© Reuters. Appreciation of the local currency sets off alarm bells for businessmen in Costa Rica
San José, Mar 14 (.).- The appreciation of the colon against the dollar has set off alarm bells in business sectors of Costa Rica that are demanding that the Government of President Rodrigo Chaves and the Central Bank take measures to stabilize the situation.
The colon has been appreciating since mid-2022 and, although the Central Bank has reported that it has intervened in the market to avoid abrupt variations in the exchange rate, the dollar price has been falling.
This Tuesday, the dollar is quoted at 550.11 colones, the lowest amount since 2016. This represents a variation of 20.69% compared to the 693.69 colones at which it was quoted in July 2022.
Data from a survey conducted by the Costa Rican Chamber of Industries (CICR) indicate that 87% of companies are being negatively affected by the dollar exchange rate.
The negative effects most mentioned by companies are reduced profitability (91%), reduced income in colones, when exchanging dollars to cover operating costs that are in colones (86%), and liquidity problems (54% ).
“The results clearly indicate that there is already a negative affectation for a majority of companies in the industrial sector and in other sectors such as services and commerce. The data also indicates loss of competitiveness and jobs,” said ICRC President Enrique Egloff.
According to the businessman, the current scenario suggests that in the remainder of the year “not only will economic growth slow down even more than expected, but unemployment will also increase.”
The ICRC survey revealed that 18% of companies have already had to lay off workers and 60% would have to do so in the short term.
57% of the companies that said they had a negative impact, indicated that they have suspended expansion plans and new investments.
The ICRC concluded that “it is evident that these results are a call to action, so that the Central Bank and the Government take into account the negative effect that the appreciation of the exchange rate is having on a large part of the productive sector and act accordingly. immediately to correct this situation”.
The Costa Rican Union of Chambers and Associations of the Private Business Sector (Uccaep) has also asked the Government and the Central Bank to take action.
The Uccaep pointed out that the decision of the Central Bank to raise its monetary policy rate to 9% in December 2022 in order to lower inflation that closed that year at 7.88%, partly led to the appreciation of the colon against the dollar, by increasing the premium for investing in colones.
“If the scenario of an exchange rate at current levels is maintained for a longer time, combined with high interest rates, a climate would be generated that would cause the closure of companies and the loss of jobs,” said Uccaep.
The National Chamber of Tourism has also warned about the situation, since this sector, one of the engines of the Costa Rican economy, has just been recovering from the covid-19 pandemic and is perceiving a drop in income due to the exchange rate .