1. Costa Rica “is world champion” in local currency appreciation
Sectors such as tourism, free zones and exporters lose competitiveness and employment; Business sector asks the government to stop the fall of the dollar.
QCOSTARICA — The sharp drop in the dollar exchange rate in the last year and a half has made Costa Rica the world champion in appreciation of the local currency, the Colon’ according to Gerardo Corrales, economist at Economía Hoy.
Screen capture of the drop in the dollar exchange in the past year. Datawrapper
This means that no other country has appreciated its currency so much in relation to the U.S. dollar.
Between June 2022 and December 2023, the U.S. dollar lost 24% of its value against the Costa Rica Colon, placing Costa Rica in first place in this ranking, ahead of Mexico and Switzerland, by far, given that their respective currencies only appreciated by 13% and 12%, respectively.
As of this Friday, the official dollar exchange reference rate set by the Central Bank (Banco Central de Costa Rica) is ¢512.61 for the buy and ¢517.48 for the sell.
Dollar exchange in December 2022. Screen capture from Central Bank
On June 23, 2022, the reference rate was ¢691.20 for the buy and ¢698.44 for the sell; at the end of December 2023, the rate was ¢519.74 and ¢526.18, respectively.
Dollar exchange in December 2023. Screen capture from Central Bank
Far from being good news, this means that sectors dependent on the global market are rapidly losing competitiveness and money, which translates into a contraction in investment and fewer jobs.
The positive side is that by December of last year, Costa Rica was the country in the Organization for Economic Cooperation and Development (OECD) that reported the lowest inflation, which was even negative at -1.8%.
“Negative inflation is achieved but with a great loss of competitiveness that is destroying the productive sector and will increase unemployment in the medium term. There is no balance,” Corrales said.
“Complications” regarding the dollar exchange rate have been a source of discussion in recent months.
The productive sectors are calling on the government of Rodrigo Chaves and the Central Bank to intervene in the exchange market and control the appreciation of the colon.
“The diversity of our associates forces us to express concern about the impact that the exchange rate is having on a large part of the country’s productive sectors. We believe that a consensual position should be established on the fundamentals on which the relationship between the dollar and the Costa Rican colon should be based, and that it should not affect the stability and economic and social development of the country. A stable and competitive exchange rate that reflects the real value of the national currency can be beneficial, as it helps maintain the competitiveness of exports and imports, attract foreign investment and maintain the economic stability of the country,” said Antonio López, director executive of Fedecámaras – Costa Rica.
The call for attention from the productive sector occurs in the same week in which legislators, economists and businessmen ask the Central Bank to account for the behavior of the dollar exchange.
2. Money laundering in the dollar exchange system is massive and evident
Former minister of the interios and police says that an investigation must start now to stop the entry of more illegal money into the country.
QCOSTARICA — Money laundering from illicit activities such as drug trafficking is not only massive, but also evident in the exchange system, according to Álvaro Ramos Rechnitz, former Minister of the Interior and Police (Gobernación y Policía) during the first government of Oscar Arias (1986-1990).
That is why it is urgent that the authorities investigate the issue appropriately and not ignore it, said Ramos.
The opportunity cost is that more illicit money enters Costa Rica and with it, the dollar exchange rate is impacted even more.
“Without having a diamond mine, oil wells, or five gold mines, suddenly the (U.S.) dollar in Costa Rica is worth nothing. That is completely anomalous. Illicit money laundering not only exists in the country, but it is massive and evident,” said Ramos.
The possibility that drug trafficking has penetrated the dollar exchange system cannot be ruled out.
The alert comes after the Central Bank reported strong growth in the currencies of the account called “Others”, which registered movements of US$5.57 billion in 2023, which meant an increase of 46% compared to US$3.93 billion in 2022.
In that sense, the Central Bank is already investigating the inexplicable origin of dollars.
Currently, almost half (48%) of the dollars exchanged at bank counters have an unknown origin.
“The authorities are not stupid. They know that the country is flooded with drug trafficking, what is strange is that they do not want to get into the problem. I hope that after this an investigation will begin at the legislative and judicial level and that they will then help us at the international level to stop the large launderers of illicit money,” Ramos said.
Ramos pointed out that behind the criminal gangs that kill each other for drugs, there are always professionals in accounting and law who provide their services to hide emerging capital and therefore, this game of cat against mouse becomes very complicated.
“I hope it doesn’t happen in Costa Rica, but in Colombia in 2004, they had the anomaly that the (U.S.) dollar in the black market was cheaper than in the official market, due to the excess of dollars due to illegal activities. At the moment, it doesn’t seem like they are investigating or doing anything significant to stop them,” Ramos said.
Since the end of last week, the issue gained notoriety due to the demands of the productive sectors to know the origin of this increase.
Costa Rica is experiencing a gang war for territory without parallel in the country’s history, which has not only increased the number of murders to record numbers but has also revealed the penetration of drug trafficking in various structures.
In recent days, Sylvia Saborío, a member of the National Council for Supervision of the Financial System (Conassif), expressed the possibility of the entry of illicit activities.
“I think there could be other (financial) transfers that include illicit transactions that are difficult to detect, that could not be estimated, but that could be large. We cannot evade it because we have the dead to prove it,” said the official.
The business sector is among the groups that requested the BCCR for greater detail of the “Others” account.
For business owners, it is vital to know what is happening, since the movement of money in dollars affects their operations.