Inside Costa Rica
The exchange rate band system that is used to the fix the price of the dollar will cease to apply in the country as the Banco Central de Costa Rica (BCCR) – the Central Bank - moves to a “managed float” system.

That was the announcement yesterday by the Central Bank’s new president, Rodrigo Bolaños, during a press conference, which, until recently the head of the bank, Francisco de Paula Gutiérrez, took the opportunity to announce his retirement after seven years leading the monetary policies of the country, handing over to his successor the sawdust, nails and screws of the bank.

Jokingly, Gutiérrez told Bolaños that the most dangerous of the bank was the sawdust of the sawing of the wooden floors, while the nails and screws are the problems to come along the way.

“The major challenge is to find ways to consolidate the move to a floating exchange rate and to consolidate inflation to one one digit and not the current 10% to 15% range”, said Bolaños.

The new bank president said that from a certain point of view the system of band met its objectives of the Central Bank at the time, maintaining interests rate and inflation low and controlling the amount of money in circulation.

However, this system (bans) is also responsible for so much fluctuations in the price of the dollar, which needs to be stabilized.

Bolaños did not say when the change will occur, for the bank’s board of directors have yet to establish the rules of the intermediation.

“With the managed float system, the Central Bank wants to consolidate its control so that it can fulfill its inflation targets”, said Bolaños.

Outgoing president, Francisco de Paula Gutiérrez, highlighted yesterday his main achievement of his term in achieving a low inflation rate, but regretted not being able to change the bank’s process of intervention.

A recent Bloomberg article highlights positive comments made by Marco Vinicio Ruiz, Costa Rica’s minister of foreign trade. After a difficult year in 2009 that has seen foreign direct investment fall 30%, Ruiz stated that in 2010, “Companies are ready to go to Costa Rica, they are just waiting for the board to approve that.”

Foreign investment in tourism, ports and telecommunications is the main driver of the Costa Rican currency, the colon. The global recession which resulted in decreased tourism and company freezing of investment funds resulted in more than a 10% slump in the colon.

“Foreign direct investment has the biggest effect on the colon because Costa Rica isn’t dependent on exports of a specific commodity with fluctuating prices,” Ruiz said. New trade agreements with China, Singapore, and the European Union should bolster investment back to the $2 billion level seen in 2008.

The goal, according to Ruiz, is to increase exports via trade agreements to 84%, in order to “send a long-term message, especially in lean times.”

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Sunsets in Paradise

Rarely do we think about how currency exchange rates affect our daily purchases. Even though the USD has lost around 11% globally over the past six months, it remains at near record strength (580CRC – 1$) in Costa Rica. The fluctuation of the US Dollar has a real impact for buyers of big-ticket investments like Costa Rica real estate. The largest beneficiaries of the recent currency moves are Canadians and Europeans whose currencies have recently experienced dramatic gains against the USD.

The broad appeal of Costa Rica continues to keep the real estate market stable, which is confusing for most Americans because they reside in a plunging market with tiny interest rates. In other words, we have witnessed more “price shock” as of late from American buyers. However, the continued strength of the dollar and the lower cost of living generally still allows Americans to live more comfortably on less income in Costa Rica.

The increased strength over the last 6 months of the Canadian dollar ($1.03) and the Euro ($1.49) against the USD is creating a prime window of opportunity for Canadians and Europeans to snatch up Costa Rica property at good values.

USD-CAD 6-month Chart

Since most properties in Costa Rica are listed in USD or CRC (colones), it is easy to see the current savings. In March 2009, $1.29 Canadian dollars equaled $1US. This means a Costa Rica home priced at $300,000 US cost a Canadian buyer $387,000 in Canadian dollars. That same home can now be purchased for $309,000 CAD, a real savings of $78,000 CAD.

Euro - USD 6-month Chart

Europeans seeking a home in paradise will also be smart to purchase now while their currency is strong. Had a Euro-buyer bought a $300,000 home in March, they would have paid around €236,000. Today Europeans will pay only around €202,000 for the same home – saving €34,000 (or $50,660).

Views from Atenas home for sale

Although real estate prices have remained stable in Costa Rica, some sellers are more motivated than they were a year ago. Incidentally, this heightened seller motivation coupled with the strength of foreign currencies has made this autumn and excellent time to acquire Costa Rica real estate assets.