ERM129 ~~~~~~~~~~~~~~~~;,FIU C,Y INTERNATIONAL BANK FOR RECONSTRUCTION AND IEfl . 4M Public Disclosure Authorized I * -.. Public Disclosure Authorized REPORT ON THE ECONOMY OF COSTA IEI CA 1:t Tl.~'. JI ^ |!;; ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.~ ~. ,. .i . -'4'^ Public Disclosure Authorized k'~~. v~~~~~~~~~~~ k. ~ ~ ~ Public Disclosure Authorized [S, ~ K L Economic Department J d , b t, Wo htr Al TABLE OF CONTENTS _LPae Paragraph FORE WARD SUM4MARY 1. ., I. GENERAL ........... .......... ! ... .... 1 16 (A) Geography ............ ,, 1 16 (B) Population ,.,., 2 21 (C) Standards of Living .......... '.'.,.?.* 3 25 (D) Recent Political History .................. 5 31 II. AGRICULTURAL PRODUCTION .............. ,836 (A) Export Crops ., ............. 8 39 (B) Production for Domestic Consumption .... 16 61 III, INDUSTRIAL RESOURCES, TRANSPORTATION AND INDUSTRY .20 72 (A) Mining ................. ,..................*20 72 (B) Transportation ... ............... *..... 20 74 (C) Industry .............. .. .. 21 77 IV, DOMESTIC FINANCE ............... 26 87 (A) Budget ........... 26 87 (B) Tax System .... ......... 30 96 (C) Public Debt ................ 31 99 (D) Money and Credit ............. 34 105 (E) Prices and Wages ......... 39 115 V. INTENTATIONAL TRADE AND FINANCE ................. 41 120 (A) Foreign Trade ...... 41 120 (B) Balance of Payments ............... 43 127 VI, DEVELCPMENT POLICY AND PRACTIr(E .............. 50 140 STATISTICAL APPENDIX Table I - Government Receipts and Expenditures Table II t Gold and Foreign Assets Table III I mrnports and Exports Table IV - Imports Since 1940 Table V - Selected Imports in 1946 Table VI - Exports Since 1940 Table VII - Exports in 1947 Table VIII - Terms of Trade Table IX - Balance of Payments MAPS REPUBLIC OF COSTA RICA BASIC STATISTICS Area 19,238 square miles Population (1947) 810,000 Currency: Unit colon (sign ¢ Exchange rates: Controlled 5.67 colones = US `1 Uncontrolled 7.00 colones z US 1 Trade Statistics (1947) Imports (less Compania Bananera) ,'37.4 million Exports ;23.O million Deficit 5)14,4 million Balance of Payments: Official Our Estimate Estimate 19)47 f it.3 million -Jl117ni7lliorn 1948 1lf3 million $ 10.0 rillion National Income in 1947 (estimated) 'Al)4 million Budget in 1948: Official Expenditures $20.1 million Deficit v 1.3 million Our estimate E-xenditures ,20.1 million Deficit ' 5.lmillion Public Debt Internal /141.8 m.illion(925.2 m-llion External 22.1 million Defaulted 18.8 riillion Prices (wholesale and cost of living indexes) 1936 100 1948 (i.ugust) 229 Exchange Reserves End of 19)43 1Si6.2 million End of 1947 7.7 million End of Septemiber 19)48 3.0 million FOREWORD The report on the Costa Rican economy which follows was based on information available on November 19, 1948. There has been no material change in the basic situation since then which would affect the conclusions contained in the report. Somewhat unexpectedly, after Costa Rica had ratified the Rio de Janeiro peace pact and announced the dissolution of its army, Costa Rican territory was invaded in December by a small force under the leadership of the exiled former President, Calderon Guardia, with the announced intention of overthrowing the Junta. Amid charges that General Somoza of Nicaragua was lending material aid to the invaders, the Organization of American States took prompt and effective action to check the conflict. The matter seems officially closed with the signing of a friendship pact by representatives of Nicaragua and Costa Rica on February 21, 1949. President-elect Ulate, who joined the Junta during the period of the emergency, has now withdrawn from the Government. Some events which were impending at the time the report wap written, and which are mentioned as such, have since taken place. The election of the Constituent Assembly was held on December 8th, 1948, and 35 of the 45 members elected are supporters of President-elect Ulate. The Assembly has approved Ulate's election to the Presidency and extended the rule of the Junta to May 8, 1950. These actions were expected. The contract with the United Fruit Company, retroactive to January 1, 1948, was signed by the Junta oni the 27th of December 1948 and, in consequence, the Government will receive from the Company additional revenues in foreign exchange for 1948, estimated at US$1.25 million. If, as is probable, the Constituent Assembly ratifies the agreement with the Pruit Comraryy it is scheduled to remain in force for 40 years; otherwise, it is to have a life of only one year. In November and December 1948, Costa Rica purchased $1.25 million from the International Monetary Fund with the understanding that the total, would be repaid in full within one year. The drawings on the Fund, as well as seasonal receipts from exports, have increased foreign exchange reserves from $5.8 million at the end of September, 1948 to 1`8.6 million at the end of December 1948. A credit of $1.5 million with the Federal Reserve Bank of New York,, which would require an equivalent amount of Costa Rican gold to be pledged against drawings, remains unused. During 1948, the backlog of foreign exchange applications declined by 88.4 million, only $0.3 million less than estimated in the report. Reflecting higher foreian exchange receipts, both currency in circulation nnd deposits advanced from $177 million ($31.5 million) in Jvly 1948 to $201 million ($35.3 million), the major rise taking place in December. The budgetary deficit for 19°48 had been estimated by the Govern- ment at $7.2 million ($1.3 miiT3i-n) and in the report at /29 million (W.I million). It now appears that the deficit may exceed the estimate in the report by a considerable amount as a result of heavy military expendi- 9 tures during the recent invasion (estimated at well over $5 million or $0,9 million) and drastically reduced estimates of receipts from the 10% capital levy (¢5 million as against original government estimates of $32 million and an estimate of no more than $10 million in the report). Even the $5 million in receipts now expected may be high if a radio report proves correct that Costa Rican courts have invalidated the levy on the ground that it was imposed by a de facto government and could be rescinded by subsequent constitutional governments. Preliminary information indicates that the 1949 budget will amount to $110 million ($19.3 million) compared to $113 million ($20.1 million) in 1948. A "special budget" of $107 million (M8.8 million) is also being -3- established for the purpose of refunding approximately 84% of the internal debt, Qn December 30th, a series of Decree-Laws provided for the establish- ment of a National Banking System to include the National Bank and the commer- cial banks nationalized last year. Stock holders of the former private banks will be reimbursed through a new issue of "17% bonds of the National Banking System". March 3, 1949 Albert Waterston ;1 \tsNI E I17A 41~~~~ P AC~~~~ I C A R AX\G U A ~~~SE 3agricultural O N<zC~~~~~~~~~~~~production E A SatCErAzNGudpiles Mapof ost Ria sowig pincpalares o agricultural production.~~~~~~urre Map~~~~of Costa Ric shoin prinia ara of SMUIi y 1. Costa Rica differs from most other Central American countries in its fertile soils, oredominantly white nopulatiorn, and high literac7 rste. On the basis of national income estimates as well as imports, on which much of its standard of living is predicated, Costa Rica has a higher level of living than most of its neighbors. Great disrarities exist betV.een the unoer and low!er strata, however, and most of tile pi1at'en outside the banana nlantations subsist on substandard levels. 2. Since I:ay 8, 1948, tie country has been governed by a revolutionary Junta 'which overthrew the Previous rerime when it invalidated the election of a President ou,osed to the Administration. The Junta is to -overn a maximum period of two years from iay 8, 1948, Qter whih tIhe Pr 9i srt-elect4 is to assume offlee, The provistonel charstqr tf th- J*nte an4 unsettlIrd relations with Nicarmgua have baeer responsible tor a oertain 1mount of political unoertaisty, 3. Costa Rica is a nredominantly agricultural country, Uevertheless, * only 15 per cent of the country's land is utilized for crops and livestock, the remainder being 4n forests, inaccessible or situated in the less attractive lowlands. Coffee is the major exnort and determines the pros- perity of the coumtry. Unlike bananas, which are grown for the most nart by one large foreign comnany, coffee is nroduced by a*consideraole number of indenendent farmers, nost of -hom are Costa I,icans, 4. Bananas, grown almost exclusively by the Cornania Eananera, the United Fruit Comrary subsidiary in ^,osta Rica, constitute the second most important export. The Panama disease has made bananas a transitory crop, and substitute plants have had to be found as thae land became useless for banana cultivation. Among the nlants -hich sho,' donsiderable nromise are cacao, Costa Rica's third most imnortant export, African palm oil and abaca. Timber, the fifth export, is potentially more important since Costa Ricats forests, artiong the best in the world, are largely untouched. 5. The production of sugarcane and its conversion into slbstandard sugar, mostly for doLrestic conswaption, constitute laedizg Acttvittos a Costa Rica. Increasin- domestic production has resulted in a decline of cheese and butter imports, but imports of milk and milk products remain hi,gh due to the lack of refrigeration, seasonal shortages, and inadeouate pasteuriza- tion facilities. The number of hots is inadequate due to the lack of cheap concentrate feeds and unsatisfactory production methods. As a consequence, the price of pork is higher than that of beef and lard imports are twice as great as domestic production. 6. ihining of minerals and -letals has never been important and is of diminishing sig;nificance.