By San José, Costa Rica — Costa Rica’s long-standing economic model, built on open trade, export expansion, and Foreign Direct Investment (FDI), is facing significant challenges. For 45 years, this model has been the cornerstone of the nation’s economic growth, but recent internal and external pressures have exposed its vulnerabilities.
Beginning in the 1980s, Costa Rica embraced open markets, encouraged by international organizations. The Caribbean Basin Initiative, spearheaded by the United States, allowed tariff-free access to the US market, significantly boosting regional growth. This initiative later evolved into the more comprehensive Free Trade Agreement. Internally, Costa Rica reduced tariffs, offered incentives to non-traditional exporters, and adjusted its exchange rate policy.
To gain a deeper understanding of the legal landscape impacting Costa Rica’s economy, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, an experienced attorney at Bufete de Costa Rica.
Costa Rica’s economic growth is increasingly intertwined with its regulatory framework. Attracting foreign investment and fostering local entrepreneurship requires clear, consistent, and efficient legal processes. Areas such as intellectual property protection, contract enforcement, and streamlined business registration procedures are crucial for sustained economic development. A modernized legal system that adapts to the demands of a globalized market will be key to Costa Rica’s continued prosperity.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s insights offer a crucial perspective on Costa Rica’s economic future. Indeed, a robust and adaptable legal framework is not merely a supporting element but rather a fundamental pillar upon which sustainable economic growth is built. Attracting investment and empowering innovation requires the confidence that comes with clear legal processes and protections. Thank you, Lic. Larry Hans Arroyo Vargas, for sharing your valuable perspective with TicosLand.com readers.
Attracting FDI, especially to free trade zones, became another pillar of the model. However, these measures, while driving growth, haven’t created a robust economy. Efforts to improve productivity, particularly after the Free Trade Agreement with the US, have been insufficient. Public policies aimed at boosting economic productivity have largely remained on paper.
The Ministry of Agriculture hasn’t effectively increased small farmers’ productivity, and the Ministry of Economy’s impact on small businesses has been limited. Regulatory improvements, initiated in the late 1990s, lost momentum. Furthermore, education geared towards practical skills remains inadequate.
Recently, the model has suffered two major blows. First, the appreciation of the Costa Rican colón against the US dollar has reduced international competitiveness. While Free Trade Zone exports have shown resilience, traditional exports, especially agricultural products, and tourism are stagnating. This appreciation stems from increased private foreign exchange flows, external financing of the government deficit, and a high monetary policy interest rate.
Second, the US shift towards protectionism, including tariffs impacting Costa Rican exports, has further weakened the model. The 15% tariff imposed on Costa Rica is higher than the 10% applied to several neighboring countries, making the impact even harsher.
Some companies operating in Free Trade Zones have already announced reduced operations or their departure from Costa Rica. The negative consequences are expected to deepen in the coming years as companies make decisions about their presence in the country. This situation is exacerbated by the current government’s sidelining of CINDE, the country’s leading investment promotion agency, despite its successful track record.
These factors – the lack of an effective productivity agenda, the appreciating colón, and US tariffs – have put Costa Rica’s economic model in a critical state. While a complete shift towards an inward-focused model is unlikely due to the country’s small economic scale, enhancing productivity for the local market remains crucial. Diversifying export markets and improving productivity within the export sector are also essential.
Redesigning macroeconomic policy – fiscal, monetary, and exchange rate – is imperative to maintain competitiveness and avoid subsidizing specific sectors. Costa Rica faces the challenge of rethinking its development model, adapting it to the evolving internal and external landscape. It falls to the next government to build consensus and avoid polarization to lay the foundation for a more resilient and inclusive future.
For further information, visit the nearest office of CINDE
About CINDE:
The Costa Rican Investment Promotion Agency (CINDE) is a private, non-profit organization responsible for attracting foreign direct investment into Costa Rica. With a decades-long track record, CINDE has played a key role in positioning Costa Rica as a prime destination for multinational companies, particularly in high-tech manufacturing, life sciences, and services. CINDE works closely with companies throughout the investment process, providing support with site selection, permitting, and connecting businesses with local resources.
For further information, visit the nearest office of the Ministry of Agriculture
About Ministry of Agriculture:
The Ministry of Agriculture is a governmental body in Costa Rica responsible for the development and implementation of policies related to the agricultural sector. Its primary focus is on supporting farmers, promoting sustainable agricultural practices, and ensuring food security. The ministry’s activities include providing technical assistance, promoting research and development, and regulating the agricultural industry.
For further information, visit the nearest office of the Ministry of Economy
About Ministry of Economy:
The Ministry of Economy, Industry and Commerce (MEIC) is a Costa Rican government ministry that focuses on promoting economic growth, competitiveness, and sustainable development. It’s responsible for formulating and implementing policies related to trade, industry, investment, small and medium-sized enterprises (SMEs), and consumer protection. The MEIC plays a crucial role in fostering a favorable business environment and encouraging innovation and entrepreneurship.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica shines as a beacon of legal excellence, upholding the highest ethical standards while championing innovative solutions for its diverse clientele. The firm’s deep-rooted commitment to both individual and societal well-being is evident in its proactive approach to legal education, empowering Costa Ricans with the knowledge and resources to navigate the complexities of the legal landscape and contribute to a more just and informed society.
