COSTA RICA:

Still the
“Switzedand
of the
Americas”?
By Charles R. Sexauer
is one of With Nicaragua on one flank and Panama o n the

“C
OSTA RICA
only a handful of
nations that qual-
ify a s ideal for
Americans to
live. It also offers some of the best
long-term investment opportunities in
t h e world.” Best-selling financial
author Doug Casey is not the only one
to so conclude. Costa Rica is often
described a s t h e “Switzerland of
the Americas,” and for the many
Americans looking for a second home, a
retirement haven, a long-term industrial
or agricultural investment, a tax and
money haven from which to conduct off-
shore investments on a worldwide basis,
or simply a pleasant vacation destination,
Costa Rica does have a lot to offer. Its re-
cent de facto devaluation of the col6n
from 8.60 to the dollar to a floating range
of 13 to 17 has made this a particularly
opportune time to consider some of
these options.
other, can Costa Rica be a safe haven for you
or your money?
CULTURAL CLUES
Costa Rica was ruled by Spain as part
of the Central American Federation for
the first 250 years of its existence.
Unlike most of the colonized areas of
Latin America, however, the Spanish
conquistador and his legions were not
pitted against a relatively large in-
digenous (Indian) population. Since there
were no large treasures of gold and the
Indian population was limited, mining
ventures and large-scale plantation farm-
ing were not feasible. As a matter of fact,
Costa Rica was a backwater of the Span-
ish colonial development and, to its good
fortune today, attracted only rugged in-
dividualists willing to wrest their liveli-
hood from the soil, Not having inherited
the old plantation system, Costa Rica to-
day does not suffer the social problems of
so much.of Latin America.
After independence from Spain was
declared on September 15, 1821, there
followed an era of democratically elected
governments. In 1948 the nation had its
“revolution” when the left-wing can-
didate was charged with election fraud
and ousted by the Liberacionistas, led by
“Pepe” Figueres. A new constitution
drafted in 1949 abolished the army and
established the current framework of
government-an executive branch made
up of a president, two vice-presidents,
and thirteen ministers; a legislature com-
posed of 57 deputies; and a judiciary
headed by a supreme court and four ap-

66 REASONlJUNE 1981
pellate courts. The judicial system is
based on civil rather than common law,
and does not use juries. The constitution
guarantees equality before the law and
freedom of speech, assembly, press, and
organization. It guarantees foreigners
the same rights as Costa Ricans except
for participation in political affairs.
Although the country has a multiparty
system, the Partido Liberacion Nacional
(PLN) continues as the single dominant
party. A coalition of smaller parties
under the Unity banner, however, man-
aged to get its candidate, Rodrigo
Carazo, elected president in 1978. The
1982 election is now heating up, with
Luis Albert0 Monge (PLN) and Rafael A.
Calderon (Unity)already selected as can-
didates. Measured by the US political
spectrum, the Liberacion party would
approximate Democratic standards,
while Unity would come closer to
Republican principles. The Communist
Party operates legally as it does in the
United States, but it has never been able
to garner more than three percent of the
vote.
The Costa Rican population is un-
usually homogenous, both ethnically and
socially. Excepting the some 10,000 In-
dians and blacks who immigrated from
Jamaica in the early 19OOs, most of the
population is descended from the original
Spanish settlers, while the more recent
waves of European immigrants make up
the balance. German, Italian, French,
Dutch, and some 15,000 Americans are
included in the latter group, as is an in-
creasingly important Japanese commu-
nity with connections to Japanese multi-
national companies.
A rising level of education and family
planning has led to sharply lowered birth
rates and a relatively low 2.4 percent an-
nual population gain. Still, Costa Rica is a
young country, with 53 percent of the
population below 19 years of age.
There is a high degree of social mobil-
ity, and the large middle class is political-
ly and economically influential. Although
there is an ongoing urbanization of the
population as industrialization develops,
the current mix still shows the rural sec-
tor a dominant 57 percent of the total.
America and includes public, vocational,
and technical schools plus two univer-
sities. Private education ranges from a
variety of foreign language schools
through a number of technical schools
and the recently established Central
American University.
Like the United States, Costa Rica has
a minimum-wage scale, although it is
based on a six-day, 48-hour week and en-
compasses three basic work categories
with different minimums. Labor unions
are free to organize and are particularly
strong in the banana companies and,
more recently, in governmental services.
Measured by US standards, wages and
salaries are low, even though they range
at the top among Latin American coun-
tries. With the recent devaluation of the
colhn, they have become even lower.
Historically, Costa Rica’s growth has
been based on a solid agricultural
economy. The rich volcanic soils cover-
ing much of the country, coupled with
ideal year-round growing weather, make
agricultural development a natural cata-
lyst for all other activities. A trip into the
green countryside dramatically reveals
the fertility of the land; almost every-
where, untreated fence posts sprout into
trees.
Coffee and bananas have been the two
GULF OF
MEXICO
dominant export crops, with sugar,
cocoa, and meats rounding out the list of
traditional products. Recent agricultural
projects, many under the aegis of foreign
capital and management, include maca-
damia nuts, ornamental plants, spices
(especially black pepper and ginger), and
the newest entrant, the jojoba bean. The
varying altitudes, from the mountain
sides to the central valley and down to
the tropical lowlands, provide desirable
growing conditions for a great variety of
crops. With less than 50 percent of the
land potential in production and much of
that in lower-yielding sectors, agricul-
tural expansion still is very viable. About
half of Costa Rica’s agricultural produc-
tion is exported.
Since 1959, when a system of tax in-
centives was introduced, the government
has focused on encouraging industrial
development. In 1963 Costa Rica joined
the Central American Common Market,
with an estimated population of 20
million. Initial emphasis on industries
geared to import substitution, particular-
ly nondurable consumer goods, has
shifted to consumer goods industries
with export potential. The overall shift
from agriculture to industry is reflected
in the employment figures: in 1960
agriculture employed 50.7 percent and

INVESTMENT INSIGHTS
Fully 30 percent of the national budget
is dedicated to education, by far the
largest item. Even the most remote
hamlet in the countryside has its one-
room schoolhouse. The level of educa-
tion is one of the highest in Latin

JUNE 19811REASON 67
industry 11.4 percent of the labor force;
by 1978 the figures were 32 percent and
16 percent, respectively. Over the past
15 years industrial growth has become
one of the highest in Latin America, with
an average annual gain of 10 percent per
year. Food processing dominates the in-
dustrial sector, followed by chemicals
and fertilizers, metal and metal working,
textiles and clothing, and wood and wood
products.
The basic utilities and the insurance in-
dustry are under national government.
control. The banking system was nation-
Fairly high yields and
rapid increases in
property values tend
to make up for the
lack of financial
leverage.
alized when the Liberacionistas took
power in 1949, although a number of in-
ternational banks and finance companies
function in all banking areas except de-
mand deposits. CODESA, which acts
essentially as a government development
bank, is dedicated mainly to helping
finance large industrial and agricultural
projects and in some cases acts as a part-
ner in the project. COFISA is the private-
enterprise counterpart, which usually
undertakes projects of a more limited
scope. A national stock exchange, Bolsa
Nacional de Valores, was organized five
years ago to trade in shares, bonds, and
the US dollar.
PROPERTY POINTERS
Private ownership of land is in general
encouraged and- protected by the laws
and constitution of Costa Rica. For-
eigners enjoy the same rights as citizens,
with a few minor exceptions. Of great in-
terest to investors is a very safe system
of title registration that protects the
buyer from hidden claims. All titles are
inscribed in a central national property
registry, and in ordef- to be valid any
change in the status of the title or any
claim that would affect it must also be
duly inscribed therein.
Costa Rica has available a broad spec-
trum of types of property but not a very
large selection of any one kind. There is
a notable lack of industrial or commercial
park development, as $wellas apartment
88 REASONlJUNE 1981
houses and condominiums, although the
need for both of these is coming to be
recognized. Zoning regulations are far
less stringent than in the United States.
Subdivision approvals are required from
the housing authority, the local munici-
pality, and the Ministry of Health.
A lack of adequate financing at eco-
nomically feasible rates makes develop-
ment more difficult and less profitable
than in countries where substantial finan-
cial leverage can be obtained. Fairly high
yields and rapid increases in property
values-due to a growing population and
economy-tend to make up for the lack
of leverage, however.
Good agricultural land, in moderate
quantities, is available for a wide variety
of crops. Prices seem to be high com-
pared to past experience but are reason-
able compared to the United States and
low compared to Europe. Prices tend to
reflect productivity, except for cattle
land and where there is development
potential for commercial purposes. In
areas suitable for commercial develop-
ment or tourism, prices seem to be
limited only by the sellers' imagination
and can be totally erratic. Excellent prop-
erties of all kinds are available through-
out the country at prices consistent with
their present productivity or value for in-
tended use.
In areas outside the metropolitan San
Jose area, many buyers are discouraged
by the lack of highway access, electric
power, municipal water, etc. As many
' are aware. the time to buv this kind of
property is before these improvements if
the property is basically good and the
general area and economy are growing.
Costa Rica is growing and, more impor-
tantly awakening to its growth potential.
The fact that the last five years have
shown a marked shift from selling to
buying among Costa Ricans themselves
is a significant indicator.
The biggest problem with Costa Rican
real estate is that the banks will generally
not finance the purchase bf land.
Although there are some exceptions,
loan processing tends to be exceedingly
slow and interest rates high, depending
on the intended land use. Most land
financing is carried by the seller at
somewhat lower interest rates, which ac-
counts for the general patterns of high
downpayments, short terms (two to five
years), and high interest rates.
All things considered, the laws and
land ownership are quite liberal, and the
rights of private property ownership are
solidly based in the constitution and the
law and have a long tradition in the Costa
Rican culture and society. The favorable
implications for investors are obvious;
there are few places in the world where
the acquisition of land could be safer than
in Costa Rica.
REFUGE REASONS
Costa Rica is probably the least-known
and least-understood money and tax
haven in the world. One explanation is
that the country has never advertised
itself as such. Yet this very anomaly
makes it a worthwhile consideration for
those who want true secrecy in their in-
ternational investment activities.
What makes Costa Rica so different
from other, better-known havens, such
as Switzerland, Cayman, Liechtenstein,
and the Bahamas? All the laws on the
books involving secrecy, anonymity, and
tax benefits were written by Costa Ricans
for Costa Ricans. The offshore investor
who sets up a Costa Rican investment
company is the incidental beneficiary of
these laws. In other havens, these laws
were specifically enacted to protect the
foreign investor with special benefits
that do not accrue to its citizens. This
creates dangers of international pres-
sures against an officialdom that has no
vested political interest in the laws. So
there is always the danger of repeal of
protective laws in these other juris-
dictions. ,
Then there is the cost factor, one
which strongly favors Costa Rica.
Lawyers, accountants, and trustees set
their 'fees to serve their Costa Rican
clients. Although overcharges of the
foreigner can occur, there is no industry
of high-priced lawyers and trust com-
panies that exist only for the foreign in-
vestor, as is the case in most established
tax havens. Setting up a corporation in
Costa Rica costs the international in-
vestor approximately $600-$700. Servic-
ing that corporation, which includes a re-
quired annual audit, costs around $250
per year. Fiduciary or trust services are
also available at an annual fee of 314 to 1
percent of the value of the holdings.
A Costa Rican or a Costa Rican cor-
poration can deal anywhere in the world
without a capital gains tax liability. This
corporation can also buy US Treasury
Bills or bank CDs with no income tax
liability. Costa Rica has no tax on income
earned outside Costa Rica; within Costa
Rica, all government and bank in-
struments are free of tax.
 Costa Rica has no foreign exchange erty and puts at least $30,000 into other These are the negatives, and they are
controls on the movement of funds, and Costa Rican investments, which can be well-known. The international investor
there is no requirement for conversion toin any certifiable form. might well look beyond them, recognize
local currency, as there is in many other the bargains created by the de facto
CURRENTCONCERNS
jurisdictions. For those who choose to in- devaluation and the air of uncertainty,
vest in Costa Rica in local currency, Costa Rica shares with many develop- and examine the positives, some of
there is an unrestricted free market in ing nations the problems of the rising which have already been related.
exchange from or to dollars. Investments costs of energy and capital goods against Further favorable factors include some
made in dollars stay in dollars, and those
a relatively static exports price level. very significant economic and political
dollars may leave the country at any The price of coffee, Costa Rica’s chief developments. Probably the single most
time. dollar earner, has actually fallen substan- important factor in an era of increasingly
Americans have been attracted to tially, more than enough to offset in- high energy costs is that the nation’s
Costa Rica for years because of its creasing exports of nontraditional items. electricity is now derived entirely from
favorable climate and relatively low cost As a result, the trade deficit has widened low-cost hydroelectric power. The cur-
of living. In 1971 the Costa Rican to almost $500 million. At the same time
government passed a law designed to at- government budgets have moved into
tract foreign retirees who can prove a mounting deficits. Between 1974 and . Rica shares
Costa
certain fixed income from abroad and 1979, revenues increased at a 17.6 per- with many
will not be employed locally. To date thiscent annual rate while expenditures grew developing nations
law has encouraged the settlement of at a 26.7 percent rate.
some 30,000 people, about half of whom The political scandal of the previous the problem of the
are Americans. The law’s provisions re- government, centered on the US refugee rising Costs energy Of
quire $300 certifiable outside monthly in-financier Robert Vesco, has been re- and capital goods.
come, $500 for annual residency of less placed with new scandals involving arms
than six months, permits the importa- smuggling, first to the Sandinista move-
tion duty-free of a small automobile, andment in Nicaragua (admitted)and recent-
offers an exemption from duties and ly to the rebel forces in El Salvador (hotly rent 770,000 KW of installed capacity
taxes for up to $7,000 in household fur- disputed). The Carazo regime has sunk will almost double on completion of the
nishings and personal effects. to new lows in popularity, and for the Boruca project but would still’be a small
An extra attraction for what Doug first time there has been popular concern fraction of the nation’s estimated 12
Casey has dubbed “the international over whether the nation will make it to million KW hydroelectrical potential.
man” is the availability of a Costa Ricanthe next election in 1982. (Without an Mexico and Venezuela, with political in-
passport without change of citizenship. army, however, Costa Rica is unlikely to terest in the survival of Latin America’s
This can be arranged for anyone who undergo the sort of political upheavals most exemplary democratic government,
purchases at least $10,000 worth of prop-known to its neighbors.) have provided Costa Rica with its
domestic oil requirement on very favor-
able terms.
COSTA RlCA AT A GLANCE The most significant political factors
LOCATlON Southernmost nation of the Central American Com. are those occurring outside of Costa Rica
mon Market, bordered by Nicaragua on the northwest with the succession of more conservative
and Panama on the southeast. governments in the Caribbean area, such
AREA 19,653 sq. mi. (size of W nia). A mountainous as in Jamaica, and of course the election
isthmus 74-390 mi. wide. Caribbean, 140 mi.; of Ronald Reagan. A Reagan administra-
tion is expected to help stabilize existing
ALTITUDE 3,800 ft. average-San Jose an governments in Central America while
ft. maximum. discouraging the various Mmist-spon-
sored insurrectionists.
CLIMATE San Jose and Central Valley, 80”F average high:
60”F average low. Rainy season May to November.
Average rainfall 100 in. in the Central Valley. OPTIMISTIC OMENS
With the new 200-mile fishing zone,
POPULATlON .600,000 in San Jose metropolitan area. An- Costa Rican waters have been extended
th 2.4%. Life expectancy 71 Y
rate 91 YO. to an area of 200,000 square miles,
almost 10 times its own territory. Nor-
ECON 0MY Gross domestic product: $3.99 billion.
(1979 figures). Government expenditures: $0.82 billion. wegian interests are negotiating a
External debt: $1.3 billion. $60-million tuna fishing project. An
GDP per capita: $1,824. Italian group has recently commenced
production of modem facilities for shoe
Imports: $1,270.0 million. manufacturing, which they claim could
TRANSPORTATION 16,304 mi. road, 639 mi. railroad. equal coffee export earnings by the end
of the decade. An American firm has
AIR DISTANCES Miami: 1,123 mi., New Orleans: 1,178 mi.,
Los Angeles: 2,743 mi. started development of a $30-million
(Continued on p. 83.)

JUNE 198llREASON 69

URING THE PAST DECADE,
stamp collectors have seen
their hobby-philately , to
those in the know-turn into
a premier investment field.
Especially in the last five years, stamp
values have zoomed to stratospheric
levels, and many collectors now have to
compete with the pushy new investor
dollar in order to complete their
specialties.
The year 1847 saw the first issue of US>
stamps-a 5-cent brown specimen show-
ing Benjamin Franklin, and a 10-center
picturing George Washington. In 1960
you could buy an average used copy of
the Franklin stamp for $20. By 1970 its
price had reached $50 and then jumped
to $95 by 1975. By 1980 it had soared to
$900, a gain of 847 percent in five years,
amounting to a compounded rate of in-
crease of 45 percent per year. For the
1970-80 decade the annual rate was 29
70 REASONlJUNE 1981
By Fred E.Foldvary
Can pieces of paper
issued by the
government protect
you from
paper money?
percent-still well above inflation.
The 10-cent stamp didn’t do quite as
well, only rising 444 percent from 1975
to 1980, for a compounded rate of 34 per-
cent per year. Most classic US stamps
rose at least 100 percent during this
time, and some jumped by as much as
1,000 percent. If instead you had been
smart enough to buy gold at $150 in 1975
and sell it at $700 five years later, you
would have realized a 31 percent annual
return. Thus many stamps performed as
well or better than well-timed gold and
other “hard assets” during those years.
With this impressive price apprecia-
tion, it is small wonder that many in-
vestors have been turning to stamps, and
the resultant infusion of investment
funds has in turn accelerated the in-
crease in values. Of course, this has not
occurred in a vacuum. The escalation of
stamp values has paralleled that of real
estate, precious metals, rare coins, gems,
and other tangibles. The engine behind
this movement has been inflation. Pre-
cisely because they are inflation hedges,
the increasing demand for such invest-
ment vehicles has intensified their price
rise.
But there is another factor behind the
steady appreciation of stamps as well as
coins: scarcity. The supply of genuine,
fine scarce stamps is fixed and even
declining as fires and other disasters take
a small annual toll. Since most stamps
are tucked away for long periods of time
in collectors’ albums, only a relative few
are on the market at any given time.
Meanwhile, the collectors have been in-
creasing in number. The logical result of
a tight supply and a steadily increasing
demand has been the dramatic rise of
stamp values not just during the last few
years but the last few decades. This is
likely to continue as long as paper dollars
increase at the rates we’ve seen recently.