The political environment will remain stable over the forecast period, even if there is a change of government in 2010, underpinned by the strength of Costa Rica’s political institutions. However, the lack of a governmental majority in Congress, coupled with the opposition’s ability to block legislation, will keep the pace of reform slow. The election chances of the governing Partido Liberacion Nacional (PLN) in 2010 will be damaged by a slowdown in economic growth and rise in unemployment. The Dominican Republic-Central America Free-Trade Agreement (DR-CAFTA), the centrepiece of the PLN's agenda, came into operation in January 2009, freeing trade between the seven signatory countries and paving the way for liberalisation of the telecoms and insurance industries.The Banco Central de Costa Rica (BCCR, the Central Bank) will continue the gradual widening of the exchange rate bands as it prepares to move towards a formal inflation-targeting regime, which it hopes to have in place by 2010. Partial recapitalisation of the debts and related losses of the Central Bank will also contribute to a decline in inflation in the second half of the forecast period. Further progress on improving the Central Bank's finances will depend on the approval of a much-delayed fiscal reform, which will not be debated before 2010. With customs revenue set to fall and economic growth slowing, the fiscal accounts will revert to deficit in 2009-10. A large public debt burden will continue to weigh on the fiscal deficit and complicate monetary policy.GDP growth will fall in 2009, dragged down by recession in the US and much of the developed world, as manufacturing output, export volumes and real investment fall, which will also entail a fall in import volumes. DR-CAFTA is expected to encourage greater inward investment in the medium term (lifting the investment/GDP ratio to 22% by the end of the outlook period from 20% in 2004-08), but in 2009-10 this will be constrained by tight financing conditions. Renewed export growth and firm private consumption will lead to a recovery in GDP growth in 2011-13, to an annual average of 4.2%.Inflation will fall from 2009 in a context of low international commodity prices and weakening domestic demand, and the Economist Intelligence Unit expects it to be lower on average in 2009-13 than in 2004-08, albeit still high by regional standards. The Central Bank will manage a controlled real depreciation of the exchange rate in 2009-10, which will involve a loss of reserves. The current-account deficit will fall from its very high levels of 2008. Structural weaknesses, such as a dependence on oil imports and US prospects, will continue to represent a risk to economic stability.Key indicators200820092010201120122013Real GDP growth (%)3.31.52.34.24.34.2Consumer price inflation (av; %)13.48.38.96.76.76.5Budget balance (% of GDP)0.6-3.0-2.7-0.60.10.2Current-account balance (% of GDP)-9.9-4.1-4.5-4.0-3.4-3.2Exchange rate C:US$ (av)526.24575.66614.00635.86651.32667.16Exchange rate C:€(av)773.57774.26850.39899.75942.79980.73