Country Report Costa Rica September 2009

Outlook for 2009-10

• Laura Chinchilla, the candidate of the ruling Partido Liberacion Nacional (PLN), is set to win the February 2010 presidential election, given the popularity of her party and a divided opposition.
• In line with the popular administration of the current president, Oscar Arias, Ms? Chinchilla will offer political and economic stability.
• Economic policy will centre on the Plan Escudo, an ambitious emergency economic stimulus and social protection plan. Social spending will focus in education, healthcare and pensions.
• The fiscal balance will deteriorate in the outlook period, as the government increases spending. The fiscal deficit will reach 3.8% in 2009 and 4.9% in 2010, despite a stabilisation of fiscal revenue next year.
• The economy, which is reliant on export-oriented manufacturing, will contract by 3.8% in 2009, but will grow by 3.6% in 2010, helped by the Plan Escudo and a modest recovery of export demand.
• Inflation levels will remain higher in Costa Rica than in other countries in the region, averaging 8.3% in 2009 and 7.5% in 2010.
• The current-account deficit will contract in 2009 by 2.3% of GDP, reflecting a sharper fall in imports than exports. Higher oil prices and an increase in imports will widen the deficit in 2010 to 4.1% of GDP.

Monthly review

• After failing to form a coalition for the 2010 elections, left and centre-left parties have decided to run with presidential candidates of their own, further improving the prospects of victory for Ms? Chinchilla.
• Trade negotiations with the EU have come to a halt, despite the efforts of the Arias administration to continue the talks without Honduras.
• The government has submitted the 2010 general budget along with a special budget bill to cover the 2009 fiscal deficit. The government is seeking to increase social spending by contracting new debt.
• Economic relations with China have deepened, with negotiations on a free-trade agreement progressing and a US$1bn investment project with a Chinese oil company concluded.
• Inflation increased by just 0.7% in August, reflecting lower food prices and stable transport costs. However, inflation is set to increase slightly, as higher oil prices drive up transport costs.

This report covers the following industry codes:
SIC Code: 49;60;10
NAICS Code: 22;52;212