Q COSTA RICA — The low dollar exchange comes at a price for all Costa Ricans, and the government is no exception.
The Ministry of Finance acknowledged that the historically low exchange rate has been costly, this is due to a reduction in income tax of approximately ¢98 billion colones and in the Impuesto al Valor Agregado (IVA) — Value Added Tax— of approximately ¢87 billion colones, as reported today by La Nación.
“If we have some major taxpayers experiencing a foreign exchange loss due to the lower exchange rate, then obviously there is less income tax to pay. The low exchange rate affects us,” admitted Víctor Carvajal, Deputy Minister of Revenue.
On Friday, the dollar closed at ¢452.96 colones in the Foreign Exchange Market (Forex). This represents a reduction of more than ¢50 colones per unit so far this year.
On the other hand, if the previous day’s performance is any indication, the dollar exchange rate will not exceed ¢500 colones for the remainder of the year, and according to economic experts, it is likely to close around 480 colones.
This is positive news for those with dollar-denominated debts, but it also confirms more difficult days ahead for those who receive their income in dollars, regardless of whether they are salaried employees, small businesses, or large multinational corporations.
In this sense, the war in the Middle East between the United States and Iran has not, to date, exerted enough pressure to affect the local exchange rate.
But what is causing the colón to remain appreciated against the dollar? And what can be done to mitigate the impact?
The behavior of the exchange rate is due to a set of factors that have operated simultaneously and favorably for the country, according to Elizabeth Morales, assistant manager of Coopecaja.
“Costa Rica has seen a sustained inflow of foreign currency (dollars) from its main sources: exports of goods and services, tourism, foreign direct investment, and remittances. This abundant supply of dollars in the local market puts upward pressure on the colón and downward pressure on the dollar,” the expert explained.
At the same time, the Central Bank has maintained a sound monetary policy, with interest rates in colones that have proven attractive to savers, thus reducing speculative demand for foreign currency.
Added to this is an environment of controlled inflation and public finances with a more stable outlook than in previous years, which improves investor confidence in the colón.