Costa Rica Economy May Slow to Standstill on Crisis, Arias Says
Costa Rica’s economy may slow to a standstill this year as foreign direct investment drops “severely” and demand for the Central American country’s exports wanes, President Oscar Arias said.
“The rate of growth this year is going to be between zero and one percent,” Arias said in an interview in his office in San Jose yesterday. That’s less than half the central bank’s forecast for growth of 2.2 percent in the $30 billion economy.
As part of a recovery plan announced last month, Arias said the government will seek to borrow more from international lenders, raise pensions by 15 percent and build schools and roads to create jobs. The government may also inject more capital into state-owned banks to ease access to credit, he said.
Arias, 68, is mid-way through his second four-year term as president, following an earlier mandate in 1986-1990, when he won a Nobel Peace Prize. This time, he staked his presidency on the passage of trade accords, including an agreement between the U.S. and Central America called DR-CAFTA.
Costa Rica’s economy may expand less than the forecast rate of 2.2 percent this year, down from an estimated 2.9 percent in 2008, central bank chief Francisco de Paula Gutierrez said on Feb. 5. Economic activity fell by 3.1 percent in December from the year-ago month, the third straight decline, bank figures show.
Intel Exports
“Output is definitely growing at a slower rate, and though I don’t know if we are there yet or on our way there, Costa Rica will have a recession,” Francisco Antonio Pacheco, president of the legislative assembly, said in an interview yesterday.
Exports from Intel Corp.’s Costa Rican unit fell 32 percent to $485 million in the fourth quarter from the year-ago period, company figures show. Exports will likely drop through the first quarter of this year, San Jose-based spokeswoman Karla Blanco said in an interview. The plant accounts for about a fifth of Costa Rica’s exports.
Arias said foreign direct investment this year “will come down severely,” dropping as much as 40 percent. He said the government isn’t considering tax cuts and may inject more capital into state-owned banks.
“Fortunately, our banking system is okay. We don’t have a financial crisis here,” he said. “We don’t have to go through that long and sad process of socializing losses and privatizing profit as most countries in the industrialized world” have had to do, he said.
Protectionist Measures
Arias called on the developed world to combat protectionist measures bad credit unsecured personal loans. Officials from countries including Canada expressed concern after the U.S. Congress inserted a “buy American” requirement into a $787 billion economic stimulus bill. The provision was modified in the final legislation.
“The industrialized countries need to know that poor countries have a dilemma, have one single choice, either to export goods and services or to export people,” Arias said. “Poverty needs no passport to travel. They are not going to stop immigration, undocumented immigration, illegal immigration, by building walls.”
Arias won the Nobel Peace Prize for uniting Central American leaders behind a plan in 1987 to bring an end to the region’s civil wars.
Costa Rican voters in October 2007 gave their approval for a free-trade agreement with the U.S. A rejection of the accord would have marked the first time a free-trade deal with the U.S. was refused by any country.
The central bank’s Gutierrez told reporters in San Jose this month that U.S. and other export markets are deteriorating faster than expected.
Trade Accords
Costa Rica’s exports dropped 19 percent in January from the year-ago month, according to the trade ministry. Exports to the U.S., Costa Rica’s largest trading partner, were down 17.6 percent during that time, the ministry said.
Costa Rican Trade Minister Marco Vinicio Ruiz yesterday said the government is seeking trade accords with China, Singapore and the European Union as part of a strategy to diversify markets and lessen the effects of the financial crisis.
“During this crisis, we’ve shown that we have a very diversified economy,” Ruiz said in an interview in San Jose. “A key part of our strategy is to have more relations with Asia.”
Negotiations with Europe may be completed “before July,” Ruiz, 55, said. The accord would then go to Congress for approval. Agreements with China and Singapore are in the early stages and may also be completed before the government leaves office in May 2010, Ruiz said.
About 64 percent of exports from Costa Rica, a nation of 4.3 million people, are to countries other than the U.S., up from the early 1980s when 99 percent of exports were to the world’s biggest economy, Ruiz said.
Ruiz said the government’s “goal” is to have 94 percent of Costa Rica’s trade protected by accords, up from 25 percent at the start of the government’s four-year mandate.