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I don't think there should be any surprises here that the rich and powerful have manipulated the economy to enrich themselves. Many times by enriching themselves, some wealth trickles down to the ordinary people and their standard of living improves. We see that in the US and throughout history. So, I a thinking CR is working just like a capitalist system should work with wealth flowing to the few at the top. Ultimately, the elite just get too greedy and take too much and the people revolt. What is interesting about CR is that the rich can not call on the army to secure their property and keep the people in check love most other countries.

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The article is describing Costa Rica as anything but a well functioning capitalist society.

 

 

I don't think there should be any surprises here that the rich and powerful have manipulated the economy to enrich themselves. Many times by enriching themselves, some wealth trickles down to the ordinary people and their standard of living improves. We see that in the US and throughout history. So, I a thinking CR is working just like a capitalist system should work with wealth flowing to the few at the top. Ultimately, the elite just get too greedy and take too much and the people revolt. What is interesting about CR is that the rich can not call on the army to secure their property and keep the people in check love most other countries.

 

The author of the article, Juan Carlo Hidalgo, is a member of the CATO Institute which promote libertarian ideals such as limited government, free markets, individual liberty and peace.

 

He states that in developed market based societies one opens a business to get rich. But, in Costa Rica one has to already be rich to open a business. Costa Rica is ranked near the bottom as far as ease in opening and maintaining a business, complying with all the rules, regs, taxation requirements etc. Only the rich can afford all the lawyers.

 

That drives a third of the work force underground and are out of the safety net.

 

In Costa Rica the politicians favor certain sectors such as exporters and businesses such as Dos Pinos, which is why Costa Rican milk is cheaper outside of Costa Rica in Panama for example.

 

The central bank (run by in his words 7 "viejos") also manipulates the currency rather than letting it float with market forces to favor exporters and private banks. And inflation is held high as a result (averaging 10% a year over the last 20 years) which works as the worst kind of regressive tax on the poor but favors exporters and private banks as mentioned above.

 

In short, the author says Costa Rica is NOT being run as a free market capitalist society.

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The article is describing Costa Rica as anything but a well functioning capitalist society.

 

 

 

 

The author of the article, Juan Carlo Hidalgo, is a member of the CATO Institute which promote libertarian ideals such as limited government, free markets, individual liberty and peace.

 

He states that in developed market based societies one opens a business to get rich. But, in Costa Rica one has to already be rich to open a business. Costa Rica is ranked near the bottom as far as ease in opening and maintaining a business, complying with all the rules, regs, taxation requirements etc. Only the rich can afford all the lawyers.

 

That drives a third of the work force underground and are out of the safety net.

 

In Costa Rica the politicians favor certain sectors such as exporters and businesses such as Dos Pinos, which is why Costa Rican milk is cheaper outside of Costa Rica in Panama for example.

 

The central bank (run by in his words 7 "viejos") also manipulates the currency rather than letting it float with market forces to favor exporters and private banks. And inflation is held high as a result (averaging 10% a year over the last 20 years) which works as the worst kind of regressive tax on the poor but favors exporters and private banks as mentioned above.

 

In short, the author says Costa Rica is NOT being run as a free market capitalist society.

Fair point. I wonder if you equate capitalism and efficiency , fair markets, and all the good behaviors in life. I see capitalist exploiting people and systems to gain wealth. There is no moral component, no bad or good just some people taking advantage of the ignorance and gullibility of others. In the case, the CR people are not smart enough and powerful enough and the rich , powerful , connected folks are exploiting the weakness to their advantage. The advantage might be to create unfair and inefficient markets and policies to benefit them. That is how 1% of the US population ended up owning 80% of the country.

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I have watched the exchange rate since 2000. What I have seen is that on a weekly or monthly basis the colon was losing value vis a vi the dollar. It appears that the exchange rate has stabilized and remains at about (493.5/503.75). It makes one wonder if this is a manipulation of the banking exchange rate done by the politicians. I have also heard that the central bank is buying up dollars in order to stabilize the colon.

 

If one could be assured that the exchange rate was going to remain stable for the next two years it would be a thought to get long term (1 year) CD’s with idle money in the states. There would be a loss on the whole transaction converting dollars to colons and then at the end converting colons to dollars.

 

The reason this looks enticing is that the interest rates on a state side savings accounts is about .0045 percent; basically a nothing. Even though one lost a certain amount due to the transfers it appears that the net would be about 8.75 percent. Looking at it another way one would be earning 20 times what is being paid in the states.

 

So on a 200,000 dollar ‘investment’ one could earn 17,500 per year. Certainly not chump change in my opinion. The underlying hesitation is the thought that, being a manipulated currency one could lose a substantial amount if the dollar/colon exchange rate was not artificially stabilized. Meaning politician manipulation.

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fpapia, I think the key to success would be to convert dollars to colones, invest those colones in Costa Rican CDs (one or more, maybe staged) which pay higher rates than CDs denominated in dollars, and plan to spend the colones upon maturation. There is, of course, the threat of inflation, but that's more or less true everywhere. To do so, however, would almost certainly require that you be a legal resident of Costa Rica. It's becoming more and more difficult for non-residents to open accounts here.

 

As an aside, the last CD we purchased at Coopenae, a Costa Rican non-profit financial cooperative, will pay us 12.75% locked-in for five years.

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The article is describing Costa Rica as anything but a well functioning capitalist society.

 

 

 

The author of the article, Juan Carlo Hidalgo, is a member of the CATO Institute which promote libertarian ideals such as limited government, free markets, individual liberty and peace. ..

 

 

 

I don't see these things as being intrinsically linked in any way. The position that "libertarians" (which is a term that has come to means so many different things that it is almost meaningless) such as those at the CATO institute take which asserts that they are inherently linked is based on ideology and not economics. The fact is that there is no such thing as a "free market". Capitalism as it is currently practiced in the West, and particularly as it is practiced in the US, is increasingly oligarchic. Fewer and fewer larger and larger entities are controlling ever greater portions of the world's economic production -- to the point where they have begun to entirely dominate the only other instituion that can control them -- the State.

 

IMHO Costa Rica would be well served to keep as low a profile as possible in this particular global struggle. However, that is a decision for the Costa Ricans and not for cynical old soon-to-be-expats.

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David C. Murray - The only downside to converting dollars to colones is that the exchange rate may change drastically from the currently stable rate that we have seen for a bit over a year. If that were to happen one could lose much more than the interest paid. How does one avoid that type of threat? The Coopenae CD at 12.75 sounds good as it is about 2.5 percent more than a comparable CD in Banco Popular; which is currently paying at about 10 percent. The second issue that comes to mind is that the banks in CR are probably a bit more stable than Coopenae as they have the backing of the state.

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Fair point. I wonder if you equate capitalism and efficiency , fair markets, and all the good behaviors in life. I see capitalist exploiting people and systems to gain wealth. There is no moral component, no bad or good just some people taking advantage of the ignorance and gullibility of others. In the case, the CR people are not smart enough and powerful enough and the rich , powerful , connected folks are exploiting the weakness to their advantage. The advantage might be to create unfair and inefficient markets and policies to benefit them. That is how 1% of the US population ended up owning 80% of the country.

Which is one of the reasons I'd like to get the heck out of the US. But lately, CR is looking much less desirable than it was a couple+ years ago when I first started seriously looking into the possibility. And I've been reading these forums daily since then.

 

And, no... I've not been there yet because of time and & $$$ constraints. But getting closer at least to a first visit. Nor am I suggesting there's a better alternative. I certainly haven't found one yet. But I am beginning to wonder if I can really afford it on SS alone. Heck, then again, I surely cannot afford it here!

Edited by FredS

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Hi Fred,

 

Visit first and -- you already know this, but it always bears repeating -- spend some time here before you make any decision. Can you live here on Soc Security? Depends on your Soc Sec and on the lifestyle you choose here. You live in a modest Tico apartment or house in an inexpensive community, have no car, and buy very little in the way of "US-type" goods, and you should be able to do just fine. Live in an expat enclave in a large house (worse: at the beach, where your electricity alone could run $600/mo or more) in an expensive area, own a car, and your Soc Sec may not stretch far enough.

 

Good luck!

 

regards,

Gayle

Edited by salish sea

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Which is one of the reasons I'd like to get the heck out of the US. But lately, CR is looking much less desirable than it was a couple+ years ago when I first started seriously looking into the possibility. And I've been reading these forums daily since then. And, no... I've not been there yet because of time and & $$$ constraints. But getting closer at least to a first visit. Nor am I suggesting there's a better alternative. I certainly haven't found one yet. But I am beginning to wonder if I can really afford it on SS alone. Heck, then again, I surely cannot afford it here!

A thought ... 4 million Ticos live on an average of $12k a year and surveys say they are happier than many making much more Something to consider.

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Fpapia, Banco Popular isn't offering 10% on dollar CDs, are they? Their high-rate CDs are all denominated in colones, right?

 

You're right that the exchange rate could change but, for whatever reason, it's been stable at around c500:$1 for more like three years than just one. What will happen in the future with either the dollar:colon rate or the purchasing power of either really is anybody's guess.

 

As for stability, you're absolutely correct that Coopenae does not enjoy Banco Popular's governmental backing. What you must determine, however, are two things. First, what's the real likelihood that either of them will fail? And second, while Banco Popular has the government's backing, does the government have the capacity to stand behind that guarantee?

Edited by David C. Murray

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FredS, if you're anxious about being able to live on your Social Security here in Costa Rica, you should be downright hysterical about the prospect of doing so anywhere in the States. There are a couple of other points to ponder, however.

 

In Costa Rica, you could have much more flexibility in your lifestyle. You could, for example, live comfortably on an almost meatless diet of locally produced foods. Those would be much cheaper than the same foods purchased anywhere in the States. You could also opt to use only public transportation which is hardly universally available in the U.S. And if you chose wisely, you could live at an altitude here where neither heat nor A/C nor even ceiling fans are necessary. That would be virtually impossible in the States. You could also confine your health care to what the CAJA has to offer which, aside from the monthly enrollment cost, is free.

 

On the other hand, in the U.S. you could collect Social Security and continue to work at some job or another. Here, until you're a permanent resident, that would be illegal. And Costa Rican wages, should you land a job, are insultingly low. Too, in the U.S. you'd have access to Medicare which would afford you more choices of health care but at much higher rates. And you'd be in a familiar environment where your native language is spoken.

 

Decisions . . . decisions . . .

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David C. Murray "Fpapia, Banco Popular isn't offering 10% on dollar CDs, are they? Their high-rate CDs are all denominated in colones, right?"

 

You are correct. I was referring to the account in colones. You are also correct about the length of time that the exchange rate has been stable; I have simply lost track. The question still is would the extra 2.75 percent, using Coopenae, be worth the 'risk' of not having state backing. It is understood that the state banks could also fail, however, if they do every one is in trouble in a big way. It is doubtful whether anyone could salvage their accounts under those circumstances.

 

Just remember CONSEVCO, one of the largest insurance companies in the U.S., filed for chapter 7 and took billions of dollars of investor money with them when they went in.the late 90s. No one was saved. The general stock holder, the preferred stock holder, the bearers of their bonds.... everyone except the top tier of CONSECO got hammered.

 

The overriding question is: "Will converting dollars to colones in order to get 10.0 - 12.5 percent be a financially wise decision?"

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fpapia, any exchange rate change wouldn't matter to us once we've made that exchange since we'll be invested in and spending colones exclusively. Inflation in Costa Rica, of course, would matter to us, but it would matter to everyone.

 

Coopenae will sell you a CD denominated in either currency for the duration of your choice. So while Banco Popular will give you 10% guaranteed for a year, Coopenae will give you 12.75% guaranteed for five years. Locking in 12.75% for five years looks pretty good right now.

 

Of course rates could go up which would make that five-year commitment look bad, but they've been going down lately and, I should add, they've been going down faster at the banks than at Coopenae. And, with an interest penalty, Coopenae will give you an "out". If rates go that far above 12.75%, we could take the interest hit and re-invest at the then-higher rates.

 

I'm not sure that comparing either Banco Popular's or Coopenae's circumstances in Costa Rica in the 20-teens to a private, commercial insurance company's circumstances in the U.S. in the 19-nineties is meaningful. CONSEVCO was not run as a non-profit financial institution subject to Costa Rican law. Seems like some other comparison (other than Enron) would be in order.

 

As to whether converting dollars to colones in order to get either 10% or 12.75% would be financially wise, that may be tougher to answer. Your dollars held in the U.S. in any financial product are essentially stagnant due to the low interest rates. Next year you'll have virtually the same number of dollars. While inflation is as low as it has been for the past several years, that's a "no harm-no benefit" situation. Stocks, of course, are another matter but then there's the matter of choosing (correctly).

 

An alternative would be to move your dollars to Costa Rica, invest in government-backed bank CDs denominated in dollars at around 4%, and make four or eight times as much as you would have in the States. There's that matter of risk again, of course, and if you're prepared to stand the risk of failure (however minimal it may be), why not just go for the high rate return on colon-denominated CDs?

Edited by David C. Murray

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