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
