Preliminary Information

Applicant Country: Costa Rica

Year Admitted to IBRD: 1946[1]

Population: 4,516,220
Population Growth Rate: 1.347%

Currency Analysis:
Exchange Rate (with US dollars): Costa Rican colones (CRC) per US dollar – 526.68
Inflation Rate: 5.8%

GDP Analysis:
Gross Domestic Product: $51.3 billion
GDP growth rate: 3.5%
GDP per capita: $11,400

Trade Analysis:
Exports (in US dollars): $10.01 billion
Imports (in US dollars): $13.69 billion
Trade Surplus/Deficit: -$3.68 billion

Preliminary Analysis

A Spanish colony for many years, Costa Rica declared independence along with other Central American states in 1821. Traditionally, agricultural exports such as bananas, coffee, and sugar have formed a major component of Costa Rica’s economy. However, in recent times, other industries such as tourism, as well as high value services such as microchips have come to the fore.[12] Historically, the Costa Rican colón has been linked to the U.S. dollar by a crawling peg, allowing it to gradually adjust to reflect economic changes. This proved beneficial in terms of trade relationships, as the consistent exchange rate has allowed Costa Rica to maintain a positive trade relationship with its largest trading partner, the United States, which encompassed 23.9 percent of all exports and 42.7 percent of imports in 2008.[13]

Since its independence, Costa Rican Gross Domestic Product (GDP) has grown consistently, with minor setbacks during periods of global recession, such as the recent financial crisis in 2008.[14] With a relatively stable population as well as growth rate of GDP, Costa Rica is ideally poised to complete its transition into a developed nation. A stable population is able to better reap the benefits of economic growth and development. Additionally, with a per capita GDP of over $10,000, Costa Rica is far from an impoverished nation. The country seeks to more efficiently develop its infrastructure and in turn its economy, in order to provide a better lifestyle for its citizens. In the long term, the only major issue that Costa Rica needs to address is the trade deficit, which could be addressed by increasing revenues from tourism, a major source of foreign exchange reserves.

Costa Rica is appealing to the World Bank: International Bank of Reconstruction and Development in order to secure the necessary funds to more rapidly develop its tourism industry. Much of Costa Rica’s relatively large transportation network has fallen into disrepair in recent times.[15]The funds would allow Costa Rica to quickly capitalize on its tourism industry, most notably eco-tourism. In terms of sustainability, tax revenue generated from increased tourism and increased economic activity would be more than sufficient in order to better maintain the infrastructure in the future, in addition to repaying the World Bank loan.

Project Details

Project Title: Rural Infrastructure Development and Expansion (RIDE)

Primary Project Category:       Infrastructure
Secondary Project Category:   Other Economic

Overview

In 2008, Costa Rica applied for and received a long-term loan of $850 million from the Inter-American Development Bank (IDB) to apply to the development of transportation infrastructure, including roads, ports, and airports. So far, almost $20 million of the loan has been spent, with the primary focus being on refurbishing the national highway system.[16] This loan was granted on the basis of social and economic integration, whereby greater infrastructure development allowed more Costa Rican citizens to participate directly in the economy. The IDB loan application states:

During the 1990s, macroeconomic policies to contain public spending led to drastic reductions in real terms in the investment budget for roads, in the context of structural adjustment programs with the International Monetary Fund (IMF). This resulted in a gradual deterioration of the network, a situation exacerbated by a series of obstacles to the execution of works by force account or expeditious contracting because of a complex procurement process and limited budget flexibility.[17]

While the IDB loan focused on renovating the national highway system, Costa Rica is now appealing to the World Bank for a loan to make more remote locations of Costa Rica increasingly accessible to tourists. Eco-tourism is a rapidly growing sector of the economy due to Costa Rica’s biodiversity, and forms a major portion of the nation’s important services industry, which accounted for over 70 percent of GDP in 2010.[18] In addition to bolstering the economy through increased tourism, RIDE would also grant the 40 percent of the population that lives in rural areas with much-increased access to cities and media of economic activity.

Objectives:

1. Forms the Association of Rural Infrastructure Development (ARID) to administer RIDE in the period between 2020 and 2028, subject to annual inspection by World Bank IBRD officials: An active supervisory organization subject to regular inspection serves to avoid corruption and misallocation of funds.
2. Commences construction and implementation of RIDE in January 2020: An interim period is necessary in order to secure the loan, properly allocate funds, and establish ARID to oversee the project.
3. Increase tourists per capita in Costa Rica by 50 percent by 2028: An increase in tourists per capita, a measure of a country’s popularity as a tourist destination, would reflect the economic benefits of RIDE in the long term.
4. Implements tolls on transportation networks renovated or expanded with RIDE funds: Tolls would help generate revenue directly from spent RIDE funds, allowing Costa Rica to ensure the necessary cash flow to pay back the World Bank loan.
5. Establishes a neutral trade budget by 2028: Increased revenue from tourism in addition to the potential of increased agricultural exports from better connected rural communities would allow Costa Rica to eliminate its current budget deficit, providing increased long-run economic sustainability.

Rationale

The World Bank should grant Costa Rica a loan to fund the RIDE program on the basis of Costa Rica’s extremely stable economy. Taking into account tolls generated from newly built transportation infrastructure, it will be well within Costa Rica’s financial means to pay back the World Bank loan. Along with tolls, additional taxes generated from tourism as well as rural populations becoming more integrated into the national economy would provide long-term sustainability to both RIDE and Costa Rica’s transportation infrastructure beyond the scope of RIDE.

The establishment of ARID facilitates the implementation of RIDE in the period from 2012 to 2020. Annual inspections from World Bank officers ensure that funds will not be misallocated, and provides a mechanism to keep the World Bank informed of ongoing progress. As the majority of the construction work of RIDE involves renovating existing infrastructure, RIDE will have a limited effect on the environment. General GDP growth as a result of RIDE will directly affect a large portion of the Costa Rican population, in addition to providing the 40 percent of the population that lives in rural areas with tangible benefits in terms of increased accessibility.

[1] “IBRD Members,” The World Bank, accessed February 3, 2011, http://go.worldbank.org/65RBCJ2IW0.

[2] “Costa Rica,” The World Factbook, accessed February 3, 2011, https://www.cia.gov/library/publications/the-world-factbook/geos/cs.html.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] “Background Note: Costa Rica,” U.S. Department of State, accessed February 3, 2011.

[14] “Data,” The World Bank, accessed February 3, 2011,
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries/CR?display=graph.

[15] “Background Note: Costa Rica,” U.S. Department of State, accessed February 3, 2011.

[16] “First Road Infrastructure Program,” Inter-American Development Bank, accessed February 3, 2011, http://www.iadb.org/en/projects/ project,1303.html?id=CR-L1022.

[17] Ibid.

[18] “Costa Rica,” The World Factbook, accessed February 3, 2011, https://www.cia.gov/library/publications/the-world-factbook/geos/cs.html.