By Patrick Connelly
If you are in Costa Rica, don’t expect your pizza to be free if it isn’t delivered in 30 minutes or less. That’s because Pizza Huts in that country have recently laid off dozens of employees, a trend that has spread to all sectors of the Tico economy. There is no question that Costa Rica is feeling the current economic crisis, maybe more so than neighboring countries. Economic production is down, with the last quarter of 2008 recording a 9.3% decline. The GDP was down as well, falling 1.3% in the third quarter, its second straight quarterly drop. And in the past December and January, over 25,000 jobs were lost.
Costa Rica’s bread and butter, of course, is the tourism industry; the country’s economy rises and falls on the influx of foreign dollars. As North America and Europe slide deeper into recession, inevitably the tourism sector will be negatively affected. But to what degree will determine whether or not the economy sinks or floats. So far, the drop in tourists has been large, but not catastrophic. Between September 2008 and February 2009 82,000 less tourists visited the country than the same period in 2007-2008, a, 8% drop. With 54% of the country’s tourists coming from the U.S., it is understandable that the epicenter of the recession would be less willing to take foreign vacations. However, the 8% decrease is expected to drop in the rest of 2009 and level off in 2010.
There is little the Costa Rican government can do to fix the problem in the U.S., but the Arias administration has put together a comprehensive plan to ward off continued economic deterioration. Called the “Plan Escudo” (Shield Plan), it centers around the idea that to secure the economy, the middle class must remain a strong contributor financially. Surprisingly, little attention is paid directly to tourist/expat industry, although shoring up the middle class will certainly maintain the current strong tourism structure and increase investor confidence in the country. The main highlights of the plan are:
1. $117.5 million U.S. added into the government-controlled National Banking System
2. A 2% decrease in mortgage loans on loans of $100,000 or less. The government estimates that over 100,000 middle class small business owners will benefit.
3. Low income housing bonds within the Housing Development Agency
4. Costa Ricans with multiple debt obligations can consolidate all of them into a single mortgage loan with one payment
5. Increased financing for the Public Works office for construction projects (many large projects have stalled in the last nine months), and to the National Food Plan to stimulate agricultural development
6. Social Security pensions will be increased 15% for Costa Ricans
7. Start legislation that would extend the Free Trade Zone, allowing foreign companies to continue to operate there with current tax incentives
8. Provide added funding for small to medium businesses
9. This final highlight deals with the tourism/retiree/expat community more directly. The government wants to make syndicated loans easier to acquire. These loans are essential for large-scale developments aimed at foreigners, which have tapered off since the onset of the recession.
Its clear that the Costa Rican government fears a breakdown in the production and services sectors due to lower profits, and the Shield Plan is a proactive attempt to head off large-scale unemployment. Despite the economic crisis, Costa Rica still enjoys the most favorable reputation among foreign investors and retirees because of its good track record. Additionally, the sudden drop in fuel prices, coupled with an increase in allotted seats on flights from the U.S. to Costa Rica, has made air travel comparable to flying within the United States.
While the numbers will drop slightly in the next few quarters, tourists will still flock to the country and the number of foreigner investors, recognizing that a second home in Costa Rica is still a money-making investment and that the economy is well prepared to handle the recession, will continue to make Costa Rica an affordable, profitable destination.
Photo provided by Lydiat