Competitiveness and Devaluation

In a competitive scenario for lower costs and higher productivity, devaluation against the Lempira Dollar in Honduras and the Cordoba Dollar in Nicaragua is a factor that could help these economies stay competitive.

Thursday, July 11, 2019

In the last five years, the exchange rate in Honduras increased by 17%, from 21.06 Lempiras per U.S. dollar in June 2014 to 24.67 in the same month in 2019. In the case of the Nicaraguan currency, the devaluation during the period concerned was 28%, rising Cordobas 25.87 per dollar to 33.17.

In the cases of Guatemala and Costa Rica, the devaluation in recent years has not been very pronounced, because although variations have been reported in different periods, the authorities have intervened to keep the exchange rate in the required ranges. On the other hand, Panama and El Salvador, being dollar economies, are only spectators in this scenario.

You may be interested in "Exchange Rate Closes 2018 Upwards” y "Dollar Price Keeps Going Down"

In this context, the business sector remains aware of the changes reported in the region, since the price of currencies is a factor that can influence the cost structure that an investment can incur.

Regarding the case of Panama, Indesa's managing partner, Felipe Chapman, explained to Martesfinanciero.com that the country "... should be concerned about improving its costs, as well as productivity and be more efficient because having a strong currency must make other adjustments. Mainly from private companies and the productive sectors', it is fundamental that the country becomes more competitive."

According to Chapman, the devaluation of regional currencies cannot be controlled, so Panama must adjust its internal service rates. For example, in the case of tourism to continue attracting visitors, otherwise it will continue to lose competitiveness in other markets.

Carlos Urriola, president of SSA International and logistics and port expert, said that "... The agents of the logistics sector are closely following issues such as the devaluation of regional currencies, the price of oil and the regional commercial impact to anticipate what will happen with the movement of cargo in Panamanian ports, in addition to the flow of trans-shipment, exports and imports.”

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During 2019, the price of the dollar in Costa Rica registered multiple fluctuations; however, for this 2020, such abrupt variations are not anticipated, since the Central Bank starts the year with reserves close to $9 billion.

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Costa Rica: Intervention in the Foreign Exchange Market

November 2019

With the aim of cushioning the fall in the price of the dollar, which between November 5 and 25 was reduced in ₡18,35, in just two days the Central Bank intervened buying more than $30 million.

Of the $41.5 million negotiated at Monex during the November 22 session, the Central Bank of Costa Rica (BCCR) purchased $36 million, and of the $30.7 million negotiated on November 25, the monetary authority acquired $27 million.

Costa Rica: Central Bank will Not Change its Exchange Rate Policy

October 2016

Despite constant complaints from the export sector, the Central Bank has been clear that devaluing the Colon against the dollar would mean a reversal of the exchange rate policy.

The insistence with which exporters and tourism entrepreneurs have raised the need to depreciate the Costa Rican currency to recover some of the lost competitiveness in the external field was not enough to change the opinion of the monetary authority.

The Central Bank of Costa Rica and the Exchange Rate

February 2014

The monetary authority explains the procedure for defining interventions in the exchange market, without disclosing specific criteria.

From a communiqué by the Central Bank of Costa Rica:

EXCHANGE INTERVENTION BY THE CENTRAL BANK DUE TO VIOLENT EXCHANGE RATE FLUCTUATIONS

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