Country Report Costa Rica

Outlook for 2008-09

• The government will focus on passing the laws required to bring the Dominican Republic-Central American Free-Trade Agreement (DR-CAFTA) into effect and is confident this can be done well before the October deadline.
• Negotiations will continue with other Central American countries to form a Central American customs union, which will then seek a free-trade agreement (FTA) with the EU. Talks with the EU have already started.
• A long-awaited fiscal reform will be a priority in the second half of 2008 and although the Economist Intelligence Unit expects it to be passed, there is a significant risk that it will be further delayed, or will be diluted.
• We are now assuming that the US recovery in 2009 will be slower than previously forecast, leading us to make a downward revision to our growth forecast for 2009: the US typically accounts for 35-40% of Costa Rican exports.
• The government will focus on passing the laws required to bring the Dominican Republic-Central American Free-Trade Agreement (DR-CAFTA) into effect and is confident this can be done well before the October deadline.
• Negotiations will continue with other Central American countries to form a Central American customs union, which will then seek a free-trade agreement (FTA) with the EU. Talks with the EU have already started.
• A long-awaited fiscal reform will be a priority in the second half of 2008 and although the Economist Intelligence Unit expects it to be passed, there is a significant risk that it will be further delayed, or will be diluted.
• We are now assuming that the US recovery in 2009 will be slower than previously forecast, leading us to make a downward revision to our growth forecast for 2009: the US typically accounts for 35-40% of Costa Rican exports.

Monthly review

• A national security crisis that arose in March has begun to calm down, although analysis of the situation is continuing and the government is considering establishing an extradition treaty with Colombia.
• More progress has been made with the DR-CAFTA implementation laws and the government is confident that they can be passed by July.
• Early implementation would allow the DR-CAFTA treaty to come into effect before trade preferences under the Caribbean Basin Initiative expire in October.
• Talks with the EU are moving slowly, with little progress on issues of concern over trade and politics.
• The monetary authorities are continuing to monitor inflation which, as in most countries in the region, has risen this year, largely because of high international fuel and soft commodity prices.
• The system of exchange-rate bands that the Central Bank uses is encouraging inflows of speculative capital, complicating policy.
• Trade statistics suggest that the US slowdown had little effect on export earnings in early 2008, but a fall in imports of industrial inputs indicates that orders for re-export products have started to fall away.
• A national security crisis that arose in March has begun to calm down, although analysis of the situation is continuing and the government is considering establishing an extradition treaty with Colombia.
• More progress has been made with the DR-CAFTA implementation laws and the government is confident that they can be passed by July.
• Early implementation would allow the DR-CAFTA treaty to come into effect before trade preferences under the Caribbean Basin Initiative expire in October.
• Talks with the EU are moving slowly, with little progress on issues of concern over trade and politics.
• The monetary authorities are continuing to monitor inflation which, as in most countries in the region, has risen this year, largely because of high international fuel and soft commodity prices.
• The system of exchange-rate bands that the Central Bank uses is encouraging inflows of speculative capital, complicating policy.
• Trade statistics suggest that the US slowdown had little effect on export earnings in early 2008, but a fall in imports of industrial inputs indicates that orders for re-export products have started to fall away.

SOURCE: Country Report