March 20th, 2013 (InsideCostaRica.com) The appreciation of the colon in the last three years has cost exporters of coffee, sugar and meat around $140 million, according to a study by the Chamber of Exporters of Costa Rica (Cadexco).
And the effect has not only been felt in these industries. The exchange rate has resulted in a 10% decrease in tourism-related payrolls, and cuts in the melon industry that have resulted in a 30% reduction in its workforce.
In the case of bananas, authorities say that losses amount to 80 cents per box.
Monica Segnini, president of the Chamber, said concerns are intensifying because of speculation that the current exchange rate “brand” system could be replaced with a “floating” exchange rate system.
“There is a reality we cannot ignore. We see the statements of the experts of the IMF and the Central Bank’s concern, and it leads us to believe that this may be the way [things are headed],” Segnini said.
During a recent visit to the country, Naoyuki Shinohara, deputy managing director of the International Monitary Fund (IMF), recommended that Costa Rican authorities move towards a more flexible exchange rate system. Just his mention of the idea to the local media caused panic among local exporters.
Meanwhile, the Central Bank continues to have to intervene in the Monex currency market to prevent the dollar from slipping below the 500 colon bottom band. In fact, the Central Bank has had to intervene by buying dollars every day for the last week to defend the lower band of the exchange rate.
For the past 15 days the dollar has basically sat on the bottom 500 colon band, with few exceptions.
Exporters fear that if the colon moved to a floating exchange rate system that the dollar would tank even further against the colon.
“We estimate that if released the dollar exchange rate would be worth 450 colones, which would mean the closure of many companies […] the effect on the sector would be irreversible,” Segnini said.