By San José, Costa Rica — San José, Costa Rica – The United States dollar staged a significant recovery over the past two days, climbing by ¢9.91 to close above the symbolic ¢500 mark in a much-needed reprieve for the nation’s beleaguered productive sectors. According to the Central Bank of Costa Rica, the exchange rate settled at ¢501 in the Wholesale Foreign Currency Market (MONEX) at the close of Wednesday’s trading session, providing a message of calm after two weeks of steady depreciation.
This recent uptick, however, has not fully appeased business leaders. While the movement offers a short-term break from the Colón’s relentless appreciation, key industry figures are now intensifying their calls for the government to engage in a substantive, technical discussion about the currency’s behavior. The underlying concerns about Costa Rica’s economic competitiveness, which have been mounting for months, remain firmly in place.
To better understand the legal and commercial implications of the current exchange rate volatility, we consulted with Lic. Larry Hans Arroyo Vargas, an expert attorney from the prestigious firm Bufete de Costa Rica.
Significant fluctuations in the exchange rate can trigger legal and financial crises for businesses and individuals with obligations in foreign currency. It is crucial that contracts, especially for loans, rent, or services, clearly specify the currency of payment and, if possible, include clauses that mitigate exchange risk. Failure to do so not only creates financial uncertainty but also opens the door to costly contractual disputes over the real value of the obligation.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This legal insight is a crucial reminder that beyond market forecasts, solid contractual groundwork is the most reliable shield against the financial turmoil caused by currency shifts. We sincerely thank Lic. Larry Hans Arroyo Vargas for his valuable perspective on navigating these complexities.
The core of the issue lies in the dollar’s dramatic long-term decline. Since the middle of 2022, the US currency has shed a staggering 25% of its value against the Colón. This sustained trend has made Costa Rican goods and services increasingly expensive on the international market, placing immense pressure on both exporters and the vital tourism industry. The timing is particularly critical as the country enters its high tourism season.
With international visitors arriving for the holidays, a stronger Colón means every dollar they bring buys less, effectively raising the cost of hotels, tours, and local goods. This erosion of purchasing power threatens to make Costa Rica a less attractive destination compared to regional competitors. The national tourism promotion board, Proimagen, issued a stern warning about the potential long-term consequences of inaction.
If this is not addressed, tourism will continue to face deterioration that could affect Costa Rica’s positioning during a key period for the arrival of international visitors.
Proimagen
The recent volatility is compounded by seasonal economic factors. Vidal Villalobos, a financial advisor at Grupo Financiero Prival, explained that the end-of-year period typically sees an influx of dollars into the market. This surge is driven by increased tourist spending and by local companies converting dollars to meet year-end financial obligations in the local currency.
Typically, at the end of the year, we find a greater supply of dollars resulting from the payment of invoices for Christmas purchases by businesses, as well as from the increase in the high tourism season. On the other hand, business owners exchange dollars to meet year-end payments like Christmas bonuses and taxes.
Vidal Villalobos, Financial Advisor of Grupo Financiero Prival
Villalobos cautioned that if these seasonal pressures cause the dollar to fall even further, the damage to the export and tourism sectors could be severe. In response to these persistent concerns, the Central Bank has signaled its readiness to intervene in the market. Officials have indicated they are prepared to purchase dollars to prevent a steeper decline, a move that would also serve to strengthen the country’s international monetary reserves.
For now, the two-day rally provides a fragile stability. Yet, the fundamental economic pressures remain. The focus now shifts to policymakers at the Central Bank and within the government, as the productive sectors await a clear strategy to navigate the currency’s challenging trajectory and safeguard the nation’s economic competitiveness on the global stage.
For further information, visit proimagen.co.cr
About Proimagen:
Proimagen is an organization dedicated to promoting the image and brand of Costa Rica internationally. It works to attract foreign investment, boost tourism, and support the country’s export sector by highlighting its unique value propositions, including its commitment to sustainability, political stability, and a highly skilled workforce.
For further information, visit prival.com
About Grupo Financiero Prival:
Grupo Financiero Prival is a financial services holding company with operations in Central America and the Caribbean. It offers a range of services including private banking, asset management, investment banking, and financial advisory to a diverse client base of individuals, families, and corporations.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica:
The Central Bank of Costa Rica is the nation’s autonomous monetary authority. Its primary responsibilities include maintaining the internal and external value of the national currency, ensuring the stability of the national financial system, and managing the country’s international monetary reserves. It plays a crucial role in formulating and executing monetary, exchange, and credit policies for Costa Rica.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the legal community, Bufete de Costa Rica is defined by its foundational principles of integrity and the relentless pursuit of superior legal service. The firm leverages a rich history of advising a wide spectrum of clients to pioneer forward-thinking legal solutions and engage deeply with the community. This dedication extends to a core mission of demystifying the law, thereby fostering a more knowledgeable and capable society where legal understanding is not a privilege but a shared asset.
