Tuesday 22 June 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

Today’s Vehicle Restriction June 15: 3 & 4 CANNOT circulate

Today, Tuesday, June 15, vehicles with plates ending 3 & 4 CANNOT circulate The measure is countrywide and applied between 5:00 am and 9:00 pm,...

Today’s Vehicle Restriction June 21: plates ending in 1 & 2 CANNOT circulate

Today, Monday, June 21, we are back to the two plates that cannot circulate, in today's case plates ending in 1 & 2 CANNOT...

Construction companies that paid alleged bribes would be disqualified for ten years

QCOSTARICA - If it is proven in a final judgment that they did pay bribes to Conavi officials, several companies could be disqualified from...

Today’s Vehicle Restriction June 18: 9 & 0 CANNOT circulate

Today, Friday, June 18, vehicles with plates ending 9 & 0 CANNOT circulate The measure is countrywide and applied between 5:00 am and 9:00 pm,...

Today’s Vehicle Restriction June 17: 7 & 8 CANNOT circulate

Today, Thursday, June 17, vehicles with plates ending 7 & 8 CANNOT circulate The measure is countrywide and applied between 5:00 am and 9:00 pm,...

Companies covered up defective asphalt

QCOSTARICA - The judicial file of the Cochinilla Case, on alleged corruption in road works, exposes how three companies would have covered up the...

Cynthia Ann Telles named new U.S. Ambassador to Costa Rica

QCOSTARICA - Today, U.S. President Joe Biden announced his nomination of Dr. Cynthia Ann Telles as United States ambassador to Costa Rica. According to the...

New trends in coffee consumption challenge sector

QCOSTARICA - Changes in consumption habits in terms of times, types of preparation and specialties challenge the coffee sector. Most of the consumers in Costa...

Nathalie Álvarez Mesén’s feature debut, Clara Sola, ready for the Cannes Directors’ Fortnight

Q ENTERTAINMENT (CINEUROPA) Nathalie Álvarez Mesén’s debut feature, Clara Sola, is ready to take part in this year’s Directors’ Fortnight at the Cannes Film...

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.