QCOSTARICA – The overvaluation of the Colon against the US dollar is hurting the competitiveness of Costa Rican exports.
Costa Rica’s colon has gained 1 percent this year, the most among 17 Latin American and Caribbean currencies tracked by Bloomberg. The strengthening colon against the US dollar is directly affecting the export companies that generate costs in colones and dollars are converted into colones. Add to that the devaluation of the dollar against the Euro, creating a negative effect on companies that sell their products in Europe.
Costa Rica’s Central Bank announced in January it would allow the currency to float against the dollar after decades of gradually reduced brakes on its volatility. It also announced a program to buy as much as US$800 million through 2016. In a statement last week, the Central Bank said “the colon continues to strengthen” as financiers repatriate money held overseas, contributing to an influx of dollars in the US$50 billion economy.
Ronald Peters, executive director of the Coffee Institute of Costa Rica (Instituto del Café de Costa Rica – ICAFE), said in an article in Nacion.com that “… ‘Coffee has been very much affected, because 85% of our production is exported (…). For example, the Real (Brazil’s currency) has depreciated by 30% and that has made the Brazilian (coffee) more competitive. In Colombia, the Peso also has devalued almost 20%’. ”
Juan Rafael Lizano, President of the Chamber of Agriculture (Cámara de Agricultura), said that “… ‘If you see the numbers in the agricultural sector and they are falling every month, both production and export. What is happening? All our products in Europe are worth 30% more (…), and we receive the same dollars. Therefore, we can not compete on price (…).”
While at the Café Britt, manager Pablo Vargas, told La Nacion the situation does not affect them, that its customers are less sensitive to price.
However, it is a different experience for other producers, like rice and beans.
Diego Rojas, general manager of Alimer, a bean producer in Santa Cruz, said, “we process agricultural products, the cost of raw materials is very important and depends on local costs. The local costs are not reduced when the currency appreciates,” said Rojas.
The currency gains cost Costa Rica’s private banks, which hold most of their capital in dollars, 6 billion colons in the first quarter, local trading firm Aldesa said in a statement.
Sources: Nacion.com, Washington Post/Blooomberg
The American dollar is gaining strength against almost, if not, every other currency in the world, except the colon???
That is correct, the USD is gaining everywhere but in the most powerful economy in the world – costa rica!
Right! To suggest the colon is stronger than the dollar is a joke. Look at the domestic economy, job loss, etc. At some point the government either lets the colon settle where it should, somewhere between 600-700, and then things start getting better here! How does a beggar nation have a currency stronger than the world’s strongest economic engine. It is time we stopped propping up every other country that sees its self failing do to the collapse of its socialist systems. Costa Rica is no different.
Could it be that the billions in dollar denominated loans received and billions in dollar bonds that the government has issued have something to do with it? Maybe? LOL.
Yeah, funny how a country in debt to the tune of almost half of its annual GDP, with junk bond credit rating and which no other nation in the world uses can have its currency gain against a currency which is stronger, at the moment, against most other world currencies? Me smells something fishy……..