Whats ahead, I don’t know.  What I know is that today we are about 30 colones from the lower band of the exchange rate and about 100 colones from the upper band of the exchange rate.

Now there are increasingly clear signs that the appreciation that the colon has been experiencing in recent weeks has been driven to some extent by speculative capital inflows entering the country lured by high interest rates and the upward trend of the colon.  This phenomenon cannot last long.  Should the Colon continue to appreciate, the Central Bank will have to intervene in the exchange market by buying the excess dollars.

Related:  El Financiero

]]> http://www.obsamericas.com/cccc/archives/302/feed 0 http://www.obsamericas.com/cccc/archives/256 http://www.obsamericas.com/cccc/archives/256#comments Fri, 01 Jan 2010 19:58:30 +0000 Manfred Kissling http://www.obsamericas.com/cccc/?p=256 The dollar depreciated slightly to the Colon during 2009. Thus the reference purchase price for the year ended at ¢558.67, 1.6% above the price the last day of 2008.  The reference sale price for the year ended at ¢571.81, 2% over the same period.

The average wholesale price ended the year at ¢561.82, with a depreciation of 1.5% over the same period.

The price of the dollar ended the year close to the center of the trading band. The ceiling of the band ended the year at ¢611.05. That ceiling is the price at which the Central Bank sells the required dollars to meet demand in the wholesale market.  So now, the price of the dollar in the wholesale market has room to rise about ¢49.

The floor of the band was maintained throughout the year at ¢500, which creates scope for the dollar can get down at ¢62.

The fact that the Central Bank has not bought or sold currency in the last 20 weeks implies that the price reflected the supply and demand for currencies in the wholesale market.  That is one reason why the exchange rate has had more variability in 2009 that now reflected short-term shortages or excesses.

For Central Bank President Francisco de Paula Gutierrez, is difficult to say an equilibrium price of the dollar, however, noted that studies of the entity indicates that the price of the currency could be entering a “a balance”.  However, this “balance” may change as economic conditions change.

For 2010 the Central Bank plans to continue with flexibility in the dollar in order to proceed with the implementation of inflation targeting system.

Source: La Nacion

Far from showing signs of recovery, the country’s exports maintained a steady decline from February to achieve in the 12 months ending in October its strongest decline: 14%.

The accumulated sales of the 12 months ended last October there was a slump in revenue of $1,362 million.

“If we end (the year) below 15%, in current circumstances, I see very positive,” said Marco Vinicio Ruiz, Minister of Foreign Commerce (Comex).

The goods most affected by lower demand are food (mainly to Central America), textiles and building products steel, PVC and rubber technical, listed Ruiz.

The microprocessors and chipsets from Intel also suffered declines, but these have been declining.

For example, the accumulated sales in May 2008 to April 2009 the multinational sold $1,639 million, which was lower by 27% than that recorded between May 2007 and April 2008 ($ 2,315 million).  However in the 12 months ended last October, the sum of exports of the company had a decrease of 9% ($189 million) over the same period to October 2008.

This situation, in view of Ruiz, helps the general decline in exports is not greater.

The US is the country that has fallen on purchases of Costa Rican goods.  About 34% of exports go to the US.

Source: La Nacion

Since July 08, there was an upward trend, with the dollar pegged for the most part to the upper band of the exchange rate with a daily devaluation of 0.20 colones.

Most people agree the trend may continue for the remainder of this year and may change with the growth on the economy expected next year.

Wholesale market value surpassed the sales of public entities.

The price of the dollar had been trending down since early this month; however, yesterday changed the trend in the wholesale market.

Generally, the price of currency changes first in the wholesale market.

With the increase yesterday, the price of the dollar was still below the ceiling of the band, which yesterday stood at ¢ 596.05

So the price of the US dollar fluctuates up and down, however look at the graph and judge yourself what the trend has been.

Related source: La Nacion

Source: La Nacion

• The country has to borrow on reserves to cover the gap

In 2008 Costa Rica received $2,016 million in investments made by foreign companies; however, this quantity did not cover the $2,669 million spent by the country’s current account deficit.

The current account deficit is the difference between the value of goods and services exported and the imported ones. Includes tourism and other services like those offered by call centers.

Foreign Direct Investment includes new businesses that come into the country, expansion of operations of foreign firms already operating in or purchasing land or property firms, among others.

In total, the resources for foreign investment accounted for 75% of current account deficit, a result very different from 2006 and 2007, when the resource investment made to finance the deficit and on.

This puts more pressure in the country to find other ways to finance the current account deficit and thus avoid additional pressures on the exchange rate.

This year, the Central Bank is forecasting that the deficit in the current account falls below an amount that represented nearly 9% of production in 2008 to 5.7% in 2009.

At the current exchange rate and the current forecast for production this year, a deficit that represents a 5.7% equates to about $1,803 million and the central bank expects foreign direct investment reaching $1,333 million, 33% less than in 2008.

One of the main reasons of the expected reduction in the current account deficit is the drop on oil prices.

The Central Bank President Francisco de Paula Gutiérrez, estimated yesterday that the oil bill this year could fall by nearly $1,000 million compared to what was paid last year.

However, everything depends on the behavior of the oil market.

To prepare for this, the Central Bank arranged to draw from external borrowing if needed to fill this gap.

These include a contingency agreement with the International Monetary Fund that would allow the country to use up to $750 million if needed.

Was also sent to Congress a $500 million loan to the Central Bank can supply liquidity in dollars to local banks if necessary.

The Central Bank carries out a revision of its forecast for this year, which appears in the middle of this month.

Source: La Nacion

• Opportunity arise from need for U.S. companies to reduce costs
• New customers increased need for more employees

While electronic and automotive MNCs suffer from the downturn, service businesses are growing.

The opportunity arises mainly to companies engaged in Outsourcing of Services.

Timothy Scott, director of Azofras explained that in the U.S. and Europe the economic crisis is forcing companies to look into ways to be more efficient, so more companies are looking into outsourcing perform these tasks.

“Some companies expanded their businesses not despite, but because of the crisis,” said Francisco Alba, manager of Experian, which is dedicated to data analysis.

Last year there were 21 new multinational services corporations established in Costa Rica, a record year so far.

The sector is made up of 81 companies under the FTZ alone. These companies together employ more than 23,800 Costa Ricans.

Gabriela Llobet, director of CINDE, said the current economic situation provides exciting opportunity to attract foreign investment. “The country was consolidated as a destination that combines efficiency, quality and productivity”.

Christian Rodríguez, vice president of operations for Western Union, said that although the local growth is not caused by the crisis, but could benefit from it.

“Here the costs are more attractive than those of the Philippines. We could be more aggressive and provide services at lower costs to increase our share”explained.

Western Union came to Costa Rica 10 years ago, has 1,200 employees and provides technical services, accounting and administrative services into the US, Canada, Europe, the Middle East and Africa in over 8 different languages.

Permalink: http://www.nacion.com/ln_ee/2009/marzo/02/economia1888283.html

The Central Bank decided on January 21, to increase the daily devaluation of the exchange rate upper side of the band from ¢0.06 to ¢0.20 colones per day.

This sets the ceiling of the exchange rate at year end from ¢578 to ¢610 from the current ¢559.

On the resolution they stated “with the behavior seen and foreseen on the midterm in the international environment and its effects for Costa Rica, the Central Bank of Costa Rica considers that is a good time and practice to increase the depth of an adjustment of the exchange rate to allow for a better response of the exchange rate to the fundamentals of the economy and foreign exchange market.”

Given that:

1. On one hand, the exchange rate has been pegged for the most part to the ceiling of the band.
2. The current account deficit (value of imports of goods and services that the country buys exceeds the value of exports) in 2007 was 9% and is expected to be 6% in 2008.
3. The deficit has been covered by FDI, tourism and services revenues, but next year there is greater uncertainty on inflows of FDI due to the external crisis.
4. Foreign currency reserves falled $400M last year.
   
5. The number of tourist dropped by 22,000 or 2.4% between July and December of this year

   

6. On the other hand, a drop on imports because of lower commodity prices -oil- and a general slowdown in imports will help lower the deficit.

The President of the Central Bank added that “the Central Bank has two instruments to reduce the deficit, monetary policy and exchange rate. The bank raised interest rates from 5.25% to 6.75% and yesterdays decision to raise the ceiling of the exchange rate aims to help further reduce the deficit”

However not everyone agree on this view. Some economists believe the reduction of the oil bill of $2.2B, a reduction of imports for $1.2B and new credits of the government at around $0.5B, along with a growth of 6% in the service sector and increased FDI chasing opportunities for the opening up telecommunications sector, would compensate and the Colon would remain stable or even strengthen.

So reading between lines may provide a hint that the balance may be reached by devaluatin the Colon against the Dollar, but its hard to be certain on the direction of the move.

Permalink: http://www.nacion.com/ln_ee/2009/enero/23/economia1849600.html
Permalink: http://www.nacion.com/ln_ee/2009/enero/24/economia1850794.html
Permalink: http://www.larepublica.net/app/cms/www/index.php?pk_articulo=20536