Friday 5 March 2021

Presidenta Chinchilla Says Ready To Act To Defend Currency

Reuters/Reuters - Costa Rica's President Laura Chinchilla speaks during an interview with Reuters at the Presidential House in San Jose, February 14, 2013. REUTERS/Juan Carlos Ulate
Reuters – Costa Rica’s Presidenta Laura Chinchilla speaks during an interview with Reuters at Casa Presindcial in Zapte (San Jose), February 14, 2013. REUTERS/Juan Carlos Ulate

In an interview with Isabella Cota of Reuters on Thursday, Presidenta Laura Chinchilla said that she was ready to take more steps to prevent flows of foreign capital from driving the Costa Rica’s currency higher.

In the interview, Chinchilla said she was worried a capital controls bill sent to the Legislature could stall, reviving interest from speculative investors that have tipped the Central American nation into a battle over its currency.

- Advertisement -

Costa Rica’s Banco Central (Central Bank) has spent US$1.5 billion in six months to keep the colon from strengthening beyond ¢500 per dollar, but inflows at the end of last year prompted the government to take more drastic steps.

Business leaders are concerned that an appreciation in the currency could hurt the tourism industry and coffee exporters, who sometimes receive payments in dollars.

So the government sent the Legislature a bill proposing to raise the current 8% tax on foreign investments by up to 30 percentage points. It also would require foreign investors to make a deposit at the central bank of up to 25% of the value of any investment, without receiving any interest.

Since then, the central bank has not had to buy excess dollars, but the commission in Congress in charge of reviewing the proposal has not yet approved it.

- Advertisement -

“(The plan) has given us great peace of mind, but it’s a temporary one because we know quite well that unless the project passes it’ll be very difficult to maintain these conditions,” said Chinchilla, sitting in the living room that leads to her office at Casa Presidencial in Zapote (San José).

“If we were to see a similar flow before the project is approved by the Legislature, we would, of course, turn to other mechanisms. Investors should have no doubt about this, we are totally willing to protect our economy”, she added.

Last month the first female president of this tiny Central American country referred to the potentially destabilizing flows as “weapons of mass destruction.”

On Tuesday, Group of Seven nations issued a statement reaffirming a “longstanding commitment to market-determined exchange rates” and Chinchilla admitted feeling pressure to let the colon float freely. But she said she would stay the course.

“There are (pressures), yes,” she said. “A government should not function based on the pressures of some or others. It should try to adapt a mix of measures that fits every context and generates the appropriate steps forward.”

HIGH RATES
The Central Bank’s high benchmark interest rate, currently at 7.8%, has lured investors to bring in dollars and buy government bonds in the local currency.

- Advertisement -

Interest on deposits in dollars is around 2% due to loose monetary policy by the U.S. Federal Reserve. Late last year, interest rates in Costa Rica were as high as 12%.

Even as rates drop gradually, Ministro de Hacienda (Finance Minister) Edgar Ayales has said that it will be impossible to lower them to 45 or even 5% without a significant overhaul of fiscal policy.

Just over year before her term ends, Chinchilla is struggling to introduce a plan to tackle Costa Rica’s budget deficit of 4.4% of gross domestic product (GDP).

The previous plan was killed by the Sala Constitucional (Constitutional Court), which declared it to be unconstitutional last April.

Chinchilla, whose centrist Partio Liberación Nacional (PLN) party lacks a majority in the Legislature, has not given up, she says. She aims to send a new plan to the Legislature before her term ends in May 2014.

“We will not relent in our final efforts to see if we persuade a few congressmen to re-establish the conversation about the fiscal plan,” she said.

“The finance minister is currently undertaking a new consultation process and we will see if a new situation arises that will allow us to leave a well-ordered country in fiscal terms.”

- 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

Cuba Plane Crash: Company ‘Had Safety Complaints’

Solidarity and investigations after the accident. Cuban authorities are investigating the...

The Volcanos Of Central America (By Country)

Among the things most loved by travelers to Central America is...

MOST READ

IMF sets its clear requirements for Costa Rica

QCOSTARICA - The International Monetary Fund (IMF) finally said yes to the loan for almost US$1.78 billion and to the fiscal adjustment commitment proposed...

Tamarindo and Sámara received recognition for Tsunami preparedness

QCOSTARICA - For their preparedness to face tsunamis, the communities of Tamarindo and Sámara were recognized by the Junta Nacional Tsunami Ready de Costa...

97 labs test those who need to leave the country for covid-19 antigens

QCOSTARICA - Need to leave the country and require a test to detect SARS-CoV-2, the coronavirus that causes covid-19? The Cámara Costarricense de la Salud...

Guatemala receives 200,000 doses of COVID-19 vaccine donated by India

Q24N - Guatemala on Tuesday received 200,000 doses of the vaccine against covid-19 donated by India, which it will use to complete the immunization...

Greater demand for dollars in OPCs worries the Central Bank

QCOSTARICA - Complementary Pension Operators - Operadoras de Pensiones Complementarias (OPC) -  have become, in recent years, increasingly dollar-thirsty participants in the Costa Rican...

Today Costa Rica wakes up to an increase in fuel prices, the third this year

QCOSTARICA - At 12:01 am this Wednesday, fuels will be more expensive, as the third price hike of the year takes effect. The increase in...

Amazon announces the opening of a new cloud services office in Costa Rica

QCOSTARICA - Amazon Web Services, Inc. (AWS), a division of the Amazon company, announced the opening of its first Central American office in Costa...

South Korea company to conduct Costa Rica rail feasibility study

QCOSTARICA - Korea National Railway (KR) will conduct a feasibility study for the restoration of 98.3km of Costa Rica’s San José-Puntarenas rail line. The study...

Panasonic will invest US$10 M to move operations from Asia to Costa Rica

QCOSTARICA - Panasonic announced that it will invest US$10 million dollars in the expansion of its plant in Costa Rica, in order to move...

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.