Costa Rica Latin America Country Analysis

Latin America Country Analysis
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Latin America Country Analysis
Costa Rica is located in Central America, with coastlines along the North Pacific Ocean and the Caribbean Sea. It borders two countries, Panama and Nicaragua, and the land boundaries occupy a total of 661 km while the coastlines cover a total of 1,290 km (Central Intelligence Agency, 2018). The country’s total area is 51, 100 square km, including the Cocos Island, of which 40 square km is water. The main natural resource is hydropower.
As of July 2018, the country has an estimated population of 4, 987, 142 and a large percentage (44%) of this comprises of individuals aged between 25-54 years of age. Approximately half of the population dwells in urban areas with the capital city, San Jose, accommodating close to a fifth of the total population. The main exports are pineapples, melons, bananas, coffee, sugar, beef, seafood, and ornamental plants, which accounts for $10.81 billion export earnings (CIA, 2018). Costa Rica has a current Gross Domestic Product (GDP) of 57, 057, 372, 468 US$ as of 2017 and the GDP per capita is 17,044.2 (The World Bank, 2017). The official Language is Spanish and the system of government is a democracy (Embassy of Costa Rica in Washington DC, n.d.).
Currently, the estimated life expectancy at birth is 78.9 years for the total population. The female life expectancy is 81.7 years and the male expectancy is 76.2 years. Costa Rica has been ranked 55 in the world when compared to other countries in terms of life expectancy at birth. Additionally, it has been ranked 153 when compared to other countries in term of infant mortality rate. It has an infant mortality rate of 7.8 deaths per 1000 live births (CIA, 2018). The World Bank estimates of the GINI index in Costa Rica is 48.7 as of 2016 while the poverty headcount ratio at $1.90 a day comprises 1.3 (The World Bank, 2017). The GINI index, which has almost at a stagnant value since 2014 with only minor changes reveals that Costa Rica continues to experience income inequality at a substantial level. Reducing this value will reduce income inequality in the country. Approximately 21% of Costa Rican live below the poverty line. When compared to Latin America as a whole, Costa Rica fairs well because the poverty headcount ratio of Latin America is 4.1 as of 2015. However, other countries are making considerable efforts to reduce poverty while Costa Rica is still struggling with inequality and poverty. Further, the GDP per capita for Latin America is 15,776.9, while the GDP is approximately six trillion. Thus in comparison, Costa Rica has fared well in terms of GDP per capita when compared to Latin America countries.
History-Before Independence
Costa Rica was a Spanish colony, although the level of colonization was lower in comparison to other countries in Central America, a factor that was attributed to its lack of mineral resources that were being sought after by the colonialists (Costarica, 2015). The first European to settle in Costa Rica was Christopher Columbus, an explorer who settled in Costa Rica in 1502 after his voyage. However, the settlement of Europeans started in 1522 and the Spanish believed that they would acquire a lot of minerals from Costa Rica, which is where the name came from, meaning “Rich Coast” (Embassy of Costa Rica in Washington DC, n.d.). However, due to the lack of mineral resources, the Spanish settlers decided to pursue agriculture instead. Costa Rica was ruled by the Spanish under the Captaincy General of Guatemala, which was established in 1539, together with other countries in Central America.
Before the Spanish invaded Costa Rica, there were at least 20 indigenous groups of people living in the country. These indigenous people, however, came to an almost extinction following battles with the Spanish, who were well armed, and other diseases that attacked them (Costarica, 2015). Consequently, the settlers took over the land and become small landowners who worked on their lands themselves. This was as a result of lack of enough labor force to work on the land, given that most of the natives had died, and lack of resources on the part of the settlers because they were poor (Embassy of Costa Rica in Washington DC, n.d.). Thus, a majority of the settlers became small-scale owners of land, and together they formed an agrarian society which was highly autonomous. This has been attributed to the fact that Costa Rica was isolated from other Spanish colonial countries in Latin America and as such, the settlers became individualistic and self-dependent. The agrarian society also believed in equality and as such, people treated each other equally. This could be attributed to the fact that there were no slaves or other manual workers to work in the fields unlike in other colonial centers, and as such, the society comprised of settlers who viewed each other as equals.
The agrarian society survived up until 1821 when Costa Rica gained independence from Spain. Costa Rica did not fight for independence because their independence was highly influenced by Mexico winning the war and gaining their independence from Spain. As such, Costa Rica acquired its independence as part of a collective when other colonial centers in Central America were declared independent through a joint declaration (Embassy of Costa Rica in Washington DC, n.d.). Following their independence, Costa Rica elected their first head of state in 1824, making the country one of the earliest democracies in Latin America. Under the leadership of Juan Mora Fernandez following the election, Costa Rica started to develop an infrastructure and judicial system as part of their development strategy.
History-Since Independence
After independence, Costa Rica became officially the Republic of Costa Rica. The newly elected head of state was supportive of farmers and he provided free land grants to encourage coffee farming. As a result, coffee became the main export commodity in Costa Rica, which was exported to Europe in the late 1800s (Costarica, 2015). Coffee export necessitated the need for a more advanced infrastructure system which later led to the rise of banana export in the early 1900s, mainly exported to the United States. As a result, the economic status of Costa Ricans improved gradually and their standards of living were also increasingly becoming better. Thus, banana became the main export commodity, although coffee remained as the primary commodity in Costa Rica after independence. During the late 1800s and early 1900s, exports from coffee led to the rise of an upper class which comprised on wealth traders. Currently, Costa Rica is ranked second in the exportation of bananas in the world, according to Ferreire, Fuentes, and Ferreire (2018). However, exports and the economic status of people in Costa Rica have been greatly influenced by economic crises and wars over the course of time since independence.
Following the Great Depression in 1930, Costa Rica’s exports were greatly affected as the country experienced a substantial decline in exports. This was attributed to a dramatic decline in the demand for coffee and bananas as more countries that imported those commodities suffered due to the economic crisis. The economic condition deteriorated and by 1932, Costa Rica’s earnings from exports fell by approximately 50% (Rankin, 2012). The effect was also large on the living standards of Costa Ricans and the government which had largely depended on exports for funding, through export taxes, to support the country’s economy. The industries in the country collapsed and imports decline significantly which ultimately rendered many Costa Ricans jobless (Rankin, 2012). Further, the Great Depression also led to the rise of the Communist Party in Costa Rica, which was referred to as the Tico Communist party, due to the social unrest among workers whose lives had been affected by the economic conditions at the time. The party was formed to fight for the workers and influence communism.
Similarly, the Second World War affected external trade and consequently, the effects were felt more on the exports. This was especially the case because most of the country’s external trade was with Europe (Bell, 2014), which was at the center of the War. Thus, the exports became less while the imports increased gradually. Consequently, the decline in exports put Costa Rica in a tough economic position and the government had to take a loan from the Export Import Bank (Bell, 2014). The government was at the time going through massive deficits in their budget, given that there were projects going on in the infrastructure industry which required massive funding. In addition, the situation was worsened because Costa Rica supported the United States (U.S.) in the War, yet only 36% of its export had gone to the U.S. before the War (Bell, 2014). Thus, the war affected the economic condition of the country and its people and more deficits in the budget were experienced in the course of several years.
Import-Substituting Industrialization (ISI) and the Debt Crisis
Costa Rica opted for Import-Substituting Industrialization (ISI) in the 1960s following the Second World War. This move was largely informed by the economic challenges the country experienced during and after the Second World War after realizing that the existing economic model was prone to interference by external factors (Ferreire, Fuentes, & Ferreire, 2018). As indicated earlier, imports had increased during the War and it became an eye-opener on the vulnerabilities that Costa Ricans were exposed to.
The implementation of the ISI was preceded by the Industrial Protection and Development Law which was implemented in 1959 to encourage local investment (Ferreire, Fuentes, & Ferreire, 2018). After its enactment, the country’s leaders decided to impose taxes on export commodities that the country could produce at a lower cost than its counterpart, while at the same time encouraging domestic production of consumer goods that were initially being imported. Moreover, the tariff rates for consumer goods were si...