QCOSTARICA – The emergency that the country went through at the end of 2018 due to the lack of liquidity at that time had a direct impact on the dollar exchange rate.
As soon as the government of Luis Guillermo Solís came out to say that it did not even have enough money to pay the Aguinaldo (Christmas bonus), that no local investor wanted to buy domestic debt bonds and that there was nowhere to get resources, uncertainty immediately gripped the markets and the exchange rate jumped: from August to November the price of the dollar had risen by almost ¢50 colones.
Costa Rica managed to close that year thanks to the issuance of Treasury Bills and began 2019 gradually returning to greater tranquility. Even so, the exchange rate remained above the barrier of ¢600 colones to one US dollar until the beginning of April, to then resume a downward trend.
The current uncertainty, added to the absence of U.S. dollars in the market as a result of the bad economic times that tourism is going through, is pushing the exchange rate up again.
This year, the indicator resumed an upward race from May, which in recent months has been accentuated. Again, both the purchase and sale are today above the ¢600 barrier – they buy ¢600.03 and sell ¢606.91 (higher at banks) – approaching post-fiscal gap levels. Is it time to get scared?
The first thing economists and analysts say on the subject is that there are two completely different scenarios – two crises.
In the first, the fiscal gap caused by former President Luis Guillermo Solís and his Minister of Finance Helio Fallas left the State coffers – literally – empty.
In the economy, there were the dollars that came in from tourism and foreign investment, but there was no money, not even to meet the obligations of the State.
Currently, due to the pandemic, the key to dollars for tourism and investment is closed but volatility is expressed more by a psychological aspect: the negative expectations that exist about the current situation and the uncertainty generated by the fact that at this point there is no plan of fiscal sustainability.
This uncertainty pushes people to hold onto the only thing “stable” or relatively strong: the dollar. An appetite for foreign currency is then aroused, which automatically pushes its price up.
“The volatility that we are seeing in the foreign exchange market is directly related to the uncertainty caused by the Government’s lack of definition of a plan to solve the fiscal problem that afflicts the country. Indeed, as long as there is no clear action plan on the part of the Government to resolve the deficit, the pressure will continue on the exchange rate and could continue to rise,” said finance expert Hazel Valverde, Operations Manager, Administration and Stock Market Finance and professor at LEAD University.
To try to prevent the exchange rate from skyrocketing, the Central Bank has been injecting resources into the Foreign Currency Market (Monex). As of October 22, the amount invested had already exceeded the US$75.9 million in 2019.
However, the amounts are very far from the previous two years, when the interventions were really large, as a result of the inheritance of the fiscal gap.
The second is seasonality, which can also be seen by comparing daily interventions. This year the largest interventions have been from the second half of the year.
On Thursday alone the Central bank invested US$8.8 million dollars.
Is it time to panic? The answer is finally on the side of the government authorities and what they can do to reduce pressure.
This Thursday the Minister of Tourism Gustavo Segura himself spoke about the issue, in the noon presser from Casa Presidencial.
“Let us remember that these (sanitary) measures help to recover the employment that is so necessary throughout the country, especially in the tourist regions on the coast and in the countryside of Costa Rica. The dollars that should begin to return through the tourism industry are urgent to help in the stability of the exchange rate of the dollar against the colon,” Segura said announcing that the country will eliminate as of Monday, October 26, travelers to have a negative PCR COVID-19 test to enter the country by air.
However, the entry of tourist dollars or even money from foreign loans is not seen as sufficient measures by analysts who say that clear signals about the order of finances are necessary to calm the uncertainty that pushes its price up.
“The inflow of resources related to loans from abroad is not enough because the volatility of the exchange rate is not associated with a problem of dollar flow but rather with the concern that the different economic actors have regarding the future of the country, which will not change until there is a clear road map for the control of the public debt,” said Valverde.
According to financial analyst Daniel Suchar: “It is a matter of uncertainty, of the agreement with the IMF, what is going to happen … the closer we get to December, the closer we get to 2021 and do not solve the problem, we will be faced with greater interventions from the Central Bank, we will have more disorder in our finances.”