Saturday 9 December 2023

Is drug trafficking responsible for the excess of dollars in Costa Rica?

January closed with a surplus of US$620 million in the foreign exchange market, a situation that also affects the historic drop in the dollar exchange rate.

Paying the bills


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Dollar Exchange

¢526.96 BUY

¢533.11 SELL

9 December 2023 - At The Banks - Source: BCCR

Paying the bills


QCOSTARICA – Costa Rica faces a historical excess of dollars in the exchange market, a situation that has also pushed the price of the dollar towards values that have not been observed since 2017.

According to economist Gerardo Corrales, Costa Rica closed January with a surplus of US$620 million and a monthly average of US$500 million, when the record of excesses at the banks is around US$100 million.

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For Corrales, who holds a Master in Business Administration with an emphasis in Banking and Finance from INCAE Business School, the Banco Central de Costa Rica (BCCR) – Central Bank – has failed to explain why such high figures, because the fundamental reasons are not enough to justify it.

“A part does come from fundamentals: more exports, more foreign direct investment, a recovery in tourism, and a part of financial transfers of investments that are in dollars to colones, but what is left over per month is almost US$500 million, in January we are talking about US$620 million.

“But it is very difficult, without having the statistics, to see where that difference comes from,” he said.

The economist, however, does suspect that drug trafficking and money laundering may be behind these excesses, the doubts fueled by the increase in crime facing the country.

“Normally, what we bankers say is that the origins of funds are doubtful, whether or not it comes from drug trafficking is speculation, but when one links this with the crime that we are seeing in the country, the presence of Mexican and Colombian cartels is evident, and also real estate movements, especially on the beaches, at least the concern remains as to whether the authorities are reviewing the origin of these funds,” Corrales warned.

“It could be explained that, perhaps, there are temporary facilities to be able to spend those dollars through real estate activity and that justifies those dollars. What the drug trafficker seeks is to introduce dirty money (sic) into the formal economy, to simulate real transactions for the purchase of property, vehicles, to launder money,” he added.

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Corrales also questioned the role that the Central Bank has played in controlling the drop in the exchange rate and its excessive efforts to address inflation in this way.

However, he said he continued to believe in the independence and autonomy of the entity.

“What cannot be denied is that the objective of achieving low inflation has led to an excessive rise in interest rates in colones and that this has also stimulated an appreciation beyond normal in the exchange rate and that has a direct effect on lower inflation.

“What does that serve the Government? Diay yes, because the Executive has offered to attack the cost of living and through this mechanism it is being achieved, but I would not like to believe that this is premeditated in an agreement between the Central Bank and the Executive to lower inflation,” he said.

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Economist José Luis Arce seconded Corrales’ position and assured that, if it is part of a strategy, its long-term effects will not be sustained.

“In the short term, the exchange rate can save us, in the long term we have to do other things and we are stuck in those most important reforms.

“No central bank banker is going to acknowledge that the exchange rate is being used to fight inflation and I hope it is a fluke, not a policy, but the space to continue with that is already disappearing,” he said.

Why is a lower dollar important?

This Wednesday, businessmen, producers and chambers of commerce raised their voices to demonstrate the million-dollar losses they are suffering due to the strong appreciation of the colon against the dollar, which went from ¢698.44 in June 2022 to ¢557.40 on January 31, 2023.

That fall, according to Corrales said, represents a setback of six years in the income of exporting companies and tourism.

As an example, Corrales explained that today in Costa Rica the dollar is worth some 12% less than in the rest of the countries in the region, while in Colombia it is some 18% more.

“Where do you think tourists will go when they plan their vacations?” questioned the expert.

In the same way, national production continues to add millions in losses due to the exchange differential, which affects the entire work chain, income, and also employment.

Corrales exemplified that the pineapple sector, in just one year, has seen an increase of up to 33.5% in costs per hectare, but the value of the export box remains the same, so for now 1,165 boxes are needed to cover their costs when in 2022 it was 873 boxes.

With notes from


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"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.

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