CHAPTER VIII. 

                        TRADE AND PROJECT FINANCING 

 

A.  BANKING SYSTEM 

 

Costa Rica's banking system is dominated by three public sector 

banks which have a monopoly on demand deposits and are the only 

financial institutions with access to the Central Bank's discount 

window.  This monopoly was granted in 1948 when several private 

banks were nationalized.  The largest commercial bank, Banco 

Nacional de Costa Rica, has always been public.  1994 saw the 

failure of the oldest state bank, Banco Anglo Costarricense.  The 

Government of Costa Rica closed the bank after it incurred losses 

attributable to investments in Venezuelan debt, non-performing 

loans and possible malfeasance.  Legislative and judicial 

investigations continue in a an effort to determine those 

responsible for the bank's failure.  Over the past twenty-five 

years, the barriers allowing private sector banks to operate have 

been eroding and today there are 23 private banks operating in 

Costa Rica. 

 

The private sector banks provide all standard banking services in 

Costa Rica except for checking and savings accounts.  The 





Legislative Assembly is currently studying whether the private 

banks should be allowed to offer demand deposits and have access 

to the Central Bank's rediscount window.  Branches of foreign 

banks are not recognized in Costa Rica and any foreign bank which 

wants to operate in Costa Rica must incorporate locally complying 

with all local laws and regulations.  The only U.S. bank with a 

local operation in Costa Rica is Citibank which operates as a 

local bank (Citibank (Costa Rica), S.A.) and a brokerage company 

(Citivalores Puesto de Bolsa, S.A.).  In November 1994, 

Bancrecen, a wholly-owned subsidiary of the Mexican bank 

Bancrecer, began operations in Costa Rica.  It has grown rapidly 

and currently has approximately 40 small offices throughout Costa 

Rica, with plans for at least 75 offices by the end of 1995. 

 

The Central Bank of Costa Rica sets and directs all economic 

policy that affects the banking sector.  The Bank Examiners 

Office (Auditoria General de Entidades Financieras) of the 

Central Bank performs the banking oversight function.  Banks are 

not allowed to leverage their balance sheets by more than 11 

times their capital.  The legal lending limit is 20% of total 

capital per customer. 

 

 

B.  FOREIGN EXCHANGE CONTROLS AFFECTING TRADE 

 

In February 1992, the Central Bank of Costa Rica liberalized the 

exchange rate system.  Since then, there have been further 

modifications to the regulations.  As of today, the following are 

the key provisions of the foreign exchange rate system in Costa 

Rica: 

 

 

   a)    Exporters are obligated to sell at least 20 percent of their 

   export proceeds through a Costa Rican bank (public or private 

   sector); and 

 

   b)   Banks which purchases foreign exchange from an 

   exporter must transfer 34 percent of that foreign exchange 

   (the exporter's 20 percent as described above) to the Central 

   Bank. 

 

The Central Bank of Costa Rica controls the exchange rate through 

open market operations with the goal of maintaining stable 

exchange rates. 

 

 

C. GENERAL FINANCING AVAILABILITY 

 

The local market in Costa Rica is characterized by very short- 

term loans, high interest rates and high spreads between deposit 

and loan rates.  The very high spreads (that help make private 

financial intermediation the fastest growing sector of the 

economy) are made possible by the relatively higher inefficiency 

of public sector commercial banks, the high commercial bank 

reserve requirements and high inflation -- all of which drive a 

wedge between deposit and loan rates.  Given that the government 

dominates the banking and financial system, a high portion of 

funds available in Costa Rica are absorbed directly by the public 

sector to finance the fiscal deficit. 

 





The public and private banks in Costa Rica all pursue trade 

financing activities including the opening of letters of credit 

of importers, financing for exporters, and other trade services. 

 

 

D.  HOW TO FINANCE EXPORTS/METHODS OF PAYMENT 

 

Letters of credit are by far the most common and mutually secure 

method of payment in international trade.  With this term, the 

U.S. exporter receives payment prior to the importer receiving 

the goods.  For Costa Rica, we strongly recommend this term of 

payment, especially if the business relationship between the U.S. 

exporter and the local importer is still developing.  Only after 

a long-term business relationship has been established between 

the exporter and the importer should a U.S. company consider 

granting an open account (e.g. payment within 30 days after 

receipt of goods).  Transactions of USD 4,000 or less could be 

handled through advance payment, bank transference prior to 

shipment, or sight drafts. 

 

In recent years, there has been very little bank credit available 

for financing exports to Costa Rica because the country defaulted 

on its bank debt in the early 1980's.  However, Costa Rica 

restructured its debt in 1990 with its successful buy-back 

arrangement under the Brady plan.  Consequently, over the past 

three years there has been a progressive opening of financing for 

exporters to Costa Rica for the short term (less than one year) 

from international banks.  For longer tenors, the lenders usually 

require sovereign risk coverage.  The EXIMBANK provides coverage 

tenor, but only short-term coverage for U.S. exports to public 

sector entities.  All traditional methods of payment for exports 

are available in Costa Rica, such as letters of credit and direct 

transfers of funds abroad. 

 

 

E.  TYPES OF AVAILABLE EXPORT FINANCING AND INSURANCE 

 

Financing of export activities is available to companies with 

majority Costa Rican ownership from various foreign sources 

(multilateral banks, etc.), made available for intermediation by 

private and public commercial banks, through the Central Bank, in 

local currency as well as dollars.  However, due to exchange 

risks, most borrowers (except for those with significant sources 

of income in dollars, deutschemarks, etc.) prefer to borrow in 

local currency which is relatively scarcer and much more 

expensive than dollar financing.  Dollar financing sometimes 

becomes difficult also because of the reluctance of most lenders 

to take long-term exposure to the sovereign risk of Costa Rica. 

Therefore, most of the long-term projects undertaken in Costa 

Rica by foreign investors have a high equity component and 

usually have some type of offshore guarantee to cover the risk to 

the lenders. 

 

It is typical for large multinationals to provide parent company 

guarantees to cover the risk of projects.  When such a guarantee 

is not available, U.S. lenders, if willing to assume the credit 

risk, will typically request that an organization like OPIC or 

MIGA provide an insurance policy to cover the sovereign risks 

(transfer risk, expropriation, and political violence). 

 





U.S. Government Export Finance Programs: 

 

The Export-Import Bank (EXIMBANK) is the main official U.S. 

agency involved in providing and encouraging credits to help 

finance U.S. exports.  EXIMBANK engages in direct lending, both 

to foreign buyers and to intermediate private parties who on-lend 

to buyers.  However, the bulk of EXIMBANK's export-financing is 

accounted for by loan insurance and loan guarantees.  EXIMBANK 

has no offices in Costa Rica. 

 

The U.S. Department of Agriculture (USDA) has made available a 

regional GSM-102 export credit guarantee program to encourage 

imports of U.S. farm products.  Costa Rica is no longer eligible 

for PL-480 food aid, and it is hoped the GSM-102 program will 

enable Costa Rica to bridge over to purchases on normal 

commercial credit terms.  The Central American Bank for Economic 

Integration (BCIE) in Tegucigalpa has been named as the 

correspondent bank to administer the $60 million program.  Costa 

Rican importers contract with U.S. exporters, as in any 

commercial transaction, who in turn pay a fee to USDA for the 

guarantee that the importer's letter of credit is valid. 

 

The U.S. Small Business Administration (SBA) provides financial 

and business development assistance to encourage and help small 

business develop export markets.  SBA offers both loans and loan 

guarantees. 

 

The U.S. Trade Development Agency (TDA) provides grant loans for 

pre-feasibility studies overseas on projects with high U.S. 

product and service export potential. 

 

 

F.  PROJECT FINANCING/MULTILATERAL INSTITUTIONS/PROJECTS SUPPORTED 

 

Government institutions in Costa Rica obtain funds for their 

projects from multilateral development banks, such as the Inter- 

American Development Bank (IDB) and the World Bank.  These 

multilateral development banks finance projects in the areas of 

energy development, health, education, transportation, 

sanitation, sewage, agriculture, and private sector development. 

The procurement procedure requires pre-feasibility studies, 

environmental impact assessments, and publication of public 

tenders for foreign competition according to each bank's 

regulations.  U.S. exporters are encouraged to contract with a 

local representative for successful participation on bids.  In 

addition to IDB and World Bank financing, project financing is 

available for companies with majority Costa Rican ownership from 

the banking system, with either the banks' own money or from 

funds made available by the Central American Bank for Economic 

Integration (CABEI), the Venezuelan Petroleum Fund (interest paid 

on loans to buy oil from Venezuela) and other sources.  The 

foreign share of international projects is generally financed 

abroad, from such sources as U.S. private banks, guaranteed by 

EXIMBANK, OPIC or MIGA. 

 

While financing is available for most activities, preference is 

given to export industries, especially if the loan is made in 

dollars and from funds provided by foreign sources.  Recent 

projects include hotels, tourist resorts, fast food franchises, 

non-traditional export crops, etc. 





 

936 Financing:  Through December 31, 1994, 936 funds (monies made 

available to U.S. investors in CBI countries from tax exemptions 

enjoyed by U.S. corporations working in Puerto Rico) have 

financed the development of 37 projects in Costa Rica.  936 loans 

totalled USD 65,706,000 and supported a total investment of USD 

205,517,566 in these 37 projects, which included investments in 

tourism, textile/apparel production, agroindustry and 

manufacturing facilities. 

 

Inter-American Development Bank:  From 1961 to 1993, Costa Rica 

received approval from the IDB of 90 loans totalling USD 2.143 

billion.  These funds have been invested primarily in energy, 

agriculture, fisheries, public health and environmental 

conservation projects.  No new loans were approved in 1994. 

 

For all of Costa Rica's historical success in receiving approval 

of IDB financing, Costa Rica is also the slowest of all the Latin 

American countries to take advantage of the resources. 

Consequently, of the 19 loans (totalling $1.228 billion) for 

Costa Rica which IDB has approved in the last ten years, only 

$298 million has been disbursed to date.  About $90 million was 

disbursed in 1994 and it is expected that $190 million will be 

disbursed in 1995.  Disbursements generally await the necessary 

Costa Rican legislative ratification of the loans, which averages 

18 months compared to 9 months for other countries.  This pattern 

of delay has resulted in concrete costs to Costa Rica, as 

evidenced by the April 1994 loss of a USD 41 million loan for a 

sectoral adjustment program for agriculture because the 

Legislative Assembly was unable to take required action within 24 

months of the approval of the loan.  In addition, Costa Rica has 

to pay fees on the undisbursed portion of approved loans. 

 

 

G.  LIST OF BANKS WITH CORRESPONDENT BANKING IN U.S. 

 

State-owned commercial banks include:  Banco Nacional de Costa 

Rica, Banco de Costa Rica, Banco Credito Agricola and Banco 

Internacional de Costa Rica.  Private commercial banks include: 

Banco Interfin, Banco Banex, Banco Cooperativo Costarricenses 

(Bancoop), Banco de San Jose, Banco de Fomento Agricola, Banco 

BCT, Banco del Comercio, Banco Mercantil de Costa Rica, Banco 

Metropolitano, Banco Panamericano, Banco Continental, Banco de 

Cofisa, Banco Federado de Cooperativas de Ahorro y Credito, Banco 

Fincomer, Banco Exterior, Banco de la Industria, Banco Lyon, 

Banco Solidarista Costarricense, Banco de la Union and Banco 

Citicorp Costa Rica.  Bancrecer, a Mexican bank, began operations 

in Costa Rica under the name Bancrecen in 1994.  The Costa Rican 

banking system also includes a workers' bank (Banco Popular) and 

a state housing bank (Banco Hipotecario).  All commercial banks 

in Costa Rica have correspondent relationships with major U.S. 

banks.