1980 Onwards: From Economic Crisis to Neo-liberalism (1980 – 2007)
By 1980 the bubble had finally burst and the catastrophic costs of the Liberación post-war development model became evident. Although revenue from the vastly expanded export industries had financed a significant part of the reform program, more still had been made possible by borrowing – a habitual practice in Costa Rica since Guardía’s time. The focus on export production had increased the country’s dependency on imported raw materials and made it ever more vulnerable to fluctuations in world markets.
As international oil prices rose in the late 1970s and coffee, banana and sugar prices plummeted, worldwide growth came to a sudden halt and Costa Rica’s creditors all came knocking, propelling the country into complete economic collapse.
Between 1980 and 1982 GDP dropped by 11%, real salaries and therefore per capita spending power fell by 40%, unemployment levels rose to 10% and annual inflation increased rampantly from 18% to 82%. In September 1981, with a foreign debt of 3.8 billion dollars – the servicing of which consumed 44% of the total value of exports – Costa Rica became the first ever country to default on its loans; causing a banking crisis throughout the Americas. By 1989, with foreign debt increased to 5 billion dollars, it had also achieved the dubious title of the world’s largest per capita debtor.
In essence the country was bankrupt.
