The Central Bank of Costa Rica has suggested creating a benchmark rate for dollars, similar to passive base rate applied to the local currency, the Colón.
With the proposal, the Central Bank aims to "reflect the cost faced by financial intermediaries in the country of having funds in dollars," taking into account references for interest rates where entities are funded abroad and other external factors.
A bill aims to facilitate access by companies to the capital market allowing operations in more than one stock market.
The bill to be submitted to the Legislature for review includes, among other changes, the creation of a market for trading of fixed income titles and improving business access to the market as a financing alternative.
The volatility that the dollar has shown brings back to table the discussion on whether or not to dollarize the Costa Rican economy.
In his opinion piece in Elfinancierocr.com, Juan Carlos Hidalgo details the implications of the recent behavior of the exchange rate for the economy and suggests dollarization as a way of solving many of the problems that could soon occur if the dollar continues to rise.
The discretionality of interventions made by the central bank in the foreign exchange market could open the gate for unjust enrichment of those who have inside information.
In the best of democratic worlds, the intervention of public employees in the economy generates income transfers between the sectors within the economy, according to state policies that are largely accepted by the population.
Financial institutions in Costa Rica will have a maximum of 48 months to implement the new measures which restrict lending.
The information was confirmed by the National System for Financial Supervision (Conassif), which approved "11 new regulations, with a phased implementation period of up to 48 months, when the original version stipulated 36. Most of the grace periods start from 1 January 2014 ", reported Nacion.com.
The Costa Rican Central Bank has decided to remove the limits on credit growth both in dollars and in colones, due to the weak economic growth facing the country.
The announcement came during the presentation of a review of the Macroeconomic Program 2013-14, where it was revealed that growth projections for that period are 4%, while inflation will be 5%. According to the President of BCCR, Rodrigo Bolaños, the Costa Rican economy is growing at a slower pace due to a reduction in exports, coffee rust, the limitations on sowing more pineapples and even the limit on credit growth.
Former Presidents of the Central Bank of Costa Rica have criticized the bill which sets two equal objectives for the institution: inflation control and boosting production.
They agree that the Central Bank has shown that it does, but remain unconvinced that an expansionary monetary policy can be implemented to boost production indefinitely. Also, the experts believe that although both goals have similar weight, priority is always given to one over the other.
Representatives of business associations have proposed ten measures to prevent the entry of speculative capital into the country and to provide flexibility to the exchange rate without local currency appreciating.
Elfinancierocr.com reports that "Business representatives this afternoon delivered a plan with 10 steps to curb the heavy influx of foreign capital", among which was "a tax on speculative capital inflows, in addition to promoting a specific tax on remittances sent abroad, of 5% for national banks and 5% for ‘suitcase’ banks".
The latest announcements in Costa Rica about greater exchange rate flexibility to appreciate the colon are worrying exporters.
An article on Crhoy.com reported that "Late last year, the president of Costa Rica’s Central Bank (BCCR) Rodrigo Bolaños announced that the monetary authority will continue the transition announced in 2006 seeking to lead the country towards greater exchange rate flexibility consistent with the full adoption of inflation targeting."
The idea that the Central Bank of Costa Rica be a fund manager for the Development Bank has been rejected by its President Rodrigo Bolaños.
An article in Nacion.com notes that the strange idea originated in the office of the second vice president of Costa Rica, Luis Liberman, where it probably passed by the Economy Minister Mayi Antillon, who most likely presented it at the Development Bank Commission of the Legislature.
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