ABSTRACT
This chapter provides a systematic description of the difficult problems of adjustment faced by a small open economy. In 1982 Costa Rica found itself in the midst of an acute crisis, characterized by a stagnant economy, growing unemployment, rampant inflation, and a rapid devaluation of its currency. Economic crisis in Costa Rica has been the consequence of a combination of long-term structural trends, whose unfavorable effects accumulated slowly but steadily, and of particularly unfortunate short-term circumstances, both at home and abroad. When Costa Rica joined the Central American Common Market in 1963, exports of manufactured goods represented only 4 percent of total exports, but this grew to 29 percent by 1979. As the Costa Rican manufacturing sector is politically strong, delay of the adjustment has also been associated with attempts to divert the costs of adjusting to other sectors through increased intervention in the economy. Another key feature of Costa Rica is its relative abundance of labor.
