly 
by sales of integrated circuits and computer parts. 
31. With regard to imports, the US is Costa Rica’s main supplier (Table AI.4).  Imports from the 
US rose in terms of value from 2001 to 2005, although its share of total imports shrank to 41.1 per 
cent in 2005, having lost 11.2 percentage points from 2001 to 2005.  Imports from other countries of Costa Rica WT/TPR/S/180/Rev.1 
 Page 11 
 
 
the American continent as a group represented 28 per cent of the total.  The US's relative loss of share 
has been absorbed both by Asian countries (mainly China and Japan) and by the European Union, 
with increases in exports to Costa Rica of 4.5 and 2.4 percenta ge points, respectively.  Costa Rica 
imports petroleum oils mainly from Venezuela (23 per cent of total imports of this item in 2005). 
(ii) Trade in services 
32. Costa Rica has traditionally recorded a trade-in -services surplus.  The most important export 
item is travel, followed by other business services, transport, and computer and information services 
(Table I.6).  Transport and travel top the list of the country’s major services imports. 
Table I.6 
Trade in services, 2001-2006 
(US$ million) 
 2001 2002 2003 2004 2005 2006 
Balance 745.6 685.2 776.4 857.3 1.115.9 932.3 
Exports 1,925.5 1,868.2 2,021.0 2,241.8 2,421.2 2,155.6 
Transport 267.8 244.2 240.4 245.7 282.4 221.0 
Travel 1,173.3 1,160.7 1,293.1 1,458.5 1,670.8 1,301.7 
Communications services 86.7 32.1 23.5 25.6 34.9 28.9 
Construction services 0.0 0.0 0.0 0.0 0.0 0.0 
Insurance services 0.0 0.0 0.0 0.0 0.0 0.0 
Financial services 4.8 5.1 4.7 9.7 9.7 8.8 
Computer and information services 124.6 153.4 166.8 200.3 200.4 237.2 
Royalties and licensing fees 0.9 1.7 0.5 0.5 0.5 0.0 
Other business services 241.1 243.4 260.6 266.7 284.7 328.8 
Personal, cultural and recreational services 0.1 0.1 0.1 0.1 0.1 0.1 
Government services, n.i.e. 26.2 27.5 31.4 34.6 37.0 29.1 
Imports 1,179.9 1,183.0 1,244.6 1,384.5 1,491.9 1,223.2 
Transport 424.9 447.2 508.3 581.8 668.9 539.4 
Travel 364.4 344.9 353.2 405.7 423.4 347.6 
Communications services 38.2 45.7 51.4 55.1 57.9 49.7 
Construction services 0.0 0.0 0.0 0.0 0.0 0.0 
Insurance services 49.4 68.9 64.1 85.2 83.9 73.9 
Financial services 2.0 1.6 1.9 3.8 3.9 8.3 
Computer and information services 14.3 14.8 10.2 16.4 15.9 8.5 
Royalties and licensing fees 49.0 51.2 63.9 51.4 52.4 62.4 
Other business services 224.5 195.1 178.2 171.0 171.2 130.4 
Personal, cultural and recreational services 0.1 0.1 0.1 0.1 0.1 0.1 
Government services, n.i.e. 13.0 13.5 13.4 14.1 14.4 2.9 
Source : Central Bank of Costa Rica. 
(iii) Foreign investment 
33. Costa Rica is a net recipient of foreign direct investment (FDI).  The stock of FDI in Costa 
Rica rose by 70 per cent from 2001 to 2005, during wh ich period annual FDI flows to the country 
averaged around US$670 million (Table I.7) .  FDI for 2006 has been estimated at 
US$1,410.8 million.23  Free zones have helped to attract FDI;   FDI in such zones represented 48.8 per 
                                                      
23 Inter-Agency Group on Foreign Direct Investment ( Grupo Interinstitucional de Inversión Extranjera 
Directa ) (BCCR, Costa Rican Coalition for Development Initiatives ( Coalición Costarricense de Iniciativas de 
Desarrollo  – CINDE), Foreign Trade Promotion Agency ( Promotora del Comercio Exterior de Costa Rica  – WT/TPR/S/180/Rev.1 Trade Policy Review 
Page 12 
 
 
cent of the total in the period 2001-2005.  Accord ing to the Costa Rican authorities, factors which 
have helped to attract FDI include political stability, workforce quality and the degree of 
liberalization.24  FDI in foreign companies (unrelated to  free zones or the inward processing regime) 
established in Costa Rica represented 33.8 per cent of  the total in the same period.  Real estate 
investments (not included in Table I.7) totalled US$224.5 million in 2005 and were exceeded only by 
investment in free zones. 
Table I.7 
Foreign investment position, 2001-2005 
(US$ million) 
 2001 2002 2003 2004 2005
Direct investment in Costa Rica 3,184.7 3,742.1 4,261.9 4,632.1 5,416.9
Direct investment abroad 95.8 127.4 152.4 196.9 153.6
Portfolio investment in Costa Rica 844.4 921.8 863.6 632.7 968.9
Portfolio investment abroad 142.5 131.1 222.7 169.5 850.2
Source : Central Bank of Costa Rica. 
34. The manufacturing sector (in particular the electronic and pharmaceutical industries) is the 
main recipient of FDI, to the tune of 65.1 per cent of FDI in 2004 and 57.0 per cent in 2005.25  
US microprocessor manufacturer Intel continues to be  a major foreign investor.  In the period under 
review, the tourism sector has been the second bigg est FDI recipient almost every year.  Other FDI 
recipient sectors include other types of services, agribusiness, agriculture and the financial sector. 
35. The US continues to be the main country of orig in of FDI;  other countries of origin vary on 
an annual basis.  Investment has been channelled mainly into the manufacturing sector, but also into 
the areas of commerce, tourism and other services. 
(4) OUTLOOK  
36. The expected rate of increase of real GDP for 2006  is 8.0 per cent.  According to the Ministry 
of Finance, the pace of economic growth is expect ed to slacken in 2007, resulting in a 4.5 per cent 
increase in real GDP.  Factors expected to continue  fostering growth are external demand and foreign 
investment, coupled with a subsequent expansion of  bank credit.  Marginally slower growth between 
2006 and 2007 would mainly be attributable to lo wer-than-expected growth in the electronic goods 
sector, but also to tighter fiscal policy.  The exp ected inflation rate for 2007 is 10 per cent, very 
similar to the 2006 figure (9.4 per cent). 
37. According to the IMF, the high level of public debt, inflation and financial sector 
vulnerability continue to pose significant challenges.26  The Costa Rican economy also remains 
vulnerable to external factors, in par ticular changes in US economic activity. 
                                                                                                                                                                     
PROCOMER), Costa Rican Institute of Tourism ( Instituto Costarricense de Turismo  - ICT) and Ministry of 
Foreign Trade ( Ministerio de Comercio Exterior  – COMEX)) (2006). 
24 Inter-Agency Group on Foreign Direct Investment (BCCR, CINDE, PROCOMER, ICT and 
COMEX) (2006). 
25 Inter-Agency Group on Foreign Direct Investment (BCCR, CINDE, PROCOMER, ICT and 
COMEX) (2006). 
26 IMF (2006).