The Central Bank (BCCR) took steps Wednesday night to devalue the U.S. dollar. And, it worked. “Yes,” the USD dropped down in value compared to the colon. On Thursday, national banks valued the dollar to colon at 537 to 558:1. down from 570.
Is the USD dropping in value? Is Costa Rica ready to devalue and pray like hell its massive dollar loans can be paid off with depreciated national currency? It is a guessining game, a crummy guessing game and might be close to panic to put brakes on the colon. After all, our mega loans and interest payments are indeed in dollars and not colons. The best interest of the country is to appreciate the colon against the USD, no matter how artificial.
With last month’s super rise of value in the USD, expert opinion is like reading daily news about Justin Bieber, the Kardashians and even our very own Johnny Araya. The news is faith based on hope, God and economists with tight neckties and experts in government telling us all that the Costa Rica economy is moving along as expected and all these losses are just part of the natural course of the heavily traveled road of a country in development. (They should never have employed the word “road” considering how poor is that particular infrastructure outweighed only by bridges.)
When the USD was at the bottom of the band hovering around 500:1 we had one tone of excuses and cynical laughs from in house pundits. But, when reality hit and the colon found its place close to the bottom of the barrel, for many that was the last imperialistic straw and something, anything had to be done to make the colon valuable once again.
The winners?
Those people or companies who earned dollars and paid most or all of their bills in colons. That lasted for perhaps a day or two because if nothing else the Ticos are a savvy bunch. They know how to raise prices!
Within 48 hours prices in grocery stores, durable goods and even taxes jumped exponentially to cover the colon downgrade. This pretty much eliminated the Tico tourism advantage and for sure the expat experience of relieving costs of living within an expected and normal range for this country.
Now, for the first time in about a month the dollar is being devalued and the government seems happy while commerce ponders that impact. After all, the government will be better off to payback those humongous loans refinanced year after year if the colon is strong, artificially or not. (One day this game will stop and we are then in for a crash similar to Argentina.)
Expats? My sincere advice is to borrow in colons, pay the exorbitant interest rates and bank on selling or renting in USD. It might become painful for awhile, but from a mathematical point of view, you will breakeven or might even win.
If it is a dollar transaction, at best you will breakeven on a 1:1 ratio.
My personal suggestion is to once again avoid the investment into tourism or real estate unless your project is one that can attract clients on a personal “want” basis such as retreats, flora, science, adventure, or best yet an all inclusive facility which is both expensive and equally risky. (Like hell I am getting up in the morning to make breakfast for 25 people! It’s all I can do to feed my in-house cats at 5:00AM plus the two kitty strangers who show up with hungry faces also seeking to eat breakfast and I do not even know them. Do these little guys have radar or maybe send text messages? They say, “Sebastian is an easy hit, come on up to his kitchen. On Thursday the guy has tuna!!!”)
The point being, please be careful and do not play the Monex game, the money exchange game unless you are a gambler. However, if you earn in USD, look for payments in colones, and if not, just relax and go with the flow. Costa Rica is very much opposed to a dollar economy and that is exactly what we need all around.
