COSTA RICA'S ECONOMY ON THE RISE

A firm resolve by the recently elected Arias government to preserve the long- standing democratic process in Costa Rica is a top priority for a nation squeezed between a restive Nicaragua to the north and uncertain Panama to the south.

Costa Rica lately has not felt the pinch due to a resurgence in economic strength in recent years.That is not to say, however, this country has not experienced economic difficulties in the past. Near financial collapse in the early 1980s forced a series currency devaluations and debt reorganization.

The booming economy went bust with declining coffee prices, soaring oil prices and an overvalued exchange rate (promoting unrestricted black market shadow rates). Economic activity had grind virtually to a halt by 1981. Massive capital flight exacerbated the crisis.

Fearing this last bastion of democracy could fall prey to communist influence, the United States government launched an aid rescue package designed to shore up the colon and stabilize the balance of payments.

By 1982, the first injection of $200 million in fresh funds by the U.S. Agency for International Development induced a wave of monetary and fiscal reforms.

My trip to San Jose several weeks ago provided evidence that Draconian economic measures, waged in those dark days of 1981-1982 when the global debt crisis was exploding, has paid off.

The first problem consisted of dollar-denominated debt being repaid in soft currency - the monetary authorities passed a statute prohibiting this conversion so dollars (or other hard currency debt) had to be repaid in same.

Secondly, new export incentives had to be created. The sluggish economy, over-reliant upon exports of traditional products like bananas, cocoa, coffee and beef, had to revitalize light industry. Tax holidays for the foreign investor were extended, coupled with Caribbean Basin Initiative designate provisions, Costa Rican producers chose to capitalize on their assets.

Third, the Foreign Trade Zone law passed in late 1979 was amended to lift restrictions on authorization of new zones throughout the country. Our expedition to the brand-new Cartago zone outside the capital city of San Jose demonstrated the success of this privately managed industrial park. In one year, 30 European, Far Eastern, U.S. and even Costa Rican companies have signed contracts for office space, warehousing and assembly plants. Zone management officials predict by end 1987, industrial park space will be 80 percent occupied and plans for space expansion under consideration.

Legal incentives aside, trade credits and insurance guarantees instituted with the assistance of USAID has buoyed investor confidence. Local businesses are able to purchase a modicum of foreign exchange through the Central Bank to import raw materials, although the process is still a lengthy one.

According to members of the Arias administration, the export base of the country still needs to be broadened. The trend will continue if more co- ventures are consummated within both agro-industrial and light manufacturing sectors of the economy.

The dynamic, young Foreign Trade Minister, Mrs. Muny Figueras, admits the government of Costa Rica must streamline export promotion activities and wage an information campaign to U.S. producers about the nation's potential.

According to Randy Innis, vice-president of International Commercial Services, Ltd., a company brokering joint-ventures and negotiating license agreements with Costa Rican counterparts, There are many small and medium size businesses that could benefit from co-ventures with Costa Rican counterparts given idle capacity in the economy and capable work force.

The legacy of the private initiative directive of the U.S. government is too much bureaucracy - a fact of which government officials are aware. By the end of this year, export promotion within the Ministry of Trade will be centralized. The two active promotion groups - a government-spo nsored Investment Promotion Center (CENPRO) and a private USAID-funded Coalition of Development Initiatives (CINDE) complement each other.

The performance of both institutions has fostered more foreign investment and local industrial output. The largest private bank, COFISA, operating in the black for the first time in four years, has created a new project development division and refinances troubled industries.

Is this too good to be true - not quite. There is still a long way to go on the frontierof economic development, including resolution of the critical external debt crisis.

The most important objective, however, is to build up a solid track record after the precarious financial years half a decade ago.

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