QCOSTARICA — In the past 18 months, between June 2022 and March 2024, individuals and businesses who earn in dollars experienced a 24% decrease in profits as a result of the colon strengthening against the U.S. dollar.
In fact, Costa Rica is a world champion in the appreciation of the local currency against the U.S. currency and far from being a proud merit, voices should be raised adsiving caution.
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While borrowers US dollars, whether for loans or credit card debt, may appreciate the lower payments, but it is important to recognize that there are significant potential drawbacks.
Thousands of jobs, the country’s competitiveness, the survival of tourism companies, the growth of the economy, the collection of taxes and even national producers are affected by a cheap dollar.
As if all that were not enough, Costa Rica has become a more expensive country in the medium term, according to financial experts and leaders of the productive sector.
“When an exchange rate is downward, it means that the country begins to have a very strong currency, so investors and tourists have to invest more dollars in the country to pay for their products and services in Costa Rica. This causes less investment, less employment and slower economic growth. Remember that income is in dollars and expenses in colones, so there is a significant loss,” said Daniel Suchar, economic analyst.
“The appreciation of the colon also means that the import of goods is cheaper, so local producers lose competitiveness compared to their counterparts in the country, while some companies associated, for example, with tourism, could be tempted to increase their rates and cope with the drop in the exchange rate. The problem is that they won’t lower the rate afterwards,” Suchar added.
In recent days, the purchase of the dollar exchange rate has been below ¢500.
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The reference rate for the dollar exchange by the Central Bank for this April 2, 2024 is ¢497.74 for the buy and ¢505.73 for the sell.
At the banks, both state and private, the dollar exchange is between ¢491 and ¢494 for the buy and ¢506 and ¢513 for the sell.
It is crucial to achieve a balanced exchange rate in order to prevent dollar debtors from facing high payments, while also ensuring that Costa Rica remains competitive in attracting foreign investment and creating new jobs.
Having a neutral or balanced exchange rate that convinces all sectors is not easy, but a good indicator would be when no one talks about the dollar as a problem.
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That balance point is close to ¢620.
“One has to look for a neutral exchange rate. When the exchange rate was ¢620, no one talked about the exchange rate. When it began to rise to ¢700, debtors in dollars and those earning in colones began to get nervous and raised alarm. Now that the exchange rate falls to ¢500, it is the exporters, hoteliers and local producers who are faced with imports and react,” said Gerardo Corrales, economist at Economía Hoy.
Concerning for the productive sector and economic experts is a dollar exchange rate lower than ¢500, indicating a decrease in competitiveness and job losses as a result of the strengthening of the colon.
Experts consulted by La Republica, Costa Rica’s leading business publication, details several measures that would allow a gradual increase, so that the economy does not suffer an abrupt blow.
- The Central Bank of Costa Rica must intervene in the exchange market to moderate appreciation levels of the colon
- Decrease the monetary policy rate, since current levels are not justified when inflation is controlled
- Make visible and support the growth of the coverage market
- Adjust the minimum legal reserve
- Assume the consequences of slow decisions, such as not having paid the Latin American Reserve Fund (FLAR) loan on time
- Economic agents, especially pension operators, should not be prevented from deciding to change their portfolios in terms of currency.
How to take advantage of a cheap dollar?
Five tips to take advantage of a falling exchange rate.
- Debts. If you have loans in dollars and income in colones, it is a good time to advance payments and take advantage of a cheap dollar, so that at the end of the day you will be generating significant savings.
- Purchase of goods and inventory. With a cheap dollar it is possible to buy goods and products that can serve the company later. The idea is to have a reserve and avoid it costing more later.
- Investment. Invest in financial instruments in dollars such as time deposit certificates. Of course, always doing a risk-return analysis.
- Savings. A significant saving in dollars would allow you to earn money in the medium and long term when the exchange rate rises.
- Travel. With a cheap dollar, tickets and services outside the country are more accessible if you earn in colones.
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