(QCOSTARICA) Concerned about the risks involved with the high degree of dollarization of loans in the financial system, the Banco Central de Costa Rica (BCCR) – Central Bank – is looking to implement a plan that would have banks requiring authorization in order to borrow abroad in dollars.
The Central Bank says the risks of lending in a different currency to which the debtor generates income, is devaluation.
In addition to the Central Bank last month raised the reserve requirements to 15% on new business loads from abroad. In June the increase in the dollars loan portfolio was up 14% as compared to the same month in 2015.
The specific measures are that each financial institution must obtain permission from the Central Bank in order to raise funds abroad, as is currently done with savings and loans cooperatives.
Luis Mesalles, director of the Uccaep said that “…’This will mean that loan options for productive sectors will become more expensive, and therefore there will be less investment, and having less investment will mean less production for the country, which goes against the desire to make the economy grow more and have more job creation.’ ”
In an opinion piece published in La Nacion today, Messales says, “the problem is that, to solve the problem, the Central Bank is not taking the best path…while debtors perceive greater stability in the exchange rate, they will not believe that there is a significant risk to borrow in dollars. There, the Central Bank has much of the fault as exaggerated in its policy of avoiding ‘sharp fluctuations‘ in the exchange rate.”
In the opinion of Mesalles, “by not promoting solutions that address the structural causes, it is difficult for the Central Bank to significantly reduce dollarization“.
According to the President of the Central Bank, Olivier Castro, “We have little instrumental to curb dollarization of credit. If we had other instruments, it would be handled differently.”
In an interview with La Nacion, Castro was asked,”what instrumental does the Central need? You only speak to strengthen the engagement within the monetary policy,” to which Castro answered, “we do not want to advance because, while it is still under consideration, when the (proposed) bill is ready the Bank’s decision will be known.”
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