Costa Rica Currency Surge ‘Worrisome,’ Liberman Says
Source: Blake Schmidt
Costa Rican Vice President-elect Luis Liberman said the rally in the nation’s currency, the world’s biggest gainer this year, is “worrisome” and that he’s in talks with the central bank and lenders to curtail it.
Costa Rica’s colon has surged 11 percent against the dollar since Dec. 31 as a faster-than-forecast economic rebound lured investment. The currency is benefiting from the so-called carry trade, in which investors borrow in nations with low interest rates to buy higher-yielding assets, Liberman said. Costa Rica’s benchmark rate is 5.75 percent, higher than near zero rates in the U.S., 1 percent in the euro-zone and 0.1 percent in Japan.
“It’s worrisome because Costa Ricans don’t know how to live with it,” Liberman, the former head of Bank of Nova Scotia in Costa Rica, said yesterday in a phone interview from San Jose, the nation’s capital. “The central bank should intervene so volatility isn’t so high.”
Costa Rica is considering steps to stem the rally after Nicolas Eyzaguirre, the International Monetary Fund’s Western Hemisphere department director, said last month that Latin American nations should consider “carefully designed” taxes on capital inflows to limit excessive currency gains. Brazil slapped a levy on foreign purchases of equities and fixed-income securities in October to restrain the real’s appreciation.
Taiwan
Perng Fai-nan, the governor of Taiwan’s central bank, told an annual meeting of the Asian Development Bank yesterday that emerging markets should consider imposing capital controls to address “disorderly” movements in currencies.
The colon’s rally is cutting profits for Costa Rica’s exporters, Liberman said. The colon dropped 1.7 percent last year as exports from the Central American country fell 9 percent to $8.7 billion. The currency lost 0.1 percent to 508.23 per dollar yesterday. Brazil’s real has dropped 2.4 percent against the dollar this year after rallying 33 percent in 2009.
Costa Rica has two vice presidents. Liberman will serve as President-elect Laura Chinchilla’s second vice president, heading the economic team, when she takes office May 8. Alfio Piva, an environmentalist and scientist, will be the first vice president.
Liberman said he’s in talks with banks to start a currency futures market that would allow exporters to lock in exchange rates.
Economic Rebound
Costa Rica’s $29.4 billion economy will grow 3.8 percent this year, the International Monetary Fund said last month, up from a previous forecast of 2.3 percent. Gross domestic product shrank 1.1 percent in 2009, the fund said. Liberman expects the colon’s surge to end as imports increase.
The colon floats within a “crawling band” range set by the central bank, which buys or sells dollars to keep the currency stable and stem inflation. The lower end of the range was 500 and the upper end 627.85 yesterday, according to the central bank’s Web site. The upper end of the band increases 0.2 colon each day.
Central bank President Francisco de Paula Gutierrez changed the exchange rate regime from a 23-year-old system of “mini- devaluations” in 2006.
