Costa Rica and the Exchange Rate Dilemma

Businesses in the tourism and export sectors are insisting on the need to revise the exchange rate policy in order to recover part of the competitiveness lost in recent years.

Wednesday, May 18, 2016

While on one side of the fence exporters and tourism companies are asking to change the way in which the exchange rate is managed in order to improve their competitiveness, on the side are the companies and sectors that have benefited not only from the stability shown by the price of the dollar in the country but also from cheap imports.

The export and tourism sectors have once again asked the Central Bank of Costa Rica (BCCR) to conduct a review of the management of the exchange rate, this time through "... a letter sent to the entity last week."

Export sector employers resent the way exchange rate policy has been managed, and claim they have lost competitiveness compared to countries such as Colombia, Mexico and Peru, which have devalued their currencies against the dollar. "... "The exchange rate policy has been exclusively subject to achieving inflation targets, ignoring the competitiveness of the national productive sector in terms of promoting production and employment, which could worsen economic and social instability," said the Chamber of Exporters of Tourism and others in a statement on April 27."

The Central Bank said it will analyze the request, but its manager Eduardo Prado told that "... sacrificing inflation in order to increase employment can have costs. 'An inflationary process triggered by the desire to reduce unemployment could put an end to the macroeconomic stability of a country, causing greater uncertainty about economic activity among employers, making them more cautious in their investment and staff hiring decisions, increasing unemployment'."

More on this topic

Guatemala and the Exchange Rate Debate

February 2017

Although the export sector continues to denounce the loss of competitiveness because of appreciation of the quetzal against the dollar, the Central Bank insists that the exchange rate will remain dependent on market factors.

A  year ago the complaint was the same. Exporters asked the Central Bank for a review of the exchange scheme to induce a devaluation that would allow them to recover some of the competitiveness lost abroad because of the exchange rate. The situation today has not changed, and exporting companies have asked for the Ministry of Agriculture to intervene in this matter.

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.

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.  

Exporters and Central Bank Square Up Over Exchange Rate

July 2015

Costa Rica's export sector wants to regain competitiveness through devaluation of the colon, but the Central Bank insists that the exchange rate is at the right level.

An article in reports on the pressure put on authorities at the Central Bank (BCCR) by exporters, to devalue the local currency which would increase the competitiveness of Costa Rican exports, which in the past year fell by one billion dollars.

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