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IMF Comments On Conclusion Of Article IV Consultation With Costa Rica

by Carla Johnson, Investors, London

18 December 2007

An International Monetary Fund (IMF) staff mission led by Mr. Dominique Desruelle, Chief of the Central America Division in the Western Hemisphere Department, issued a statement late last week, reporting on the findings of its Article IV Consultation with Costa Rica.

The statement announced that:

"An IMF mission visited San Jose during December 3-14 for the 2007 Article IV discussions with Costa Rica to review economic developments and policy prospects. The mission met with Minister of the Presidency Rodrigo Arias, Central Bank Governor Francisco de Paula Gutiérrez, Finance Minister Guillermo Zúñiga, Minister of Foreign Trade Marco Vinicio Ruiz, other senior government officials, parliamentarians, representatives of the private sector, and think tanks.

"Benefiting from the authorities' sound economic policies, Costa Rica's economy has continued to grow rapidly over the past 12 months but headline inflation remains high, partly caused by high international oil and food prices," it continued, going on to add:

"The strong economic performance has been driven by both private consumption and investment as well as external demand. Exports have increased substantially despite some appreciation of the real exchange rate, indicating that the economy remains competitive. However, there are signs that the economy may be overheating such as labor market pressures, rapid growth of consumer goods imports, and persistently high inflation of non-tradable goods."

"The near-term outlook is favorable, and has been strengthened by the ratification of the Central America Free Trade Agreement with the United States (CAFTA-DR). For 2008, economic growth is expected to revert to a rate of around 5 percent, in line with potential growth. This growth outlook is predicated on a US slowdown and a moderate reduction in world growth. The authorities and the mission concurred on the need to pay close attention to changes in the global outlook, which has become subject to greater risks."

Touching on several other key issues - such as external trading and ways of tackling inflation, the IMF statement concluded:

"The mission agreed with the authorities on the need for further financial sector reform. It also shared the authorities' concern about rapid credit growth, which will require continued close monitoring,."

"The IMF will maintain a close policy dialogue with the authorities as they continue implementing their reform agenda. In the coming weeks, the mission will prepare a report to the IMF's Executive Board, as a basis for a Board discussion in early 2008."

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