Costa Rica sits just above Panama in Central America, and foreign aid has benefited the nation so well that could be considered the overall standard for the effectiveness of foreign aid. This claim comes with a disclaimer and compliment to Costa Rica: Costa Rica is unique in that the will and dedication of the people caused Costa Rica to hold onto a tradition of democracy and relatively stable governments. This type of behavior and system is not always the case when it comes to the regions that receive foreign aid.
A stable government can help increase the effectiveness of foreign aid. Even after a substantial economic downturn during the 1980s and defaulting on is loans from the International Monetary Fund (IMF), Costa Rica was able to economically recover with guidance from the IMF — a success often considered controversial.
United States’ Withdrawal from Costa Rican Aid
By 1996, the United States’ International Development Fund closed its mission in Costa Rica. In the last ten years, the United States government has allocated less than $50 million in foreign aid to Costa Rica.
During the years that IMF imposed economic planning, Costa Rica was able to begin to diversify its economy. Before the 2008 economic crisis, large tech firms shifted the manufacturing of microprocessors and other hardware to Costa Rica.
The investment from international business before 2008 helped shift Costa Rica away from its agrarian-based economy. Currently, only 5.5 percent of Costa Rica’s 58.91 billion GDP is attributed to agriculture, 21 percent of the GDP comes from industry and 73.5 percent is from the service and tourism industry. It can be seen that foreign aid has benefited Costa Rica due to the nation’s survival of the 2008 economic crisis.
Diverse Economy and Loan Qualification
Due to its new, more stable and diverse economy, Costa Rica was able to qualify for loans from the IMF and other international banking organizations. Although it weathered the storm, Costa Rica is still paying the price — its credit rating was downgraded in 2017.
In March of 2018, the United Nations and Costa Rica agreed to United Nations Development Assistance Framework from 2018-2022 to help both the private and public sectors of the nation. The plan seems to target sectors and institutions hit hardest by increased public and government debt post-2008.
Due to Costa Rica’s reliance on foreign direct investment, a downgraded credit score has the potential for a loss in those investments, making aid more risky for investors. Poverty still remains between 20-25 percent in Costa Rica, so stabilizing its economy and increasing FDI is extremely important for the nation as a whole.
To Remain Steadfast While Promoting Growth
While the economic story of Costa Rica seems akin to a roller coaster, it will hopefully stabilize again with the help of the United Nations. Foreign aid has benefited Costa Rica in other ways as well. Due to the relatively stable economy, Costa Rica spends 7 percent of its GDP on the education system, a decision that has caused the youth literacy rate (ages 15-24) to increase to 99 percent.
The country also boasts a nearly 100 percent primary school graduation rate, and a low teacher-to-student ratio of 1 to 13 in primary school and 1 to 14 in secondary school. The United States Peace Corps has maintained a presence in the education system of Costa Rica since 1963.
How Foreign Aid Has Benefited Costa Rica
Foreign aid has benefited Costa Rica immensely in the 20th and 21st Centuries. Due to the wise use of aid, Costa Rica was able to remain firm and grow, albeit slowly, though the 2008 economic crisis which made every country in the world stumble.
As the country steadies itself with only slight economic assistance in the coming years, it will hopefully regain its secure footing. And this is the aim of most foreign aid — to help a nation prosper so that it can one day stand on its own.
– Nick DeMarco
Photo: U.S. Air Force