Friday 5 March 2021

Foreign Capital Coming Too Fast to Costa Rica, VP Says

Foreign capital inflows have rushed into Costa Rica too quickly, sparking the government’s efforts to weaken Latin America’s third-best performing currency this year, Vice President Luis Liberman told Bloomberg.

The government is seeking congressional approval to raise deposit requirements on investors and boost taxes on interest paid abroad after inflows rose as global investors search for higher yields, Liberman said in an interview yesterday in San Jose. The measures are designed to be temporary, he said.

“It’s too much, too fast,” Liberman, who heads President Laura Chinchilla’s economic team, said. “Because of the size of the country and the current international economic conditions where interest rates in some of the developed countries are so low, we need to put these measures in place.”

- Advertisement -

Costa Rica’s moves came after currencies in Poland, Romania and Colombia reached their strongest levels this month since at least February 2012. Russia’s central bank warned Jan. 16 that the world is on the brink of a fresh ‘‘currency war.”

Costa Rica’s currency, the colon, has gained 1.4 percent against the dollar this year through yesterday, trailing only the Brazilian real and the Guyanese dollar among 20 Latin American and Caribbean economies tracked by Bloomberg. The colon was little changed at 501.14 per dollar at 1:11 p.m. local time.

International Reserves
The entrance of speculative capital into Costa Rica, where the interest rate on deposits is 8.6 percent, has forced the central bank to purchase more than $1.5 billion in the last 10 months to stabilize the colon. That hasn’t cut into central bank reserves, which have reached $7.1 billion this month from $4.6 billion a year ago.

The government’s proposed currency measures won’t affect long-term foreign investment in Central America’s second-biggest economy, which hosts companies including Hewlett-Packard Co. (HPQ) and Intel Corp, Liberman said.

- Advertisement -

“Costa Rica is attractive,” Liberman, 66, said. “Our economic growth was 5 percent last year, which is very stable, and inflation of 4.5 percent, which is very low.”

Luis-Liberman_ELFIMA20130122_0011_4Liberman also said that Costa Rica’s “crawling band” currency system, which allows the colon’s value to fluctuate daily between a fixed ceiling and floor, will eventually be abandoned by the central bank.
Crawling Band

“No country has a permanent system of having a ceiling and a floor always,” he said. “When is the optimal moment to move away from that system? That has to be decided by the central bank.”

The Finance Ministry will announce ideas for a new fiscal consolidation plan as soon as March in an attempt to pare the country’s budget deficit, estimated at 4.5 percent of gross domestic product, Liberman said. The plan will increase tax collection and reduce spending in hopes of narrowing the gap by 3 percentage points prior to the start of a new government in 2014.

“It is an act of political responsibility to try to find a long-term solution to this issue,” he said. “Leaving a fiscal deficit of 1.5 percent of GDP is very manageable.”

Source: Bloomberg

- Advertisement -

- Advertisement -

FACT CHECK:
We strive for accuracy in its reports. But if you see something that doesn’t look right, send us an email. The Q reviews and updates its content regularly to ensure it’s accuracy.

Ricohttp://www.theqmedia.com
"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

Related Articles

[BLOG] Costa Rican Electric Company – General Maintenance Procedures

During my fifteen plus years of living in Costa Rica, I...

Heliport, Money and Weapons in Costa Rica

Following reports by residents of Las Asturias de Pococí about flyovers...

MOST READ

5 cantons register less than 10 active cases of covid-19

QCOSTARICA - Five of the 82 cantons of Costa Rica register fewer than 10 active cases of covid-19 to this date, according to the...

Vehicle Restrictions for March

QCOSTARICA - Due to an improvement in the epidemiological situation of the health emergency, starting March 1, the only daytime vehicular restrictions for the...

ESPH charges the family for electricity for January and February even though fire destroyed their home in December

QCOSTARICA - Despite losing their home entirely in December, a Heredia received electricity bills from the Heredia Public Service Company (ESPH) for January and...

In the first year of the pandemic, Costa Rica has the fifth lowest mortality from covid-19 in Latin America

QCOSTARICA -  How has Costa Rica done during its first year in the fight against covid-19? If you ask the demographer Luis Rosero Bixby,...

The Ultimate Guide to Moving to Costa Rica

Costa Rica is one of the world’s most desirable ex-pat locations and a retirement haven in Central America. The country is blessed with an...

Unemployment in Costa Rica has affected women the most during the pandemic

QCOSTARICA - The latest unemployment figures show that women have been affected the most during the pandemic: more than a quarter of the female...

Don’t forget to move forward!

RICO's DIGET - As we begin the month of March, I can't help but think back on what we have been through over the...

CCSS reports 149,812 vaccines applied against covid-19

QCOSTARICA - The Caja Costarricense de Seguro Social (CCSS) reports applying a total of 149,812 vaccines against covid-19, reaching a national application rate of...

The Quijongo!

QCOSTARICA - The quijongo is now in very good health thanks to the care of the people of Guanacaste, who are dedicated to protecting...

WANT TO STAY UP TO DATE WITH THE LATEST!

Get our daily newsletter with the latest posts directly in your mailbox. Click on the subscribe and fill out the form. It's that simple!

Log In

Forgot password?

Forgot password?

Enter your account data and we will send you a link to reset your password.

Your password reset link appears to be invalid or expired.

Log in

Privacy Policy

Add to Collection

No Collections

Here you'll find all collections you've created before.