QCOSTARICA — Despite in the last month the dollar exchange rate stopped its fall and, more importantly, began to gain value, this does not mean that the exchange rate is near where it should be to allow business in the export sector, tourism and foreign investment to operate without difficulties and avoid layoffs.
With a dollar exchange rate above ¢620 colones to one U.S. dollar, it would also allow debtors to keep their debts up to date without major problems.
But we are not there yet, reaching a point of equilibrium, and there are no expectations to be there in the short term, according to financial experts.
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The problem is that between May 2 and May 31, the purchase of dollars went from ¢503 to ¢520, which implies a recovery of only ¢17 per unit. ¢100 below that equilibrium point.
The improvement in the last month in the dollar exchange is related to the reduction of the Monetary Policy Rate (MPR) approved by the Banco Central (Central Bank); However, experts consider that the state entity still has room to further reduce this index and thus promote borrowing and the increase of the dollar exchange.
“The ideal value for the productive sector and debtors should be based on a fluctuating figure between ¢620 and ¢640. Prior to all this great fluctuation that we have experienced up and down in the last year and a half, there were no major movements in the dollar exchange and people accepted it without problems. That is what we call the equilibrium point (…) I think that the Central Bank still has room to reduce the MPR even more,” said Daniel Suchar, economic analyst.
The sharp drop in the dollar exchange rate in the last 18 months made Costa Rica one of the countries with the greatest appreciation of the local currency, the colon, according to Gerardo Corrales, economist at Economía Hoy.
Experts agree that it is essential that the exchange rate returns to “normal” values so as not to affect companies that receive their income in dollars, avoiding further layoffs such as the case of a company operating for the last 35 years that had to close due to the low dollar exchange rate.
The Standard Fruit Company, a major player in Costa Rica’s export sector, announced recently the layoffs of more than 400 people for this same reason.
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“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 is barely ¢530, it is the exporters, hoteliers and local producers who are faced with imports and react,” said Corrales.
Costa Rica is an economy very dependent on the external market, so a drop in the value of the U.S. dollar has a high impact.
Among the reasons for the low dollar is the record figures in tourism, exports and foreign investment in 2023, causing the market to be flooded with dollars, at the same time that the government is not buying in the local market to pay its debts, so there is less demand for the dollar and that translates into a lower dollar exchange rate.
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