June 11, 2018
Costa Rica: An Overview
Costa Rica, a Central American nation of 4.9 million
period, the Costa Rican government increased public-sector
people, historically has been an outpost of political and
employment, established one of the most comprehensive
economic stability in an often turbulent region. The United
social safety nets in Latin America, and supported local
States has worked closely with the country to address
producers with subsidies and trade barriers. Those policies
challenges in Central America and to advance shared
contributed to a rapid expansion of the economy; however,
values, such as democracy and human rights, worldwide.
a deep recession from 1980 to 1982 led Costa Rica to adopt
a new economic strategy. The country privatized the
Political Situation
majority of its state-owned enterprises, adopted free-trade
Costa Rica has sustained continuous civilian democratic
zones to attract investment, and gradually opened the
governance since 1949, when the country adopted a new
domestic market to foreign competition.
constitution in the aftermath of a short but violent civil war.
Postwar politics were dominated by the center-left (now
Figure 1. Costa Rica at a Glance
centrist) National Liberation Party (PLN) and a center-right
opposition that ultimately became the Social Christian
Unity Party (PUSC). The two-party system has collapsed
over the past 20 years, however, as many Costa Ricans have
grown disenchanted with the country’s political class and
have abandoned the traditional parties. This shift has
allowed newer political forces to contest power, such as the
center-left Citizens’ Action Party (PAC), which has won
the past two presidential elections. It also has made
governance more challenging, as party fragmentation in the
Legislative Assembly has led to increased gridlock.
Carlos Alvarado of the ruling PAC was elected president
with nearly 61% of the vote in a second-round runoff
election on April 1, 2018. He defeated Fabricio Alvarado of

the conservative National Restoration Party (PRN), who
Sources: CRS Graphics, Instituto Nacional de Estadística y Censos;
had surged to a first place finish in the first-round election
Centro de Investigación y Estudios Políticos; International Monetary
after he called for Costa Rica to withdraw from the Inter-
Fund; Global Trade Atlas.
American Court of Human Rights in response to the court’s
advisory opinion that Costa Rica should legalize same-sex
Costa Rica has experienced considerable growth since
marriage. President Alvarado is a 38-year-old author who
adopting the more outward-oriented economic strategy, but
previously served as Minister of Human Development and
many Costa Ricans are dissatisfied with the economy. The
Social Inclusion and as Minister of Labor and Social
country’s labor market has grown increasingly divided
Security under President Luis Guillermo Solís (2014-2018).
between those involved in newer sectors—such as high-
Solís was constitutionally ineligible to seek reelection.
tech manufacturing, tourism, and business services—that
provide higher pay and rising wages and those involved in
Following his May 8, 2018, inauguration to a four-year
more traditional sectors that struggle to compete with
term, President Alvarado pledged to strengthen the
imports and provide lower pay and more precarious
education and health systems, improve citizen security,
employment conditions. Government statistics indicate that
invest in infrastructure, generate increased employment,
about 10% of Costa Ricans are unemployed and nearly 45%
reduce the fiscal deficit, and foster a transition to clean
lack job protections and benefits because they work in the
energy. Alvarado also appointed a multiparty Cabinet that
untaxed and unregulated informal sector. Moreover, 20% of
includes several PUSC and PLN ministers, recognizing that
Costa Rican households live below the poverty line. Costa
he will need to forge broad coalitions to pass his policy
Rica’s extensive social welfare expenditures—equivalent to
agenda. The PAC holds 10 of 57 seats in the unicameral
23% of gross domestic product (GDP)—have helped
Legislative Assembly; the PLN holds 17 seats, the PRN
alleviate these challenges, but higher levels of
holds 14, and the PUSC holds 9. The remaining seven seats
unemployment and informality have eroded the tax base
are divided among three other parties.
necessary to sustain the social safety net.
Economic and Social Conditions
President Alvarado has called for a variety of public
Costa Rica pursued state-led development throughout much
investments to foster economic growth and improve social
of the 20th century, but since the1980s it has implemented
welfare in the rural and coastal regions of Costa Rica that
market-oriented economic policies. In the post-civil war
have benefitted the least from changes in the economy.
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Costa Rica: An Overview
Nevertheless, he has indicated that reducing the budget
in 2016. According to the U.S. State Department, Costa
deficit is his top priority. The Costa Rican government has
Rica’s investment climate has been generally favorable but
run large deficits since a 2009 recession, and interest
is threatened by the country’s high fiscal deficit, complex
payments on the debt have risen from 2% of GDP to 3.9%
bureaucracy, and insufficient infrastructure.
of GDP over the past five years. Alvarado has pledged to
reduce the annual deficit by half over four years through a
Security Cooperation
combination of expenditure cuts and tax changes. His
efforts could be aided by stronger economic growth. The
Although Costa Rica’s institutions have proven more
Economist Intelligence Unit expects Costa Rica’s economy
resilient than those of its Central American neighbors, the
to grow by 3.7% in 2018 and 3.8% in 2019, fueled by
country has experienced a significant increase in organized
strong domestic consumption and increased international
crime and related violence. Government statistics indicate
demand for Costa Rican exports.
that homicides have increased by 47% over the past four
years, rising from 411 in 2013 to 603 in 2017 (a homicide
U.S.-Costa Rican Relations
rate of 12 per 100,000 residents). Costa Rican authorities
have linked much of the violence to drug trafficking
U.S. policy in Costa Rica is guided by the U.S. Strategy for
organizations, which have sought to use the country as a
Engagement in Central America, which is intended to
transit and storage point for South American cocaine
enhance security, promote good governance, and foster
destined for the U.S. market. According to the State
economic integration and prosperity in the region. In April
Department, the Costa Rican government increased its
2018, the U.S. State Department congratulated President
security budget by 11% and hired 1,500 new police officers
Alvarado on his election and asserted that the United States
in 2017 in an effort to address those challenges. President
looks forward to building on its “long and enduring
Alvarado has pledged to expand crime prevention efforts,
partnership with Costa Rica.” Commercial and security ties
invest in security technology, strengthen interagency
are likely to remain close, but Alvarado could face some
cooperation, and tighten gun control measures.
domestic pressure to limit cooperation with the Trump
Administration given that 75% of Costa Ricans disapproved
Costa Rica has had a counternarcotics cooperation
of President Trump in 2017, according to Gallup.
agreement with the United States since 1999, which allows
the U.S. Coast Guard, working with Costa Rican officials,
Trade and Investment Ties
to carry out drug interdiction measures in Costa Rican
waters. These operations are a frequent subject of debate in
The United States and Costa Rica were among the seven
Costa Rica’s Legislative Assembly, which must vote every
countries that signed the Dominican Republic-Central
six months on whether to grant permission to U.S. vessels
America-United States Free Trade Agreement (CAFTA-
to dock, refuel, and resupply in Costa Rican territory. Many
DR) in 2004. The agreement did not enter into force for
Costa Ricans are sensitive about the presence of foreign
Costa Rica until January 2009, however, due to significant
military personnel in the country, since Costa Rica
domestic opposition. CAFTA-DR has eliminated tariffs on
abolished its standing military in 1949. Although some
consumer and industrial goods and is scheduled to phase
legislators have sought to prevent U.S. vessels from
out tariffs on most agricultural products by 2020.
docking in Costa Rica, the Legislative Assembly has voted
repeatedly to provide the necessary authorizations.
Total trade in goods between the United States and Costa
Rica more than doubled between 2008 and 2012 to reach a
The United States also has sought to support Costa Rica’s
peak of $19.3 billion. Bilateral trade has declined 44% over
domestic security efforts. In 2016, for example, the U.S.
the past five years, however, falling to $10.8 billion in
government announced it would provide Costa Rica with a
2017. The recent decline is largely attributable to a steep
wide range of equipment, including several ships, aircraft,
drop in U.S. imports resulting from Intel’s 2014 decision to
and armored vehicles, as well as training and maintenance
close a microprocessor manufacturing plant in Costa Rica.
support. The United States also trains Costa Rican police,
In 2017, U.S. exports to Costa Rica amounted to $6.2
prosecutors, and judges; supports a judicial wiretap
billion and U.S. imports from Costa Rica amounted to $4.6
intercept program; and provides educational and vocational
billion. The U.S. had annual trade deficits with Costa Rica
opportunities for at-risk youth. Many of these efforts are
from 2009 to 2014 but has run surpluses since 2015. Top
funded through a foreign assistance program known as the
U.S. exports to Costa Rica in 2017 included refined oil
Central America Regional Security Initiative (CARSI). In
products, electric machinery and parts, heavy machinery,
the Consolidated Appropriations Act, 2018 (P.L. 115-141),
medical instruments and equipment, and plastics. Top U.S.
Congress appropriated $319 million for CARSI, including
imports from Costa Rica included medical instruments and
at least $25 million for Costa Rica. Congress also
equipment, fruit, electric machinery and parts, and coffee.
appropriated $5.7 million in bilateral security aid for Costa
The United States is Costa Rica’s largest trading partner,
Rica. The Trump Administration has requested $400,000 in
accounting for 40% of the country’s total trade in 2017.
bilateral security assistance for Costa Rica and $253 million
for CARSI in FY2019.
CAFTA-DR includes a chapter on investment that is similar
to a bilateral investment treaty. Nevertheless, the
accumulated stock of U.S. foreign direct investment in
Peter J. Meyer, Specialist in Latin American Affairs
Costa Rica has declined by 35% since CAFTA-DR entered
IF10908
into force, falling from $2.4 billion in 2008 to $1.6 billion

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Costa Rica: An Overview



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