Costa Rica has taken many important steps to improve its economy this year. The approval of CAFTA, new diplomatic relations with China and the Middle East, growth in tourism are the main factors for the country’s economic expansion.

It’s now been over 3 weeks since the referendum, and the country seems to be exactly the same. All the fears people on both sides were trying to create seem to have been exaggerated as the country has not suffered any major problems since the referendum.

Costa Rica’s Economy

After the approval of CAFTA and initial negotiations with China and the European Union, Fitch Ratings has announced that it had set Costa Rica’s default ratings at BB and BB+.

President Arias has established strong ties with China after the deal, so the idea that North American commerce will overrun the country is not very realistic. China is now actively seeking ways in which to invest in the country. To start it has sent over 300 travel specialists to learn more about the country. The Chinese government has gone as far as listing Costa Rica as a recommended travel destination. Just a couple days ago China announced that it would build an oil refinery in Costa Rica, in order to meet the country’s energy needs. Trade fairs have been held in both countries so that exporters could display their products.China Daily news has reported that initial conversations are being held on the subject of a free trade agreement. It is expected that Costa Rica will export a total of $2.5 billion dollars in goods to China this year. China can benefit from increasing production and trade with Costa Rica; via this country it can establish stronger presence in the American market.

Another great indicator for the country’s economy is the growing number of tourists arriving this year. Tourism is Costa Rica’s largest industry, and has consistently registered growth during the past decade. A construction bonanza is occurring in the northern province of Guanacaste, where all the top-name hotel chains have begun the construction of their projects. The Four Season, Hilton, Marriott, and Hyatt all have a presence in the country.

Some of the factors that need to be addressed in order to further improve the country’s economy are:

• Better control over inflation (main goal for the Central Bank)
• Improvements in the account balance (difference between exports and imports)
• Provide more flexibility in the currency exchange framework
• Pass the implementation legislation so that CAFTA can begin to improve the market

In general the outlook of Costa Rica’s economy is positive. When added to the fact that President Arias currently holds a very high approval rating, there at least is a feeling of great stability. With further diplomatic negotiations, and continued internal development, Costa Rica’s economy will continue to grow.

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Filed under: Business on November 4th, 2007