Informal Economy Costa Rica Style

According to a paper published by the International Monetary Fund, “The informal economy comprises those economic activities that circumvent the costs and are excluded from the benefits and rights incorporated in the laws and administrative rules covering property relationships, commercial licensing, labor contracts, torts, financial credit and social systems.”

The same paper estimates that in the early 2000s, Costa Rica”s “informal” economy comprised around 42% of GDP. To see the “informal economy” at work in Costa Rica isn”t hard. In fact, the “informal economy” is impossible to avoid. Let”s take a “pirate” taxi downtown and take a look around.

You need anything? How about some genuine fake Ray-Ban sunglasses? How about some nearly-authentic nearly-Cuban Cohiba cigars? Look at the price of those Rolex watches! Need socks? Prepaid telephone cards? Feel like buying some original black velvet artwork? Chiclets? No problem. How about the latest release on DVD? The latest hits on CD? Some Michael Jackson? Got you covered.

Local store owners complain that the street vendors have an unfair advantage insofar as they pay no taxes. And although there has been an effort on the part of local authorities to “crack down” on street vendors, particularly along the pedestrian walkways, you can see the vendors and the police playing cat and mouse as the vendors signal to each other that the police are coming and gather up their wares in plastic tarps until the police are safely past.

It is hard to say what percentage of the 42% of GDP are due to sales of bootleg and counterfeit merchandise. There is certainly no shortage. But there is more to the “informal” economy than meets the eye. Some components are deliberately kept hidden, such as drug sales and trafficking or that SOB that stole your bag at the bus station. Others just keep a lower profile, such as the streetwalkers and “pirate” taxis.

Just why the “informal” economy is so large is open to many interpretations. It can be said that the “informal” economy is there because either the “formal” economy does not provide enough jobs, or the “informal” economy provides easier money. Neither is true in all cases. What is unquestionably true is that it is BIG in Costa Rica.

And really, if you can”t tell the difference between a real “Cohiba” cigar and a fake, what does it matter?

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