THE COSTA RICAN ECONOMY IMPROVES DURING 2006

UNCLAS SAN JOSE 000298 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECONCS SUBJECT: THE COSTA RICAN ECONOMY IMPROVES DURING 2006 REF: SAN JOSE 213 ¶1. Banco Central de Costa Rica (BCCR) says the country's GDP grew over 7% in 2006. This is the highest GDP growth rate since 8% in ¶1999. Inflation for 2006 was 9.4%, 5 percentage points lower than last year's rate of 14.4%, and the lowest rate in 14 years. While foreign direct investment flows reached a record $1.4 billion, surprisingly, the tourism industry reports a disturbing trend of apparent stagnation. ¶2. Tourism during 2006 grew by a surprisingly meager 1.8% (See Reftel). Tourism Minister, Carlos Benevides, explained to local media that Costa Rica is a 'mature product' attracting a different type of buyer. In contrast, other key sectors such as agriculture and free zone manufacturing showed marked improvement. In 2006 FDI flows doubled from the $861 million level registered in 2005. According to Minister Benevides, real estate investment for tourism development along the Pacific coasts of Guanacaste and Puntarenas accounted for the large increase. ¶3. While the BCCR's foreign currency reserves stood at more than $3.1 billion at year's end, Jorge Madrigal, BCCR Economic Director, announced that total reserves including those of the commercial banks reached $3.88 billion, equal to 14% of GDP. This represents an increase of $966 million during 2006. In addition to the good news of the doubling of FDI, Madrigal indicated that the central bank's monetary policy was responsible for lowering devaluation of the Colon from 8.2% in 2005 to 4.4% for 2006. 2005 2006 Real Growth Rate GDP 5.6% 6.8% FDI $861m $1.4b Foreign Reserves $2.91b $3.88b Devaluation 8.5% 8.1% LANGDALE