Costa Rica´s Choice: Low Dollar or High Inflation

The loss of competitiveness in exports and tourism generates unemployment, but intervening in the exchange rate will generate inflation.

Thursday, November 4, 2010


There seems no good solution to the problem Costa Rica has with the appreciation of its currency, which has meant a loss of competitiveness of its exports, especially agricultural, by about 5% annually over the past 4 years.

The construction sector, whose contracts are mostly in U.S. dollars, has lost 15% of its revenue in the last year because of Colon appreciation. The picture is similar in the tourism sector, which fails to recover from the effects of the financial crisis of 2008.

All of this has direct impact on employment, which since March 2010, after implying recovery, has averaged 1,100 lost jobs per month in the private sector.

Central Bank insists on not intervening in the exchange rate, explaining that buying dollars in the foreign exchange market leads to higher inflation, which ultimately affects the lower income sectors.

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More on this topic

Costa Rica: Slow Depreciation of Colon Continues

September 2016

The exchange rate in the wholesale Monex market has gone from ₡535.9 per dollar in mid-March to ₡553.9 in the first week of September this year.

Despite interventions by the Central Bank, the exchange rate in Costa Rica has maintained a clear upward trend for several months, reflecting in a devaluation of 3% so far this year.

Costa Rica Currency Surge ‘Worrisome,’ Says Future Vice President

May 2010

Luis Liberman, Costa Rican Vice President-Elect, said the rally in the nation’s currency is “worrisome”.

Costa Rica’s colon has surged 11 percent against the dollar since Dec. 31.

The currency is benefiting from the so-called carry trade, in which investors borrow in nations with low interest rates to buy higher-yielding assets, Liberman said.

Costa Rica Launches Battle Against Speculative Funds

January 2013

A bill is being prepared to impose taxes on money which enters the country seeking to exploit the gap between interest rates in local currency and in dollars.

Furthermore President Chinchilla has issued a directive to state banks to stop competing with each other to attract investments from large institutions, such as the Instituto Costarricense de Electricidad, the Social Security Department, or the National Insurance Institute. It also requires public institutions to make new investments exclusively in state banks.

Costa Rica: Competitiveness and the Exchange Rate

September 2016

Research backed by the export sector concludes that in order to reach the breakeven point, the colon needs to devalue by 20% against the dollar within three years.

Analysis by the economist and former bank manager Gerardo Corrales suggests that the exchange rate needs to depreciate by 20% in order to reach its "real" value and balance. To avoid the effect of a sudden devaluation it has been proposed that the increase be done gradually by the Central Bank.  

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