Costa Rica has an open, export-orientated market economy. Traditional export goods such as coffee and bananas are of less significance. However, Costa Rica has succeeded in attracting numerous foreign investors, particularly from the USA, and thus in diversifying its range of exports. Agreement has now been reached on the text of a free trade agreement with the USA, which is particularly significant in view of the fact that Costa Rica depends heavily on the US market.
The Costa Rican economy developed relatively well in 2003 with a growth rate of just over 5% of GDP. However, this development is generated above all by exports, for which conditions are favourable due to the weak dollar and the recovery of the American economy. Exports rose by 16% and imports by 6% in 2003. The national debt remains high: the budget deficit in 2003 was 4.1% (compared with 5.7% in 2002). Comprehensive tax reforms to remedy the situation are currently being discussed in parliament.
Costa Rica's monetary policy is stable. Competitiveness is guaranteed by daily, marginal devaluations. The inflation rate for 2003 was just under 10%.
This investment-friendly climate and government policy of making Costa Rica "the Silicon Valley of Latin America" has enticed commercial leaders such as Acer, Microsoft, GE, Abbot Laboratories, Continental Airways and Intel Corporation to make sizable investments here, both financially and physically, with major production and distribution facilities. Western Union has chosen Costa Rica to host its Latin American regional operations center. In 1998, for the first time ever, Costa Rica is poised to earn more from high technology exports than from coffee or bananas or even its lucrative, thriving tourism industry.
The World Bank has given Costa Rica an excellent bill of overall political and economic health. At its annual conference in El Salvador this year, the bank lauded the country as possessing "one of the most stable and robust" democracies in Latin America. It went on to praise the Costa Rica's "healthy economic growth rate" and "some of the best social indicators" on the continent.
Costa Rica is building a competitive advantage for itself and the many high-tech companies who have chosen or are pondering the option to operate here. It is a country at a turning point in integrating itself into the modern world economy. Those doing business here will have the inside track.
Panama
The US dollar has been Panama’s currency since 1904, although it is called the Balboa for nationalistic reasons. As a consequence, fiscal policy is the government principal macroeconomic policy instrument. Because Panama does not have a central bank to print its own currency, government spending and investment is strictly bound by tax and non-tax revenues and the government’s ability to borrow. Thus, creditworthiness is linked directly to public finances.
The disadvantage of not having an independent monetary or exchange-rate is not a serious problem for an economy the size of Panama. The advantages more than outweighed the inconveniences. Moreover, in an era of dollarization of other economies, one could say that Panama was the pioneer.
Panama uses the U.S. dollar as its legal tender, virtually eliminating any currency exchange risks to foreign companies operating here. The country has maintained an annual inflation rate of under two percent for the last 40 years, and just 1.1 percent in 2001 – one of the lowest in years. Panama's economy has become one of the healthiest in Latin America, in spite of the Latin American economic crises. Panama has no restrictions on the outflow of capital or outward direct investment.
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