Currency "Surge"
Worrisome Says
Costa Rica's
Vice-President
Elect
Luis Liberman,
former president
of Scotiabank in
Costa Rica and
founder of the
Interfin bank
(bought by
Scotiabank) and
now to become
the country's
second
vice-president
in three days,
say the currency
surge is
"worrisome".
Liberman says
that, once he
takes office on
Saturday, he
will be in talks
with the Central
Bank and lenders
to curtail it.
In the past
several months,
the US dollar
has dropped or
the Costa Rican
colon surged, if
you will, some
11%.
The surge in the
colon 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
interest 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 told
Blake Schmidt of
Bloomberg by
telephone from
San José.
According to
Liberman, the
rise in the
colon is cutting
profits for
Costa Rica's
exporters.
Liberman, along
with Alfio Piva,
are Costa Rica's
two
vice-president
in Laura
Chinchilla's
administration
that will be
sworn in on
Saturday, May 8,
for a term of
four years.
Liberman said
he’s in talks
with banks to
start a currency
futures market
that would allow
exporters to
lock in exchange
rates.
Costa Rica’s
us$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 ¢628
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.
With reports
from Eric Sabo
and Blake
Schmidt of
Bloomberg
Businessweek |
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