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Exchange Rate Going Up Every Day... Why?

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Here's the deal - Costa Rica is bankrupt - they have no tax base - in the coming arbitration for the Las Crucitas mine, they are going to be fined heavily for breach of contract ($90 million) - They probably aren't going to make their $50 million payment to the company OAS for the cancellation of the contract for the San Ramon/San Jose highway, which means that the terms of the contract call for $555 million for the breach of such contract - according to todays La Nación 80 business men representing the tourist industry from La Fortuna/Monteverde (plus other business men), met with Señor Solis in La Fortuna asking him for help in (when he is elected) to call off the Banks, and give them a 2 (two) year moratorium on their payments - said article also pointed out that many of these businesses overpaid for their businesses and are facing bankruptcy - Costa Rica needs $90 million in order to rebuild Ruta 32, and they are borrowing somewhere in the are of $500 million on top of that for the Chinesse Company that has been awarded the contract (and by the way, when this contract is ratified, the contract states that all disputes are to be settled under CHINESE LAW), leaving Costa Rica POWERLESS in respect to the construction of THEIR highway (by agreeing to this contract they are giving away their country to the Chinese) - Costa Rica is the country with the highest debt in Central America - Costa Rica has sold bonds on the world market just to finance their debt - For about 2/3 years, yes, Costa Rica has been supporting the dollar by buying dollars, but in the process of buying dollars, they have flooded the markets with colones - When you go to the bank to buy colones, Costa Rica pays with colones FRESH OFF THE PRINTING PRESS, which drives up inflation in the local currency. How to correct this? Collect more taxes (never happen in Costa Rica) - Use the dollars that they have been collecting in order to support the dollar to buy back colones - we are not at the ceiling of the exchange band where the Central Bank sells dollars to buy back colones to lower inflation - where we are right now is the point when the Costa Ricans realize that their currency is losing value faster than they can earn it - so what do they do? - buy dollars, and they'll continue buying dollars because they have started their long slide into financial ruin! Also don't forget what happens when APM terminals decide to cancel their contract with Costa Rica (due to noncompliance by the Costa Rican government)? - that's right - another abitration, but this time Costa Rica is looking at $1billion (may never happen, but that's my prediction) - now, lets not forget the infrastructure that is crumbling, and absolutely must be upgraded, how many $billion US is that going to take? - $7 billion dollars is nothing in the scheme of things when you consider that about $2.5 trillion dollars are are traded every day worldwide on the currency markets - (don't forget that 60% of all US currency circulates outside the US) - yep, look down the road - I see another posible Venezuela - Respectfully

Edited by newman

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Poor translation ...

Central Bank: "Dollar fall due to economic factors"
Rodrigo Bolaños said have not yet defined when used new model of intervention in the market, announced on Wednesday
The fall in the exchange rate of the dollar of almost 30 ¢, which occurred this morning, due to seasonal factors related to the expiration of tax payments, said this morning the Central Bank President Rodrigo Bolaños.
Approaching the fortnight, the big transnational companies generally change dollars to pay taxes and salaries, and that affects the market, lowering the price of the currency.
The Bank is the expectation that this reversal in trend also generate a reversal in behavior that has been observed since principo year, reducing the rate of increase in the exchange rate. Since mid-January, the currency gained 60 ¢.
However, Bolaños is clear that the dollar should not come back to ¢ 500, where he parked the last year.
"Any devaluation has to stay because it responds to longer-term factors such as the withdrawal of monetary stimulus in the United States," said the chief.
Bolaños convened press conference this morning to explain the new model of intervention in the exchange market, which aims to correct deviations in the long-term trends toward the price of the currency.
The recent behavior in the foreign exchange market (increase) is presented, according to Bolaños, by an expectation of economic agents that maintained the exchange rate of increase, motivating an inertial behavior of macro price.
The sharp increase in the price of the currency made ​​the Central created this new model called "interday" to adjust the exchange rate to the long-term trend when detached.
So far, the bank has been intervening "intraday" when the price had "violent" and variations in recent weeks, has sold more than $ 300 million to stabilize the price.
Bolaños said they are not planning to use the new system in the current situation, but it is a necessary tool in order to step the system of managed floating.
These interventions "INTER" will be approved by events, not daily, but will have a larger budget. However, both the criteria used by the Bank to approve the budget as are confidential, said the chief.
TAGS: Exchange , Central Bank , Dollar ,

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Thanks Jimvignola,

Just confirms what I've been saying all along. CR central bank wants a stronger dollar but in a controlled movement.

Newman remains confused over the Dollar/Colone relationship thinking CR political actions and government debt as the main influential mover but it really is the economic realities outside this sphere as interconnected with the world economic central bank policies. Yes, gov't. actions can influence a currency but in this case it is not. It's world economic policies and the CR central bank that wag this currency tail for the moment.

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Not to knock your post concerning my "confusion" Please explain to the residents of Zimbabwe how confused I am - Respectfully

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if anyone is interested, go to Wikipedia - hyperinflation in Zimbabwe - they have a picture of a $100 trillion dollar Zimbabwe note - very interesting and gives a reason as to why we shoould all be concerned about inflation!

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Approaching the fortnight, the big transnational companies generally change dollars to pay taxes and salaries, and that affects the market, lowering the price of the currency.

 

Doesn't that mean that say Intel brought dollars to CR and gets more colones than usual and thus can either claim a higher profit sending excess home or hire more workers or buy another building, etc ...so good for CR??

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newman, you wrote, "if anyone is interested, go to Wikipedia - hyperinflation in Zimbabwe - they have a picture of a $100 trillion dollar Zimbabwe note - very interesting and gives a reason as to why we should all be concerned about inflation!"

 

Well, I Googled "hyperinflation Costa Rica" (the subject of this Forum) and got this first hit:

 

http://en.wikipedia.org/wiki/Economy_of_Costa_Rica

 

Interestingly enough, the opening sentence reads, "The economy of Costa Rica is very stable."

 

So, I suppose those of us headed for Zimbabwe or maybe American Samoa, or with interests there, should be shivering in our boots, but there appears to be little indication that we should all be dithering madly about runaway inflation here in Costa Rica.

 

On the other hand, if you just enjoy a good dither . . .

 

 

 

Edited by David C. Murray

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Most countries are bankrupt, so I don't fell too bad about CR.

It's a game between countries of who can kick the can farther down the road.

The older the country, the harder it gets.

Myself, I like zero taxes, borrow the money to build and repair the infrastructure, and make my great great grand kids pay it off.

Unfortunately my parents, grand parents, and great grand parents had the same ideas.

Z

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